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In Dusty Archives, a Theory of Affluence

Review - A Farewell to Alms - Industrial Revolution - Human Population - New York Times

By NICHOLAS WADE Published: August 7, 2007

For thousands of years, most people on earth lived in abject poverty,
first as hunters and gatherers, then as peasants or laborers. But with
the Industrial Revolution, some societies traded this ancient poverty
for amazing affluence.

Historians and economists have long struggled to understand how this
transition occurred and why it took place only in some countries. A
scholar who has spent the last 20 years scanning medieval English
archives has now emerged with startling answers for both questions.

Gregory Clark, an economic historian at the University of California,
Davis, believes that the Industrial Revolution — the surge in economic
growth that occurred first in England around 1800 — occurred because of
a change in the nature of the human population. The change was one in
which people gradually developed the strange new behaviors required to
make a modern economy work. The middle-class values of nonviolence,
literacy, long working hours and a willingness to save emerged only
recently in human history, Dr. Clark argues.

Because they grew
more common in the centuries before 1800, whether by cultural
transmission or evolutionary adaptation, the English population at last
became productive enough to escape from poverty, followed quickly by
other countries with the same long agrarian past.

Dr. Clark’s
ideas have been circulating in articles and manuscripts for several
years and are to be published as a book next month, “A Farewell to
Alms” (Princeton University Press). Economic historians have high
praise for his thesis, though many disagree with parts of it.

“This is a great book and deserves attention,” said Philip Hoffman, a historian at the California Institute of Technology.
He described it as “delightfully provocative” and a “real challenge” to
the prevailing school of thought that it is institutions that shape
economic history.

Samuel Bowles, an economist who studies
cultural evolution at the Santa Fe Institute, said Dr. Clark’s work was
“great historical sociology and, unlike the sociology of the past, is
informed by modern economic theory.”

The basis of Dr. Clark’s
work is his recovery of data from which he can reconstruct many
features of the English economy from 1200 to 1800. From this data, he
shows, far more clearly than has been possible before, that the economy
was locked in a Malthusian trap _ — each time new technology increased
the efficiency of production a little, the population grew, the extra
mouths ate up the surplus, and average income fell back to its former
level.

This income was pitifully low in terms of the amount of
wheat it could buy. By 1790, the average person’s consumption in
England was still just 2,322 calories a day, with the poor eating a
mere 1,508. Living hunter-gatherer societies enjoy diets of 2,300
calories or more.

“Primitive man ate well compared with one of the richest societies in the world in 1800,” Dr. Clark observes.

The
tendency of population to grow faster than the food supply, keeping
most people at the edge of starvation, was described by Thomas Malthus
in a 1798 book, “An Essay on the Principle of Population.” This
Malthusian trap, Dr. Clark’s data show, governed the English economy
from 1200 until the Industrial Revolution and has in his view probably
constrained humankind throughout its existence. The only respite was
during disasters like the Black Death, when population plummeted, and
for several generations the survivors had more to eat.

Malthus’s
book is well known because it gave Darwin the idea of natural
selection. Reading of the struggle for existence that Malthus
predicted, Darwin wrote in his autobiography, “It at once struck me
that under these circumstances favourable variations would tend to be
preserved, and unfavourable ones to be destroyed. ... Here then I had
at last got a theory by which to work.”

Given that the English
economy operated under Malthusian constraints, might it not have
responded in some way to the forces of natural selection that Darwin
had divined would flourish in such conditions? Dr. Clark started to
wonder whether natural selection had indeed changed the nature of the
population in some way and, if so, whether this might be the missing
explanation for the Industrial Revolution.

The Industrial
Revolution, the first escape from the Malthusian trap, occurred when
the efficiency of production at last accelerated, growing fast enough
to outpace population growth and allow average incomes to rise. Many
explanations have been offered for this spurt in efficiency, some
economic and some political, but none is fully satisfactory, historians
say.

Dr. Clark’s first thought was that the population might
have evolved greater resistance to disease. The idea came from Jared
Diamond’s book “Guns, Germs and Steel,” which argues that Europeans
were able to conquer other nations in part because of their greater
immunity to disease.

In support of the disease-resistance idea,
cities like London were so filthy and disease ridden that a third of
their populations died off every generation, and the losses were
restored by immigrants from the countryside. That suggested to Dr.
Clark that the surviving population of England might be the descendants
of peasants.

A way to test the idea, he realized, was through
analysis of ancient wills, which might reveal a connection between
wealth and the number of progeny. The wills did that, , but in quite
the opposite direction to what he had expected.

Generation after
generation, the rich had more surviving children than the poor, his
research showed. That meant there must have been constant downward
social mobility as the poor failed to reproduce themselves and the
progeny of the rich took over their occupations. “The modern population
of the English is largely descended from the economic upper classes of
the Middle Ages,” he concluded.

As the progeny of the rich
pervaded all levels of society, Dr. Clark considered, the behaviors
that made for wealth could have spread with them. He has documented
that several aspects of what might now be called middle-class values
changed significantly from the days of hunter gatherer societies to
1800. Work hours increased, literacy and numeracy rose, and the level
of interpersonal violence dropped.

Another significant change in
behavior, Dr. Clark argues, was an increase in people’s preference for
saving over instant consumption, which he sees reflected in the steady
decline in interest rates from 1200 to 1800.

“Thrift, prudence,
negotiation and hard work were becoming values for communities that
previously had been spendthrift, impulsive, violent and leisure
loving,” Dr. Clark writes.

Around 1790, a steady upward trend in
production efficiency first emerges in the English economy. It was this
significant acceleration in the rate of productivity growth that at
last made possible England’s escape from the Malthusian trap and the
emergence of the Industrial Revolution.

In the rest of Europe and
East Asia, populations had also long been shaped by the Malthusian trap
of their stable agrarian economies. Their workforces easily absorbed
the new production technologies that appeared first in England.

It
is puzzling that the Industrial Revolution did not occur first in the
much larger populations of China or Japan. Dr. Clark has found data
showing that their richer classes, the Samurai in Japan and the Qing
dynasty in China, were surprisingly unfertile and so would have failed
to generate the downward social mobility that spread
production-oriented values in England.

After the Industrial
Revolution, the gap in living standards between the richest and the
poorest countries started to accelerate, from a wealth disparity of
about 4 to 1 in 1800 to more than 50 to 1 today. Just as there is no
agreed explanation for the Industrial Revolution, economists cannot
account well for the divergence between rich and poor nations or they
would have better remedies to offer.

Many commentators point to
a failure of political and social institutions as the reason that poor
countries remain poor. But the proposed medicine of institutional
reform “has failed repeatedly to cure the patient,” Dr. Clark writes.
He likens the “cult centers” of the World Bank and International Monetary Fund to prescientific physicians who prescribed bloodletting for ailments they did not understand.

If
the Industrial Revolution was caused by changes in people’s behavior,
then populations that have not had time to adapt to the Malthusian
constraints of agrarian economies will not be able to achieve the same
production efficiencies, his thesis implies.

Dr. Clark says the
middle-class values needed for productivity could have been transmitted
either culturally or genetically. But in some passages, he seems to
lean toward evolution as the explanation. “Through the long agrarian
passage leading up to the Industrial Revolution, man was becoming
biologically more adapted to the modern economic world,” he writes.
And, “The triumph of capitalism in the modern world thus may lie as
much in our genes as in ideology or rationality.”

What was being
inherited, in his view, was not greater intelligence — being a hunter
in a foraging society requires considerably greater skill than the
repetitive actions of an agricultural laborer. Rather, it was “a
repertoire of skills and dispositions that were very different from
those of the pre-agrarian world.”

Reaction to Dr. Clark’s thesis
from other economic historians seems largely favorable, although few
agree with all of it, and many are skeptical of the most novel part,
his suggestion that evolutionary change is a factor to be considered in
history.

Historians used to accept changes in people’s behavior
as an explanation for economic events, like Max Weber’s thesis linking
the rise of capitalism with Protestantism. But most have now swung to
the economists’ view that all people are alike and will respond in the
same way to the same incentives. Hence they seek to explain events like
the Industrial Revolution in terms of changes in institutions, not
people.

Dr. Clark’s view is that institutions and incentives have
been much the same all along and explain very little, which is why
there is so little agreement on the causes of the Industrial
Revolution. In saying the answer lies in people’s behavior, he is
asking his fellow economic historians to revert to a type of
explanation they had mostly abandoned and in addition is evoking an
idea that historians seldom consider as an explanatory variable, that
of evolution.

Most historians have assumed that evolutionary
change is too gradual to have affected human populations in the
historical period. But geneticists, with information from the human genome
now at their disposal, have begun to detect ever more recent instances
of human evolutionary change like the spread of lactose tolerance in
cattle-raising people of northern Europe just 5,000 years ago. A study
in the current American Journal of Human Genetics finds evidence of
natural selection at work in the population of Puerto Rico since 1513.
So historians are likely to be more enthusiastic about the medieval
economic data and elaborate time series that Dr. Clark has
reconstructed than about his suggestion that people adapted to the
Malthusian constraints of an agrarian society.

“He deserves kudos
for assembling all this data,” said Dr. Hoffman, the Caltech historian,
“but I don’t agree with his underlying argument.”

The decline
in English interest rates, for example, could have been caused by the
state’s providing better domestic security and enforcing property
rights, Dr. Hoffman said, not by a change in people’s willingness to
save, as Dr. Clark asserts.

The natural-selection part of Dr.
Clark’s argument “is significantly weaker, and maybe just not
necessary, if you can trace the changes in the institutions,” said
Kenneth L. Pomeranz, a historian at the University of California,
Irvine. In a recent book, “The Great Divergence,” Dr. Pomeranz argues
that tapping new sources of energy like coal and bringing new land into
cultivation, as in the North American colonies, were the productivity
advances that pushed the old agrarian economies out of their Malthusian
constraints.

Robert P. Brenner, a historian at the University of
California, Los Angeles, said although there was no satisfactory
explanation at present for why economic growth took off in Europe
around 1800, he believed that institutional explanations would provide
the answer and that Dr. Clark’s idea of genes for capitalist behavior
was “quite a speculative leap.”

Dr. Bowles, the Santa Fe
economist, said he was “not averse to the idea” that genetic
transmission of capitalist values is important, but that the evidence
for it was not yet there. “It’s just that we don’t have any idea what
it is, and everything we look at ends up being awfully small,” he said.
Tests of most social behaviors show they are very weakly heritable.

He
also took issue with Dr. Clark’s suggestion that the unwillingness to
postpone consumption, called time preference by economists, had changed
in people over the centuries. “If I were as poor as the people who take
out payday loans, I might also have a high time preference,” he said.

Dr.
Clark said he set out to write his book 12 years ago on discovering
that his undergraduates knew nothing about the history of Europe. His
colleagues have been surprised by its conclusions but also interested
in them, he said.

“The actual data underlying this stuff is
hard to dispute,” Dr. Clark said. “When people see the logic, they say
‘I don’t necessarily believe it, but it’s hard to dismiss.’ ”

August 7, 2007 at 10:21 PM in Consumer trends | Permalink | Top of page | Blog Home

Looks Like an Old-Fashioned Consumer Credit Crunch

Looks Like an Old-Fashioned Consumer Credit Crunch

Expect shock waves as credit standards and normal risk premiums return to the credit markets

by Dennis Jacobe

GALLUP NEWS SERVICE

PRINCETON, NJ – Once upon a time, a housing- and autos-led recession was a basic feature of the U.S. economic cycle. In those days, there were interest rate ceilings – a legacy of the Great Depression of the 1930s -- on the interest rates financial institutions could pay for deposits. As a result, as the Fed raised interest rates above those deposit-rate ceilings, money flowed out of local financial institutions, creating a "consumer credit crunch" that severely limited the availability of housing and auto loans. In turn, the economy slowed, often going into recession until inflation and interest rates came back down to levels that encouraged money to flow back into the nation's depository institutions.

Of course, all of those artificial regulatory limits on money flows are long gone and with them the experience of a consumer credit crunch. Today's financial markets allow the free flow of money worldwide, making liquidity readily available to consumers, businesses, and investors by way of numerous forms of securitization -- the packaging of loans for sale to investors. In fact, one of the factors extending the economic expansion of recent years and the boom on Wall Street that sent the Dow Jones average to a record 14,000 on July 19 may have been a worldwide glut of liquidity.

Over the past couple of weeks, however, financial market conditions have changed dramatically. As substantiated by the UBS/Gallup Index of Investor Optimism for July, the nation's residential real estate markets continue to get worse, not better. At the same time, the subprime mortgage debacle has many investors concerned about a consumer credit crunch and has sent the Dow Jones average plunging more than 800 points since its July peak. In this regard, the average investor may have been somewhat prescient in UBS and Gallup's most recent poll, because the Index of Investor Optimism declined in July for the second month in a row. In addition, the issues of a significant tightening of global liquidity, a U.S. consumer credit crunch, and the possibility that the current economic slowdown might turn into a full-fledged recession are likely to be major discussion topics as the Federal Open Market Committee (FOMC) meets this week.

Residential Real Estate Continues to Deteriorate

The old quip that the light at the end of the tunnel is really a train coming through may well apply in most residential real estate markets as the summer comes to a close. During the first half of July, 71% of investors said they perceived that residential real estate conditions nationwide were getting worse. This maintains a pattern of pessimism concerning the national outlook for the housing market that has persisted in Gallup's surveys for many months. Further, 78% of investors said the potential for a housing or real estate crash in some local markets was hurting the investment climate a lot (41%) or a little (37%) during July.

It is likely that this national perception has been affected somewhat by the well-publicized problems of various housing markets that once were super hot, not to mention the subprime mortgage mess. As a result, the finding that 60% of investors believe conditions in their local real estate markets are getting worse is of even greater concern. Presumably, most of the nation's investors are much more knowledgeable about their local housing market conditions than they are about those nationwide.

Potential "Consumer Credit Crunch"

A consumer credit crunch takes place as lenders refuse to make money available to many if not most borrowers. During the first half of July, 76% of investors said the consumer credit crunch was hurting the investment climate a lot (40%) or a little (36%). This is not as high as some other investor concerns, such as the worry over energy prices, with 92% of investors saying those high prices are hurting the investment climate a lot (70%) or a little (22%). Still, its comparative newness as a significant investor concern, the general public's lack of recent experience with a real consumer credit crunch, and the fact that the UBS-Gallup poll was taken during the first half of July -- before the equity markets began their recent plunge -- all suggest that the danger of a consumer credit crunch was surprisingly high on investors' worry lists early last month.

Potential for Recession

Over the past couple of years, fears of a potential recession have tended to center on the willingness of the U.S. consumer to continue spending. In this regard, some have seen the bursting of the housing bubble as a reason for the consumer to pull back on spending as the "wealth effect" benefits of past homeowner equity gains dissipated. Similarly, soaring gas prices have been seen as another drag on consumer spending, particularly for low- and moderate-income consumers.

Still, many observers have argued that consumers will continue spending as long as they have jobs and can continue to borrow money. This is where the real danger of an old-fashioned consumer credit crunch comes to bear. A consumer credit crunch, as noted, takes place as lenders refuse to make money available to many if not most borrowers. In fact, even borrowers with top-notch credit scores can see their cost of borrowing surge higher as liquidity is reduced.

What causes a credit crunch? In today's financial markets, many lenders make loans but do not hold them in their portfolios. Instead, they sell them to investors in the form of securitized investments. What appears to be happening in recent weeks is that the huge losses associated with some subprime mortgage investments are not only creating significant new risk premiums but also causing potential investors to shun all mortgage investments not guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. For example, on Friday various mortgage lenders announced that they could no longer sell various types of jumbo mortgage loans and special feature mortgage loans to the investment markets. As a result, some lenders decided to stop making various types of mortgage loans and sharply increase the pricing of the loans they would make.

Will this kind of consumer credit crunch be contained to selected areas in the mortgage market or will it spread to home equity loans/lines and maybe even to small business loans? The reality is no one really knows -- no one has any experience with this kind of potential liquidity problem. It depends on how much exposure holders of various kinds of securitized debt have and what happens to the value of that debt, particularly some of Wall Street's more exotic creations. What is known is that fears about the potential fallout in the mortgage securities market, not to mention a global tightening of liquidity, are already creating a consumer credit crunch. In this regard as well, the investors in our July poll may have been truly prescient.

Will There Be a Fed Bailout?

When the FOMC meets at the Federal Reserve Board on Tuesday, the discussions may include a number of topics not discussed in those hallowed halls for many years. Inflation, interest rates, economic slowdown, and even potential recession are fairly common topics for monetary authorities. However, "liquidity" is a totally different kind of issue. A lack of liquidity can lead not only to financial failures but also to the failure of the capital markets to function properly. Of all the responsibilities of the Fed, maintaining orderly financial markets heads the list.

At the conclusion of the FOMC meeting next week, monetary authorities may well come out with some reassuring words about the stability of the financial markets and their willingness to stand ready to provide liquidity to the system if necessary. On the other hand, they may say nothing about the liquidity issue, fearing that any statement will only make things worse, not better. Either way, the hope will be that the fears of the past couple of weeks will blow over and the credit crunch can be contained to the mortgage securities market. However, if following the FOMC meeting, the Fed states that it will provide liquidity to various investment banking firms and/or hedge funds, then a much more serious scenario may be underway.

Regardless, the return of a real consumer credit crunch would leave no doubt that the recovery of the housing markets will take a lot longer than previously anticipated and that consumers will have to pull back on their spending significantly. If that happens, then the probability of a recession late this year and into early 2008 would increase significantly.

Survey Methods

Investor results are based on telephone interviews with 800 investors, aged 18 and older, conducted July 1-12, 2007. For results based on the total sample of investors, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

August 6, 2007 at 05:02 PM in Consumer trends, Financial Services | Permalink | Top of page | Blog Home

Top 2007 tech trends – the experts weigh in

Article

By: Nestor E. Arellano
ITWorldCanada.com (01 Jan 2007)

COMMENT ON THIS ARTICLE

What kinds of security attacks should you worry about in 2007? Will companies that adopt environmentally friendly processes find greener pastures? Will enterprises look overseas for people to manage their IT assets? How will deregulation affect the Canadian telecom industry?

IT World Canada asked several industry experts for their take on these and other issues. And here’s what they had to say.

Right on target

The closing year saw a remarkable slow down in worm attacks and widespread malware assaults, according to Internet and mobile security services provider F-Secure Corp. based in Helsinki, Finland.

The firm says in 2007 we’re likely to witness an increase in targeted attacks against organizations, with backdoors, booby trapped documents and rootkits.

A 'backdoor" is a method of bypassing normal authentication, or of securing remote access to a computer, while attempting to remain hidden from casual inspection. The backdoor may take the form of an installed program, or could be a modification to a legitimate program.

"Instead of transmitting millions of e-mails with infected attachments, attackers are sending as few as five infected e-mails to a single target," said Mikko Hypponen, chief research officer at F-Secure.

In this scenario, he said, hackers use a cloaking device such as a rootkit to conceal a backdoor and extract valuable information from the target company. The forged e-mails may include booby-trapped Microsoft Office documents, or Excel spreadsheet files that appear to come from a legitimate source or even the company itself.

Hypponen also warns of an increase in phishing scams and the use of bogus domain names.

"Obviously phishing works since the attacks continue to build in force and complexity," he said.

Crafty social engineering schemes and counterfeit but well-constructed Web sites or phishing e-mails will separate the unwary from their money or private information, according to industry observers. Scam artistes, increasingly, are deploying sites with a lifespan of just an hour, to entice users and then disappear.

PayPal and EBay continue to be the most targeted outfits by phishers, but some German banks are also becoming popular targets, said F-Secure.

Some sites deploy bogus login boxes that ask users to type in valid PayPal user names, passwords and credit card numbers.

Despite the growing threat, a recent survey found a large number of Canadian companies have limited or no security training for their employees.

Power shift

Our apologies to Kermit the Frog, but IT insiders say vendors are increasingly finding out that being green can help them remain in the black.

This awareness has triggered a growing concern about the cost of maintaining IT assets such as data centres, with a power efficiency as low as 70 per cent, according to Mike Thompson, director, business practices management at research firm Butler Group in London.

Anything affecting the bottom line is a matter of concern and that goes for power consumption by IT resources, according to George Bulat, director of data driven products at IDC Canada Ltd. in Toronto.

He said companies are devising various strategies to lower power cost to cut overall energy bills. These include adoption of energy efficient processes that benefit the environment and conserve valuable resources.

Bulat predicts more companies will be employing server-based computing and virtualization to save energy by shifting power consumption from the office to the machine room these computing models lower the cost of managing IT services and reduce energy bills. "Blade servers and virtualization reduce the number of physical machines that consume energy."

More vendors will be touting manufacturing and recycling processes that are kinder to Mother Earth.

For one, the Restriction on Hazardous Substances (RoHS) directive took effect earlier this year in Europe. The directive bans companies from selling on the EU market electronic equipment containing more than agreed levels of several toxic substances such as lead and mercury. Several U.S. states and Canadian provinces have either set up or are at work on their own RoHS flavours. "This is the start of a new way of manufacturing," says Joe Cala, director of operations for global RoHS compliance at Celestica Inc. in Toronto.

Some companies such as Hewlett-Packard Inc. (HP) intend to reduce toxic emissions from their facilities, as well as used products sent to landfills, said Frances Edmonds, director, environmental programs at HP Canada. She said HP has a program to reduce plant emissions by 15 per cent by 2010, and aims to recycle as much as 1 billion lbs. of hardware and supplies in 2007.

"One of the strongest drivers for greening IT is customer demand and enterprise savings," said Edmonds.

Researchers recently discovered a novel way of saving energy – the "off button"! The province of British Columbia, for instance, can save as much as $30 million a year in electricity costs if business and home users turned off their computers when not in use, according to David Rogers, technology and project management specialist with BC Hydro.

We are the world

Collaboration will stake its claim as a business production application in 2007. "Workers are finding a lot of reasons not only to share information but also to work together on certain applications," said Carmi Levy, senior research analyst, Info-Tech Research Group Inc. in London, Ont.

Among collaborative apps, Microsoft's SharePoint continues to be a leader but there are other notable players such as IBM's WebSphere and Groove Network Inc's. Groove.

Meanwhile expect to see start-ups such as ConceptShare tackle more intriguing applications around the notion of collaboration. The Subdury, Ont-based company recently unveiled a product that helps the likes of designers, artists, marketing executives and clients share and work on complex materials such as posters and other art materials. "In 2007 we will see greater adoption of collaborative tools and their eventual evolution into built-in features of end-user products," said Levy.

Computing without borders

In 2007 organizations will continue to resort to outsourcing but expect more companies to allocate projects to multiple vendors rather than a single supplier.

"As existing deals reach their renewal stage, companies will gravitate towards agreements of shorter duration with a greater number of outsourcing suppliers," said Alan Rodgers, research analyst, Butler Group. He said the key advantages of this strategy are flexibility, speed in implementing changes and risk avoidance. "By splitting work among numerous suppliers, companies can reduce the risk in case something goes wrong with one outsourcer."

Rodger also sees enterprises cutting spiraling data centre costs by using remote infrastructure management strategies. He said companies will increasingly transfer tasks such as network management, application development and maintenance, and business processes development to offshore locations.

India will continue to be among the bigger players in the outsourcing market as it maintains a hold of over 50 per cent of outsourced assignments, but other countries in South America, Africa and Asia are carving out their own territory, according to Rodger.

Compliance and BI

Analysts foresee compliance becoming a strong driver for the development of business intelligence (BI) tools that provide greater transparency and reporting.

"We will see the emergence of pre-packaged applications for monitoring corporate performance as measured against industry directives such as the Market in Financial Industry Directive that will take effect in the European Union in 2007," said Sarah Burnett, senior research analyst, Butler Group.

Companies will look to extend that visibility to operations they have outsourced, said Tom Eid, research vice-president at Gartner Inc. in Stamford, Conn.

When it comes to big ticket IT expenditures, large enterprises will be putting service-oriented architecture (SOA) adoption at the top of their to-do list, according to industry analysts.

"SOA vendors will have a strong year in 2007," according to Josh Greenbaum, principal of Enterprise Application Consulting in Berkley, Calif. Greenbaum did not provide any numbers but said he foresees a growing trend towards SOA deployment driven by "low implementation costs and high return of investment (ROI)."

He agrees with Burnett that compliance-driven specific reporting tools with be in demand in the coming year. "Customers will be looking for applications that monitor performance against specific industry requirements."

"Leaders in this space will be IBM, SAP, Microsoft and Oracle," said Greenbaum.

Large companies are also planning to purchase new BI software and upgrade existing enterprise resource planning (ERP) software, according to Forrester Research Inc. in Cambridge, Mass. A Forrester survey of 1,078 IT decision makers found as many as 13 per cent plan to purchase new BI software.

"ERP will remain the top upgrade, while messaging, e-mail and collaboration software will lead the pack in minor upgrades," according to Forrester.

Virtualization brings real benefits

Virtualization will continue to gain momentum in 2007 but the trend leans towards products that enable the management of virtual machines, says John Sloan, analyst for Info-Tech Research Group.

"Vendors will be pushing virtualization as part of a service package and the real differentiator will be the ability to manage virtual machines," Sloan said.

He said VMWare Inc. will continue to have a strong presence in the market but Microsoft might attain a higher level of exposure once the company introduces it Hypervision for Longhorn in 2008.

Sloan will be watching out for more development in the application of virtualization on desktop computers. "This strategy provides excellent flexibility, cost savings as it reduces the need for purchasing physical PCs and lowers the cost of software maintenance."

Pros and cons of deregulation

We'll get more features and cheaper services, or possibly not.

Experts are still debating the potential impact of the recent announcement of intent by Maxime Bernier, Canadian Minister of Industry, to deregulate the telecommunications industry.

"There will be an acceleration in the bundling of IP (Internet Protocol), video, music and other features, while IP-based telephony will become more available," says Carmi Levy of Info-Tech Research.

He said loosening of restrictions will result in carriers offering a greater range of enticing service bundles at cheaper rates.

This will occur along with another trend - new developments in telecommunication devices that Phil Edholm, chief technologist and vice-president of networks with Nortel Networks Inc. talks about.

In the carrier world, bandwidth will be more pervasive, Edholm said. Increased capacity will make it possible to offer converged media to consumers "wherever they may be."

He said “on demand video” will become more commonplace "and not only available at home, but on your mobile phone as well."

However, Philippa Lawson, executive director and lead counsel at the Canadian Policy and Public Interest Clinic (CIPPIC) in Ottawa warns consumers might be in for a surprise.

"Deregulation does not always mean better and cheaper services. There have been cases where the opposite has happened after regulations were removed," Lawson said.

In Bernier's announcement, she noted the absence of rules to protect consumers.

"There is the flipside. Carriers who serviced isolated areas by virtue of artificially set prices might leave those customers once regulations are taken away," said Levy.

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January 2, 2007 at 07:20 PM in Consumer trends | Permalink | Top of page | Blog Home

How To Build A Better Product—Study People

How To Build A Better Product—Study People - Yahoo! News

Bary Alyssa Johnson - PC Magazine Tue May 9, 9:25 AM ET

Did you ever imagine the world's largest chipmaker may ride the train into work with you to find out how mobility could be improved?

Product development has historically been predicated on a "build it and they will come" basis. But times are changing, consumer choice is increasing and the game plan has evolved.

Ethnography, a branch of anthropology, uses a variety of research methods to study people in a bid to understand human culture. Since top companies across several industries are treating ethnography as a means of designing for and connecting with potential customers, technology companies have recently begun investing significantly more research time and money into the field. At chip giant Intel, for example, the company spent approximately $5 billion on ethnographic research and development during 2004.

As the respective leaders in the hardware and operating systems markets, both Intel and fellow tech giant Microsoft have begun using teams of researchers to identify new market opportunities and improve existing products.

"As the global market becomes more competitive in technology it's not enough just to say that you have the coolest new product," said Tracey Lovejoy, who works as an anthropologist at Microsoft. "Consumers have so many choices today, so you have to work hard to understand what people want and need."

At Intel, for example, the company's anthropologists have been focusing their efforts on user-centered innovation over the past two decades. Intel has also begun a wide range of pilot programs in place to meet the needs of potential consumers in remote areas. For example, the company is looking at making e-banking and e-government applications available through a community PC platform in Mexico. Intel also has unveiled community-based PC platforms in rural India and Mexico, a direct result of its ethnographic research.

"There are billions of people around the world with little or no access to the Internet," said Kevin Teixeira, a spokesman for Intel. "Our ethnographers meet with these people, live in their towns and get to appreciate their socioeconomic conditions."

Intel executives recently announced plans to spend $1 billion on bringing Internet access to emerging nations.

"Intel has sociologists, anthropologists, psychologists and ethnographers on-staff…learning how people want to use technology, then going back to the engineers with that information, who use it to figure out how to sell more chips for Intel," said Gerry Kaufhold, an analyst with In-Stat.

Microsoft, meanwhile, is using "personas" to identify the archetypical consumers that will be using its products, including its new Vista platform. The company's researchers put together detailed profiles to help identify the different features each category of customer would need.

"Anthropology and ethnography help you understand the people," Kaufhold said. "The great thing about people is that they don't move nearly as quickly as technology does, so you can do a fifty-year plan on the evolution of consumers, which would probably be more accurate than a fifty-year plan on the evolution of technology."

Intel's process

Intel Labs employs a number of ethnographers that work within its business divisions. Included on the roster of social science-based research teams are Intel's Digital Home Group, Digital Health Group and Emerging Markets division of its Channel Platforms Group.

Intel's anthropological researchers immerse themselves in the "natural environments of real people" – including hospitals, elder hostels, schools for hearing impaired children, remote villages in emerging nations, and more – and utilize different tools and techniques to collect data which, in turn, is used to help make future business decisions.

To create these user-centered technologies, Intel uses methods like videotaping and interviewing potential consumers, shadowing people during their daily activities (what the company calls "deep hanging out") as well as "focus troupes," which help to demonstrate the technology.

"Actors are hired to act out scenarios of hypothetical concepts to help people grasp ideas they've never experienced before," said Christine Riley, manager of Intel's People and Practices Research Group, in a statement."Theater works really well to get people to suspend belief, and you need very few props to excite imagination. The whole idea is to be very open-ended and to get new ideas." Continued...

Technology as culture

Intel researchers studied the aging process in different cultures for several years and came up with several technologies that allow caregivers to keep a remote eye on their loved ones by tracking their daily activity from afar.

In the U.S., much of the elderly population appreciates the ability to maintain their independence by living in their own homes, rather than taking to the institutional lifestyle, Intel researchers said. At the same time, these older individuals are concerned about "burdening" their loved ones, who take on the unofficial role of caregiver. This is largely an American phenomenon; in Japan, families are much more willing to care for their elderly relatives.

"We don't want [the elderly] to feel like they're under surveillance so we try and stay away from cameras and work more with sensors," said John Sherry, an Intel ethnographer who works in its Digital Health organization. "By putting simple sensors in doors, chairs and under mattresses you can get a sense of how much a person moves around the house and you can track their activities."

"We're also doing a pilot project in India where eye doctors can perform eye exams using a digital camera connected to a PC," Teixeira said. "That could bring a lot more medical access to all parts of the world."

As part of its research on globalization and technology, Intel studied "trans-nationals," people who are not born in a place, but live there. In London and India, for example, up to 30 percent of the population may have moved from another country. In such a case, money, technology, and culture flow back and forth as the transnational populations keep contact with family and friends back home.

"Besides the sheer value of money we're also interested in the understanding of technology," said Ken Anderson, an anthropologist for Intel's People and Practices Research Group. "For example, a man from Ghana who was living in London went back to Ghana with his iPod and transferred music onto his cousin's hard disk. His cousin didn't have an iPod so he ended up cracking the hard disk out of his machine and taking it to parties."

In other international research, the company has been testing a "China Home Learning PC," which is geared toward educational use and is being branded, produced and marketed by Shanghai-based PC marker Founder.

Intel called in its ethnographers to help create the product, which would have to address a number of issues.

"The standard PC isn't quite a fit for families in China because one of the hardest things in Chinese education is learning how to write," Teixeira said. "That information was brought back, mentally digested and a prototype was developed. One element was to design a computer with a touch screen and stylus so students could practice Chinese characters."

The company didn't participate in any actual field work while researching for the learning PC, due to "logistical constraints," so the ethnographers created a so-called "China Room" as a substitute.

The "China Room" work space was designed to incorporate photographs and other relevant artifacts to "allow for some level of immersion by the US-based product definition team." It may not have worked; some researchers from Intel who recently visited China said that the Learning PC is not doing as well as expected in the target market.

"Intel is a leader [in this area], no question," Intel's Sherry said. "Microsoft [also] has some capabilities that are differently and maybe more appropriately structured for their own corporation, but we have some collaboration going on cross-organization as well."

"Since Xerox PARC [Palo Alto Research Center] started hiring anthropologists in the 1970s, it has become a pretty standard practice," Lovejoy said. "In terms of companies using anthropologists today, HP has a pretty long history – also IBM, Intel, Microsoft, Motorola,
Nokia, Yahoo, Adobe…and outside of the tech realm there's Wal-Mart, Washington Mutual, Wells Fargo, GM, JC Penney..." Continued...

Applying anthropology to Vista

Microsoft is relatively new to corporate anthropology; the company hired its first full-time anthropologist in 2000. Since then, it has carried out extensive research on consumers and culture across the globe and in the U.S.

"We started developing Vista five years ago," Lovejoy said. "I did a lot of work looking at how people work with files. Vista has an entirely new storage model that helps people conceptualize file structure."

In developing Vista, Microsoft researchers learned that people often forget file names. They discovered that there are clear ways people associate their files, such as by topic or date, and realized that the company hadn't traditionally leveraged such information.

"Microsoft for a long time put technology at the center of development," Lovejoy said. "My job is to put people at the center of everything we do in terms of development."

Early on in its Vista research, Microsoft defined three key demographics that the new operating system would target: enterprise, small business and consumer. During product development, the company's anthropologists ran several in-depth studies to examine potential customers.

"I did a lot of research looking at storage models, communication and mobility," Lovejoy said. "I did a two-year study with enterprise workers and followed them everywhere they went…thinking about the role of OS in communication and how mobility affects work."

Aside from shadowing future Vista users, Microsoft researchers also compiled statistical and field data to create a set of "personas" for the new operating system, representing the ideal customer for a particular product.

"Personas are fake people based on real data that are used as a tool to help the product development team focus their vision," Lovejoy said. "For Vista there were seven personas to spread across small business, enterprise and consumer."

One of Vista's consumer personas was a woman named Abby, who the researchers envisioned was mother to a teenage son. Abby became an intrinsic part of Microsoft's research process, Lovejoy said. Each time the team convened to discuss potential Vista features, they would relate their ideas to each persona to examine relevance and usefulness, among other things.

Vista researchers were given documented profiles on each persona. Microsoft officials also displayed detailed posters about each profile in the workplace and project managers were encouraged to think about Abby and the others when writing up specification sheets about products.

"So if you're building a media player, you know that your key personas are Abby and her son," Lovejoy said. "You're not looking to build a good player for someone in the enterprise because they don't use a lot of media in the workplace."

While carrying out ethnographic research, Microsoft began examining cultural issues in other countries around the world. Microsoft established a research center in India that was designed for studying changes in the country's middle-class social patterns, along with associated technology intersections as they relate to income level. The center was important for determining the needs of the developing markets.

"India, Brazil, Russia and China are our biggest new markets outside of the United States," Lovejoy said. "There are [already] products existing for those countries right now."

Microsoft
Windows XP Starter Edition, an inexpensive version of the Windows OS, was one of those products. The low-cost alternative was designed to simplify the user experience for first-time PC users by including additional components for help, among other features.

"Vista won't have a Starter Edition skew because it's high-end," Lovejoy said. "But around the same time that Vista is released, we'll also have a new version of Starter Edition."

Microsoft's online unit, MSN, has also been working with online content as it relates to cultural scenarios in different countries. One of the topics that MSN addressed in its research was the fact that its Messenger product has not been widely adopted in Japan, as opposed to in the U.S. where instant messaging has become something of a pop-culture phenomenon.

MSN researchers reasoned that issues often crop up when it comes to the way people approach each other in terms of communication. In Japan it's considered rude to interrupt somebody, so instant messaging is seen as the ultimate interruption. It's different in American culture because instant messaging is not considered disruptive or rude, as the user has a choice in whether or not to respond, according to Lovejoy.

"In Japan there are unequal power dynamics, which makes some forms of communication inappropriate," Lovejoy said. "For example in the work place in Japan I would never use IM to connect to my boss." Continued...

Demand for researchers growing

Having proven the value of ethnography in their own research departments, Intel, Microsoft and other employers are now struggling to attract new talent.

Top researchers at Intel and Microsoft created EPIC (the Ethnographic Praxis in Industry Conference), an annual joint venture hosted by Intel and Microsoft. The conference was created to enable ethnographic collaboration opportunities across all industries as well as an opportunity to network.

The 2006 EPIC conference is slated to be held September 24-26 at Intel's conference center in Portland, Ore. The brains behind the EPIC conference are Intel's Ken Anderson and Microsoft's Tracey Lovejoy, both ethnographers for their respective companies.

"The audiences for traditional Intel conferences have always been 'us' – Intel trying to teach Intel," Anderson said. "The EPIC Conference is different in that it's open to anybody. It's designed for people outside of technology."

Once a purely academic discipline, ethnography is moving out of the classroom and into corporate laboratories – and not just within IT firms. The field is touching almost every industry including finance, advertising, banking, marketing, food manufacturing and more. Representative companies at EPIC include Instrata, Pitney-Bowes, Yahoo Europe, Veri-Phi Consulting, PARC USA and Red Associates Denmark, all of whom serve on various organizational committees.

"Ten out of Microsoft's seventy thousand employees are people who practice anthropology," Lovejoy said. "The situation is similar in other companies as well, so…that means there aren't a lot of people with similar jobs to network with. We created EPIC as a networking opportunity."

According to Anderson, when he graduated from college the emphasis was on getting a job within the academic sector because such a position would allow for teaching, researching and creating new content in the ever-expanding field of anthropology.

"When I was in school, corporate anthropology was a very dirty word in a 'sell-out' way, as if it wasn't 'real' anthropology," Lovejoy noted. "There's since been a massive disconnect because most new jobs today are available in the corporate sector and students are having trouble getting jobs in academic placement."

Although this trend is still mid-transition, signs point toward increased ethnographic employment outside of the scholastic realm. Anderson says he has spoken with the American Anthropological Association (AAA), which says a high-priority issue is employing more people outside of academia. The AAA is beginning to encourage professors to encourage their students to pursue corporate-type careers, according to Anderson.

"But they haven't fully thought through the ramifications for that yet," Anderson noted.

The AAA was founded in 1902 as the world's largest organization of individuals interested in anthropology, according to its Web site.

"Now we're not only ethnographers, we're becoming theoreticians and we'll end up changing the discipline, I think," Anderson said. "In two years we'll have the brightest students [working with us] rather than keeping them in academia."

May 14, 2006 at 09:57 AM in Consumer trends | Permalink | Top of page | Blog Home

Generation M

Fascinating research piece which I located courtesy of Confused of Calcutta.

Kaiser Foundation report - Generation M, age 8 - 18

March 26, 2006 at 04:16 PM in Consumer trends | Permalink | TrackBack (30) | Top of page | Blog Home

Web users 'only visit six sites'

Web users 'only visit six sites' - Web User News

March 6, 2006
Quentin Reade

direct Web users now have almost 76 million sites to choose from, yet most only visit six on a regular basis, it was revealed today.

The research, published today by Directgov, points to a new era in the use of the internet that experts are calling the 'Supersite' phenomenon. The study found that half of internet-using Britons (51 per cent) visit just six or less sites on a regular basis.

Three quarters of people questioned say the internet is indispensable to their daily lives and more than nine out of ten (95 per cent) say they go online with a specific destination in mind. People are now using the internet more smartly, visiting a handful of destination websites that have emerged as 'Supersites' due to their importance to people's lives.

The research suggests that using just one banking, shopping, travel information and holiday website is enough for a person to keep their life well-managed.

The study comes as the government launches a one-stop-shop website where people can do everything from renewing their driving licence, car tax or passport to finding out about local schools, childminders and recycling.

Jim Murphy, Cabinet Office Minister with responsibility for Directgov, said:
“If you can order your shopping, manage your bank accounts and book cinema tickets online - why shouldn't you expect the same convenience online from Government? A few clicks and you're there - that's what people expect and demand from their services today and Government is no exception.”

March 7, 2006 at 12:03 AM in Consumer trends | Permalink | TrackBack (3) | Top of page | Blog Home

Study: Value of Online Business Outweighs Security Concerns

Study: Value of Online Business Outweighs Security Concerns - Yahoo! News

By Antone Gonsalves
TechWeb.com Tue Feb 14, 5:41 PM ET

The willingness of companies and consumers to do business online has outpaced the trust both entities have in the Internet, a study released Tuesday showed.

The report, which establishes an "Internet Confidence Index" for the United States and Europe, found a security index of 22 and a transaction index of 55 for businesses, said RSA Security Inc., which released the study at its user conference in San Jose, Calif. For consumers, the security index was 5 and the transaction index 37. An index of 100 would be the highest confidence score.

The numbers showed that companies and consumers are willing to accept security risks in order to conduct business online, RSA, based in Bedford, Mass., said.

“It is not surprising that business users feel more secure online than consumers, with an array of firewalls and other defensive measures in place around them, but it is astonishing to see the extent to which both groups are willing to assume some level of risk in their transactions,” Art Coviello, president and chief executive of RSA, said in a statement.

The study also found that the volume of transactions is growing in all the countries surveyed. Only 1 percent of businesses said they were doing fewer online transactions today than 12 months ago.

The study was based on a 39-question survey that focused on issues of confidence and trust in secure online transactions. The survey was given to 601 business respondents and 603 consumers in the United States, United Kingdom, Germany and France.

February 15, 2006 at 09:29 PM in Consumer trends | Permalink | TrackBack (56) | Top of page | Blog Home