In Theory...

Business 'booming' in Kabul

Following up on my previous post about Afghanistan, this Washington Post article reports on the new dynamism in Kabul, as foreign investors pour in and local entrepreneurs build new businesses. Hyatt is even building a US $40M hotel. The US is helping Afghanistan lure foreign firms and investment by providing forums in Kabul, setting up a trade show in Chicago for this summer (I think), and by helping with financing through the US foreign investment assistance instutitions. Now, clearly we need to help Afghanistan get back on its feet, and one key component of that is funding for roads, education, health, and other essential infrastructure. That said, its my understanding that the vast majority of foreign aid from the West is wasted (on bridges in the middle of no-where, electricity generation plants that aren't connected to the grid, etc) due to inadequate oversight. So going slow could have some advantages. Of course, every day that Afghanis can't go to school, get to the market, have access to healthcare, etc. is a tragedy. But given a finite amount of funds, the better it's allocated, the better for the long term welfare of the country. I'd still like to see more of a US security presence ensuring the peace, and the military could actually probably do a better job efficiently allocating funds and overseeing construction of basic infrastructure (as it has done recently in the Philippines). Maybe once the war in Iraq is over we can send some more folks back to help with the rebuilding.

Still room to fall

AT&T started complaining recently that the Philippine domestic telcos won't terminate any of its calls. AT&T says this is because it won't accept a 50% increase in termination fees. In this article in the WSJ (subscription required, sorry), Tim Kelly, a researcher at the ITU (in Geneva) said "It's not logical or possible that prices can fall forever." He could have justifiably said "It's not logical that profits can fall forever," but the fact of the matter is that voice revenue is headed to zero. As network capacity and data transfer levels continue increase, voice traffic will eventually move completely to the IP backbone and will be an increasingly smaller percentage of overall data traffic. This transition is already starting in the US with companies such as "Vonage":http://www.vonage.com (recently called the 'Napster of Telecom') undercutting the RBOC's with flat rate pricing over broadband. Telcos that don't quickly find other revenue sources will eventually pay the price, because one way or another, voice revenues will eventually go to zero. Countries whose governments protect the incumbent telcos will pay the price even sooner - although it may sound trite, information is the foundation of the post-industrial world economy, and higher costs of communication lead directly to higher costs for both the receipt and the transmission of information. Aside: The ITU is both dominated by the incumbent telcos, and European. So it's not that surprising that they are blatant advocates of the status quo. But still.

Why Competition?

Went to a workshop today, hosted by Civic Exchange, a Hong Kong non-profit, on electricity industry regulation. I have, in fact, been working with Civic Exchange on a policy paper on this particular topic, so it was interesting to participate in group discussions and hear people's thoughts on objectives as well as specific methods of implementation. As will be evident from the report, when it comes out (hopefully within the next couple of weeks), I don't think that Hong Kong is necessarily the best environment for electricity competition at this point - 7 million people is pretty small, and with only two existing operators, the divestment process would be undoubtedly be extremely complex and contentious. However, in the end, I am much more of a proponent for competitive markets (in HK or elsewhere) than most of the voices heard on the topic, including at the workshop today. The biggest problem with natural monopolies is that they assume, and then make a self-fulfilling prophecy, technological stasis. Disruptive technologies rarely, if ever, make it into industries of regulated monopolies because they frequently render existing investments worthless (or worth a lot less, anyway). The near (or current) bankruptcy of many telecoms and airlines, often cited as examples of 'too much competition' and 'excessive deregulation', does not indicate a failure of deregulation to me - consumers have seen a both huge explosion of innovative options (including, but not limited to, the Internet and close to zero cost long distance/IDD) and decrease of prices in both industries. It indicates a failure of the old-line companies in the industries to properly adapt. For example, the very high cost basis of airlines such as United and US Air has severely hindered their ability to compete with successful new entrants such as Southwest, JetBlue, etc. The situation is different in telecom where everyone has taken a beating as a result of the over-investment, but even in telecom there are firms that are still on their feet, albeit barely, and the industry is starting, slowly, to recover. The electricity industry is ripe for disruptive innovation over the next decade or two, given the proper enabling market structures, and the benefits of that innovation will far exceed the costs of today's transition to a more dynamic market.

Straight Talk

The AWSJ, under 'Notable and Quotable', recently quoted Aidan Foster-Carter of Asia Times, from his 8 Feb column, A diss-service by self-righteous know-alls: bq. Ignorant or blinded by spite, the AWSJ just doesn't get what Kim Dae-jung is about. His whole aim is to end this vicious zero-sum idea that rivals have to be eliminated. Thanks to his and others' courage, South Korea is no longer like that. Kim's dream was to extend this to the whole of Korea: to reconcile. bq. A noble dream, but flawed in execution. Charges that the June 2000 North-South summit was preceded by a secret US$200 million payment to Pyongyang, made via Hyundai, must be a matter for dismay. But not for the AWSJ, which positively crowed at the news. More cocksure than ever, an editorial this Wednesday damned Kim Dae-jung as "a false prophet of peace", called his Nobel peace prize "wholly undeserved" and dismissed the entire Sunshine Policy as appeasement: nay, a "security-destroying peace charade". bq. That ugly phrase, barely English, could come straight from the North Korean news agency KCNA. Our next column will refute the substantive charges, and defend the Sunshine Policy. For now, let's focus on the tone. In Asia, need I say, tone counts. This isn't Texas or New York. In yer face is just not the Asian way. If you want to persuade, you go about it subtly, showing your adversary a modicum of respect. bq. Do the self-righteous hacks who pen this stuff really not hear how arrogant they sound? - and how this tone is liable to backfire? Two years ago, when George Bush (more subtly than this) dissed Kim Dae-jung in Washington, even Kim's enemies in Korea bristled. At a time when similar insensitivities have brought US-ROK relations to perhaps their lowest point ever, you'd think that sheer self-interest would prompt a tad more thought before rolling out the insults. Really, you wonder why they bother putting "Asian" in the title of the paper at all. The ugly American is alive and well: a preachy know-all, lecturing the lesser breeds for their failings - and as ever, doing his country's interests in Asia no good at all. I have to start by noting the irony of Foster-Carter's complaints about tone and lack of subtlety - after all, the Asia Time and the Wall Street Journal are both private journalistic enterprises. If subtlety is such a big concern, shouldn't Foster-Carter be a bit more circumspect in his criticism of the AWSJ? More importantly, as Foster-Carter illustrates, there is value to frank and honest discussion in the political arena, particularly on issues as contentious as the so-called 'Sunshine Policy.' It now appears that S. Korea gave its Northern friend more than US $500 milllion in exchange for his appearance at the conference. This money was not aid - it did not pay for food for the millions of starving North Koreans - it went into Kim Jong Il's private bank accounts. It could be funding his nuke program now, or perhaps paying for a new presidential palance. Or just sitting offshore. Foster-Carter argues in a subsequent column that it's not even that bad to pay bad guys to do what you want - after all, the CIA paid many of the warlords in Afghanistan to gain their allegiance. Of course, the warlords actually fought with the US against the Taliban...remind me again what Kim Jong Il has actually done? The Korean dialogue to date has been mostly gestures with very little, if any, substance (by which I mean concessions by the North). That's fine, for as far as it gets you - improving trust is important. But paying over $500 million for gestures is utter absurdity (besides the apparently illegality), and the AWSJ is right to call a spade a spade. Bribe Kim Jong Il to step down, maybe consider bribing him to change his behavior, but don't bribe him in pursuit of meaningless gestures. A Westerner trying, for the first time, to negotiate in Asia, or to manage an Asian staff, needs to take into account the notion of 'face' and the 'subtle nature' of negotiations. A newspaper such as the AWSJ or the Asia Times, commenting on state level relations between democracies and a totalitarian state, does not. The best thing outsiders can bring to this sort of debate is ideas, arguments, and information. From where I sit, AWSJ op-eds have brought more new ideas to the debate than the tired anti-Americanism of the Asia Times.

More Book Reviews

I added some new book reviews to my recommendations page. Cross-posted here for your convenience:

Down and Out in the Magic Kingdom, by Cory Doctorow (also available online for free)

One reviewer called Down and Out "as much fun as Snowcrash", and since that's more or less the reference sci-fi novel among my friends (and definitely among my non-sci-fi friends) it seems like a good comparison. Down and Out doesn't have the sweeping scope of Snowcrash - no-one's aiming for world domination - nonetheless, like Stephenson, Doctorow envisages a radically different society shaped by easily imaginable (and quite likely) technological advances.

Jules, the main character, has taken up permanent residence at Disney World, in a future where everyone is online all the time, and the only scarcity is reputation points, called 'Whuffie", which come and go based on other people's gratitude or dismay. When Jules is murdered (and then recovered from the backup he had done just minutes before the murder), he gets on edge, and things spiral down from there.

I would recommend Down and Out to anyone interested in a likely highly accurate portrayal of the near-future. Highly Recommended.

(Although I do recommend actually purchasing the book - it's definitely worth it - it is a quick enough read to be managable on-screen should you have some free time at the office.)

A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East, by David Fromkin

This sweeping book, more relevant to current affairs by the day, details (as you might expect from the title) the shaping of the modern Middle East, which took place primarily during and after World War I as a result of the fall of the Ottoman Empire. The Brits, and specifically the ignorant and bigoted officials of the 'Cairo office', were the main culprits in the eventual mess that ensued - Britain started the war with colonies in Egypt and India, and 'protectorates' in Afghanistan and Iran, and they thought they knew how to manipulate events to their benefit, initially with a goal of extracting themselves after the war, and later (after a change of government) with a goal of taking over more or less the entire region as the spoils of war.The French, with whom the British made some early agreements on the matter, felt that their historical 'parental' role in the Middle East, based on their forts and missionary activities dating back to the Crusades (yes, THOSE Crusades), required their continuing presence in the area. It turned out that the Turks and Arabs had ideas of their own.

A Peace to End All Peace is an intriguing look at how the actions of a small group of British officials, over a relatively short period of time, had an incredibly long-lasting impact on what is today the most volatile part of the world. Highly recommended.

Not trying to make friends...

I just saw this quote from a recent article by "Rush Limbaugh":http://rushlimbaugh.com (via "Google News":http://news.google.com): bq. People say a mind is a terrible thing to waste. I say the liberal mind is already wasted... I'm not a fan of Rush, but this quote made me laugh due to its utter absurdity. Rush made it onto Google News because of his discussion of the "'implanting false memories' study":http://www.sciencedaily.com/releases/2003/02/030217115223.htm just released. This study has very important implications for law enforcement, and further discredits many of the supposed Satanic child abuse cases from the 1980's. Not much relevance for politics though. One could argue that Google 'chose' the incorrect article to 'headline' the false memory study story - it would have been more valuable for readers to link to a mainstream analysis (Rush is really just using the study as a jumping off point for another discussion). This phenomenon, which occurs relatively frequently, seems to happen primarly when there are significantly different interpretations of the same events - for example, stories about the Israeli / Palestinian conflict have a very different headline in the 'Arab News' than in Ha'aretz. I don't know if there is anything that Google can really do about this, unless they decide to add an artificial 'weight' to one set of sources over another. Regardless, it's great to have stories from both sides and from all around the world so easily accessible from one place and updated 24/7. This is particularly valuable here in Hong Kong, since most of the web updates on an EST daytime schedule.

"Rising Anti-American Sentiment Could Slam the Tech Sector"

A "Fortune article":http://www.fortune.com/fortune/fastforward/0,15704,424088,00.html by David Kirkpatrick (via "Interesting People":http://www.interesting-people.org/archives/) warns that the economic consequences of ignoring 'world opinion' may include boycotts of US technology, further damaging the already reeling industry. To illustrate the danger, Kirkpatrick first mentions the boycotts of Coca-Cola (for upstart Mecca-Cola, the 'Islamic' Cola) and P&G. He also lists a number of non-US firms such as Sony, Nokia, Legend, and Samsung, all of which have strong technology brands 'despite' their non-US pedigree, and points out that even many of the suppliers of these firms (perish the thought!) are foreign competitors to US firms. The main problem with Kirkpatrick's argument is illustrated by his own example - the strongest consumer electronics brands today are foreign firms. One could argue that this is alarming on its own (I don't really think it matters all that much myself) but clearly no-one will be boycotting Sony because of so-called American unilateralism, and even if they do, it won't have much of an effect on the US technology industry. The second problem with his argument is that the corporate market tends to be much less fickle than consumers. Firms select vendors based on technology, products, service, and relationships. Certainly brand image has some role at the start of the selection process, but unless there are actually sanctions in place against a particular country or firm, companies tend to look for the best value for money. Factors such as reliability are much more important than political considerations. The importance of reliability is demonstrated by Kirkpatrick's other example firms, Cisco and Huawai. Cisco dominates the market for networking equipment by providing high quality and extremely reliable products. Huawai, a Chinese upstart, is in fact alleged to have blatantly used Cisco's software for its own equipment instead of writing its own software (this is the 'trade practices' suit that Kirkpatrick mentions in passing). Right now, a firm looking for cost savings at the possible expense of reliability might choose Huawai. In the future, if Huawai reached a level of reliability and functionality comparable to Cisco (without illegally using Cisco's software), it will gain market share based on a better value proposition. But will anyone really choose Huawai over Cisco because of US policy in the Middle East? Unlikely.

More Farm Folly

The AP reports that the WTO meeting in Japan has ended without progress on reducing or eliminating farm subsidies and tariffs.

Japan, which has a 490% tariff on foreign rice, shows no interest in levelling the playing field. Agriculture minister Tadamori Oshima "[wonders] whether creating the same market rules for agriculture as for industry will really contribute to the happiness of people around the world." India also supports the status quo because "650 million people [in India] are dependent for their livelihood on agriculture," according to Commerce Minister Arun Jaitley.

I can at least understand where Japan is coming from - given the continuing static nature of Japan's economy and the LDP's huge dependence on the rural vote, mobs of unemployed farmers would be the government's worst nightmare.

India's problem, on the other hand, is that government intervention in the domestic agriculture market has made a huge mess of things, with tons and tons of grain rotting away in government depots while millions starve. The citizens of India would benefit immensely from both reductions in first world tariffs and less government intervention in the domestic market. 650 million farmers! Now that's a big interest group.

The rate of growth of the world economy over the coming decades will depend to a large degree on the extent of trade liberalization - the greater the liberalization, the greater the growth (the biggest driver of poverty reduction). The US did its part to set things back last year when we implemented the Steel tariffs and new farm subsidies - hopefully the rest of the world will do as we say and not as we do.

Unfortunately, we do seem to be doing more talking than doing these days.

Forgetting Afghanistan

I know the focus is on Iraq these days, but certainly we should be doing everything possible to help Afghanistan get back on its feet and stay there - including providing both military support for the central government, as well as financial / logistical / etc aid for the rebuilding process. The BBC (via Josh Marshall) reports that the Bush budget proposal included NO aid for Afghanistan whatsoever.

USAID is quoted in the article as saying that when the budget discussions started, they didn't know how much they would need. But come on folks - this is government spending we are talking about - has the small matter of knowing the exact amount necessary ever held back budget decisions before?

New Cell Phone Restrictions in NYC

Overriding Mayor Michael Bloomberg's veto, the [New York] City Council voted 38-5 on Wednesday to ban the use of cell phones at public performances. Talking on a cell phone, dialing, listening or even having one ring during a performance will constitute a violation punishable by a $50 fine. The law covers concerts, movies, plays, lectures, dance performances, museums, libraries and galleries. Cell phone use would still be permitted at sporting events and in emergencies, and people would still be allowed to speak on phones in lobbies and during intermissions.

Wired News, 12 Feb 2003 This is bad law for two reasons. The primary reason is that it infringes on the rights of private property owners. Want to ban cell phones in city-owned performance halls? Fine, but applying the law to privately owned facilities is inappropriate, particularly considering the types of facilities included. I am well aware of the problems caused by inconsiderate cell phone users. Here in Hong Kong, people regularly take and place calls while in the movie theatre, despite clear notification (signage and otherwise) that cell phone use in the theatre is not permitted, plus glares and comments from annoyed patrons such as myself. I have even witnessed someone answering a call here during a symphony performance! Personally, I would prefer if the ushers aggresively prohibited patrons from using cell phones during performances - after the first time someone was ejected from the theatre, I bet they would change their behavior. However, ultimately this is a matter for market forces. Should enough customers get annoyed by the inconsiderate use of cell phones, an enterprising theatre owner will gain an advantage by marketing stricter enforcement. On the other hand, if many customers see value in taking and receiving calls while watching the movie, then enforcement will remain limited. After all, I can always watch a DVD at home, or pay a bit more to watch a movie at the quiet 30-seat 'luxury' theatre. As the Wired article notes, art galleries are among the facilities where cell phone use has been outlawed. An art gallery is a commercial establishment with a goal of selling paintings. The gallery owner may feel that allowing potential customers to place and receive calls will increase sales, and in fact there are obvious reasons why someone considering the purchase of an expensive piece of art might need to place a call or two before making a final decision. The second reason why this is bad law is its specificity in an age of rapid technological change. The law prohibits not just speaking and ringing, but also listening and dialing - activities that are unlikely to disturb anyone else. Dialing, in particular, would appear at first glance to include sending an SMS or email. It's hard to see how using a cell phone to send a text message would disturb other patrons, particuarly in environments such as museums and libraries. As technology continues to move forward, users will have more options that enable them to communicate when necessary in a more convenient and less obtrusive manner. The phone will become an intelligent wireless network device used for both voice and data, and will automatically present new communications as appropriate for the user's environment. At the same time, technology will allow venue owners and managers to have greater (and also less obstrusive) control over the use of cell phones and other devices on their premises. The technology exists today to block cell phone signals in a concert hall or theatre, and tomorrow's technology will enable the venue to automatically communicate with each device to specify permitted use - for example, vibrate ring only, no placing or answering of voice calls in the actual theatre, etc. Bloomberg built his fortune by capitalizating on the advance of technology, and rightfully vetoed this law as unnecessary and unenforceable. A better law would at least refer more generally to 'disruptive behavior' and leave the specifics to enforcement - but then you've also outlawed the crinkley bag of candy. Rude, yes. But illegal?

"This is the revolution for us"

Neil Gershenfeld directs a new lab at MIT called "The Center for Bits and Atoms". In this great interview, (via BoingBoing) he discusses their efforts to bring not just technology, but technological design to the developing world:

What [this project] finally led to, earlier this year, was a visit I made to the Himalayas with the Indian general who's in charge of Jammu and Kashmir, the on the Pakistani and Chinese borders. We were working on one of these field prototyping labs, where the interest was in low-cost incremental deployment of mesh wireless networks. The general is in charge of the world's current nuclear battlefield. He got there, his job was border security, and he came to the conclusion that the best way to provide border security is through human security, and the best way to provide human security is through human development, and the best way to provide human development is through information, and the best way to provide information is through the network, therefore Indian army soldiers should bring internet connections to Muslim girls!

So, it's this amazing project where his soldiers are going in and bringing these net connections to little villages. And, in particular, the Muslim girls and Buddhist girls in these breeding-grounds of insurgency, who used to run when outsiders came, now they come running to these places. We were helping them with things like low-cost antennae and embedded controllers, so you can make incremental hubs of networks without any central control of the infrastructure. And what's amazing is the extent to which it flipped a community, from being a breeding-ground of insurgency, to having a tremendous sense of connection, a tremendous sense of belonging, transformed by these low-cost, distributed, locally developed technologies. And so, in a very real sense, I believe the deepest consequence of all of this stuff is not just making it easier to win wars, but preventing the need to fight wars in the first place.

This is truly amazing stuff, and it's very exciting to see technology reaching the developing world in a format that can immediately improve their quality of life, namely by giving the people on the ground control over the design process itself. This is how we are going to bring the other half of the world out of grinding poverty.

At the same time, in this age of assymetric warfare, this is also an ominous development. No matter how much of the world we pull out of poverty (and don't get me wrong - the more the better), no matter how many regional conflicts are satisfied via self-determination or otherwise (again, the more the better), there will always be crazy fanatics who want to destroy modern society. Already those fanatics have an incredible ability to wreak havoc on the larger society, and as these types of technologies spread, their capabilities will increase.

In no way do I advocate restricting the development or dissemination of empowering tools that could have such a dramatic impact on poverty reduction. It does require, however, that we push forward our own development of new technology as quickly as possible - we should not restrict promising avenues of research (such as stem cell or cloning research, for example) nor should we restrict new domestic or foreign technologies just because they threaten status quo of existing industry structures.

Ultimately we will likely make it through by becoming more interconnected than most people can now imagine (ala Cory Doctorow's Down and Out in the Magic Kingdom). The trick will be getting there from here.

Yet Another Blog?

I read two great interviews recently - The Shah Always Falls, American Heritage's interview of military intellectual Ralph Peters, and The Experimental Economist, Reason's interview of economist Vernon Smith, this year's winner of the Nobel Prize in Economics.

Their writings resonate very closely with my personal beliefs about government's role in society and the value of Western ideals, particularly the ideals of the United States as compared to other societies around the world. In fact, the following two quotes succintly state the fundamental premise(s) of my political philosophy:

I believe that perhaps our greatest advantage is a tradition that grew up over centuries, that we inherited from England. This is our tradition of openness to new information, of respect for empirical data, and of resistance to theoretical constructs other than those generated within the scientific community. Theoretical constructs did fantastic damage to Europe in the twentieth century, and much of the rest of the world lives in a fantasy land. They do not have our ingrained, hard-learned ability to separate fact from fiction. We have our myths, but we’re not paralyzed by them, and we question them. There are many ways you can divide the world, but I think one of the more useful ways is between factualizing societies and mythologizing societies. Listen to our enemies’ rhetoric. They’re in love with their myths of themselves, both old myths and relatively recent ones, and they’re myths of self-justification.

-Ralph Peters

For me, libertarianism is tied to a certain set of recognitions: that all organizations have the problem of decentralized information, that decentralized mechanisms are the best way to organize that information to produce good outcomes, and that the best results come when the individual is free to make his or her own tradeoffs while aggregating information. That’s true whether we’re talking about politics or economics or even social interaction. The best systems maximize the freedom of the individual, subject to the constraint of others in the system.

- Vernon Smith

As I looked at these two quotes side by side, I realized that despite their differences, both can be aptly summarized as "In theory, Communism works. In theory."

And so here we are.