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Innovation Blog

Competing for ‘Clean’: Singapore Leads the Way

By Shlomo Maital

Goh Chee Kiong

A global business and technology race is underway, and has been for some time — to achieve leadership in clean technology.   As has happened before, a rather latecomer with many disadvantages has entered the race and is now taking many of the spoils.

The entrant is Singapore.  The question is:  How has it succeeded?

According to the Global New York Times, Singapore has singlemindedly and determinedly made itself attractive for global investment in CleanTech, just as it did in semiconductor production and in biotechnology.  [1] Singapore just won a global contest for a $1.85 b. plant, largest of its kind, for making solar wafers, cells and panels, by REC Renewable Energy Corp. of Norway.  REC received over 140 proposals from around the world.  Why did it choose Singapore, a nation with only some 700 sq. km. of land, distant from everywhere?

The head of clean technology at Singapore’s Economic Development Board, Goh Chee Kiong, says simply, “Asia is going to be a huge market for clean-tech products and solutions, and we want to make sure Singapore is plugged into this entire marketplace”.  Singapore offered REC skilled labor, tax incentives, government support and a favorable investment environment.  Singapore has set aside a fund worth $700 m. for R&D on cleantech.  It has also created a solar research institute and a clean-tech park.  Other top countries drawn to Singapore include Vesta, world’s top wind turbine marker, which will spend $500 m. in Singapore over the next decade to build a major R&D center. Singapore has everything needed to attract clean-tech people and money —  great living conditions, legal, banking and accounting firms, and other services support.  It is a Southeast Asia hub.

Singapore’s government wants Singapore to be a testing ground for new technologies — electric vehicles, smart microgrids, solar panels, etc.  “Our next step is to make Singapore a living laboratory,”  Goh says, ”  …a site of first adoption, demonstration, test-bedding.  This is a key selling point.”

Keep in mind that with GDP per capita of some $35,000, Singapore is a high-wage country. Despite this, it is a clean-tech site of choice of investment and production.  Let no country ever again site its high wages as an excuse for losing the clean-tech race.

[1] “Singapore aims to become a hub for clean technology,” by David Fogarty, Reuters, Global NYT May 31, 2010, p. 18.

Innovation Blog

Cut! Print it!  That’s A Wrap! Business Innovation in the Film Industry

By Shlomo Maital

The entertainment business is hugely important for California’s slumping economy, bringing over $30 b. annually in revenues.  But now, Hollywood is in big trouble.  Movie producing is in big trouble.

Writing in the Washington Post, business columnist Steven Pearlstein noted last year:

“….what entertainment also shares with other sectors is a history of almost unbroken success. Things have been so good for so long, and the companies have been so successful in fending off competitive threats, that it has grown incredibly fat and happy. From superstar actors, their agents and business managers to gaffers and on-set caterers, the money people make is vastly out of proportion to what similarly skilled people make in most other industries. And, even allowing for the process of trial and error inherent in any creative process, its ways of doing business remain stubbornly inefficient.  Now, however, there is a sense that it may all be coming to an end, that the threat this time is real and that the old business models can’t survive. With the rise of legal and illegal downloading, the Internet has already decimated the music business, and it is just beginning to overturn the economic foundations of the movies, television and electronic gaming as well. Financing is drying up, once-sacred expenses are being cut, whole layers of management eliminated and work shifted elsewhere.”

Now, a report in today’s Global New York Times [1] reveals that sharp declines in DVD sales (owing to movie downloads, mostly illegal) have slashed movie revenues.  Producers are scrambling to innovate their business models, as movie studios slash the number of movies they produce, and half the independent movie distributors in the U.S. have folded in the past 2 years.

As with all businesses whose business design quickly became obsolete (it happened to the music business, almost precisely in the same way),  only the nimble will survive.  One of them is Michael Simpson.  He found new ways to arrange financing.  He ‘tweaked’ the order in which tiers of investors get paid.  He embraced streaming and video-on-demand services.

“Some of the most experienced studio producers don’t understand the new environment”,  he notes.   Average age of the 4,200 Producers Guild members is 60.  No wonder they don’t get it.  They live in the glorious past, rather than the innovative risky future.   This is up from only 43,   some 5 years ago.   Younger producers have bailed out.  Older ones failed to keep up with the changing times.

Had movie producers benchmarked music producers and the music business years ago, perhaps they would have been better prepared for the rapid change that the Internet has brought.  The Internet was not a strategic surprise, like Pearl Harbor.  It proclaimed its arrival long in advance.  But very few seemed to have picked up the phone.

[1] Brooks Barnes, “Facing crisis, Hollywood producers turn skills to survival”,  May 24/2010, p. 15.

Global Crisis/Innovation Blog

High Frequency Trading: One More Reason to Worry

By Shlomo Maital

Global markets and those who wheel and deal in them seem able to provide ordinary people with newer and better reasons to worry,   far faster than regulators can bandage wounds and patch up the leaks.   High Frequency Trading (HFT) is an example. HFT is an innovation, in which computer experts use super high-powered computers to identify small profit opportunities, and capture them within milli-seconds, far faster than human eyes, brains and fingers can move.  These experts care nothing about fundamentals or companies, simply seek small arbitrage profits.   HFT crashed the markets on Thursday May 6, now known as Hysterical Thursday.  The US stock market fell 6 per cent…in 20 minutes! And it will likely happen again.

Here is what happened according to  Nina Mehta, Lynn Thomasson and Paul M. Barrett

Bloomberg Business Week, Features, May 20  (“The machines that ate the market”):

Once upon a time, human beings oversaw the trading of stocks. They’ve been replaced by a complex system of computers that can produce a scary new kind of mechanized panic. Hysterical Thursday did no apparent long-term harm. Some venerable stocks dropped to a penny apiece before bouncing back. Overall, the Standard & Poor’s 500-stock index declined 6.2 percent, from 1,136.16 to 1,065.79, in a 20-minute span—an $862 billion paper loss—before recovering to finish down 3.2 percent.  The brief crash threw up a flare that illuminated a financial topography that was unfamiliar even to many experienced investors.

A Bloomberg Businessweek investigation into those harrowing minutes revealed the extent to which the market is now dominated by quick-draw traders who have no intrinsic interest in the fate of companies or industries. Instead, these former mathematicians and computer scientists see securities as a cascade of abstract data. They direct their mainframes to sift the information flows for minute discrepancies, such as when futures contracts fall out of sync with related underlying stocks. High-frequency traders (HFTs), as they’re known, set an astonishing pace. On May 6, 19 billion shares were bought and sold; as recently as 1998, 3 billion shares constituted a very busy day.

This is not the first time computers have wreaked stock market havoc.  On Oct. 19 1987 the NYSE fell 20 percent in one day, because of ‘programmed trading’ — computers programs that traded spot (stocks for immediate delivery) and derivatives (options and futures).  Problem was, the spot trading was on the NYSE and the derivatives, on the Chicago exchange.  A doom loop was created in which falling spot prices triggered selling, and that in turn triggered derivatives selling, which triggered spot selling, etc… Eventually authorities put a stop to it with “circuit breakers”.    On May 6:   “The SEC and the Commodity Futures Trading Commission stated,  ‘We continue to believe that the market disruption of May 6 was exacerbated by disparate trading rules and conventions across the exchanges.’   It’s that old déjà vu all over again.

I often ask financial traders and speculators what is the redeeming social value of what they do.  I always get the same vapid answer: Liquidity.  Apparently,  HFT creates “liquidity”.   Let me translate.

Liquidity means generating huge volumes of traffic, meaning that small profits on each transaction, multiplied by billions of transactions, yields huge profit.  The activity draws in unsuspecting amateurs into the game, bringing new money,  much like suckers pulled into a poker game manned by hardened professionals who take their money with glee.

Eventually the regulators will get control of HFT.  Until they do,  if you’re in the market, expect more Hysterical Thursdays..and Mondays, Tuesdays……  or simply, stay out of the market.

Innovation Blog

Hello, Cynthia!  First Man-Made Cell!

By Shlomo Maital

Meet Cynthia!

Today’s Wall St. Journal carries an amazing piece about what can almost be termed “the creation of life”.  Craig Venter, whose work greatly accelerated the human genome project, and his Center  have come up with the following remarkable breakthrough:  a synthetic cell, completely controlled by man-made genetic instructions.  Scientists call the cell “Cynthia” (Synthetic Cell),  following the nickname Dolly given to the first cloned sheep.

Here is what the Venter scientists discovered:

“We call it the first synthetic cell,” said genomics pioneer Craig Venter, who oversaw the project. “These are very much real cells.”   Created at a cost of $40 million, this experimental one-cell organism, which can reproduce, opens the way to the manipulation of life on a previously unattainable scale, several researchers and ethics experts said. Scientists have been altering DNA piecemeal for a generation, producing a menagerie of genetically engineered plants and animals. But the ability to craft an entire organism offers a new power over life, they said. The new cell, a bacterium, was conceived solely as a demonstration project. But several biologists said they believed that the laboratory technique used to birth it would soon be applied to other strains of bacteria with commercial potential.   “I think this quickly will be applied to all the most important industrial bacteria,” said biologist Christopher Voigt at the University of California, San Francisco, who is developing microbes that help make gasoline.  Several companies are already seeking to take advantage of the new field, called synthetic biology, which combines chemistry, computer science, molecular biology, genetics and cell biology to breed industrial life forms that can secrete fuels, vaccines or other commercial products.

Venter said he intends to patent the device, because “it is a human invention”.   His Center funded the research, with a private investment of $30 m.

Global Crisis

Interlinked Markets: Strength and Weakness

By Shlomo Maital

The head of the European Central Bank, Jean-Claude Trichet almost always speaks in understatements.  When he says “Europe is undoubtedly in the world situation since WWII, perhaps even since WWI.  The markets stopped functioning!”,  then things must be really bad.

But why?  Greece is a tiny country of only 11 m., nearly all the other 27 EU countries are larger, and Greece’s population is only 2 per cent of the EU’s 501 m. people.   Why should the downgrading of Greek Government bonds to BB (junk) status topple the euro?

The answer is found in Nelson Schwartz’s and Eric Dash’s fine reporting in yesterday’s New York Times (“Fears intensify that the euro crisis could snowball”).    There is a powerful domino effect.  One bank lends to another. One country lends to another.  And another.  Topple one domino, even a small one, and a lot of other dominos fall very quickly.  Why was Citigroup bailed out?  AIG?  Because their failure would have toppled other institutions, who would in turn topple others…and so on, and no-one knew for sure where the falling dominos would end.

According to Schwartz and Dash, Portuguese banks owe $86 b. to Spanish banks, which in turn owe $238 b. to German banks and $220 b. to French banks.  American banks, in turn, hold $200 b. of Spanish bank debt, according to the Bank of International Settlements (the Central Banks’ bank).   A great many American financial institutions have lent money to a variety of European banks and governments.  The fall in the euro, relative to the dollar, has already caused them major losses.

I doubt that anyone fully understands all the complex financial links among governments and banks worldwide.  What we do know is that they are all tightly and closely intertwined.   In normal stable times, an integrated global capital market is a powerful tool for spurring growth and credit.  In crisis-ridden unstable times, it becomes a mechanism for spreading crisis from one small corner of the world to the entire world.   That is why John Donne’s famous medieval sermon applies more powerfully than ever, today:  “Ask not for whom the bell (euro) tolls.  It tolls for thee.”

Innovation Blog

Happy Birthday, Laser!

Exactly 50 years ago, a scientist named Theodore Maiman demonstrated the first functional laser (Light Amplification by Stimulated Emission of Radiation).  We take lasers for granted, but they are ubiquitous, everywhere.  And they are destined to do even bigger things, like solve the energy crisis.

America’s National Ignition Laboratory uses 192 powerful laser beams to create plasma (hot gas), in turn useful for creating fusion-based energy (the same process that occurs in hydrogen bombs, fusing two atoms together, with some energy left over).  Meanwhile, expectedly, lasers are being perfected for military use.  Soon a 100 KW laser will be ready, able to knock missiles out of the sky.

Albert Einstein could be credited with the invention of lasers. In his 1917 paper, On the Quantum Theory of Radiation,  Einstein used Planck’s law of radiation to discuss stimulated emission of electromagnetic radiation.  David Sarnoff (RCA) asked his scientists to find a way to create a maser “microwave amplication  by stimulated emission of radiation), a precursor of lasers.  And in 1950 Albert Kastler proposed “optical pumping”, which later won him a Nobel Prize.

The gestation period for lasers has been long.  From theory (1917) to first prototype:  43 years, and then a few more decades for commercial widespread use.  One lesson is that new technologies rarely surprise us.  By tracking theory, it is possible to accurately road-map technology well in advance — something great companies and leading countries do regularly.  Japan is the leader in technology road-mapping, investing millions of dollars yearly to keep tabs on the latest scientific developments that may lead to new technologies.

Innovation Blog

Case Study: Pick & Light — First Doer  Advantage

By Shlomo Maital

Meet Paul Hein, inventor.  I met him at SiloDesa, a huge pharmaceutical warehouse in Mexico City, operated by Farmacos Especializados, a wholesale distributor.  There, Hein was installing his invention — a device that doubles or triples “pick and pack” operations in warehouses.  Normally, workers walk down long aisles and “pick” products from shelves to fill orders.  This is the old way, as workers hold a hard-to-read paper order form in one hand and search for the products on the shelves to fill it.  There are errors and the process is slow.

The new way — the Hein way — is to put LED screens on each warehouse shelf slot, link them to Oracle software, and “light up” the shelf  to show the worker exactly what to take.  The worker carries a tummy bag, in order to free both hands to fill the order.  The LED light goess off when the right product is picked.  Every product has an RFID, radio frequency identification.

Hein invented this clever system in 1982.  He refused to patent it, even though he knew there would soon be many imitators.  There were —  15 in all.  “I refuse to spend three years of my life in court,” he told me, emphatically.   Soon the 15 competitors fell to only 4 — and Paul’s firm is still the leader.  “First doer advantage” is crucial.  First to invent, first to install, first  to learn — and most important,  first to become authentic. Here he was, at SiloDesa, holding a drill and installing his system himself with two workers.  There is no deeper authenticity than an inventor holding a drill.

But Hein did not want to chat with me about Pick & Light.  That is the past.  He wanted to talk about what is, for him, the future — his P.B. Hein Vineyards, in St. Helena, CA, where he makes prize-winning wines:  “Nothing less than silver medal”, he told me proudly.  Hein spoke with great passion about his wine.  I learned this from him:  Most of us live in the past, doing what we are comfortable doing, doing what we did before.  A few of us, creative people, live in the future.  They tackle new adventures rather than old ventures and they live with hope, with joy, with energy and with tremendous renewed and renewable creativity.  Hein is a prime example.

Thanks, Paul, for the lesson in life!

Global Crisis Blog

The Betrayal of American Prosperity

By Shlomo Maital

Clyde Prestowitz was President Reagan’s chief trade negotiator.  Later he founded the Economic Strategy Institute.  Clyde knows more about trade and trade negotiations than anyone.  And he is deeply troubled by how American political leaders,  Republican and Democrat alike, have sold America out, given away the store, and ruined their country.  He expresses this forcefully in his new book, just published:  The Betrayal of American Prosperity (Free Press, 2010).   Here is a small taste:

“In The Betrayal of American Prosperity, I explain that in the 150
years between 1800 and 1950 America became the richest country the
world had ever seen by developing an economic strategy similar to
that of China today. The United States rejected Adam Smith’s call
for it to be primarily a supplier of raw materials and agricultural
commodities and set out consciously to build a business-government
partnership to overtake the industrial leadership of Great Britain
by promoting technology development, investment in American
production in key industries, and massive infrastructure projects
like the transcontinental railroad. In the past fifty years,
however, we have largely turned our backs on this approach while
our “brightest and best” have subordinated our economic development
to geo-political priorities and embraced false doctrines like
consumerism, efficient markets, Ricardian free trade, and
shareholder value that, in an era of companies without countries,
are rapidly eroding the bases of our prosperity and national

Consider this, Prestowitz notes.  “China’s #1 export to the U.S. is computer equipment ($46 b.).  America’s #1 export to China is waste paper and scrap metal ($7 b.).”   Question: Which is the underdeveloped country?

“If we do not make dramatic changes quickly,” Prestowitz says, “we will confront a painful permanent slide in our standard of living.”

Think carefully about the probability that an American president, even Obama, will inflict pain in order to fix the decline and deterioration of America over 50 years.  Then judge your own investments and business accordingly, in a world where America’s decline is drastic and irreversible.

Global Crisis Blog

Global Crisis Act Five: Everything You Always Wanted to Know But Were Afraid to Ask the Economists, in 400  Words

When I entered the exclusive Ph.D. Economists’ Guild, I had to take an exam, to see if I was skilled at mystifying, obfuscating and baffling by using incomprehensive jargon.  I passed. It took me 40 years to resign.

As part of my Economists’ Anonymous weekly regime (“My name is Shlomo. I am an economist….”), here is a brief attempt to explain what in the world is going on.

Act One.   Badly-regulated traders on Wall St. create junk assets, sell them to clients, then speculate against them by shorting them, knowing those assets (“sub-prime”) will collapse.  This act ends badly with financial crisis, beginning in 2007.

Act Two.  The financial collapse spreads around the world, creating economic crisis and recession, as financial collapses always do.  Governments react by massive credit expansion and huge budget deficits, just as the economists prescribe.  It works partly, by softening the depth of the crisis and by shortening it.  But banks fail to cooperate, choosing to hang on to the government money rather than lend it.  And …the act ends with deep worries, about Act Three…

Act Three.  Jobs crisis.   Companies worldwide engage in cost cutting, in reaction to the excessive layers of workers employed during the boom times.  They discover, wow!, they can manage with fewer workers but equal or higher output.  In the U.S. productivity growth soars, creating all the GDP growth (little GDP growth comes from added hiring).  Unemployment soars and sticks stubbornly, despite GDP growth recovery.   And, then comes Act Four, perhaps the worst of all…

Act Four. Just when you thought the play was going to have a happy end — Greece collapses, and world credit markets have a nervous breakdown.  It turns out:  By their deficit spending and massive borrowing,  sovereign governments have panicked investors, who have become allergic to risk owing to the 2007-9 crisis.  And traders, hungry for profit, do what they always do best — attack the weak,  shorting assets of governments unable to control deficits and reduce their leverage.  Europe proves inept at defending its currency by supporting its weaker members.

Act Five… Still being written.  Could be very unhappy.  If you think little Greece (population 11m.,  debt amounting to, say, $120 b.) is in trouble — wait ’til you see Britain, Spain, and Italy.  Their outstanding debt is over $1.6 trillion.

Politicians everywhere face this dilemma:  Inflict pain, slash deficits and reassure capital markets, causing renewed recession, because businesses and people still aren’t spending, while government demand is the main or only source of growth.  Or fail to do so,  and see capital flee your country and see your currency (if you have one)  and your economy crash.

The worst job in the world awaits Britain’s new Prime Minister.   People hate “doctors” who inflict pain, even when they know the medicine is vital to cure them.

That’s it.  400 words.  I wish I could write the ending.  But frankly, I have no clue.

Innovation Blog

Israel:  Light Bulb Unto the Nations

By Shlomo Maital

“I will establish you as a….light unto the nations.” Isaiah 60:2-3

illustration by Avi Katz

A recent BBC World Service poll completed in February reveals a painful fact − Israel is regarded by much of the world as illegitimate,  a pariah, a social reject.  The survey covered 29,000 people, interviewed by phone or face-to-face in  28 countries.   The question was: For each of 17 countries,   do you regard the influence of Country X in the world as mostly positive or mostly negative? Half the respondents rated Israel’s influence as negative.  Only 19 per cent rated it as positive.  The rest were either neutral or ‘don’t know’.    Incredibly,  the  results for North Korea are slightly better than for Israel; Iran rates only slightly worse.   In only two of 28 countries does Israel have a perceived net positive balance:  America and Kenya.  And in America,  only 40 per cent gave Israel a “positive” rating, down from 47 per cent a year ago.    There is not a shred of evidence that Israel’s leaders lose sleep over these terrible numbers, let alone take action.

Against this tsunami of anti-Israel sentiment,  rises Start-up Nation, the best-selling book about Israeli innovativeness by Dan Senor and Saul Singer.   Thousands are reading the book to learn how this little country invented the cell phone, Copaxone, Azilect, a kind of heart pump, drip irrigation, the Given Imaging pill that ‘broadcasts’ your intestines’ condition,  the Pentium chip,  and a thousand other life-changing inventions,  while fending off enemies and squabbling endlessly with one another.  “What is driving it,” Senor recently told the cable network CNBC, “is a national ethos, resilience, the fight for survival.”

Why not rebrand Israel as the nation where creativity lives — come see it for  yourself?  A first step in this direction was taken recently by Prof. Shimon Shocken,  who heads the Arazi School of Computer Science at Herzliya’s Interdisciplinary Center.  Shocken and a team of dynamic young people led by Maya Elhalal and Liat Aaronson organized a TEDx gathering on April 26 at a highly unusual venue near Jaffa Port called Na Laga’at (see below).  TED (“ideas worth spreading”)  is well-known to all those interested in innovation; TEDx conferences are TED gatherings held outside the US.

What we learned from this amazing day was that Israeli innovativeness is not confined to high-tech.  It is pervasive and ubiquitous,  in social action, education,  therapy, music,  dance.  (And in politics?  Alas − no creative politicians could be located).  Participants ranged in age from 14-year-old Ori Sagy, who is a “scientist of the future” at Tel Aviv U., to myself (age 67),  Raphael Mehoudar, who invented drip irrigation for Netafim and Anita Shkadi, who introduced horseback therapy to Israel many years ago.   Here is just one of the 15 amazing brief talks we heard.

Anita Tal, who directs plays, was asked in 2001 to come to Jaffa to work with a dozen deaf and dumb actors suffering from Usher’s Syndrome, a progressive genetic disease,  and until then living in darkness and silence.   How in the world does one do that, she wondered?   Result:    The curtain rose in the Na La-ga’at (“please touch”, in Hebrew) Center on “Light Is Heard in Zig Zag”.   In 2004 the unusual company toured Canada and the U.S. and won rave reviews.  Today the Na Laga’at Center, where the TEDx conference was held, features the Blackout Restaurant, where dinner is served by blind waiters in complete darkness — a startling experience I strongly recommend.  Tal was given the Chesed (Grace) Award at the Knesset in 2008.

It is an utter travesty for Israel to be perceived by the world as a pariah, rather than what it truly is,  a light-bulb unto the nations.   At a time when countries in the West are struggling to recover from the global crisis and are seeking new innovations to lead the way, they can learn much from Israel.  Let every Israeli official abroad convey that message with conviction, at every opportunity.

A version of this blog will appear in the Marketplace column,  Jerusalem Report

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
May 2010