Who owns your data?

Who owns your data? That has been a long simmering issue in this new information-intensive economy. Now a new consensus seems to be emerging that people should be paid for access to their personal information (see story in the Wall Street Journal – The Market for Online Privacy Heats Up). A report released earlier this month by the World Economic Forum (Personal Data: The Emergence of a New Asset Class) argues that:

Increasing the control that individuals have over the manner in which their personal data is collected, managed and shared will spur a host of new services and applications. As some put it, personal data will be the new “oil” – a valuable resource of the 21st century. It will emerge as a new asset class touching all aspects of society.

It is good to see that information is being treated as an asset. I’m not sure I would go as far as equating personal data with the new “oil”. I think that title belongs to the broader class of intangible assets (see Mary Adams and Michael Oleksak Intangible Capital: Putting Knowledge to Work in the 21st Century Organization).
But, the WEF report raises the point we made a number of years ago in our report, Information Age: Reframing the Debate that many of the main issues of the information economy are not technological but social. They are also interrelated:

we currently treat privacy, computer security, intellectual property rights, freedom of information, “right-to-know” policies and free speech issues as separate policy areas. Yet, they are all part of managing the information commons: what information is and should be private, what information is and should be proprietary and what information is and should be public. A more comprehensive approach is needed.

The WEF report is part of an ongoing project on Rethinking Personal Data. They might want to also rethink the scope of the project and tackle some of these broader questions.

4Q 2010 GDP revised downward

Not so good news this morning. BEA released the second estimate for 4Q GDP — which was revised downward to 2.8%. The first (“advance”) estimate last month was that GDP grew by 3.2% (see earlier posting). According to BEA, the revision “reflected an upward revision to imports and downward revisions to state and local government spending and to personal consumption expenditures (PCE) that were partly offset by an upward revision to exports.”
The new data is disappointing. As I noted last month, economist had expected 3.4% GDP growth for the 4th quarter. And, as the Wall Street Journal notes, “Economists surveyed by Dow Jones Newswires had expected GDP to be revised up to a 3.3% growth rate in the government’s second estimate for the final three months of last year.”
The revisions had a minor impact on one of the concerns I raised last month about the slowing of fixed investment. The revised data shows that investment in equipment and software rose by 5.5% rather than 5.8%. Investment in IT equipment and software grew by 18.8% rather than 20.7% reported earlier and investment specifically in software grew by 5.4% rather than 6%. Investment in transportation equipment dropped by only 8.8% rather than 9.3% and investment in industrial equipment grew by 3.8% rather than 4.2%.
And once again I would point out that the GDP numbers do not offer any guidance on investment in intangibles other than software. So we do not know whether companies have increased their investment in important areas such as human and organizational capital.

Are public-sector workers overpaid or underpaid?

Following on my earlier posting about Wisconsin and valuing employees, here is a comment from the Schumpeter blog over at the Economist that raises the broader issue (The government as an employer):

THE American blogosphere is abuzz with a debate about whether public-sector workers are overpaid or underpaid, with the left and right taking predictable positions. They are all surely missing the real point. Such workers are both overpaid and underpaid: the public sector is characterised by a relatively flat distribution of wages, with able people paid too little (and thus constantly poached by the private sector) and time-servers paid too much, and with the main driver of promotion being years of service.
It is clearly important to reduce the overall wage bill and bring public-sector pay and pensions under control. But, in the long run, it is also important to pay good people more, speed up their rise through the ranks, and generally widen the wage distribution in government jobs.

We need to modernize the system – not take a meat cleaver to unionization.

Appointments made to White House Jobs and Competitiveness Council

Yesterday, the White House announced the list of members of the new President’s Council on Jobs and Competitiveness. Here is the annotated list (courtesy of the Wall Street Journal):

Steve Case, co-founder of America Online. Mr. Case chairs Revolution, a holding company that oversees multiple companies, which include Zipcar, LivingSocial and Everyday Health.
Kenneth I. Chenault, chairman and CEO of American Express Co.
John Doerr, a partner at venture capital firm Kleiner Perkins Caufield & Byers. Mr. Doerr hosted Mr. Obama and a gaggle of the tech industry’s geek glitterati at his San Francisco home last week.
Roger W. Ferguson Jr., president and CEO of TIAA-CREF, retirement services purveyor for pensioners in academia.
Mark Gallogly, co-founder and managing principal of private equity firm Centerbridge Partners. Mr. Gallogly hails from the Blackstone Group.
Joseph T. Hansen, President of the United Food and Commercial Workers Union (UFCW) and chaiman of Change to Win, which rallied voters to Mr. Obama’s presidential bid.
Lewis “Lew” Hay III, chairman and CEO of power company NextEra Energy Inc.
Gary Kelly, chairman, president, and CEO of Southwest Airlines.
Ellen Kullman, chairman and CEO of DuPont.
A.G. Lafley, former CEO of Procter & Gamble, now Special Partner at Clayton, Dubilier & Rice.
Monica C. Lozano, publisher and CEO of La Opinión, the nation’s largest Spanish language daily newspaper.
Darlene Miller, owner and CEO of Permac Industries, a Minnesota machine parts manufacturer.
Paul S. Otellini, CEO of Intel Corp.
Richard D. Parsons, senior adviser at private equity firm Providence Equity Partners Inc.
Antonio Perez, CEO of Kodak.
Penny Pritzker, Obama fund-raiser and chairman of TransUnion, CEO of Pritzker Realty Group and chair and co-founder of The Parking Spot, Artemis Real Estate Partners, and Vi, formerly known as Classic Residence by Hyatt.
Brian L. Roberts, CEO of Comcast Corp.
Matt Rose, CEO of Burlington Northern Santa Fe Railway Corporation.
Sheryl Sandberg, chief operating officer at Facebook.
Richard L. Trumka, president of the AFL-CIO, the nation’s largest labor federation.
Laura D’Andrea Tyson, professor at the Haas School of Business at the University of California Berkeley, and National Economic Adviser in the Clinton administration.
Robert Wolf, chairman of UBS Americas and president of UBS Investment Bank; Obama fund-raiser and frequent golf buddy.

It is an interesting mix of sectors and industries — some of the usual suspects and a dash of others. I especially like the fact that the CEO of Southwest Airlines is on the list. They are a prime example of organizational and operational innovation. Likewise, A.G. Lafley, former CEO of Procter & Gamble is one of the foremost operational experts of open innovation. Now, let’s see what they come up with.

Virtual reality starts changing the design process – with government help

Earlier this week, I posted an item about how technology could change the production process (The rise of the machines). In that posting I specifically highlighted a new technology that allowed for the “printing” of items in solid three dimensions. This could change how goods are “manufactured.”
But there is another part of the story — how goods are designed. A couple of years ago, we published a report on Virtual Worlds and the Transformation of Business: Impacts on the U.S. Economy, Jobs, and Industrial Competitiveness. The report described, among other things, how virtual worlds can be used in the collaborative design process. That possibility is rapidly becoming a reality.
For example, a couple of years ago, the Navy starting using Virtual World for prototyping. As a story in Government Computer News (Navy creates a virtual world to test submarine design) notes:

The Naval Undersea Warfare Center is doing that with an experimental approach to submarine design. It has created a Second Life-like virtual replica of a proposed design of a submarine’s control hub using architectural renderings of the new design. By being immersed in a new environment, submarine commanders will have a better idea of the proposed changes to the hub and can offer more constructive feedback.
“We would like to support rapid prototyping,” said Douglas Maxwell, technical lead for the project. “Basically, we would like to create an environment where the fleet, shipbuilders and scientists can collaborate on platform design. We could create many iterations of advanced design and let the users tell us which ones work and which ones don’t.”

Here are a couple of more examples. Sikorsky’s virtual reality center puts designers inside the unbuilt CH-53K heavy lift helicopter:

The Sikorsky CH-53K heavy lift helicopter currently being developed for the U.S. Marine Corps will contain more than 20,000 individually designed parts. This means building an experimental prototype of the aircraft ends up being one hell of a complicated three-dimensional jigsaw puzzle. And if just one of the pieces doesn’t fit where it’s supposed to, it can cost millions of extra dollars. To find production and maintenance issues before things progress too far, Sikorsky has unveiled a virtual reality center that the company hopes will save it time and money in final assembly of the aircraft.

VR Breakdancing: Lockheed’s New Jet-Building Tool:

Officially, the Collaborative Human Immersion Laboratory, or — yes — CHIL — is an immersive virtual reality mechanism to cut down on the cost of building America’s Air Force. In reality, the CHIL gives engineers an excuse to do some VR line dancing. But that rings hollow. Lockheed Martin has just built its engineers a virtual-reality playpen, unveiled today and based in Littleton, Colorado. Employees are hooked up to a suite of motion-detecting sensors, gamer gloves and a head-mounted display helmet, with wires hanging out of their extremities and optional Tron-ready clothing.
Inside the CHIL’s “Cave” — the CHIL Cave! — they see themselves as uncanny valley-ready avatars, allowing them to test out and adjust various projects that the company manufactures to test their weak spots, all before the prototypes get physically built. Lockheed says it wants to use the CHIL to tweak its Air Force products, like the next-generation GPS satellite or the F-35 Joint Strike Fighter family of jets.

There is an important lesson here for public policy. These examples are all from the defense sectors. Once again, here is a case where defense procurement can lead in a manufacturing revolution. After all, remember it was the production of rifles that help spur the movement to interchangeable, machined parts that were a hallmark of the industrial revolution.
The trick will be more wide-spread adoption of the technology. As we noted in the report:

Policies funded by DARPA or DOC’s Manufacturing Extension Partnership could support government-industry associations with the exploration and evaluation of how Virtual Worlds improve product development and services between suppliers, end manufacturers, or service providers. These collaborations could also be linked to state programs to improve the use of new technology.

But even more needs to be done.

The federal government should promote policies that focus on the four main indicators that are likely to enhance this nation’s competitive status in the Virtual World economies of the future. The first group of policies should focus on ways that firms can transform themselves into collaboration enterprises. The second group of policies should focus on how rapidly collaboration enterprises can adopt new computer-based technologies. The third group of policies should address how well equipped employees are to work in a collaboration enterprise world. The fourth group of policies should focus on strengthening the technology base of the U.S. economy and creating a suitable environment for the operation of Virtual World technology.

In this way, we can help make sure these technologies benefit the entire US economy — and that the US is on the forefront of the next manufacturing revolution.

On Wisconsin?

I find what is happening in the State of Wisconsin right now unsettling. And I don’t mean just the protests and counter-protests. And not simply because the move by the Governor to break the public-sector unions is more a demonstration of political power than a budgetary issue. But because as a management and budgetary matter, it is antediluvian. It represents the worst of industrial era thinking. In a time when most CEO’s at least give lip service to the notion that “our employees are our most valuable assets,” the Governor seems not to have gotten the memo.
Steven Pearlstein makes a good point in his column today (Making sense of Wisconsin’s union showdown:

Back when I was working at Inc. magazine in the mid-1980s, we loved nothing better when approaching a public-sector issue than to ask how the private sector would handle it. Faced with the situation in Wisconsin, we would have called up Tom Peters or Peter Drucker and posed the example of a new chief executive brought in by the shareholders (i.e., the voters) to rescue a company suffering from operating losses (budget deficit) and declining sales (jobs). Invariably, they would have recommended sitting down with employees, explaining the short-and long-term economic challenges and working with them to improve productivity and product quality in a way that benefits both shareholders and employees.
Now compare that with how Wisconsin’s new chief executive handled the situation: Impose an across-the-board pay cut and tell employees neither they nor their representative will ever again have a say in how things will be run or get a pay raise in excess of inflation. A great way to start things off with the staff, don’t you think? Remember that the next time you hear some Republican bellyaching at the Rotary lunch about why government should be run more like a business.

Well, the Governor does seem to be running the state as a business — a 19th Century business. And we have seen how well that works in a service-oriented business in the 21st Century. Remember the story of Circuit City? As a cost cutting measure, Circuit City fired its’ most expensive (read most experienced) workers. Customers left and Circuit City went bankrupt.
So my question is this, will Wisconsin be the Circuit City of the public sector?

State manufacturing centers – and managing intangibles

My friends over at the Brookings Institution released a new paper earlier this month on Accelerating Advanced Manufacturing with New Research Centers. As the full paper states:

To strengthen their manufacturing bases, states must go beyond simply attracting large manufacturers from other states and even beyond assisting manufacturers with training and early-stage financing. They need to support the development and diffusion of improved manufacturing technologies, ways of organizing work, and relationships between final goods producers (typically, assemblers) and their suppliers. To accomplish these goals states should establish advanced manufacturing centers, based in their metropolitan areas, to help manufacturers solve generic technical and management problems in one or more industries.

The authors argue that parts of such state level programs already exist in various forms in a number of states but nothing like the scale and scope needed. Nor are federal programs, such as the MEP programs large or broad enough.
I completely agree. But I would add a very important missing component. Such centers (as well as the MEP centers) need to explicitly include assistance in identifying and managing intangibles. As we pointed out a year ago in our Policy Brief–Intellectual Capital and Revitalizing Manufacturing, manufacturing is in the process of being transformed into a much more knowledge-intensive activity. This transformation will require attention to all the inputs to the production process — technology, worker skills, and cooperative/collaborative organizational structures — all of which are key intellectual capital and intangible assets.
Embracing the role of intellectual capital and intangible assets in manufacturing requires going beyond the narrow view of formal intellectual property. Scientific and creative property are valuable assets that include product development activities beyond the patent, new architectural and engineering designs, and social and organizational sciences research. Computerized information, including customized software and databases, are other important company assets that go beyond our definitions of intellectual property. Specific business models, organizational structures, and organizational capabilities are key elements of any company’s ultimate success. Worker skills and tacit knowledge–both general and firm-specific–are assets that managers describe as leaving the company every evening and returning every morning. Brand equity, reputation, and relationships with customers and suppliers are all important. All of these forms of intellectual capital need to be explicitly developed and managed by successful manufacturing companies.
Tools for managing intangible assets are only slowly emerging. The proposed state manufacturing centers are seen as a mechanism for developing and implementing new manufacturing technologies — similar to the role played by the Fraunhofer Institutes in Germany. Such centers should also play a role in the development and implementation of new tools for managing intangible assets.
But these centers will only play that role if it is explicitly included in their mandate and in their understanding of their mission. The concept of intellectual capital and intangible assets needs to be baked into their DNA (to mix clichés). Only then can they tackle their wider task of being an engine for revitalizing American manufacturing.

Real financial innovation

From Alex Pollack at AEI — Dupes of False Innovation:

I propose to distinguish between illusory and real financial innovations. Real innovations turn ideas into institutions that endure. Real innovations occur much less frequent than cyclical illusory innovations, of course, because it is hard to do something truly new. Nonetheless, they do happen.
Here are some real innovations from fairly recent financial experience: interest rate swaps. TIPS (these inflation-indexed Treasury securities make it harder for the government to cheat savers through inflation, a worthy achievement), senior-subordinated securitizations, money market mutual funds, automated teller machines, general-purpose charge and debit cards and the 30-year, fixed-rate mortgage.
From further back in financial history, we have: mutual funds, deposit insurance, futures exchanges, stock exchanges and central banks.

I basically agree with this list — although I’m not sure about interest rate swaps and TIPS. I would also agree with part of his comment that “‘CDOs-squared’ and ‘SIVs’ were merely new names for lending long and borrowing short” — I think SIVs do have a limited useful function but are easily prone to abuse.
And I would disagree with his comment that the GSE charters for Fannie Mae and Freddie Mac were illusory innovations. Without them, one of his innovations — the 30 year fixed-rate mortgage — would not have existed. I think this is more the case of innovations that go beyond the time or scope or of their usefulness. The automobile does not qualify as an illusory innovation simply because someone has created a jet powered car that can only be run on the Bonnville salt flats. We need to carefully distinguish between the real innovation and the extreme use or abuse of that innovation.
So let me add one additional real innovation to the list: financial regulations that help prevent the harmful extreme use or abuse of a real innovation. Surely we can agree upon that.

Return of the digital divide

A new report is out on the Internet which raises the concern over a digital divide. As the Washington Post story (“Survey of online access finds digital divide”) sums it up:

A first-of-its-kind federal survey of online access found that Americans in lower-income and rural areas often have slower Internet connections than users in wealthier communities.

This new survey of internet usage, Digital Nation: Expanding Internet Usage, was released yesterday by the Commerce Department’s National Telecomminications and information Administration. The press release highlights the following points:

• Broadband Internet access at home continues to grow: 68 percent of households have broadband access, as compared to 63.5 percent last year. (In the survey, broadband was defined as Internet access service that uses DSL, cable modem, fiber optics, mobile broadband, and other high-speed Internet access services.)
• Notable disparities between demographic groups continue: people with low incomes, disabilities, seniors, minorities, the less-educated, non-family households, and the non-employed tend to lag behind other groups in home broadband use.
• While the digital divide between urban and rural areas has lessened since 2007, it remains significant. In 2010, 70 percent of urban households and only 60 percent of rural households accessed broadband Internet service. (Last year, those figures were 66 percent and 54 percent, respectively.)
• Overall, the two most commonly cited main reasons for not having broadband Internet access at home are that it is perceived as not needed (46 percent) or too expensive (25 percent). In rural America, however, lack of broadband availability is a larger reason for non-adoption than in urban areas (9.4 percent vs. 1 percent). Americans also cite the lack of a computer as a factor.
• Despite the growing importance of the Internet in American life, 28.3 percent of all persons do not use the Internet in any location, down from 31.6 percent last year.

Unfortunately, this digital divide is nothing new. It’s just that we haven’t heard much about it over the past decade.
Also unfortunately, we seem to be approaching it in the same way we did a decade ago — as a consumer-oriented technology deployment issue. As the New York Times story (Digital Age Is Slow to Arrive in Rural America) notes, the issue is important for economic development. But then goes on to say:

All of that is important, certainly. But here in Clarke County, where churches and taxidermy shops line the main roads and drivers learn early to dodge logging trucks hauling pine trees, most people would simply like to upload photos of their children to Facebook.

– – –
We need to recognize that this is an issue of inclusion in the broad information age — not just access to Facebook. Over a decade ago, Athena Alliance held a conference on on this topic. The report, Information Age: Reframing the Debate made the following points:

Point one: Focus on the transformation, not the technology.
The issue of concern is the transformation to the Information Age. It is not simply a question of technological deployment. The end purpose is not to narrow some gap, but to ensure that everyone has access to the expanded opportunities. Our framework should be one of inclusion for all in the broader activities that make up society and the economy.
Point two: Review and coordinate efforts.
The problem has aspects of telecommunications policy, such as infrastructure and standards and elements of technology policy, such as research and development and technology deployment. But it also has aspects of policies on training and workforce development, education, economic development, housing and community development, human services and trade. Reaching our goal requires a coordinated approach — in the private, public and non-governmental sectors – that combines the various elements of providing opportunity and inclusion in the information age. To coordinate policy, the focus of governmental digital opportunity efforts should be the White House, not in any one department or agency.
It is also time to take a new look at some policy areas. For example, a comprehensive approach is needed toward all parts of managing the information commons: privacy, intellectual property rights, “right-to-know” policies and other related areas.
Point three: Work to ensure that everyone has access to the technological infrastructure.
Barriers to access to the infrastructure are many. Ways of overcoming those barriers are also varied, including public access facilities that can combine access with training and other activities, as well as home access. With respect to access in the home, we must return to the question of universal access. We also need to address the development of broadband capabilities – both at home and at work. Both home use and public access points are important. Multiple access public points are needed, such as existing public facilities, training centers, libraries, and after-school centers. For these facilities, sustainability is the key. But, it is not enough to simply provide access. We must work to weave information technology into the operations of community groups in a way that will both help individuals use the technology and will make those groups more efficient and effective in their core mission.
Some of the barriers to digital inclusion are physical: the usability of the technology. This is not, as commonly thought of, an issue only for those with disabilities. The problems of usability and human-machine interfaces affect all of us and research on ways to increase access for those with disabilities will pay off in increased usability for all.
Point four: Encourage and facilitate participation and involvement by all in the digital economy and information society.
To foster participation and involvement, the technology must meet people’s needs – not define those needs. Information technology can help people in their day-to-day lives if it is designed and structured in such a way that it helps answer their questions and solve their problems. Otherwise it becomes a barrier and a source of frustration. This is the danger of what some refer to as the “over-wired” world.
It is important to understand that individuals have different needs. A one-size-fits-all may help some – and increase their participation and involvement – but will block others. By focusing on “demand-pull,” rather than “technology-push,” we can better tailor the technology to meet individual needs.
Development of meaningful content, including more locally-based content, is one of the ways to increase the level of participation. E-government is one important form of meaningful content. But, we must also insure that those who are not on-line are not left behind. No services or information should be removed or dramatically cut back from traditional means of dissemination in favor of electronic dissemination until and unless all members of the community have access to that electronic means as easily as they have to the traditional means.
Point five: Focus economic development on the Information Economy, not the Internet Economy.
The information age will require a new approach to economic development. Key to the process is using and developing assets: financial, social, skill-based, and information assets. We must focus on building the local economy’s vitality and ability to compete in the age of globalization and help people make the switch to the new economy.
Our priorities should include:
• development of processes for identifying and assessing local assets,
• revitalizing programs for training the existing workforce,
• helping small and medium size enterprises make use of IT, and
• fostering entrepreneurship at all levels and in all sectors.
We must also develop and utilize new mechanisms for financing the transformation, including Individual Development Accounts and new ways of financing intangible assets.
The New Markets Initiative is another example of a way to reach out to communities left behind.
Collaborative learning and sharing of information is also important in the larger process of economic development. There are a number of examples of information assets being applied within businesses and with local economies. We need to utilize new knowledge management techniques and old-fashioned communications techniques to collect, disseminate and better utilize that information.
Point six: We need a better understanding of what is going on.
We need to re-look at the data needed for economic development in the information economy. The problem of data extends beyond the scope of local economic data. We need both better data and expanded analysis of the socioeconomic aspects of the information technology. That research must be translated into policy relevant terms. For this reason, Congress should seriously consider re-establishing the Office of Technology Assessment (OTA).
Point seven: The decision making process must be open.
True inclusion and opportunity can only occur if the process of decision making is open and transparent. Information technology has a tremendous potential for opening and maintaining channels for general input and advocacy. However, decisions made about the technology can have the effect of closing off the process rather than opening it up. We must insure that all parties are at the table when decisions, including issues such as standard setting, are made.
Point eight: Innovate and experiment.
We are in a time of transformation and change. The speed of that change and the pace of economic activity will vary. Yet the change is real and will continue. In such a time, we must often invent new ways of coping with our problems and new policies for guiding our economy and society. Such experimentation will require great policy discipline, however. It requires a strong, unbiased means of evaluating programs and policies – and the political discipline to follow the guidance of that evaluation. We must also find means to ensure that the evaluations are timely for the fast moving policy arena. The goal in evaluation is not simply proving the effectiveness of an action – it is to facilitate learning. Learning is the hallmark of the Information Age. Our public policy process must embrace that concept as tightly as the rest of our economy and society already have.

While a little dated, these points are basically as relevant today as they were a decade ago. As we move forward with this need discussion of the digital divide, I hope we can focus on these broader issues.