cloudalps (hidden peaks)

High Tech Economics – implications from a global perspective.

Euro Crisis – suffering in the safe haven of Switzerland

By now, it is widely accepted that the SNB (Swiss National Bank) was merely “passing the deflationary parcel” after months of severe suffering by the Swiss export industries (which tend to be critical for any small, open economy). The SNB is reacting to pressure “reacting to pressure that has arisen from the actions of other governments” which has become significant as the above graphs indicate – a negative Swiss Franc Swap rate underlines the same message of (irrational?) demand for the Franc even at negative interest.

The even more stunning result stems from the SNB’s announcement to do everything to keep the CHF/Euro forex rate at least at 1.20 – and this worked immediately without any change:

Filed under: Macroeconomics, , , ,

Globalization, Unemployment & the Cloud

Michael Spence, Nobel Laureate, Professor and Dean Emeritus at Stanford Business School, has just published an excellent article on the “Downside of Integrating Markets” in Foreign Affairs with the title “Globalization and Unemployment“.

Prof. Spence differentiates between MNCs in the tradeable sector that operate and continously optimize global value chains; the kind of companies that boosted GDP growth at rate of 4x since 1990 compared to the nontradeable sector (services and some goods that are consumed locally only). Jobs growth in the US since 1990 however, came almost purely from nontradeable industries of which almost half is directly government or somewhat indirectly (i.e. healthcare), hence a very unreliable source of future jobs growth.

Spence highlights that until about 2000, effects of globalization on wealth as well as jobs distribution were largely benign BUT as developing countries climbed up the value chain and got richer this is changing irreversibly. Aside from the economic, social and educational progress in such developing nations mainly in Asia, I would argue that the emerging Cloud offerings are a strong accelerator and multiplier of this trend.

Having access to virtually unlimited (cloud) compute power, storage capacity and communications channels through connected (mobile) devices that are affordable to citizens with an average income in such developing nations is enormously powerful. It allows them to compete more effectively in what they do today (for a living) but enables them to satisfy their hunger for more income, independence and education. To them, the cloud is a symbol for all sorts of personal and national upside potentials.

In the Western hemisphere and namely the US, establishing the primacy of education gets harder, not just because of government budget shortage but because a promise of rewarding employment for all income levels is out of sight today. Could the cloud become an accelerator for further jobless (GDP) growth in the West ?

Filed under: Cloud Computing, Macroeconomics

China – the disruptor’s 2nd phase will impact the West even more..

When Professor Jonathan Christensen talks about “Disruptive Innovation”, anyone caring about the future of the West (i.e. Europe, the Americas) better listen well. While Globalization provided growth for both hemispheres over the last 2 or 3 decades, its disruptive effects were mostly felt by the West. In an interview with Arabic Knowledge@Wharton, Prof. Christensens’ reply to the question if China is a disruptor was: “What will happen is the next waves of disruption will come from countries such as Vietnam and other Southeast Asian countries [..] Wage rates are going up at a very fast rate… [..] this will force China to not just knock off designs from the West. They’ll have to compete on innovation“.

The frightening implication of this unstoppable trend is, of course, that the West is about to lose its predominant position as Innovator & Designer – in the same way, it lost its Manufacturing position in all but the smallest and most high-end niche markets.

A Thomson Reuters report already announced China as the new Gobal Innovation Leader back in October of last year, based on its imminent lead in new Patent Filing for 2011. No further comment necessary..

Add on:
The Reuters report cited above has been put into perspective by the Economist as well as Fortune based on concerns about the average quality of Chinese patents (e.g. utility-based 10 year patents) as well as the robustness of the legal system required to enforce patents. My simplistic view on this is that while these concerns might be justified today, the directional and aspirational change of “China Inc.” cannot be overlooked.

While reaching full compatibility regarding patent quality and relevance will take some more time – like the resolution of other issues perceived by the West – the impact on Western companies starts today. In specific but important niches (e.g. batteries), Chines companies already lead the respective global market.

Filed under: Macroeconomics

Recovery ? QE3 ?

From a practical point of view, I would like to know wether I should switch my all-LIBOR mortgage of the last 3 years (yes, that was nice and still is) into one with fixed interest for 2, 5 or even 10 years. Less superficially, we wonder what comes next for the global economy after nervousness (a.k.a. volatiliy, e.g. http://www.msci.com/products/indices/strategy/minimum_volatility/performance.html) seems on the rise while the projected U.S. “technical default” of August 2 comes closer.

In his article “The road to recovery gets steeper” (http://on.ft.com/kkbhmT), Martin Wolf at FT highlights the surprising fact of what countries’ GDP have recovered the most relative to earlier recessions:

While the US recession recovery on the GDP level looks strong, other parameters like unemployment, deficit and consumer confidence are less reassuring. Will these ever come back to earlier and healthier levels too? Martin Wolf closes with “The biggest danger remains prolonged semi-stagnation in the post-crisis era, not excessive growth and high inflation”. I guess I leave my mortgage linked to LIBOR and wait for QE3….

Filed under: Macroeconomics

‘Chindia’ to rule the world in 2050, or the U.S. ?

“The economies of China and India will together be four times as large as the United States, restoring the historic order of Asian dominance before Europe’s navies burst on the scene in the 16th Century.” This sounds like the pre-dominant view on macroeconomic development but this article closes with “Perhaps the 21st Century will be America’s after all, just like the last”.

What lies in between are a difficult age pyramid for China, the absence of automatic convergence of developing areas including Africa and the GDP projection for 2050 with the US still 2.5 x India.

An HSBC report “The World in 2050” (http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=ej73gSSJVj&n=282364.PDF) sees China – in terms of GDP – take the #1 spot from the US which will only move down to #2 [Chimerica – a concept that looks realistic given the symbiotic relationship of these nations today] while several European nations lose massively. George Magnus, UBS, warns of China’s investment-intensive growth model and in his book Uprising concludes the U.S. might very well stay in power.

Projecting 40 years of global macroeconomic outcome seems challenging to me and I think that the actual buying power for citizens in 2050 depends on factors that are overlooked, e.g. can multinationals repatriate their profits, will global mobility (i.e. immigration) ease out both differences in talent pool size and education. Moreover, the question of influence (or power) will stay relevant although it might be driven by factors like e.g. natural resources that most likely will be converted into (some sort of) military strength by developing economies that need to protect themselves.

February 28, 2011, Telegraph, UK: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8350548/Will-Chindia-rule-the-world-in-2050-or-America-after-all.html#.TfEPNkl7axI;digg

Filed under: Macroeconomics

Influence – the shadow of Power

If “international reality is a zero-sum game shaped not only by absolute capabilities but the sway over others that comes with strength” [http://www.the-american-interest.com/article-bd.cfm?piece=924], the world’s realities might change in an accelerating way after the Global Financial Crisis.

The U.S. is not only plagued by budget issues but “Navy and Air Force budget growth [are] increasingly going to salaries, pensions and maintenance” [ibid]; of course, about the same is true for most European nations as well as Japan.

While we have certainly noticed the growing influence of “Chindia”, we might not yet fully understand all the drivers of that new influence. “Disruptive Change” is a concept that might not be limited to (high tech) industry markets even when the build-up phase here might be longer.

Filed under: Macroeconomics

Correlation between GDP Growth and Government’s Political Orientation ? Probable in Europe…

When the going gets tough, voters seem to have one common preference across Europe:

Copyright: Economist (http://www.economist.com/blogs/dailychart/2011/06/europes-left?fsrc=scn/tw/te/dc/leftout)

From a global perspective, that creates an opportunity for countries without the GDP growth issues of Europe to adopt more progressive approaches. And suddenly, a few gaps typically perceived in the West will be narrowed down in at least some nations in the Eastern hemisphere.

Filed under: Macroeconomics

U.S. (nonfarm) jobs reduction in this recession: -6.4m

Is it “just” recession impact? Or some globalization, i.e. structural unemployment ? Will these jobs ever come back ? If anyone knew, stock market volatility would be smaller.

Graph: Copyright by The Wall Street Journal, http://online.wsj.com/article/SB10001424052702303657404576363783070164132.html

Filed under: Macroeconomics

Currencies Aren’t the Problem | Foreign Affairs

Currencies Aren’t the Problem | Foreign Affairs.

With the US dollar used for most of global trading – namely commodities like oil – Monetary Policy remains popular ever since the Fed softened the landing after the burst of the Dot Com Bubble in 2000.

At the end, it’s all about national economic strategies or about what citizens save or spend in what nations.

Filed under: Macroeconomics

About Thomas Rupp

Economist & MBA focused on leveraging Disruptive Technologies in IT and Telecommunications, mostly for Enterprise clients. More than 15 years at Microsoft, currently as Global Program Manager for Cloud Support Transformation. Sloan Fellow 2010 (MSc in Management) at Stanford Business School. Ultra Marathoner, Foodie, Diver and Audiophile.