Don Tapscott's Blog, page 51

Macrowikinomics and rebooting the economy

This article is the first in a series of 12 over the next 3 weeks written by Anthony D. Williams and me based on our newly released book Macrowikinomics: Rebooting Business and the World. The book is receiving a lot of buzz.  The Economist calls it "a Schumpeterian story of creative Descruction."

The book argues that many of the institutions of the industrial age have finally come to the end of their lifecycle, and now being reinvented around a new set of principles and a networked model.

Rebooting the Economy

By Don Tapscott and Anthony D. Williams

The election is over, but the economic stagnation gripping the country is not. Many economists are warning us to buckle down for a period of prolonged sluggishness, reminiscent of Japan's lost decade or the Swedish crisis of 1992.

Arguably, we've been in this slump for a decade. We just didn't know it. Booming house prices and the massive expansion of cheap credit made a lot of us feel rich as kings. Now that the jig is up it's clear that the housing bubble was masking a dark economic picture.

The economy is growing more slowly than at any time since the Great Depression.  It was announced today by the Labor Department that the unemployment rate for October remained unchanged at 9.6 percent with close to nearly 15 million Americans out of work. The Total unemployed (called U6 including all persons marginally attached to the labor force) is 17 percent.

There has been virtually no net job creation since 2000. And unless you happen to work in finance (where average salaries are four times higher than in the rest of the economy) your wages have probably stagnated. Factor in the collapse of the housing market and it turns out that the net worth of ordinary Americans is lower now than at the turn of the Century. A foreclosure crisis and stubbornly high unemployment suggest that the forward-looking picture is not getting rosier anytime soon.

It's far too convenient for critics to pin our economic problems on Obama. To do so makes the solution self-evident. Replace Obama, turf out the Democrats and you have your answer to America's woes. If only it were so simple.

Evidence is mounting that this not simply a crisis of political leadership. Rather than the normal ups and down of capitalism, the global slump is symptomatic of a deeper secular change. There is a case to be made that industrial economy and many of its institutions have finally run out of gas — from newspapers and old models of financial services to our energy grid, transportation systems, education and institutions for global cooperation and problem solving.

Take media and entertainment. Newspapers throughout the United States and Canada are collapsing.  Some say bad business decisions are to blame. What, you might ask, were the managers of the New York Times thinking when they borrowed hundreds of millions of dollars to buy lavish real estate and other dubious properties like the Boston Globe?  Others say that crashing circulation and revenues are caused by the tough economic climate.  But no amount of rationalization or denial can hide the looming truth that the collapse of the newspapers is not coincidental, conjunctural, or containable. It is systemic – rooted in the digital revolution.  So the leaders of the old media should take a deep breath and get going on the kind of experimentation required to forge some new approaches that are optimized for a world of digital data.

Newspapers are just the beginning. Across the board, a lot of old models and industries need rebooting.

Greater openness in innovation and science, for example, is creating more economic opportunity for start-ups and small business owners businesses who can acquire global marketing and product development capabilities that used to be available only to the world's largest and wealthiest enterprises.

Or when it comes to fixing and restoring confidence in the financial services industry more is required government intervention and new rules; it's becoming clearer that what's needed is a new modus operandi based on new principles like transparency, integrity and collaboration. Bankers can get going now to rebuild the industry on a new model.  For example they could remove the value and dispose of the $trillion of toxic assets on their balance sheets by placing them in a commons and letting the world's leading financial modelers determine their value.  Companies like the Open Models Corporation are working hard to make this happen – using the web and 21st century strategic thinking to create a human genome of risk management information.

On the health care front, Republican lawmakers have pledged to gut Obama's reforms.  This would no doubt deliver a significant setback to the Democrats' efforts to boost equity and contain costs. But convincing and empowering the American population as a whole to live healthier lives would arguably amount to a far greater accomplishment and no enabling legislation would be required.

Possibly the greatest failure of the current healthcare system is that it clearly doesn't engage a large part of the population. And when we don't think about our health we get unhealthy. Close to two-thirds (63.1 percent) of adult Americans are becoming overweight or obese, exercising less, and eating unhealthy foods.  Compared to healthy-weight people, overweight and obese people have particularly unhealthy lifestyles—lifestyles that contribute to the skyrocketing rates of preventable diseases like diabetes and heart conditions, which are among the most costly public health afflictions. A population truly engaged in the issue of wellness would not act so recklessly with respect to its own wellbeing.

To change that, we need to shift from a model of health care where patients are passive recipients of care only after they become sick to one in which one where patients become much more active in managing their own health over their lifespan. A main benefit, as studies show, is that when patients are more engaged in managing their own health, they are more committed to being healthy. Collaborative healthcare could not just improve health it could reduce costs of a system that is close to 20 percent of the GDP and acting as an anchor on the economy.

The same fresh thinking is required to job creation.  A study done last year by the Kauffman Foundation of Entrepreneurship shows the extent to which job creation depends on new business creation.  Using Census Bureau data, the Foundation examined net new job creation in terms of firm age rather than firm size. From 1980 to 2005, nearly all net job creation in the United States occurred in firms less than five years old. Without start-ups, net job creation for the American economy would be negative in all but a handful of years.

Estimates from the Panel Study of Entrepreneurial Dynamics samples suggest there are about 12.6 million U.S. nascent entrepreneurs.  "Add to this the swelling ranks of the unemployed and there is substantial latent entrepreneurial job creation potential in this country," says Kevin Kimberlin, Chairman of Spencer Trask – the Venture Capital company that has supported some big job creators dating back to Thomas Edison.  "We need to help these budding companies achieve liftoff.  Failure to launch need not be the norm.  With the proper incentives and platforms in place, we could quickly create hundreds of thousands of new jobs."

Because of the Internet, small companies can have the same capabilities as large companies, without the same liabilities, like bureaucracy and legacy cultures, processes, people and systems. The world's most dynamic innovators are using the Internet and new business models to transform industries ranging from manufacturing and transportation to fashion and retail.

So rather than simply debating the merits of fiscal stimulus, the task before us is to support more start-ups that lay the groundwork to get the country back to the high level of pre-recession job creation.  A moratorium on capital gains for start-ups would be a good place to start.  More on this is subsequent articles in this series.

The list goes on.  In Macrowikinomics we discuss the sparkling initiatives underway to rebuild our stalled institutions.  But these initiatives need to be come mainstream and not just light house undertakings.

So rather than simply tinkering, leaders in business need face up to the new realities and get going on rebooting their industries. Paul Krugman writes that "financial crises have consistently been followed by long periods of economic distress." Among others, he's calling for further stimulus. But the fact of the matter is that this just isn't going to happen.  With a congress in stalemate we need to seek other solutions. Instead, let's use this opportunity to rethink and rebuild many of the organizations and institutions that have served us well for decades, but now have come to the end of their life cycle.  If we do this there can be growth, jobs and a new time of prosperity.

ClimateSpark – a new venture capital contest

Mark Twain famously said about the weather that "Everyone's talking about it but no one's doing anything about it." Now that's changing. Thanks to Web 2.0, the entire world is beginning to collaborate-for the first time ever-around a single idea: changing the weather.

We have one affordable, global, multi-media, many-to-many communications system, and one issue on which there is growing consensus. Climate change is a nonpartisan crisis and all citizens, businesses and governments have a stake in the outcome. Solving the crisis will require leadership from every country and every sector in society.

I'm delighted to be an adviser to ClimateSpark, a new venture capital contest sponsored by the Toronto Atmospheric Fund. The world needs innovation, and for years innovation has been linked to venture capital. But the current process for fostering early stage innovation is not working as well as it could.

"The problem," according to a 2009 report by North Venture Partners, "isn't the number of opportunities investors are presented with, but it is rather the lack of an efficient means of filtering the options." Throughput, not supply, argues the report, is placing unnecessary constraints on today's innovation system. "How do investors find, filter and fund the most promising new opportunities in a deep ocean of possibilities? The truth is they can't," the report concludes.

One reason for the swelling pool of promising investment candidates is the proliferation of low-cost business infrastructures that make it cheaper and easier for companies to get up and running. One study found that the availability of open source tools, cloud computing, and the rise of virtual office infrastructure has driven the cost of launching an internet venture down from $5,000,000 in 1997, to $500,000 in 2002, to $50,000 in 2008.

Lower costs to launch should mean more new companies and more innovation for VCs to fund. But it doesn't. It actually makes it harder for companies to find the money and also the attention they need. Why? More companies receiving investment means more companies to supervise and more demands on the investor's attention. After all, VCs usually add more than just money—they make introductions, assist with strategic sales, and help recruit top talent.

So what's the alternative?

ClimateSpark is modeled partially on VenCorps, a form of community-powered venture capital that believes the crowd can both filter the global wealth of opportunities and channel more intellectual horsepower into making each investment successful. We profiled VenCorps extensively in our book, Macrowikinomics. ClimateSpark and VenCorps put up the money, but the choice of winner belongs to the community.

Applicants can upload a video elevator pitch, share some biographic details and/or post an executive summary. The community at VenCorps (made up of thousands of entrepreneurs, scholars, scientists, angel investors, service providers and government officials) then reviews and ranks each entry using a five-criteria weighted scorecard. During a challenge the top nine startups (as determined by the community) go on to the next round, where they can win an investment (typically US$50,000). That may not sound like a lot in typical VC-terms, but it's enough to kick-start a small enterprise as some of VenCorps' early successes have already demonstrated.

The $200 million GE Ecomagination Challenge: Powering the Grid, relies on similar collaboration. The Challenge is an open call to action for businesses, entrepreneurs, innovators and students to create a cleaner, more efficient power grid, and speed up the adoption of smart grid technologies. The Challenge opened mid-July and closed September 30th. More than 3,500 pitches were made, and more than 74,000 people used the platform to vote and comment. Sagle, Idaho-based Solar Roadways received the highest number of Challenge community votes and received a $50,000 award.

With the proliferation of social media and social networks, society now has the most powerful platform ever for bringing together the people, skills and knowledge needed to solve the many issues confronting the world. In this Wikinomics spirit, I am proud to be part of the ClimateSpark initiative.

Talent 2.0 at the Adecco Conference

Don Tapscott talks about Talent 2.0, a new paradigm emerging from major changes in technology, media and demographics.

Citizens as scientists

Earlier this week the New York Times Bits blog had a post about a new research project at ARM Holdings, the British chip designer. Called mbed, ARM has put together a kit for a microcontroller, which is a basic, low-power computer on a chip. ARM provides a set of software tools for bringing that microcontroller to life and linking it with other interesting items like accelerometers, gyroscopes, cameras, displays and thermometers.

According to the Times, the mbed device can plug straight...

Netflix: premium cable's worst nightmare

This week's Bloomberg Businessweek discusses Netflix's relentless expansion as the DVD-by-mail service makes even better use of the Internet.  Instead of relying on the US Postal Service to deliver its product, Netflix is increasingly streaming content online.  The company is perfectly poised to profit as the Internet continues to suck the television networks and premium cable into its maw.

Hollywood is having a hard time deciding if Netflix (NFLX) is friend or foe. The fast-growing...

Educators to crowdsource solutions to classroom problems

For years I've argued that every institution needs to move from a "plan and push" mentality to a stance of "engage and co-create." The new web enables all companies and other organizations to stop shoving things down the throats of employees, customers and other stakeholders and engage them in co-creating value.

There is no industry more ripe for change than education.  But not just that we need to change the model of pedagogy from the old broadcast model – teacher focused, one way...

OneBeep offers one-way connectivity to remote communities

In true Wikinomics spirit, every year Microsoft's Imagine Cup challenges students around the world to dream up  new ways to use technology to solve some of the planet's toughest problems. Participation in the contest has soared from less than 1,000 student competitors when the competition began in 2003 to more than 325,000 students in 2010.

All of the winners from this year's competition display tremendous creativity, but one of my favorites is the OneBeep software program from New Zealand...

What nature teaches us about building better human organizations

Here's a book that's just out in hardcover (and Kindle) and deserves reading: The Smart Swarm: How Understanding Flocks, Schools, and Colonies Can Make Us Better at Communicating, Decision Making, and Getting Things Done. The author is Peter Miller, a senior editor at National Geographic. I liked the book so much I agreed to write the foreword.

The Smart Swarm details many lessons to be learned from nature, such as the behavior of ant colonies, which have inspired computer programs for...

We need world-wide corporate reporting standards

It was many years ago that I first heard the optimistic adage, "you do well by doing good."  Back then, advocates of so-called Corporate Social Responsibility were trying to make a business case for good corporate behavior.  Few were persuaded.

The main reason for lack of success in winning support for the "being good," is that the adage was not true.  Many companies did well by being bad. Creative accounting, unfair labor practices, corporate secrecy, monopolistic behaviors, externalizing...

MacroWikinomics in running for Business Book of the Year Award

The Financial Times has announced that MacroWikinomics is one of sixteen books on the longlist of competitors for the 2010 Financial Times and Goldman Sachs Business Book of the Year Award. More than 200 books were submitted for the competition.  MacroWikinomics won its place on the list because of its "energetic call for commercial and political organisations to reinvent themselves or risk stagnation or collapse."

The panel of seven judges must now select six books to go into a final...