Wednesday, 30 April 2008

Intellectual Property Rights 'regimes' are archaic!

Posted by: Ash Khanna

Organizations (or Soft Technologies) are the most sophisticated of innovations we as a species create, maintain and grow.

As so eloquently pointed out by Hernando de Soto, the reason that many western economies are advanced is because they have developed ‘sophisticated property rights’ systems over centuries, facilitated by, emergent, democratic institutions and the rule of law. This in turn facilitated the industrial revolution and informed the structure of their institutions and organizations.

Today the global economy is predominately service based. The contradiction is that it is ‘served’ by institutions and organizations primarily informed by the 20th century (and even earlier)! The great level playing field is in the intellectual property rights systems – which according to me should evolve into ‘activity based property rights systems’(details for another posting(s)) that may be characterised, at best, as ‘developing’, globally.

Tangible resources are inadequate and existing jurisdictionally sensitive, industrial rights (i.e. patents) and copyright laws are archaic. It is derisory to expect such 'regimes' to facilitate sustainable high economic growth (as experienced by few countries during the second half of the 20th century), globally. Quite simply as far as intellectual property based transactions are concerned it is the ‘wild west’! And what that means for businesses that are ‘classified’ under the banner – “service economy”, its high risk and hence (potentially) high return!

From a business perspective you have to go back to the basics and ask yourselves: “What are we trying to get done and what structures are we using at multi-firm levels or intra-firm levels?” The stakeholders have to engage. They have to understand, “How a ‘business process’ makes 'business sense'?" They have to appreciate the "Why?" of an economic activity.

Management, to begin with, has to become fluent at implementing issues related to: control rights (contract or ownership); incentives; relational contracts. In the medium term they have to be educated in identifying and aggregrating transactions that are of the intellectual activity kind and the nature of ‘property rights’ that may emerge (and be currently associated with them).

The macro challenge lies in establishing activity based property rights systems comparable to the advanced existing property rights systems that may effectively accommodate ‘incentives to entrepreneurs’ and hence facilitate all the five types of innovations according to Schumpeter – i.e. new products, new methods of production, new sources of supply, the exploitation of new markets, and new ways to organize business.

Tuesday, 29 April 2008

Rats or New Barbarians?

Posted by: Ian Angell

According to today’s newspapers, WPP, the advertising giant is considering a move to Eire in order to escape the UK’s increasingly complex and expensive tax regime. This comes fast on the heels of the non-dom tax fiasco. A decade ago I was warning that a time was soon approaching when companies would be jumping ship in large numbers to escape penal taxation. All taxation is theft, and if firms tire of being ripped off then they will simply move! When will British idiot socialist politicians realize they do not have the power to intimidate global corporations. Escaping ‘UK Inc.’, these companies are not rats leaving a sinking ship {although it is sinking}, they are simply taking on the role of New Barbarians.

Let me quote a few paragraphs from my book The New Barbarian Manifesto:

A spectre is haunting the Globe – the spectre of New Barbarians. All the Powers of the old world have entered into a holy alliance to exorcize this spectre of enlightened self-interest: churches and monarchies, capitalists and socialists, populists totalitarian nationalists, militarists, and spies for the state.

Where is the party in opposition that has not been decried as self-interest by its opponents in power? Where the Opposition that has not hurled back the branding reproach of self-interest, against the more advanced opposition parties, as well as against its reactionary adversaries?

Two things result from this fact:
I. The New Barbarism is already acknowledged by all World Powers to be itself a Power.
II. It is high time that New Barbarians should openly, in the face of the whole world, publish their views, their aims, their tendencies, and meet this nursery tale of the Spectre of New Barbarians with a Manifesto.

{With apologies to Karl Marx and Friedrich Engels, authors of The Communist Manifesto.}

“We all have two choices: follow ‘new barbarians’ and advance to an uncertain future, or obey ‘old barbarians’ and their fundamentalist gospel of a false past. The new barbarians represent the winners in the new economic reality, leaving the losers to circle their wagons around old values and rituals, easy prey for the old barbarians. The outcome of their coming battle will be a world of three zones. The First World is the libertarian realm of new barbarians that supports the rights of the individual, not of the tribe. The Second World is an uneasy compromise between old barbarian ideologies and the modern world. Their mode of governance focuses exclusively on the rights of the collective. Might is right in the Third World, a place of terror and repression. Putting it brutally, the three worlds are an open society, a closed society and no society.

If trapped in the two lesser Worlds, you will be forced to conform to old barbarian rituals. Therefore, you must throw in your lot with the new barbarians. The alternative is to be left to the mercy of the masses, forced to accept the mind control of religious, political and ethnic bigotry – or suffer the consequences. The history of every human society has been of the tension between the individual and the collective, between the self and the tribe, between private aspirations and social norms. Today you are again faced with the three evils of religion, ethnicity and socialism. You must flee to the First World of ‘Smart Regions’, to prosper in a climate of individualism and of intellectual and financial freedom. Should such individuals fail to escape in large enough numbers, then a new Dark Age will engulf us all.

Welcome to the future. Welcome to the ‘Brave New World’ of The New Barbarian Manifesto.”

Monday, 28 April 2008

The Web 2.0 Gold Rush

Posted by: Ian Angell

Everywhere I see major corporations frantically joining the rush to profit from Web 2.0. {What an awful term – it implies a new version, an upgrade, when nothing could be further from the truth}.

The mere mention social networks gets companies foaming at the mouth. Mickey Mouse start-ups are attracting investment from financial investors who really should know better. Yes there are a few good ideas out there, but Web 2.0 is not going to be populated by thousands of Facebooks. Many, nay most of these new applications are just plain daft. The Internet bubble rides again!

We’ve seen it with Second Life (SL), the 3-D virtual social interaction space. Businesses are buying virtual islands in SL to create ‘interactive branded experiences.’ A veritable business paradise? Not so! Of the tens of millions of registered users, only a few tens of thousands are active. SL is an untraceable source of spam. Malicious software can steal virtual property, corrupt data, falsify marketing information, vicious rumours circulate, and there is the possibility of money laundering. Never forget for every social network there is an antisocial one.

Web 2.0 is awash in litigation over design theft, and the infringement of intellectual property rights – the Scrabble spat with Facebook is a case in point.

And yet the mere mention of blogs, mashups, podcasts, web feeds, widgets, or wikis get businesses hyperventilating. Something wonderful will happen, and they want their share!

Yes there are fortunes to be made, but extreme caution is needed, and sensible choices made. Just diving into social networks is folly, because they are fundamentally anarchic and uncontrollable. 

In the frenzied rush for gold, the miners are blind to where the real money is being made. A lesson should be learned from the original gold rushes. In the first wave it was picks, shovels, pans and mules – supplying equipment and transport – that made the money. Very few of the miners ever struck it rich. This was followed by the WWW of the second wave: selling Whisky, Weapons and Whores, where the real fortunes were made.

Sunday, 27 April 2008

Ash and Ian

Posted by: Ian Angell

Ash Khanna and I have worked together on a number of research and teaching projects over the past three years, and tomorrow (April 28th) he is returning to India.

During that time we have had many enjoyable discussions about various topics in the application of computing in business - we intend to continue our debates electronically. Over a most enjoyable farewell lunch today (at the Benares Restaurant in Berkeley Square - highly recommended) we came up with the idea of running this blog jointly. From today, each entry will carry the name of the author(s) - and if the piece is by a sole author, then the other will add comments.

We have had many (friendly) differences of opinion over the years, and we often bring our students on the Techno-legal course at LSE in on the debate. It seemed like a good idea if we continued this process, although now we want to broaden the discussion to include everyone who reads this blog.

Saturday, 26 April 2008

The Future of Money?

In this blog I want to resurrect an idea that I first published in the Financial Times over a decade ago: Off-Planet Banking!

Oh, if only money could talk … would it say goodbye?

We all know what money is, don’t we? Money is the notes and coins that governments print and mint to facilitate economic transactions. Money is a statement of faith in the value of instruments of exchange. Bearers of such instruments believe the promise that, on demand, or soon after, they may exchange amounts of that money for goods and services to the value specified, or for alternative promissory instruments to that value.

Most of us in advanced economies assume that every commercial transaction requires money! But does it? Barter is primitive! Or is it? Surprisingly, spontaneous new forms of barter and exchange are occurring all over the Internet, by-passing money at least in part. House owners swap properties for vacations. Social networks, appearing in games like World of Warcraft or Facebook, leak out into the real world, and on the basis of newfound friendships, exchange advice and barter services. Why bother? The recipients of such ‘favours among friends’ don’t need to dip into their savings, and they avoid the need to pay sales taxes; and the seller was paid with a promise of reciprocation that carries no burden of income tax.

Bartering is just the start. A shared sense of trust is all it takes to create a currency. Local communities have such trust in abundance, so they can issue their own notes of credit that will pay for goods and services in and around the locality. The idea of a Local Exchange Trading Scheme (LETS) was first introduced in Canada to kick-start the local economy of a depressed mining community, which boasted a high degree of internal community trust. They cut right across the vicious circle of untrusting formality that is the banking system. Banks work on credit-worthiness calculated on formal employment status, or ownership of capital goods. When you are not credit-worthy, the cost of borrowing goes up, and you become even less credit-worthy. With LETS the uncredit-worthy get credit.

LETS need trust; trust needs a sense of community; social pressures in a community ensure that all debts are repaid, reinforcing a virtuous circle of communal trust. A closed community can play this non-profit zero-sum game for the mutual benefit of all. Everyone starts at zero, and keeps track of debits and credits by double entry bookkeeping of IOU tokens. Usually measured in hours of work, these tokens assume that an hour’s labour is the same, no matter what the work; baby-sitting, gardening, window cleaning, hair-dressing, consulting. However, as the market for such tokens got more sophisticated, some schemes have introduced agreed differential rates to pay for more highly skilled work like doctoring, accountancy or advice on computing.

The idea of token money is not a new idea. It was the origin of bank notes. Chinese family businesses, which have spread across the globe in many diaspora over the generations, use Fei-Chien (flying money) to bypass the national financial regulations of their host countries. A huge underground banking system based on a code of trust has developed within the worldwide Chinese community. In India the system is called Hawalha (Hindi for trust) Banking. These systems are as old as money itself, and far more ancient that what we would call banking.

How does hawalha work? The basic model is that a person in India (say) hands over a large sum of Rupees, and in return is given half a bus-ticket. He then travels to England where, at a prearranged meeting, he matches his half bus-ticket with the other half sent by mail to his contact. He is then paid in Sterling, a sum equivalent to his original payment – minus a fee. My Indian students tell me they would never bypass Indian Government currency regulations in this way.

This confused situation is becoming even more confused as new technology changes the nature of government money. Such money is becoming electronic information; mere strings of binary bits stored on a smartcard. Using this technology, now Global Exchange Token Schemes (GETS) are possible. What constitutes money will no longer be monopolized by national governments. “Money does not have to be created legal tender by governments. Like law, language and morals it can emerge spontaneously. Such private money has often been preferred to government money, but government has usually soon suppressed it” (Hayek). In the Information Age, in the age of Internet can government keep suppressing it? Hayek’s vision of the Denationalisation of Money can now become a reality.

The LETS (and now GETS) idea can become a mechanism for company money. Then buying and selling goods and services within the company community, employees and customers, becomes a form of transfer pricing, which like the above schemes are invisible to the taxation authorities. In devising loyalty schemes, supermarkets are basically the issuing ‘plastic money’. Companies can go much further. The real issue is not “dollar bills, but Bill’s dollars” {can anyone tell me the origin of this quotation?}; Bill Gates’ dollars. A company can issue a proportion of its equity as digital cash. Instead of the value of money decreasing as governments profit from the hidden tax of inflation, the value of money can actually increase if the company’s shares go up in value. Such alternative currencies can spring up anywhere. With networked tills accepting digital cash, the transaction costs of exchange will become insignificant. It will be of little consequence for traders whether there are one or one thousand currencies in circulation.

Such company schemes can be computerized and they can go global! And why be restricted to the globe? Why shouldn’t information wealth leaves tribal grounds and moves to the deregulated common grounds of space? Although both international law and domestic law are applicable to this 'Global Commons', operators can choose which domestic order is most favourable, convenient, and tax efficient. There “We need banking, not banks” {again can anyone identify the source of this quotation?}, so why not off-planet banking. Satellite companies have spare capacity. A satellite acts as a depository for digital cash, and hand-held PCs linked to ‘transceivers’ move cash anywhere, anytime. It will be secure because customers send not only their digital cash and other information capital, but also the digital safe that secures it – and they hold the only key.

The virtual reality of off-planet commerce beckons: this illegitimate offspring of 'pirate radio' and the 'flag of convenience' is not such a silly idea. Off-planet commerce will service any (information) product that can be dematerialized. Pop-records, films, books, newspapers, sporting events, software, money are all now just strings of binary bits. Payment can be by credit card (or soon digital cash), just like products advertised on CNN are sent by mail from warehouses based in low tax countries to minimize price and cost.

With only the most rudimentary telecommunications infrastructure even poor states can get in on the action – they merely act as tax-havens and data-havens for footloose organizations. There are no barriers to entry; this is hi-tech business by proxy. Previous disadvantages of the Third World, like bribery, corruption, incompetence and political instability, are obstacles no longer; since, except for a brass plate, a company has no physical presence there – business is all off-planet.

The big-boys of the G7 cartel can no longer use their technological superiority to keep the rich pickings for themselves. The Third World no longer has to plead for crumbs, it too can slice the cake. The OECD are already crying foul over the “unfair lowering” of tax rates and a “race to the bottom” that could lead to “fiscal degradation” of the tax base. They “ain’t seen nothing yet.”

These pressures will make a mockery of restrictions on international money transfers. Disintermediation and dematerialization are the key words. Strapped for cash, governments will tax anything in solid form: taxes on physical property will inevitably rise, and property values will fall. Frantic taxmen are even talking of a “bit-tax”: they intend to extort their share of this trade by taxing data flow by volume; just like they do with whisky. Under the smokescreen of chasing narco-dollars, the USA is using money-laundering laws to track down tax-flight dollars in Switzerland and Grand Cayman; Germany wants to staunch the haemorrhage of euros to Jersey, Guernsey, Liechtenstein and the Isle of Man. The battle has only just begun. Soon under-reporting of taxes will snowball into the total migration off-planet of a state’s taxation capacity.

But dematerialized E-cash is the ultimate in ‘liquidity’. If income or sales are taxed at ‘source’, that source will find its lowest tax level. If that tax is based on ‘residence’ then it can be collected only if the authorities have global access to data on international money flows. Off-planet commerce will purge itself of intermediaries who meekly report their audit-trails to governments. When there is a direct link between buyer and seller, like in the black economy, both sides have much to gain by keeping their transactions to themselves. Look to the horizon; through a sky full of laundered and untaxed dollars the Information Age is dawning. The rich individual is finally free of the grasping and ungrateful tribe, and will escape to what William Rees-Mogg calls “the greatest tax haven of them all, Bermuda in the sky with diamonds.”

The term ‘Capital Flight’ will take on a whole new meaning. The worldwide government conspiracy over the issuing of money will finally be smashed. Then, like in William Gibson’s science fiction novels, governments will try to ban money. The ‘control freaks’ of government will have finally lost the plot.

So we all know what money is ... or do we?

Politician Jokes

In this blog I’ve brought together some of the jokes about politicians that I’ve collected over the years. Just like Will Rogers, in my writings I don’t make jokes about politicians, I just watch them and report the facts. So I really shouldn’t be asking for more political jokes, I’ve seen too many of them get elected. However, if you have any more please let me know.

You just can’t win these days. Do something wrong and you get fined; do something right and you get taxed. You work six months a year for the government. Even government employees don’t work that much.

Nothing is certain except death and taxes. Only death isn’t an annual event, and governments can’t make death any worse than it is. Democracy is four wolves and a lamb voting on supper. Taxation without representation may be tyranny, but it’s a lot cheaper than the alternative. That’s why I don’t vote for someone, I vote against the rest. If you’ve half a mind to read their manifestos, that’s all you’ll need. Although, if voting could change anything, it would be made illegal.

There is only one way to look at a politician, and that’s down. You can always tell when a politician’s is lying: his lips are moving. A politician will double-cross a bridge when he comes to it, so that he will always be there when he needs you.

Criminals take the money and run. Politicians run and take the money. Parliament is like a bunch of bananas; not a straight one among them. I’ve got a lot of friends in politics. They’re the best money can buy. That’s not strictly true. There are some honest politicians. They are the ones who, once bought, stay bought. It’s a shame how the 99% give the 1% a bad name.

So please send me any new jokes. I’ve had to shelve quite a few since John Prescott is no longer Deputy Prime Minister: How do you recognize John Prescott’s PC? It’s the one with Tippex on the screen.

Then there are the oldies but goldies;
A surgeon, a gardener, and a politician were walking down the street when they saw a ‘lady of ill repute’. The surgeon said “of course, surgery is the oldest profession. Surgical skill was needed to remove Adam’s rib in order to create Eve.” The second quipped “and where did the Garden of Eden come from? Only a gardener could make order out of the chaos.” “And who do you think created the chaos?” said the politician.

Friday, 25 April 2008

Another Government Cockup

This blog is just in case anyone missed this latest government ‘cockup’ (taken literally).

According to a spokesman, the Office of Government Commerce is “an organization that's looking to have a firm grip on government spend!” They spent £14,000 on a new logo:

It was to appear on pens, mouse mats etc. (It’s best not to ask why a government organization needs to go in for all this branding nonsense!). Anyway, it only took a moment for staff to turn the logo through ninety degrees and for hysterical laughter to break out all across the office.

Whoever designed this logo must also have thought that government is just a bunch of “w*****s”. Look out for the OGC branded material on e-Bay; staff can’t believe their luck over their windfall.

This is yet another example of 'residual category' mentioned below, and the 'tunnel vision' of control freaks who don't understand that the rest of us, by taking a different perspective, may see the world differently.

Tuesday, 22 April 2008

“I am not a number.” Fighting the government over ID cards.

“I am not a number. I am a free man!” The words of Patrick McGoohan as Number 6 in the TV series ‘The Prisoner’. Quite appropriate since I am writing this blog in the hotel in Portmeirion, where the series was filmed.

I say, I say, I say. Why won’t government politicians have photos on their ID cards? Because no one can decide which of their two faces to use. Strong words you might think; but NOT when your team has been slandered by brain-dead ministers simply for publishing the results of your research on ID cards.

In this blog I’m going to tell you about the experience of a team of Information Systems academics at LSE (Gus Hosein, Simon Davies, Edgar Whitley, myself and others) trying to inform public debate on the UK government's ID card proposals. We published our report, The Identity Project, on June 27th 2005. Among the many findings, we gave our cost estimates: between £10 billion and £19 billion over ten years. The government figure was just over £5 billion.

To be honest I personally expect the figure to be much higher, but we stuck on these numbers because they are easily justified using figures obtained from the Home Office itself – not that they are the most reliable of departments, as we have recently discovered. We used their numbers, because we weren’t looking for trouble. But trouble we got. The present British government believes in shooting the messenger with bad news.

Ministers went on the offensive – offensive being the operative word. No less that the then Home Secretary, Charles Clarke, went on the BBC to accuse us of spinning, and leaking material to the press for maximum exposure (like they do.) Tony Blair, the then Prime Minister, attacked us in the House of Commons. Second rate ministers lined up to pour scorn on our Report. Classic Socialism 101: “if you can’t rubbish the message, rubbish the messenger.”

Our figures were “simply mad,” and we were “technologically inept.” Simon Davies, a lead researcher, was singled out, and ‘smeared’ on the Today Programme on Radio 4, and all over the media. The reason? The press had fallen on our figures, to say that ID cards would cost £300 per person; not £93 as the government insisted. And guess what rigorous research gave them £93? A little birdy has told me they got it from a focus group – apparently, £93 is the amount that the market will take. When you stand up to bully-boy politicians you’d be amazed how many little birdies get in touch to dish the dirt.

But nowhere did we actually claim that each person would be charged £300 for their ID card – that was the press. We only gave the total price. There is no way of calculating total costs, because it is impossible to comprehend the consequences: we may know the price of ID cards, of any technology, however, the costs will accrue from here to eternity.

Indeed, I would be the first to admit that the project could end up in profit. If the world’s many other totalitarian regimes are convinced that ID cards are a great idea, then the income from sales could far exceed expenditure. I bet the government is now sorry that they toppled Saddam Hussein – he would have been first in the sales queue. Still … they can always count on the likes of Mugabe, Gadaffi and Kim Il Sung.

Anyway, it was all good knockabout stuff. Prior to the first Commons Vote (June 29th, 2005), the LSE Director, Sir Howard Davies, was telephoned by a senior Civil Servant and asked to pressurize us into withholding our report until after the vote. But Sir Howard, an ex-civil servant himself, had gone native. He came up trumps, publicly rebuking both Prime Minister and Home Secretary in a letter to the Times. The issue was raised at an LSE Governors meeting, where Bob Worcester of MORI waded in. He said his findings showed that whenever the government says one thing, then 83% of the population believes the exact opposite.

We were given the governors’ total backing. They had actually read our report, which our critics obviously hadn’t. If I say so myself, it is an excellent piece of academic work … unlike the Home Office’s response, which was appallingly written, and full of factual errors. I likened it to “a student summer project from a 3rd rate university.” Don’t take my word for it – you can see for yourself: the LSE report, the Home office response, and our response to their response are all on the LSE web site.

Thankfully I work for a university that won’t be intimidated by bully-boys – how many other British universities can say the same? Be quite clear, intellectual freedom is under attack in today’s Britain, and by the very same people who insist that “the innocent have nothing to fear from ID cards.”

Anyway the government needn’t have worried; after a very rough ride, the bill was finally passed by the voting fodder in the Commons on 13th February 2006, albeit with some nominal concessions, and received Royal Assent in March.

This project has fiasco written all over it. I say this not as a privacy advocate, because I’m not one, but as a student of Information Systems; one who subscribes to the cockup theory of history, not conspiracy. This ID card system will be one almighty cockup.

The ID card project, as proposed, is going to be one of the biggest computer systems ever envisaged – far more complex than the NHS system. It’s a disaster waiting to happen. £5.8 billion – don’t make me laugh!

Nevertheless I see silver linings among the dark clouds of ID cards. There’s huge money to be made from this vast gravy train. During the recent Commons vote I was praying for a government win. That may surprise you. I’m a professor of information systems: of course I want to study the Titanic from the drawing board to the iceberg. Of course I want to observe what will be the biggest in a whole line of public sector disasters. {Have there been any successes?} 

And anyway, I’m going to make a good living on the lecture circuit, poking fun at this dog’s dinner of a system. I’ve got at least five years of profit before the mess becomes so obvious that I’ll have to bow out with one final “I told you so."

Sunday, 20 April 2008

A Manifesto for Information Systems

I wrote this piece with a colleague Bernhard Straub nearly two decades ago – it is still just as relevant today, which only goes to show how little has changed in the intervening years. Quite depressing really.

Computer output carries a weight of meaning and authority that is derived from the dominating position of science and technology in the mind-set of Western society. The early successes of computer installations has generated and reinforced a platform of authority for information technology, and lays claim to scientific legitimacy, from which to justify further action. It is easy to be seduced into accepting an equivalence between the functionality of computerized models and the behaviour of ‘real problems’, where control over the model becomes control over the underlying problem. Knowledge is substituted with a mutual understanding, by way of an agreed explanatory framework - information technology - that assumes for itself the position of a superior interpretative power. What we can know about a problem situation is replaced by what we can explain within the limitations of information technology. The validity of decision-making shifts from objective knowledge to a numerical justification based on this self-propagating consensus authority.

Information technology is just another technological enterprise whereby man feels he can subjugate nature by mere will. The sheer power of optimistic rationality insists that progress (being in control of a better world) is achievable through rational (expressed as scientific and technological) thinking. In light of this dominant mind-set, it was inevitable that computer based information systems would be thrust as a panacea upon organizations, all with the highest motives. However, after the enormous success of IT over the past thirty years, as the idiotic ‘eighties give way to the no-nonsense ‘nineties, it is high time that we reconsider the trajectory of past, present and future developments.

Despite the growing number of computer system failures and the absurdity of confusing means with ends, form with content, functionality with solution, IT still whispers in our ears that computerization really is a competitive advantage, even in companies where IT is not a core-technology. What is more, we are haunted by images of competitors gaining a commercial lead by introducing IT. This undercurrent makes it easier to justify expenditure on IT schemes, when everybody else does, rather than to explain why we should not invest. But it is ideological blindness, and not the reality of advantage, that is bouncing us into these decisions. As a consequence, the portrayal of IT as a controllable tool goes unchallenged in a vicious circle of the blind leading the blind. A legacy of this technology is a rigid framework of ‘social engineering’, forcing organizations to accommodate the requirements of IT, and not the reverse. The mounting strain that this loads onto individual organizations necessitates a major rethink about the applicability of information technology. For IT is not a prescription, or even a proscription to action, but merely an interpretation of the commercial environment. Information is not a commodity, but a consequence of context.

Caution and skepticism are the healthiest perspectives to adopt, where neither the technology nor environment are in steady-state. Computer derived answers are inert; they do not reflect the nuances of ‘being there’, and the consequent differences between the model and the modelled. The promise of rationality and control that characterizes the optimism of computerization hides a darker aspect. Systems have more in common with organisms than mechanisms. To see computer based information systems as easily manageable tools, as suggested by the technological approach, is dangerously misguided. Computerization is a prisoner of societal consequences that cannot be controlled, no matter what the management regime. The task of IT-management is to cope with the manifestations and consequences of technological and organizational change.

Against this background of commercial uncertainty, business decisions will require a broad and solid understanding. This stance must be more than just a token tribute to philosophical problems and questions of meaning. It is not good enough to respond with an anti-intellectual ‘so-what?’ for this is a statement of complacency towards the questioning of cherished beliefs, hardly a stance that should be taken by a strategist in the face of uncertainty. Understanding must be disconnected from the prevalent authority. There is a crying need for a reassessment of the problems associated with the expansion of technological systems as integral parts of organizations. As new technology is confidently applied in ever more unstructured environments, the unsuitability of its instrumental rationalism brings about more frequent and increasingly disastrous consequences. The designers of grand schemes optimistically believe that, by mere intention, they can confine the consequences of using a computer installation to the achievement of a ‘wish list’ of their original goals. They fail to see that an evolving system is not the original installation, but what it has become, what it will become, and not what it was intended to be.

In response to this uncertainty, computerized bureaucratic systems are applied, increasingly rigid and inadequate structures leading to deadening conformity and repression. In their models, designers and bureaucrats can only see a tidiness that is a limited snapshot of fragments of ordered functionality and usability. Yet users know they are working in operational environments that are messy and vague, caused by the debris of detail in the unfolding history of a system and its environment. This debris holds the potential of disorder, and when reconstituted by a particular contextual significance and relevance, it can form an erratic and unpredictable nature. Rather than minimizing the risks and maximizing the opportunities nourished by this systemic behaviour, computer systems and methods that are built on narrow intentions and simple goals lead inevitably to counterproductiveness.

A new approach is needed, one that will deal with the consequence of technology, as embodied in the observed behaviour of organizations. This approach must balance the advantages against the limited applicability of computers, and be grounded in a theory based on experimentation and contingencies, and a sympathetic reaction to the disposition of the social and commercial environment. It must not be based, naively, on the belief that a description of the situation via models and structures will enable us to be ‘in control’. We can only control in the sense of formulating and precipitating actions or intentions, but this is not being in control of consequences. It is a delusion to assume that we are in control of IT, and to conclude by extension that organizations can be controlled accordingly. Even our vocabulary conspires in this self-deception. ‘Organizations’ are not totally organized, there is much that is disorganized and unorganized, even un-organizable. IT must be used to maintain flexibility and adjust tactical intention, so as to relate consequences to perceived strategic aims. Continuous experimental feedback within each organization is essential if we are to emphasize information and separate it from technology. We need this new attitude in order to overcome the cynical opportunism widespread in many stakeholders who are promoting ‘certainty through information technology’, preying as they do on the business world racked with doubt and uncertainty. They can no longer shift responsibility for tangible consequences onto a technology that ultimately cannot be culpable.

Money makes the world go around?

Money makes the world go around. Oh no it doesn’t! It’s inertia that makes the world go around … until it stops.

Inertia! What a powerful influence, or at least that’s what John Donahoe, the new boss eBay, is hoping. Donahoe is raising eBay’s fees and changing its rules, and assuming that its clients won’t desert the auction site in their droves for another Some of the smaller players in this eBay ‘community’ are threatening a boycott this May Day. The activists claim that the site is favouring the big players to the detriment of the vast number of small timers.

The Internet is really fascinating. Why is it that one site (possibly two) rise to dominate each sector, and people stay loyal despite better offers appearing in the more boutique specialist competitors? Don’t give me that brand loyalty nonsense. Brand recognition, yes! Google, Amazon, eBay, Skype, Facebook/Myspace are the first points of call in their particular sectors, and so they rule their particular roosts. Do they give a superior service to their clients, or is it apathy or laziness that fuels this inertia? Is it an example of ‘better the devil you know’? Or is it the gravitational pull of a critical mass, preventing large enough numbers to break away to form a viable competitor?

Whatever the reason, it is only to be expected eventually that familiarity breeds contempt. Is eBay taking its community for granted? If so, they had better beware. Entropy is a permanent fact of every system. A ‘tipping point’ will eventually be reached where the system dives into decline, and users will move on to more favourable climes.

I wonder which of the Internet Big Boys will be the first to fail?

Automation Complacency

It never ceases to amaze me how history repeats itself – and we never seem to learn from it. The same old problems seem to keep on cropping up. In this short blog I’d like to refer to one particular form that I call ‘automation complacency,’ where high-tech devices and a faith in systems lull us into a false sense of security.

Here is an example from nearly twenty years ago. On October 17, 1989, the earthquake in San Francisco knocked out all ATM and EFTPOS machines. {By the way do we still use the term EPTPOS (Electronic Funds Transfer at Point Of Sale) today? In the UK we just say ‘chip and pin.’} After the ‘quake no-one could buy badly needed goods (like food!) because their credit/debit cards were useless with the EFTPOS down, and they couldn’t use cash because no-one had any with the ATMs out of action! Utility had become reliance, reliance had become dependence, and an accident was waiting to happen

There’s another earthquake story from ‘Frisco. I don’t have the exact details, so I’d be grateful if any reader can fill in the gaps. It concerns a company {unknown} that had conscientiously developed a disaster recovery programme. Like good boy scouts, they were prepared for all eventualities. An exact back-up system of their computer facility was housed in Arizona, which could be on-line at the flick of a switch. They even had emergency drills, where all staff rushed to the airport and flew off to Phoenix {I think}, so they could deliver a normal service to their customers in a matter of hours

Confident, or is that complacent, that their system had all the angles covered, a major earthquake duly came, {I’m not sure of the date} and the backup system swung into action. However, unlike in the dry runs, this time all the staff rushed home to check that their families were unharmed!

Has anyone got similar stories of automation complacency?

Golden Rules

We all know the golden rule of life, namely “the guy with the gold makes the rules.”
But let’s not forget the 2 golden rules of system design:
1. Leave the firm before the system goes live.
2. Find someone you can blame and build him into the design.

Do any of you have real-life examples of these rules in action?

Saturday, 19 April 2008

The Fallacy of the 'Residual Category'

I've finally succumbed to pressure from the 'Angellists' (if you don't know who they are, it's best not to ask) to start a blog. So it's all their fault.

I’ll start by sounding off on a favourite theme of mine: the only property that systems have in common is that THEY ALL FAIL … eventually. But it’s true. I’m always on the lookout for perverse systems failures, so please let me know if you come across any novel examples.

It’s all to do with the complexity in the interaction between computer systems and human activity systems. The evidence is there for all to see. Consider the problems with biometric databases. Baroness Anelay of St Johns, with a group of British parliamentarians, was once given a demonstration of a facial recognition system. It failed; indeed the system subsequently crashed, twice. The reason? A 'gentleman' at the biometrics company told the baroness that her face was “too bland.”

In 2000, Raymond Easton, a 49-year-old man living in Swindon was charged with a burglary in Bolton, 200 miles away. His DNA matched some found at the crime scene. The problem was Easton was in the advanced stages of Parkinson's disease, and could barely dress himself. Only after an advanced DNA test was the initial match proved to be a ‘false-positive’: this is when innocents are identified as guilty, for whatever reason – ‘false-negatives’ are when the guilty slip through the net.

Television programmes like CSI (Crime Scene Investigation) trumpet the myth of forensic investigators vacuuming up biological material from the scene of crime, and comparing DNA samples with a computerised database, until finally out pops the criminal’s name: end of story! Nothing is that simple. Official figures admit to a 4% error in the database. Felons will vacuum up DNA from football crowds and collect cigarette-ends. Low paid hospital staff will be compromised to supply hospital detritus: samples of blood, skin, saliva, and other biological material. Aspiring criminals, while perpetrating a crime, will randomly scatter an arbitrary collection of DNA material all over the crime scene, and the whole system will be compromised.

Fingerprints are problematic. In 1997 Shirley McKie was a police detective in Kilmarnock, Scotland. During the investigation of the murder of Marion Ross, it was claimed that she had accidently left her thumb print inside the house where the murder took place. McKie was adamant that she had not entered the property, and this was affecting the credibility of the police case. She refused to back down, and was arrested in a dawn raid the following year and charged with perjury. The only evidence was the thumb print allegedly found at the murder scene. Two American experts testified on her behalf at her trial in May 1999 and she was found not guilty. The Scottish Criminal Record Office would not admit any error, but Scottish first minister Jack McConnell later said there had been an "honest mistake". On February 7, 2006, McKie was awarded £750,000 in compensation.

The Chaos Computer Club (CCC), the long-standing German hackers’ club, has shown how to capture fingerprints, transfer them onto a foil, and then wear it to beat biometric readers across Germany. To add insult to injury CCC has published a fingerprint of the German Interior Minister, Wolfgang Schauble, a vocal supporter of biometrics.

All of these cases are examples of problems resulting from self-referential tunnel vision, all caused by the fallacy of the ‘residual category’. In creating a computerised system, designers first identify and then categorise certain entities (and their properties) as being of interest – as data. Focussing on these data categories, everything else is dumped into one big residual category, and ignored. However, the representation of each ‘interesting’ element can only ever be a pale shadow of the totality of the thing itself. All other aspects of that thing are deemed unnecessary, and they too are discarded in the residual category. The categorical representation of ‘each thing as data’ is not identical to the thing-in-itself: because ‘the map {the overall data structure} is not the terrain.’

Each shadow element will remain ‘structurally coupled’ to the ‘rest of the world,’ but in creating the computerised system all these couplings are cut and discarded. Therefore, treating the ‘remainder’ as a separate ‘residual category’ implies that these couplings have simply disappeared, which means the two parts (the data, and everything else in the residual category) no longer comprise the original ‘whole.’

Hence, the system, by its very nature, introduces an asymmetry: the couplings are made to disappear from any representation … but they are still there in the world. The two artificially separated parts continue to operate (and perhaps interact) as the unobservable whole. Because of this asymmetry (between the world as it is, and as it is represented), all data is conditional, but those conditions are necessarily unobservable, unappreciable. However, they can be appreciated by others who take a different perspective, and derive different categorisations outside this self-referential loop.

System designers (and users) always have tunnel vision, assuming that everything in the residual category will mind its own business and not interfere. However, the analysis implicit in the system’s design is not the only one. A different perspective will beget different observations, different interpretations, different categorisations … a different analysis and a different system that will compete with the original. Natural selection, and not mathematical sophistication will decide which system is the most appropriate.

This non-referential aspect of every data entity in the system means that all such data is necessarily a misrepresentation. Another observation is required to clarify the situation, however, that too will introduce new distinctions, bringing with it new partially unobserved interferences, new (mis)representations.

This problem is apparent in all attempts at categorisation. A choice of categories may solve preconceived problems, however, bewildering situations will inevitably arise that finesse, even reverse, the best intentions of analysts.

Truncated and trailing structural couplings, so casually discarded by the system, stay on to haunt and interfere with the user, and they can reassert themselves in the most inconvenient ways. One particularly good example of how opportunists can take advantage of the asymmetry is the so-called ‘click fraud’ in on-line advertising.

Analysts from Google, Yahoo and others have developed the highly profitable pay-per-click system. Anyone can display ‘Google ads’ on their Web sites, and any visitor who clicks on the ‘ad.’ is transferred to the advertiser’s site. Every click is charged to the advertiser, and the income is shared down the food chain, some eventually ending up with the site displaying the advertisement. Apparently advertisers get better value for money than with old media, because they only pay for ‘live ones,’ those interested parties who bothered to click on the ‘ad.’ The value of this business in the US alone is well in excess of 10 billion dollars annually.

Those not interested in the products supposedly don’t click the advertisements. Oh no! People in this residual category of ‘disinterest in the products for sale’ may take a very different perspective, and show a lively interest in the ‘free money’ on offer – hence the ‘click fraud.’ I should add that I’m not sure it is a fraud. If a company announces ‘get someone to click on my site and I’ll pay you,’ then they shouldn’t be surprised if some of the visitors come from the residual category of non-customers.

The opportunists who categorise the world differently set up dummy sites filled solely with ‘Google ads.’ They then hire people to click on the ‘ads’, with no intension of buying anything of course, and in this way sites can make quite a few ‘bucks per click’. Such moneymaking antics have even been automated. It has been estimated that this click fraud costs business around half a billion dollars a year. Google, Yahoo are intercepting the more obvious frauds, but it still goes on.

Aren’t residual categories wonderful? I’d love to hear of the particular experiences of anyone (anonymously of course!) who has set up such a site.