State of Digital World, China’s 19th Party Congress & Dubai Flying Bikes

We are a big NBA fan despite losing our Seattle Sonics basketball team to Oklahoma City. So before headed to dinner with friends we were happily watching the opening game of the season between the Cleveland Cavaliers and the Boston Celtics and unfortunately saw live the gruesome injury suffered by Celtic forward Gordon Hayward. Having dislocated our kneecap while playing basketball in college, perhaps our capacity for watching such injuries is less than others–we literally fled the room after the injury. The next morning while scanning the news we came across the photo below. Don’t worry, it does not show the injury but it does show the horrified reaction of fans sitting behind the basket, one holding his hands up to his mouth, another grimacing, another covering her eyes. And then there’s one guy holding up his smartphone smiling somewhat evilly and either taking a photo or video of Hayward. Who is this man? Why is he so happy about this horrible injury? Why does he feel the need to record the moment? At the same time he smiles and records, a man, presumably from the team’s medical staff, is running up to help Hayward. This photo seems to sum up humanity in all its glory, flaws and depravity. Meanwhile we record more edifying happenings, including the state of the digital world, China’s 19th Party Congress and flying bikes (!) in Dubai. It’s this week’s International Need to Know where not even driving rain and power outages  in Seattle prevent us from delivering international news and data to illuminate our world. (But not next week when we’ll be on the road at a conference–we’ll be back on November 1)

Without further ado, here’s what you need to know.

Who is Exporting Connections?

Approximately 50 percent of you are reading this on your mobile devices according to our data analytics (apologies to you for the difficult formatting on mobile–we hope to improve that soon). We have a number of readers in Japan and it’s no wonder since according to the Organization for Economic Cooperation and Development’s (OECD) recently released Digital Economic Outlook 2017 report, Japan is number one in mobile broadband digital subscriptions (see table below). Finland, Australia, the U.S. and Estonia are among a number of countries well above the OECD average with Greece, Hungary and Colombia bringing up the rear. Surprisingly, high tech start-up nation Israel is below the OECD average. Pivoting from users to producers, Korea is tops for highest share of employment devoted to IT, followed by Estonia, Luxembourg and Finland. Estonia is famous for its digital prowess even as its Baltic neighbors lag far behind–policy matters more than geography. The report also examines the largest exporters of ICT services. Ireland is tops, followed by India, the Netherlands and the U.S. Interestingly your broadband speeds, subscriptions and penetrations are not always correlated with the size of your industry and exports.

China at the 19th Party Congress

Earlier this week, at the opening of China’s 19th Party Congress, President Xi Jinping gave a three and a half hour speech promising “a new era,” one in which we hope speeches will be shorter. For those trying to understand China’s political structure in the wake of the Party Congress, below you will find a handy infographic (click on it to make it larger and readable) produced by M.Taylor Fravel of MIT. China’s economy has been relatively robust leading up to the Congress. It appears that some of the growth was bolstered by large deficit spending as can be seen in the second chart below. Current government stimulus is higher than even during the height of the financial crisis in 2009 as Kyle Bass of Hayman Capital Management reports. Not coincidentally, Natixis reports on the required money that will need to be spent to support China’s “zombie state owned enterprises” (those unable to pay their interest expense with their revenues). China has been deferring dealing with some of their economic challenges in the interest of having a strong economy leading into the Congress. As this week’s meetings end, what will China’s approach now be? Perhaps their AI’s will assist them in determining how best to allocate resources.

Flying Police

The new Star Wars trailer came out last week. Star Wars appears to have taken on the traits of a religion for many. And while if a new religion is to emerge we prefer it to be based on Bill Murray, even we were captivated by news this week that Dubai is testing “Star Wars-style hover bikes that would be used by their police force. The Russian-made bikes were unveiled at a tech show last week and “Hoversurf CEO Alexander Atamanov posted on Facebook to say the company and Dubai police had signed a memorandum of understanding to mass produce the craft in the Dubai area.” The bikes are reported to fly up to 70 km/hour, fly at a height of 5 meters and have a range of six kilometers. Interestingly they are designed to fly “with or without a passenger.” The Dubai police wish to be able to zip over traffic in emergencies and perhaps more worrisomely, “It can recognize people in any area and identify suspicious objects and can track suspects,” Brigadier Khalid Nasser Al Razooqi, director of the Smart Services Department at Dubai Police, told Gulf News. Al Razooqi also told Gulf News that the hover bikes will be fitted with cameras connected to a command center and be used at tourist attractions in Dubai. We would have completely failed you if we did not provide video of the hover bikes complete with dramatic music, which you find below.

DUBAI POLICE HOVERBIKE!!!
704 likes 1230243 views

Ties to China’s Economy, Digital Leninism and AI Rankings

When I moved to Seattle from Washington, D.C. many years ago, I became friends with a guy who had recently moved to Seattle from Hollywood. Naturally we exchanged stories of our respective experiences in the industries of politics and entertainment. I had a thin magazine of salacious stories of bad behavior by elected officials and their staff. A bartender told me of a drunk Ted Kennedy’s boorish behavior in his bar, Chuck Schumer’s staff detailed his screaming fits and abusive language, and I knew one of the (many) women who Oregon Senator Bob Packwood harassed. Most of my stories, however, were of men and women working conscientiously for the public good. But my friend from Hollywood? He had Dickens sized volumes of tales of viciousness, brutish behavior and the general craziness of Hollywood executives and their enablers. These were stories of people treating other people in the most horrible ways. I came to the realization that the only industry more vicious and cut-throat than politics was Hollywood. This week, both appear to be in a desperate race to the groping bottom. But today we shift our eyes towards more important matters and analyze China from three perspectives: the world economy’s increasing reliance on it, its leadership grasping at a new way to conduct central planning, and its progress in artificial intelligence. It’s this week’s International Need to Know, the source of international information for men and women of all levels of IQ.

Without further ado, here’s what you need to know.

Help Me Obi Wan

Last week we detailed positive economic growth in the global economy, with nearly every market currently seeing increases in their GDP. We also noted that what goes up will eventually go down and the risks of a synced world economy is there could be a simultaneous swan dive in our future. Which brings us to the increasingly prominent role China plays in the global economy. Shaghil Ahmed of the Federal Reserve Board recently detailed China’s growing importance, its opportunities, its risks, and what would happen to other economies if China runs into economic trouble. In regards to the last point, Ahmed notes that “if China went into a crisis, which admittedly is a tail risk, the effects around the globe would be substantial…aggregate emerging economies would drop 4 percent below the baseline, roughly equivalent to what transpired in the Mexican 1994-95 crisis.” Advanced economies would suffer too, with Ahmed estimating a 3 percent decrease in GDP growth. Even the U.S. would see growth reduced to 1 percent in Ahmed’s models. Ahmed’s is a fascinating, if complicated paper, and I urge you all to check it out. Ahmed does not expect a China economic crisis but the world’s increasingly intricate ties to the Chinese economy are why people worry over Chinese debt levels, liquidity and other economic challenges. Which brings us to our next story: China’s central command fetish.

Digital Leninism?

A problem for those advocating for an economic system based on communism or socialism is the real world results of the past 100 years.These economic systems have repeatedly failed throughout history. But China, according to Sebastian Hellmann of the Mercator Institute for China Studies, believes successful central planning is now possible due to technology and big data. With the advent of more powerful computers and new artificial intelligence methods, Hellmann asserts that “With the help of Big Data, China’s leadership strives to eliminate the flaws of Communist systems. In the former Soviet bloc, administrative planning created a shortage economy due to a lack of price signals and reliable feedback on supply and demand. Today, a growing number of Chinese economists and technology experts believe that Big Data will fix these deficiencies of national economic co-ordination.” President Xi’s team terms this new technological central command “top-level design.” We are tempted to conjure up Hemingway’s words, “Isn’t it pretty to think so?” but it is worth wondering what AI and big data will allow in the future. Perhaps technology will allow central planning of an economy to be more efficient than markets–we doubt it but as significant progress is made in AI, our lives will change in all sorts of ways, and maybe this will be one of them. Also, China is pretty successful already with, while not a central command economy, not exactly one based on western liberal economic philosophies either. As the economist Tyler Cowen recently noted, “For the first time in my lifetime, America finally has a peer country… in terms of human talent, GDP, China right now is in most ways a peer country to the United States.” Which leads us to this week’s last story on China.

Ranking the HALs of the World

There has indeed been lots of progress in artificial intelligence in recent years with promise of more to come. For China to achieve its digital central planning dreams, their AI capabilities will need to become better yet. Interestingly three AI researchers from the Chinese Academy of Sciences (one of them is also associated with the University of Nebraska of all places) recently published a paper to evaluate where AI currently stands with human intelligence. They conducted this research to assess the risk of AI to humanity but the rankings are interesting regardless of that angle. In 2014, they developed a “standard intelligence model” that claims to allow the researchers to test IQ levels of both machine and humans in a standard way. In their rankings (see table below), machines still lag far behind humans. But three of the top four ranked machines are all Chinese based, followed by three in America (all mighty, all knowing, all invasive Google ranks first, though still behind a six-year-old). We’ve discussed China’s intense efforts in AI before. Regardless of whether AI progress allows them to accomplish central planning and/or leap to high income status, it is likely to have a large impact on China and the world one way or another.        


A Tribute to John Miller, Good Economic News, China Challenge & Housing Prices

One of my first adult jobs was working for U.S. Representative John Miller. Even then I knew I was working for a special man, but as the years passed and political fashions changed to the loud, extreme and shallow, it became even more clear how special was the moral and intellectual clarity John brought to serving Americans, and really humans around the world, in what is sometimes called the people’s house. John was an early supporter of gay rights, played a role in the passage of the Japanese-American reparations bill, and worked for human rights around the world, often at great political risk to himself. He was fiscally conservative, a great environmentalist and as a local politician helped save the Pike Place Market. But it’s not his policy positions that distinguished him–fair minded people can disagree on what the best policy prescriptions are and even the best proposals contain trade-offs and unintended consequences. No, what set John apart was his integrity, diligence and willingness to change his positions in light of new information. I can remember many a discussion with John and his other advisors of what to do on an issue, a conversation full of facts, as well as philosophical discussions on how to balance different ideas and interests. He truly wanted to do what was best for America, the world and his constituents. During one reelection campaign, researchers discovered salacious material about his opponent. John refused to use it. He wanted the campaign to be about the issues, not his opponent’s personal life. Later, after leaving Congress, John became the US Ambassador-at-Large to combat human trafficking. He fought tirelessly to advance human rights around the world and arguably no one is more responsible for raising awareness of the sex slavery trafficking issue than John. David Simon’s new show, The Deuce, whether it knows it or not, is partly informed by John’s work. In his last public act, John wrote and published a novel about George Washington, celebrating our first president’s resistance to the corruption of power. At a perilous time when we need more leaders like John, the world has one fewer. John Ripin Miller died yesterday at age 79. RIP.

The Good News

In a week of tragedy and death, perhaps it’s time for a ray of economic sunshine. In the chart below you’ll see, courtesy of the Long View, that “every single manufacturing measure in the world is in growth territory.” This is taken from the Global Purchasing Managers Index which measures manufacturing activity of economies. Anything above 50 portends growth. And as you see, every single country, like customers at Applebees, is above that magic 50 line. Developed markets, at 54.2, are doing even better than emerging markets, who are at 51.7. But right now the entire world is in a synchronized march upwards. The Euro area is looking particularly strong as it recovers from a long slog of economic doldrums. Even Greece is showing signs of life. Now the worry is what goes up will eventually go down and it could be a synchronized swan dive as well, but for now, the world economy is a hopeful place to avert one’s gaze from the rest of the craziness.

Making the High Income Leap

Last week in analyzing China’s rural-urban divide, we noted that the education deficit in China poses a challenge to the country making the leap from middle income to high income status.* Over the last 70 years, 15 countries have made the leap to high income status. As Stanford’s Scott Rozelle points out, every single one of these fortunate fifteen had “three quarters or more of the working population completing high school while the country was still in the middle-income bracket.” But if, as we worried about last week, 400 million Chinese will be “cognitively handicapped,” that three-quarters figure will be difficult to obtain and breaking the high income status threshold difficult to achieve. As Rozelle says, “in the 79 current middle-income countries, only a third or less of the workforce has finished high school. And China is at the bottom of the pack.” But, as we also noted last week, China is well aware of the challenge and working to meet it. Whether China meets the challenge has huge ramifications not just for their country, but for the world economy as we’ll detail next week (we’re becoming like a serialized TV show all of a sudden–but we promise a better ending than Lost).

*The World Bank divides countries into low income, middle income and high income based on gross national income per capita, adjusted for inflation over time. 

Housing the Wealthy

In our spare time, we’ve been fixing up a hobby house structure in our backyard. We have built a wall, installed a window and soon will be installing a floor. As of yet, we still have all ten of our fingers, but we are willing to risk limbs because the price we can get for renting the humble structure are high. Here in Seattle, worldwide headquarters of INTN, housing has become increasingly expensive. Many blame rising housing costs on Amazon’s explosive growth, and certainly nearly 30,000 new employees are going to have an effect. But compared to other world cities, Seattle is a piker (a Pike Place piker). In fact, even the most expensive U.S. cities are cheap compared to the leading world cities. As you see in the chart below, Hong Kong has the highest price to income ratio in the world, followed by Beijing, Shanghai and London. There are more rich people in the world today and they are more widely dispersed throughout the world. The wealthy are driving up prices both in their home towns, but also in cities where they want to live. This is more evidence for our theory that cities are becoming far less interesting. Creativity and new things come from the muck, which increasingly will be outside of the big, shiny, everything looks the same blandness of today’s Ikea-like cities.