The Emperor’s New Coins – Don’t Let BaitCoins Lure You Down A Rabbit Hole

As the public discourse around Bitcoin reaches a crescendo, a number of learned commentators are comparing the current Bitcoin mania to the Tulip mania of the 17th century or even to the South Sea Bubble, where a great number of British people lost huge amounts of wealth in the 18th century as a result of purchasing the stock of companies that didn’t actually generate any value.

However, I beg to disagree. In the case of those who physically bought tulips (rather than the futures contracts attached to tulips), when the crash came, they at least owned a bunch of beautiful flowers. In the case of Bitcoins, people will be left with a string of 0s and 1s which will never be seen, admired, enjoyed or felt.

The Bitcoin high priests (because there is a certain level of almost theological fundamentalism one senses when one speaks with Bitcoin proponents) will argue and explain that Bitcoin is a fairer way of redistributing wealth and how it will be the currency of the world because it is free of central bank influence.

Except when you ask them to explain how:

  • There will only ever be 21 million Bitcoins – because that is the theoretical maximum limit
  • It can ever be a transparent when 1 million of those coins are owned by possibly one person or a small group of people (Satoshi Nakamoto) – who is unknown and whose origins are shrouded in mystery
  • It can be considered equitable when 40% of all Bitcoins are owned by 1,000 peoplein the world who are all linked to each other and can collude to move the Bitcoin markets at once.

There are some real fundamental problems with Bitcoins which I’m highlighting below and which I hope gives food for thought.

The real issues with Bitcoin and the arguments made by Bitcoin proponents

What is the intrinsic value of Bitcoin?

 The single biggest issue about Bitcoin is around what the intrinsic value of Bitcoin is. There will be any number of convoluted answers about what people think the inherent value of Bitcoin is, but it gained the greatest usage by merchants and purveyors of illegal merchandise on the dark web through sites like the Silk Road where you could buy anything from crack cocaine to knuckle dusters.

I was reflecting on the factors driving the valuation of Bitcoin valuation, 4 years ago in 2013 (when Silk Road was at its peak) and now and reflecting on the drivers leading to Bitcoins valuation. The figure below is my view of some of the factors driving Bitcoin valuation.

Figure 1 – Factors driving Bitcoin valuation

In the very early days, when you required a few Bitcoins to pay for pizza, the usage of Bitcoin was limited to a very small group of individuals who wanted an anonymous mode of exchange. The bearer nature of Bitcoin meant that it provided the level of anonymity that one requires in order to transact bravely in all forms of drugs (except it didn’t and a whole bunch of people were caught when Silk Road was shut down – and also because the founder of Silk Road, Ross Ulbricht aka ‘Dread Pirate Roberts’, chose to use his actual name to set up his anonymous site….and boasted about it in his LinkedIn profile!). Crime generates US$2.1 trillion worth of economic activity, or 3.6% of the world’s GDP. This suggests a sizeable market for anyone who wants to move on from transferring large amounts of US dollars physically or electronically towards a virtual, anonymous currency which can be transferred across borders through anonymous digital wallets.

There were also small groups of Libertarian vendors who were accepting Bitcoin as a means of exchange but Bitcoin’s perception, be it as a commodity or currency, was fairly limited. However, through the hype generated through the valid use cases of the underlying technology driving Bitcoin, Blockchain, Bitcoin hit the public domain in a much bigger way and a small group of individuals started creating the hype around it, which increased people’s perception of what the value of each Bitcoin should be.

That is what figure 1 above suggests – the value of Bitcoin has been driven by the irrational and exuberant perception of some of the market around what the value of Bitcoin ought to be, rather than on any sound fundamentals or basis.

This then leads to my original question: What is then the inherent value of Bitcoin?

Why should anyone consider it as a store of value and the most fundamental question of them all is, when all is said and done, what is a Bitcoin backed by?

Paul Krugman said it best when he explained that, “To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why Bitcoin should be a stable store of value.”Krugman’s interview with BusinessInsider is also hugely instructive for those interested in learning more about his thoughts on Bitcoin.

‘Ah,’ the Bitcoin high priests will exclaim, ‘what then is any currency in the world backed by?’ and use that as an argument to argue the value of Bitcoin.

Let’s be clear, a Bitcoin has no underlying value. It generates no value, except in its own exchange, and there is nothing to back the price of a Bitcoin, except only the trust of the purveyors of Bitcoins, which in turn is backed by nothing but hope and the promise that there will be another sucker who will come along to buy the coin at a price higher than they were duped into buying.

Other fiat currencies, say the US dollar, the Chinese renminbi, or any other national currency are essentially backed by the underlying economic output of the country. Governments are able to defend and protect a currency on the back of the strength of its reserves or economy. These currencies are accepted as a means of exchange and faith in the economic system is implicit.

If Bitcoin goes into a free fall, what authority or government is going to step in to prop it up and ensure the confidence within the underlying asset? What economic output does Bitcoin generate that underpins its value?

No underlying value – not like a fiat currency backed by the underlying economic output and governments are able to defend and protect a currency on the back of the strength of its reserves and the currency is accepted as a means of exchange and faith in the economic system is implicit.

The naiveté of Bitcoin high priests

Bitcoin enthusiasts proclaim how Bitcoin will become the de facto currency of the world.

Let’s be clear. The moment anyone or anything comes close to threatening the national sovereignty of a country, they will be shut down and shut out.

Over time, I foresee national economies and regulators killing Bitcoin outright (the way China banned it outright) or killing it through a thousand cuts (or regulatory burdens such as considering Bitcoins to be commodities rather than currencies and taxing holders of Bitcoins for capital gains – as the IRS are seeking to do in the US). The IRS in the US is also hunting down Bitcoin users and breaking their shield of anonymity so as to find them and tax them.

The British government, through the UK Treasury, is also looking at greater regulation of Bitcoin in an effort to bolster anti money laundering or the countering of the financing of terrorism (AML/CFT). Australia is following suit in a similar vein, and it’s a matter of time this becomes a wider campaign, driven by concerted regulatory authorities.

The moment governments introduce sufficiently high capital gains taxes – and they will because they will be able to justify it as a tax on something that has been made purely through speculative channels and with no underlying economic activity – and over time, this will destroy Bitcoin’s value?

The reason why governments will, over time, not allow for Bitcoin’s operations is because it threatens the sovereignty and integrity of their national borders. Governments will never cede their ability to use monetary policy to control and influence economic activity. This is precisely what Bitcoins do as they fall beyond the reaches of central banks and regulators and how can a country aim to control inflation, employment, underlying economic activity, if a currency that they cannot control is influencing their economy? This is the challenge economies like Vietnam or Indonesia face because of the pervasive influence of the US dollar on their economy and they are unable to exercise monetary policy tools.

The race to regulate Bitcoin has begun, and ultimately, this is what will lead to the moderation or possibly the demise of a currency that is not backed by underlying value, economic activity or output.

It’s all about finding the next sucker

The way the Bitcoin market is moving now, nobody is actually using Bitcoin as a medium of exchange or as a currency. It is a commodity or an asset that people are holding on to, and hopefully selling it off to somebody else before the whole thing implodes.

Since the start of the year, Bitcoin’s price has jumped more than 1,000 percent since the start of the year, and Bitcoin futures just began trading at the Chicago Board Options Exchange (what happens when you bring together a fake currency and a financial weapon of mass destruction??)

The shadowy nature of Bitcoin’s true controllers

The other real issue with Bitcoin is the completely opaque structure of Bitcoin’s ownership structure. Satoshi Nakamoto, the founder of Bitcoin, allegedly owns up to 1 million Bitcoins, or roughly 5% of the theoretical maximum number of Bitcoins (21 million). If and when Nakamoto chooses to cash out, it will lead to a collapse of the currency as we have it.

Another estimated 1,000 people own up to 40% of the total Bitcoins in circulation – most of them who are connected to each other. There is a persistent, and reasonable concern, that if these Bitcoin owners choose to ‘pump and dump’ the Bitcoins (given the lack of any real governance or regulation around Bitcoin trading at present), then those shouldering the fallout will be the investors who came in without understanding what it is and without an ability to influence the market or hope for some form of regulatory/governance mechanism to support them.

Collusion, which is generally illegal for almost any other asset class, can take place with impunity amongst the Bitcoin community (the majority of coins which are controlled by a very small group of individuals). The Bitcoin whales (or those who control significant portions of the Bitcoin world) are under (currently) no regulation, there is little anonymity, and there is no oversight – so how will this lead to the type of transparency that one requires in order to be the de facto currency of the world?

Bitcoin’s widespread acceptability isn’t all that it is cracked out to be

Bitcoin enthusiasts will claim that Bitcoin is going to be the new digital gold that will overhaul the existing global monetary system – overhaul to what exactly is not something they are able to answer. They will cite it’s widening acceptability as a medium of exchange – but it ain’t.

Bitcoin’s acceptance as a mode of exchange is still hugely limited. Last year, 1% (or 5) of the top 500 online businesses accepted Bitcoin as a medium of exchange. Given the fanfare Bitcoin has had, you would expect there to be an increase in its acceptability. But actually, only 3 of the top 500 (or less than a percent) online retailers are now accepting Bitcoin – so the number has fallen.

The single biggest traded commodity each given day, is oil. It is oil that drives the strength and value of the US dollar. There is almost never going to be a time where anyone will sell oil in Bitcoin. Nobody (sane) will seek to sell their home or property in Bitcoins. Everyday life will rarely include Bitcoin in its path – and it is not going to become the ‘de facto currency of the world’ which is part of the excuse individuals use to explain the current price levels.

Furthermore, it is also important to note that, even in the world of cryptocurrencies, Bitcoin isn’t the only non-value generating currency or show in town. There are numerous other cryptocurrencies (including DarkCoin – which has increased in value exponentially over the last few months, Litecoin, Ethereum, etc), all with the same level of vulnerabilities and issues. Why should any of the currencies be THE cryptocurrency of choice?

This is remarkably similar to the conditions that led to the South Sea Bubble, a period of history where even Sir Isaac Newton lost a fortune which led to his famous quote, “I can calculate the movement of the stars, but not the madness of men.”

Incidentally, Venezuela just launched Petro, their own national cryptocurrency – and to be fair, at least Petro is backed (allegedly) by the national oil reserves of Venezuela, which is more than can be said for Bitcoin.

It’s a secure trading currency

 The Bitcoin enthusiasts argue about the security Bitcoin offers. It doesn’t.

South Korean Bitcoin exchange was hacked and has gone bust in recent days – with North Korean hackers being blamed. There is a continuous stream of reports of digital wallets and coins being stolen and with little recourse for individuals who have lost their earnings. This is what happens in a world without regulation.

These are not isolated incidents either. In a report delivered in 2016, Reuters argued that a third of all cryptocurrency exchanges have been hacked.

The fact that authorities are routinely seizing Bitcoins (see examples of SwedenBulgariaUS) suggests that a concerted drive by determined individuals can also take control of the Bitcoins you think you own.

Beware and be careful

From the time I started on this article 3 days ago, to the current time, I note that the Bitcoin valuation has gone from close to US$20,000 to just over US$13,000, with no real change in underlying world economic conditions in those 3 days.

It just goes to prove my point that a currency based on nothing, will move due to anything.

Ultimately, one should never buy what one doesn’t understand. Of course, the likes of the Winklevoss brothers will argue that Bitcoin will grow by twenty times – but that’s of course only because they own a huge chunk of Bitcoins and will only benefit from a price increase.

I worry greatly when I see young people take out credit card debt to buy these coins or in some insane cases, take out second mortgages!As I’ve said earlier, nobody’s going to sell their homes for Bitcoins, so why bet your savings on it?

People are going to be at the mercy of forces they can never hope to control or understand, and should not be investing in what essentially a fad based on no real underlying value or economics. Aswath Damodaran’s (Professor at NYU Stern School of Business) warning about it being a potentially lucrative but dangerous pricing game with no good ending is one that people should do well to heed.

People also often make a mistake in assuming a paper profit translates to actual cash surplus. We already are reading about the lack of liquidity in the market place alongside cases of individuals who are unable to liquidate their Bitcoins for cash, especially during a downturn.

Nobel Prize winner Joe Stiglitz argues that Bitcoin should be outlawed because it doesn’t serve any real useful function but ultimately it may not require any legislative forms of control because it will disappear into the margins of society where it began once people realise the lack of substance or value that one can attach to it and after people realise in the end, it comes down to a bunch of digital bits they can never see or touch and which is not backed by anything real.

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Robots! Clear and Future Danger For Economies

I was at a conference recently and there was a speaker who was extolling the power of robots, technology, automation and artificial intelligence (AI) in the modern workplace and how it was going to revolutionise the global economy.

There was quite a catalogue of achievements as a result of increased robotics and AI including lower ‘FTE’ (or ‘Full Time Equivalent’ of human labour) requirements and greater efficiency, productivity and decreased errors and mistakes. These were achievements that were backed by undisputed statistics and data.

The ability to create consistently high economic value using systems, robots and AI which do not make mistakes, which do not break down often, which can even be self-correcting becomes very appealing.

However amidst the glories of robotics and AI, I felt increasingly concerned about where the world was heading with the increased introduction of automation, robotics and AI and the impact this was going to have on employment, social mobility and income equality.

My concerns

Technology as a displacer of jobs.

Technology, automation and robotics initially replaced blue-collar jobs and roles from the economies. Increasingly greater sophistication of AI means that white-collar jobs are also being replaced. We read various reports about the jobs of the future being technology-related roles that help create, maintain and repair robots and their related technology, but I postulate that robots can fix themselves (and their ‘peers’) better than people ever can and over time, robots can create other robots to do the tasks which they need done.

In the past, technology was an enabler. It was a great source of enhanced productivity for nations’ economies.

However, technology has now become a replacer or displacer – of jobs, of people, of roles. It has now become a tool to enhance economic output but ends up depleting people and their earnings.

This is going to be a longer-term fundamental problem and challenge to societal and economic growth and development.

The impact on developing economies

Let us consider Philippines and India. They have spent billions of dollars investing in the infrastructure and ecosystem to help create thriving shared services and business process outsourcing (SSCs / BPOs) businesses. This was to help meet the needs of multinational companies. However, with AI and automation increasingly taking on a majority of the roles and jobs that are currently being done by millions of people in both countries, it is going to lead to a significant job loss and risk the potential collapse of the SSCs and BPO sector in both countries.

Over time, with increasing automation and AI, multinationals need not outsource various roles to locations of lower labour cost. They will instead seek to outsource the roles to nations with the lowest tax and the best technology infrastructures in which they can base their systems and robots. 

The moral obligation and income inequality

With increasing AI and automation, I struggle to see how the job losses faced by millions as a result of robots taking on their roles are going to be mitigated. There also seems to be little alternative sources of formal employment.

Whilst it is easy to highlight how automation can reduce expenses by 66% and reduce ‘FTEs,’ I think we need to look at people beyond merely being an ‘FTE’ or as a mere factor of production.

 

Over time, it is going to also exacerbate the issues of income inequality which is already one of THE pressing moral issues of our time. I’ve covered this topic at length previously.

The factors of production, the technologies, the AI and robots are going to be in the control of a very small segment of society. Whilst it may create vast economic growths, it does not lead to growth in income or wealth for the majority of the people. This will lead to societal fractures which can be devastating to nations and society.

What then the moral obligation to people and society?

Possible solutions?

Leaving this issue to be dealt with purely by market forces will not result in resolution and frankly will be disastrous in my opinion. There needs to be a concerted governmental approach to resolving this and finding solutions that work.

Using levers such as tax policies will be ineffective, particularly in a world with little tax harmonisation. For instance, increased taxation for robotics-led solutions will only encourage a beggar-thy-neighbour policy and in a world with little tax harmonisation, it becomes a useless endeavour.

 

If we accept that robotics and automation are an inalienable part of the development of society, then we need to accept that the current economic models  will not be best suited for what the world needs. Maybe it is time for us to seriously consider and contemplate universal income as a way to mitigate and tackle some of the problems coming our way as a result of robotics and automation.

Universal income is something a number of countries are experimenting with to tackle income inequality which as I’ve explained earlier will only be growing with greater automation and robotics. Finland for instance has started a pilot programme, the Swiss held a referendum in June 2016 to consider universal basic income which did not pass as only a quarter of the Swiss agreed with it, the Dutch will be carrying out a pilot programme this year, and this is just a start.

What is increasingly clear is that it is not enough to simply hope the challenges brought on by AI and robotics are going to go away, there needs to be a concerted and strident efforts made to mitigate them.

Control content, control data, control the world – the AT&T buyout of Time Warner

AT&T’s takeover of Time Warner makes strategic sense for the shareholders of AT&T. The only surprise is that early rumours of Apple buying over Time Warner did not come to pass.

AT&T are primarily a telecommunications company. They already control the data flows and analytics and understand all the little things that make people/customers tick. However, what they’ve not had is the content that their customers require and monetise the flow of content to the people who need it most.

Through the acquisition of Time Warner, it reduces AT&T’s transaction cost of providing the content to customers which is supported by superior data.

It’s akin to an infrastructure company laying pipes to bring water to households actually now providing the water along with the pipes they already have rather than have a separate company providing the water.

Why content matters

You have data on the information and content your customers require. However, you cannot act on the data yourself if you do not control the development of the content and intellectual property (IP). You can either try and create the content on your own or simply buy the largest available content provider available for sale.

This is what AT&T have done and it allows them to suddenly use the data and deliver even larger profitability to their shareholders by giving their customers the data they seek.

HBO (think Game of Thrones, Curb Your Enthusiasm, The Sopranos, etc), CNN, DC Comics (Superman, Batman, and the new UN ambassador, Wonder Woman), Hulu (Netflix’s rivals) are all now going to be under AT&T’s control.

This will allow them to control the entire spectrum of services they provide to customers and create an ecosystem (of both infrastructure and content) that may be difficult or unfeasible to leave for any customer.

Big data just gotten bigger

You know HOW your customers access information. You now know WHAT information your customers seek. Bring the two together and you create superior propositions for customers which rivals are unable to match.

The advertising potential also has now grown exponentially as AT&T monetise the data analytics and provide superior insight to advertisers.

Bringing the fight to the competition

The moment Google and Facebook moved from being search engines or networking platforms to becoming media and content companies with their own telecommunications infrastructure, the fight was on.

Facebook and Google are already providing Internet and call facilities. They also started buying or developing content facilities (Youtube acquisition by Google or Facebook Video/live).

This mean either existing telecommunications companies get into the business of content development or acquisition or they themselves get acquired. I suspect this was a major impetus for AT&T in their decision to buy Time Warner.

What next?

It’s always easy to bite, but it’s important to be able to chew and swallow. It remains to be seen how well the merger itself works. Most mergers are fraught with complications, from realising business benefits to cultural differences.

It will be interesting to examine Apple and Google’s next reactions. Google have developed their own hardware (Pixel) and Apple have long wanted to get into the business of content and IP.

Perhaps a takeover of Netflix by Apple in the offing?

e-Learning and the needs of developing countries

Having had the pleasure of speaking at the UNCTAD14: e-Learning – Leapfrogging Skills Development session on the 21st of July 2016 in Nairobi, I am enclosing below some of my thoughts on e-Learning and the needs of digital countries in terms of knowledge development and how to best address them.

Details of my fellow participants can be found here.

The full video of the session can also be found at E-learning: Leapfrogging skills development from TrainForTrade on Vimeo.

Introduction

ACCA, as the global body for professional accountants , has within its DNA embedded the notion of delivering public value and to also advance the science of accountancy.

As an organisation committed to innovation and providing opportunity, it was only apt that we became the first professional accountancy body to develop ACCA-X, a comprehensive suite of learning modules towards financial literacy, accountancy and business skills using MOOC (Massive Open Online Content) learning through an exciting partnership with edX and Epigeum .

In the 12 months since launch (from July 2015), there have been over 120,000 learners from over 210 countries who have participated and engaged with the courses and started their journey towards a better understanding of accountancy, business and finance.

 

Four key areas for developing and transition economics to consider for e-Learning knowledge development:

  1. Tackling the employability gap

  2. Building the foundations for data-led learning

  3. Capacity building for educators and policy makers

  4. The value of partnerships

 

Tackling the employability gap

  • Employability is one of the key policy issues of our times.
  • Linking education to employability and improving overall efficiency and productivity is something policy makers and politicians are grappling all over the world.
  • Interestingly, UNCTAD Secretary General Mukhisa Kituyi highlighted in a high level policy roundtable during the first day of the UNCTAD14 conference that employees in developing nations only have an output that is 10% of their counterparts in the EU.
  • It is important to note though that employability is an issue that afflicts both developing and developed nations equally. It is a problem in India (with increasing numbers of graduates unable to find relevant jobs); it is a problem in China (with the numbers of graduates increasing from 1 million in 2000 to 6.1 million in 2011); it is a problem across the EU with over a fifth of 15 – 24 year olds unable to find gainful employment. Further details can be found here.
  • Reasons for this employability gap:
    1. mismatch in skills required by industry and what they are being trained towards;
    2. lack of clarity of skills needs and dialogue between educators and industry;
    3. education and training style (focus still on role learning – does not foster mental agility and innovative flair)
  • This is where technology and e-Learning becomes an enabler to helping fill the gap between education and technology:
    1. Technology allows for learners to reflect, plan and articulate knowledge
    2. E-learning embeds amongst their learners core digital literacy skills – which is crucial
    3. Learning and assessment become more authentic through digital learning à more closely aligned to workplace
    4. For instance with ACCA-X, there is an emphasis to ensuring that the business and accounting theory is supported by interactive simulations of actual practice and with significant support in ensuring learners understand the link between the theory and how they can be expected to apply their knowledge in practice and enable them to be work-ready.
    5. E-Learning allows for students to become active agents of engagement and change and allow them to further develop their social and leadership skills. It also aids students towards becoming self-aware and independent learners which could be argued is the main purpose of education. It is this quality that should be at the heart of institutional strategy policy formulation.
      (C) zodakreza
  • E-learning allows the opportunity to establish a clear pedagogy (to cater to the different learning styles) – to the right levels of assessment – to effective monitoring and management (through data) and support a process of continuous improvement.

 

 

Building the foundations for data-led learning

  • The data allows for identification of hot spots, areas for improvement and ensure a programme of targeted support and intervention.
  • Data analytics and review is a critical component to aid both educators and learners along with policy makers.
  • The availability of data to enhance educators’ ability to better support their learners is a major component of effective e-Learning.
  • Tutors also have the tools to enhance learner management and be able to teach to scale.
  • The availability of learning data will also be instrumental in helping policy makers and researchers identify the learning gaps and hot spots and ensure there is effective capacity building taking place at appropriate levels to resolve outstanding issues.

Capacity building for educators and policy makers

  • This is often an area that is overlooked as e-learning programmes and initiatives are rolled out.
  • Whilst there is ample learning support for students to help them make the relevant transition to e-learning and blended learning, there isn’t always the same level of support of policy makers.
  • A key policy area for policy makers is to provide the right levels of support to educators as they embed e-learning within the curriculum.
  • The ACCA experience has demonstrated that there needs to be support for educators in helping develop blended learning solutions so that they are able to best leverage the opportunities offered through e-learning.
  • It is a large shift away from strictly face to face traditional’ transmit’ style learning – and training and support needs to be given to help educators adapt to e-Learning.
  • Educators and teachers also need to be given the comfort and confidence that e-learning is not designed to replace them. It is in fact designed to re-configure their role and their place in classrooms.

 

The value of partnerships

  • Developing effective partnerships will be the most effective way for countries to develop effective e-learning and knowledge platforms and solutions to meet their needs and ambitions.
  • The development of high quality e-learning (from the pedagogy to course development to platform development and delivery) can be extremely resource and investment intensive. This can be a significant deterrent for various developing and transition economies to either defer investment or worse, to develop poorly designed e-learning solutions which hinder more than they help.
  • The ACCA experience has shown that through partnerships, it is possible to develop a high-quality learning experience and allows for stakeholders in developing and transition economies to scale the learning curve much more rapidly.
  • Partnerships between policy makers, educators, industry organisations and employers is vital in developing the e-learning solutions developing nations needs.

Conclusion

E-learning solutions represent the most efficient way for nations to build the productive capacity they need to support the wider learning and development programmes to support their employability agenda, to promote social mobility and tackle the endemic problem of inequality.

The path of e-learning and digital learning that remains ahead of us is an exciting one. It is not without its challenges but a focussed and targeted approach of developing the appropriate e-learning solutions that are fit for purpose and in partnership, where possible, will ensure that much more rapid progress is made.

The Chinese Skynet!

You struggle to get around any board room meetings or conferences without the phrase “big data” being used like it is the panacea to all the woes businesses and the economy faces.

However, big data is equally relevant to governments, particularly, in light of Edward Snowden’s revelations.

I read a very interesting article a fortnight back on this very topic: http://www.bloomberg.com/news/articles/2016-03-03/china-tries-its-hand-at-pre-crime.

Essentially the Chinese government is looking to building a profiling tool that includes jobs, hobbies, consumption habits, along with details of any other unorthodox behaviour to detect potential/future subversive, criminal or terrorist behaviour.

What’s equally interesting from the article is that there has been, from Mao’s time, a secret file called the dangán, which has records about everyone, from details of their schools, personality assessments to health records, and can determine whether one gets that job promotion or government permit!

There is also a Chinese national network of surveillance cameras called Skynet!

The combination of this surveillance will allow for the Chinese government to analyse, interrogate and assess the data from her 1.2 billion citizens in order to detect future criminal, terrorist or subversive behaviour. However, the challenge that remains is how one can be prosecuted for ‘thoughtcrime’? At what point does the prosecution take place?

All in a very interesting legal and social conundrum!

 

 

 

 

 

Where technology lost to tradition

Over the last few decades we have seen numerous examples where technology has usurped tradition, leading to plenty of hands wringing, worrying and eventually acceptance of technology’s dominance over the things that we previously thought were ‘the way things are done’ or tradition.

From going to a travel agency, or flagging for a taxi, or buying takeouts , we have now ditched habits and activities that were previously taken to be the de-facto way.

In the light of these changes (and some undoubtedly have had a huge benefit in people’s lives), it was interesting (and perhaps heartening) to read an example of how tradition managed to stand strong in the face of overwhelming technological progress and indeed even strike a blow and reign supreme!

This is the curious tale of the dabbawalas.  A recent Bloomberg Business article, Startups Haven’t Replaced India’s 19th Century Food Delivery Service (February 3, 2016), highlighted how over 400 technology/app driven businesses backed by over US$120 million of funding  have failed to dislodge a 120-year old, traditional food delivery enterprise. The aspiring new-age disruptors failed to make a dent whilst single-handedly decimating traditional black cab/taxi or travel industries.

Only a handful of 400 food-delivery-tech start-ups are still in business after having lost much of the VC funding and thousands of staff, despite spending millions on technology, promotion and advertising.

I thought it would be useful to take a closer look at the conditions that have led to the enduring success of these dabbawalas (from ‘dabba’ which means lunch box or tiffin carriers – the ubiquitous multi-layered carrier tins; and ‘wala’ which loosely means man or deliverer leading to ‘dabbawala’ – lunch box delivery man).

First some context and history to the humble dabbawala:mumbai-dabbawala

  • Starting from 1890, no rain nor flood nor natural disaster nor riot not terrorist strike nor weather has stopped the dabbawalas in fulfilling their duties.
  • The business model has remained exactly the same since the very first delivery: food prepared at home or community kitchens are delivered to students and workers in schools, offices, factories and depots in a lunch/tiffin carriers, and the empty containers are returned!
  • 5,000 dabbawalas now deliver about 175,000 to 200,000 meals a day (or over 50 million meals a year)
  • They have only ever gone on strike once in over a 120 years – and even then timed it on a public holiday – and in support of an anti-corruption campaign!
  • Each dabba or lunch box changes hands at least six times in transit before it reaches the final consumer – or 2.4 million transactions per day (200,000 deliveries X minimum 6 transits X 2 – to return the lunch/tiffin box back)
  • There are some claims that the dabbawalas lose only one tiffin box per 1.6 million deliveries (comfortably allowing them to be within the six-sigma standard of 3.4 defects per million transactions) – despite the absolute lack of technology or apps to support them. All that is used is a system of alphanumeric codes to identify the source and destination of each dabba.

Next, let’s consider the business and employment model used by the dabbawalas:

dabbawalas1

  • The monthly service charge for the delivery of the lunch boxes is between 400 to 1,200 rupees (or between US$6 to US$18 monthly).
  • The prices are not based on distance but on the customers’ ability to pay – deliveries from richer neighbourhoods means higher rates.
  • There are about 200 ‘managers’ who act as supervisors to teams of up to 25 dabbawalas – managing the total 5,000 dabbawalas
  • The dabbawalas age ranges from between 18 to 65 and are often poorly educated (often rarely receiving formal education beyond the age of 14 or 8th standard in Indian education terms)
  • The dabbawalas continue to be paid low wages – approximately 8000 rupees (or about US$120 monthly) but have achieved a very low attrition rate or labour turnover.
  • Each dabbawala receives the same income, irrespective of experience, age or number of customers serves.
  • Each dabbawala is not an employee, but is an entrepreneur and equal shareholder in the Dabbawallah Trust.
  • The dabbawalas employ a risk-mitigation system of a KYC (know your customer) principle to prevent the threats of contraband or bombs being delivered and implement a minimum monthly-subscription rule.

 

So how have these poorly educated, lowly paid individuals without any access to any computer or app to support their delivery system become an award-wining group of process champions?

  • The dabbawalas have been the paragons of social entrepreneurship – leading to social mobility through enterprise. They have provided employment opportunities for those who have needed it the most. The late Paul Goodman, Professor of Organisational Psychology at the Carnegie Mellon University, described it as thus: “They provide a different picture — a complicated system of working built around human ingenuity and supportive social arrangements that has long been absent from U.S. industry,” in his documentary on dabbawalas.

 

  • Uncompromising attitude to cutting out waste or preventing excesses – this has led to the dabbawalas rejecting a number of potentially lucrative marketing or sales opportunities because it was deemed that they will take up time and impact their core business of delivering on time every time.

 

  • Culture – there is an unwavering commitment to their cause.

The dabbawalas are of a view that their duty is akin to service to God. They are committed to the last man towards a single principle of delivering food on time to the right person.

As Manish Tripathi, a director of the Mumbai Dabbawalas states, “Our work revolves around a few beliefs – the most important ones of which are sticking to time and believing that work is worship. Annadan is mahadan (giving food is the greatest charity). We dabbawalas have a strong belief in god. But you don’t see god, do you? So, whom do you worship? People – after all, they are creations of god. You worship god by ensuring that people get to eat their food on time.”

Professor Stefan Thomke of Harvard Business School notes in his paper, “Culture, for example, often gets short shrift. Too few mangers seem to recognise that they should nurture their organisations as communities – not just because they care about employees but because doing so will maximise productive and creativity, and reduce risk.

 

  • Superior focus on organisational objectives and customer service

There is an absolute focus on unerring time management logistics and commitment to superior customer service through accuracy.

An interesting anecdote is when the dabbawalas were informed that Prince Charles wanted to meet with them, they allowed for the request on the condition that Prince Charles should be at Mumbai’s Churchgate station between 11.20 am and 11.40 am. The mere 20 minutes were given because “they could not take time off work” and only because that was the short period of the day when the dabbawalas had a rare moment of a break time!

Prince Charles Dabbawalas

(As an aside, it is also worth noting that of the three indians invited to Charles’ wedding – two were dabbawallahs (who presented gifts for Camilla (sari) and Charles (turban) – paid for by the dabbawallas pooling)

 

  • Effective leadership

The managers (each managing up to 25 dabbawalas) do not see themselves as leaders or supervisors. They are individuals who help to continuously improve the work-place practices and systems and empower their teams to make decisions within a clearly defined set of parameters. The individual dabbawalas make rapid decisions (modern managers may label this ‘agile’).

There are regular meetings once a month where decisions are made and issues identified and discussed. In the rare event of an error, an investigation is launched to ensure it doesn’t occur again and customers are refunded.

 

  • Adopting new practices to serve customer better

Whilst the delivery model has remained the same, the dabbawalas have introduced innovations such as delivery booking through SMS, online booking (through www.mydabbawala.com) and also introduced online customer services feedback. The customer-centric approach that has been instrumental to the success of the dabbawalas continues.

 

The secret to the dabbawalas is best described by Professor Thomke who says, “The dabbawalas have an overall system whose basic pillars – organisation, management, process and culture – are perfectly aligned and mutually reinforcing. In the corporate world, it’s uncommon for managers to strive for that kind of synergy.”

In this day and age, where the human touch is going out of fashion, the dabbawalas remain a source of inspiration and there is much to be learnt from them.

Branson dabbawalas

As Richard Branson (who spent a full day with the dabbawalas) said, “I will tell my employees: walk like a dabbawala.

Indeed!

dabbawalk

The Triumvirate of Technology, Education and Employability – Solving the Policy Riddle

I has the privilege to speak at the ACCA Asia Pacific Future Education Summit in Beijing earlier this month (January 2016).

 

Slide1

During the course of my presentation I touched on the changing trends in learning, the impact of technology on learning and jobs and ACCA’s response to these global changes.

Below are my thoughts on this critical triumvirate of technology, education and employability and how it will help resolve some of our major policy issues and challenges of the day.

 

Slide3

Young people today are three times as likely as their parents to be out of work.

I have been considering this very urgent issue of employability and the growing ‘employability gap’: the fact that the skills students have as they leave our educational institutions aren’t meeting the expectations of employers, and that employers also want wider, softer skills as well as demonstration of knowledge and hard competencies.

It is also my view that technology is often woefully underexploited when it comes to giving students the opportunity to develop their professional skills.

 

Slide4

Globally 75 million young people are out of employment. The issue of employability is not one limited to a certain geography or country. Below are some of the main challenges across some of the major nations/regions of the world.

INDIA

According to a survey conducted by the Singapore Management University (SMU) in conjunction with Indian partners, it was felt that the employability of Indian graduates is low due to skill and geographical mismatch.

The survey also concluded that this gap can be bridged by digitisation of learning.

It is worth noting that the employability ratio of management graduates was only 15 per cent, engineering (20 per cent), law (14 per cent) and medical graduates (32 per cent).

JAPAN

An estimated 700,000 young people, known as hikikomori, have withdrawn from society and rarely leave home. These individuals have collectively withdrawn from the economic population of the country as a result of employability and the subsequent marginalisation.

EUROPE

Across the 28 countries of the European Union, unemployment among 15- to 24-year-olds was 22 percent in 2014/2015. The lack of prospects in the job market for young people is a serious problem in large parts of the EU. The highest unemployment rates are found in the south of Europe.Spain has the highest rate, with half of 15- to 24-year-olds out of work. In Portugal, Cyprus, Italy, Croatia and Greece a little more than one in three people in this age group are out of work.

CHINA

According to a study by McKinsey, the number of students graduating each year from university or vocational school has risen from 1 million a year in 2000 to 6.1 million in 2011. This stunning increase means that the number of new graduates exceeds demand for their services in many areas of the country, resulting in an unemployment rate of 16.4 percent for college graduates.

McKinsey also estimate that by 2020, Chinese employers will demand 142 million more high-skilled workers—those with university degrees or vocational training—or about 24 million more than the country will likely supply. Companies could fill this high-skilled labor gap with less-skilled workers, but this would result in productivity losses or poorer quality products and services. Other companies may leave roles unfilled, delaying the decision to grow or expand.

The study estimates that if China does not bridge this gap by 2020, the opportunity cost could reach some $250 billion (about 2.3 percent of GDP)—which is almost the same as that of Singapore or Malaysia’s GDP! That’s a very large amount of money to put at risk – not to mention the impact on social welfare and harmony.

Slide5

There are a few reasons as to why this employability gap exists.

The first reason is a difference in what employers want from graduates and what they are getting. Surveys of employers consistently show that they are not satisfied with the skill levels of their new tertiary hires, whether these are graduates of universities or vocational schools. The main complaints, according to McKinsey research (and a wealth of anecdotal evidence), are lack of technical training, inadequate English, and deficient soft skills, such as the ability to work in teams, critical thinking, and innovative flair. For instance in China, in 2013, more than a third of employers in China surveyed said they struggled to recruit skilled workers, with 61 percent of these companies attributing this to a shortage of general employability skills.

A second mismatch has to do with the knowledge requirements of the future and the structural makeup of the workforce. As countries’ evolve their underlying economic models, their labour needs shift as well and the resultant demand for higher skilled talent is not met by the status-quo educational systems.

Thirdly is one of a geographic mismatch. There are instances where the universities in certain countries tend to be concentrated in an area and this leads to a distribution problem as there are other areas where there are not enough universities to support the demand.

There is also a large question about how the education and training system also operates in. In a number of countries, there is growing concern—among parents, employers, and policymakers alike—that the system’s emphasis on rote learning and focus solely on exam performance does not foster the mental agility and innovative flair that the modern work place requires.

Slide6

Therefore as you see, employability is a very real and serious issue that has serious economic and social consequences.

But before we proceed, it may be useful to have a brief view of what we mean by employability skills.

I have here a list which is not meant to be exhaustive but provides a flavour for some of the skill sets and capabilities we need to consider when talking about employability.

  1. Communication skills that contribute to productive and harmonious relations between employees and customers.
  2. Team work skills that contribute to productive working relationships and outcomes both within teams, the organisation and with external parties.
  3. Problem-solving skills that contribute to productive outcomes and with a commitment to finding solutions.
  4. Initiative and enterprise skills that contribute to innovative outcomes and driving stronger business performance
  5. Planning and organising skills that contribute to long-term and short-term strategic planning and building the processes to achieve desired outcomes
  6. Self-management skills that contribute to employee satisfaction and growth and ensuring they contribute to their organisation’s well-being in the process.
  7. Learning skills that contribute to ongoing development.
  8. Technology skills that the modern workplace requires.

Slide7

Institutions and organisations tackle student employability in a number of ways, including through for example through professional experience requirements,  and employability modules, careers services, work-placements and experiences, work-based mentors, volunteering and increasingly through looking at employability awards. We know there is already some excellent practice, particularly in vocational and professional disciplines where notions of ‘what it is to be professional’ are embedded in the curriculum, but for others this is less apparent. Few use technology really effectively in an integrated way to support student employability, although some are exploring this.

There is evidence of an ‘employability gap’ in the skills that students are actually starting with on day one of employment and the skills that employers are expecting from them. However, there is an increasing appreciation that ’technology for employability’ can provide many potential benefits to students, institutions and employers

Digitally savvy graduates are essential for shaping tomorrow’s entrepreneurial activities, but digital literacies aren’t well articulated.

Slide8

The nature of knowledge is changing and, in this digital age, our definition of basic literacy urgently needs expanding. The notion of digital literacy – those capabilities that equip an individual for living, learning and working in a digital society – is one that needs to be taken seriously by education providers and consider how it can be an enabler for employability.

Technology acts as an enabler in supporting employability in the following ways:

  • ensuring that opportunities are provided throughout the curriculum in a scaffolded and supported way for learners to reflect, plan, and articulate and showcase their knowledge and skills in an integrated way
  • embedding digital literacy skills more broadly across the learning
  • ensuring that assessments and learning are ‘authentic’, and more closely aligned to the workplace and real-world tasks
  • using a principles-based approach to change which places the importance of developing self-aware, independent learners (which some argue is the main purpose of education at the heart of institutional strategy, policy and practice
  • Supporting tutors through better management tools to help their students. By using technology as a tool for learner management, teachers can develop and execute individual learning plans and track the progress being made by the learner in relation to the employability skills.
  • empowering students as agents of change, which evidence shows benefits all stakeholders including students in the development of wider employability skills. Students and learners can also document their employability skills and self-assessment notes as evidence of their competency and knowledge levels.

We know however that although there is a lot of excellent practice, it is not widespread. Technology can support all of the aims above, but further work is needed to ensure that good practice is shared and teams dedicated to developing learners are supported in maximising opportunities offered by technology, and in exploring how existing employability opportunities can harness technology to best effect.

Slide9

According to research conducted by Cleary, Flynn and Thomasson (2006), it is recommended that for effective employability skills development; the design of an overall active teaching and learning and assessment strategy adheres to the following four adult learning principles:

  1. Responsible learning – learners take responsibility for their learning. Responsible learning emphasises self-management and initiative and enterprise as learners work independently to develop new knowledge and activities in the interest of furthering their skills.”
  2. Experiential learning – learners learn from experience. This “emphasises ‘learning to do’ and ‘learning from doing’. Authentic learning occurs when learners have an opportunity to apply their skills and knowledge in authentic work environments or in contexts which attempt to simulate the real.
  3. Cooperative learning – learners learn with and through others. This form of learning “encourages learners to learn from each other, share learning tasks and learn from a range of people including colleagues, mentors, coaches, supervisors, trainers, and others.
  1. Reflective learning – learners reflect on and learn from their experience. This can be introspective, where learners are encouraged to examine changes in their own perceptions, goals, confidences and motivations. It addresses: developing critical thinking skills, learning to learn and developing attitudes that promote lifelong learning. Reflective learning can be useful in directly addressing problem solving, initiative and enterprise and self-management skills

Digital or e-learning can foster these four types of learning and the development of all of the employability skills.

Slide10

Universities and colleges have a responsibility to develop students into individuals who can thrive in an era of digital information and communication – those who are digitally literate are more likely to be economically secure and these skills are especially important in higher education given that graduate white collar jobs are almost entirely performed on computers and portable devices.

But it’s not just about employability – increasingly digital literacy is vital for learning itself. Digital tools such as virtual learning environments, e-portfolios and social networking software for peer mentoring are now common within further and higher education and students without the skills to navigate them risk suffering an inferior student experience at best, and being left completely behind at worst. It goes beyond IT skills, a complete culture change is required to live fully within the modern digital society, from understanding how to communicate ideas effectively in a range of media to managing digital reputation and history.

Slide19

There are a number of success factors that will be critical as organisations consider an effective use of digital learning to support employability of their students.

They include the following and it is worth bearing in mind that this is an iterative and progressive process which will in turn drive better outcomes.

CONCEPT AND ROLE

  1. Develop the employability skills based on a strategic and structured approach that links the employability skills to each other
  2. Recognise the value of the employability skills in all aspects of life in addition to their employability role, and include recognition of prior developments in these skills in learning and assessment strategies.

PEDAGOGICIAL ASPECTS

  1. Use e-learning in blended learning strategies to cater for a range of learning styles and encourage individualised, self-directed learning.
  2. Adopt active learning strategies such as role plays, real work and simulated work environments, and incorporate e-learning.
  3. Recognise the centrality of learning skills as the foundation for addressing all of the other employability skills.
  4. Break the learning skills into four types: responsible; experiential; cooperative; and reflective learning.
  5. Implement an upfront induction/orientation program to develop awareness and understanding of the employability skills and the e-learning role using a conceptual structure that shows the linkages between these skills.
  6. Link remedial education for basic skills, such as literacy, and development of the employability skills in integrated strategies that harness e-learning.

ASSESSMENT AND REPORTING

  1. Use e-portfolios as a tool for student reflective learning as well as a tool for reporting and assessing learner progress in the employability skills.
  2. Pay attention to the different levels of application and performance of the learners and aid them through the journey,

MANAGEMENT ASPECTS

  1. Use a technology-based learning management system to support individual learning plans, tracking of learner progress and achievement, and the efficient use of teaching resources.
  2. Adopt whole of institution strategies, effectively coordinated and supported by staff development activities in both employability skills and e-learning and particularly e-learning facilitation skills to enhance cooperative learning opportunities.

KEY AREAS FOR FURTHER DEVELOPMENT

  1. Recognise that further innovations and improvements will be required to further strengthen the education framework and support learners and students.

Slide20

There are some efforts we can do to help bridge the employability gap.

We need to make a better case for using technology to develop employability. We need to raise digital aspirations of employers, universities, learning partners and professional bodies such as ACCA and develop students as ‘digital entrepreneurs’ that can go on to act as agents of change for business. Digital literacy often isn’t related to employability skills, and we need to see this change to make a clear link.

We need to work in partnership with employers to understand needs better

We must not forget about those youth that are outside the formal education system, or are otherwise marginalized due to disabilities or their gender. Many youth are employed in the informal sector, and may not be able to access traditional schooling or have access to schools in their regiosn. Offering alternative, non-formal models of relevant education are crucial.

Without these strategies, there is a risk that students leave university or college equipped with the right qualifications for their chosen career but without the tools and understanding they need to thrive in the connected, globalised digital world of today.

Slide21

Overall, I would like to conclude that digital learning and the employability skills should be seen as two of the dynamic influences whose interaction is likely to have a significant impact on shaping the evolving approach to l education and training now and into the future. There is much work to be done but finding effective solutions in this closely interlinked areas of technology, education and employability will help resolve some of the major economic and social issues of our time.