On Her 235th Birthday, America Desperately Needs Lean, Open, and Secure Governance

Baby boomers like myself clearly recall the tumultuous years leading up to the Bicentennial of the United States.  The world we grew up in was near the peak of the industrial revolution, dominated by the aftermath of the Great Depression, WW2, and the Cold War.  We were raised in a culture that had witnessed first-hand the power of a unified government, which led to the victory of fascism in our parent’s generation, followed by a round trip to the moon in our own. In the childhood of my generation, nothing was impossible with sufficient government power.

By 1976, however,  America had endured the 1960s cultural revolution, the Vietnam War,  a serious energy crisis, stagflation, and Watergate.  We were experiencing the shocking end to the post war boom, with new revelations that success had a price, military power had limits, government was not always trustworthy, and our industrial economy had a soft underbelly leaking oil.

By the late 1970s, interest rates were skyrocketing, inflation seemed out of control, the Cold War was threatening to become white hot, and U.S. public debt had risen to the shocking level of $900 billion, representing one third of U.S. GDP.  During the next decade of economic expansion led largely by financial engineering and services, the U.S. debt more than tripled in dollar terms, rising to nearly 60% of GDP.

During the 1990s, with the commercialization of the Internet and exponential adoption of computer networking worldwide, the global economy began to shift, but the information revolution did not result in taming the industrial revolution—at least in the short-term, but rather acted as a catalyst in shifting heavy industry from West to East in our never ending quest for growth and scale. The dot-com bubble provided a very brief respite from accumulating debt in the form of capital gains, but it was a one-time gain.

By the late 1990s it became apparent that the unfettered Internet, in ironic contrast to the core message in The Wealth of Nations, offered such disruptive efficiency that many industries would be radically transformed, including the service economy that had become dominant in the U.S.

Meanwhile, global companies became too big to fail, increasingly divorcing themselves from U.S.interests in what became the primary global strategy for risk reduction and growth, which only compounded the challenges facing the U.S. economy.  By extension, regional and national economies dependent on the industrial revolution or services would also need to adopt the efficiencies offered by the new medium in order to avoid eventual bankruptcy.  In modern parlance, the trajectory of our national budget was increasingly in misalignment with the needs of our economy, the super majority of our citizens, and our collective future.

Rather than downsize to meet the new reality and future obligations, the post 9/11 economy witnessed increased liquidity that  “saved the economy” (Alan Greenspan), combined with post war guarantees in banking, systemic corruption, and ideological activism to enable the mega housing bubble, followed by the inevitable correction and almost certain economic depression if not for historic levels of Keynesian intervention. Rather than invest massive stimulus in converting to a sustainable trajectory, however, most of the spending was targeted at populist programs that continued to expand government overhead, thus increasing long-term liabilities, primarily in very temporary form that now leaves regional economies facing an even more challenging future, and citizens faced with much greater national debt; short, mid, and long-term.  The promises made by government during and after the Great Depression were obviously not only unfunded, but increasingly unfundable.

The most recent example of kicking the can down the road has been unprecedented life support from the FRB in financing 70% of the U.S. debt in QE2, while once again warning Congress and the White House to get its long-term fiscal house in order.  The result, once again, was to witness excess liquidity flow to the most speculative markets, not the fundamental investments required to transition to a sustainable economy, confirming that we have yet to address the underlying structural problems.  The cost of avoiding another Great Depression by stimulus and liquidity has been to advance U.S. insolvency by more than a decade; and quite probably more than two.

Port of Call in the Voyage of Fiscal Denial

Regardless of how one interprets the voyage, the destination that our culture is finally beginning to awaken to is tragic. Under what most believe to be an optimistic forecast, the Congressional Budget Office (CBO) warns us that public debt will rise from around 70% of GDP currently to 84% by 2035, with interest payments rising to 4% of GDP from 1% at current levels. This “extended-baseline” scenario is dependent upon a great many things that have not occurred in the past, however, nor are expected by most, including low inflation and a relatively disciplined Congress. The more consensus forecast, or “alternative fiscal scenario”, projects public debt to rise to 100% of GDP by 2021 and 190% by 2035. However, anyone observing financial crises can attest that these events do not occur on an even gradual basis, but rather reach a tipping point.

The warning I offer today is that economists have based their forecasting on comparable situations in very small economies relative to the U.S., not the world’s largest that also manages the global currency, not to mention the only global military power.  Every forecast, scenario, and metric I have observed in economics is based on a very different history than the situation we face today, all of which assumes the post war experience of a stable U.S. economy.

To capture the situation, consider that while each have proposed different remedies, the best economic forecasters of our time, to include investors, Nobel Laureates, current and past FRB chairs, and regardless of party or ideology, all essentially agree that this unsustainable trajectory has nearly reached its pinnacle.  All are raising red flags, and none can (or have to my knowledge) deny that when the herd finally changes course in bond markets, as we’ve seen most recently in Greece, the stampede is swift and brutal.

Lean, Open, and Secure Governance = The Semantic Enterprise

The Levin–Coburn Report found that the financial crisis was the “result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”

The U.S. Financial Crisis Inquiry concluded that the crisis was caused by:

  • “Widespread failures in financial regulation, including the FRB’s failure to stem the tide of toxic mortgages”

  • “Dramatic breakdowns in corporate governance”

  • Key policy makers “ill prepared for the crisis, lacking a full understanding of the financial system they oversaw”

  • “Systemic breaches in accountability and ethics at all levels”

In early January of 2008, former GAO Director David Walker suggested that four types of deficits caused the underlying fiscal problem: budget, trade, savings, and leadership. While these four causal factors are without question, I suggest that all of our deficits depend upon the integrity of governance structure, including our increasing deficits in knowledge, competitiveness, security, and happiness.

The only reliable method to achieve a sustainable governance infrastructure in the network economy is with semantic enterprise architecture, which is based on many years of research and testing. For a brief video description of the semantic enterprise, see my elevator pitch, and for a more in-depth discussion, view this keynote at the recent SemTech conference by Dennis Wisnosky on the transformation of the DoD.


Too Big to Fail or Too Primitive to Succeed?

Our economy very nearly experienced a financial version of Armageddon due to the gap between a primitive governance structure and highly sophisticated tools employed by a few with interests that were deeply misaligned with the needs of sustaining our national and global economy. We have all since unwillingly experienced the negative impacts of untamed technology while experiencing few of the benefits of the tamed; whether for resolution of the current crisis or prevention of the next.

Given the systemic nature and scale of the financial crisis, and in consideration of the poor ongoing economic conditions, it’s clear that the financial industry, political process, and regulators have all fallen short of achieving the individual mission of each, particularly in consideration of current technological capabilities.

For the past several months financial institutions have been attempting to convince regulators that they should not be labeled a Systemically Important Financial Institution (SIFI). The process of implementing the 2010 Dodd-Frank law in the U.S. has resulted in spin offs in an attempt to avoid increased U.S. regulation, while the new global rules for multi-national banks on top of Basel III, including surcharges and increased capital ratios, is resulting in a comprehensive rethink of the fundamental assumptions surrounding the global banking model.

Observing this dynamic invites a mental imagery of bureaucrats, politicians, and academics in team competition, each applying favored remedies such as duck tape over economic journals in a futile attempt to plug giant leaks in the hull of a Nimitz-class aircraft carrier.

When basic human greed clashed with globalization, networking, and technology, the combination introduced a complexity far beyond the organizational structures and tools available to regulators or corporations. Indeed, the reaction we’ve observed suggests that remedies employed to manage this crisis were designed for a war fought over seven decades ago during the Great Depression; an era when state-of-the-art technology was represented by the IBM Type 285 Numeric Printing Tabulator– capable of tabulating 150 cards per minute. The hourly sales of IBM today are approaching the annual sales of 1933, and billions of records are now run in seconds, yet our archaic regulatory system is employing printing presses in response to the largest financial crisis in 75 years.

A great deal has been learned in recent years beyond traditional economic theory about the systemic nature of networks, social behavior, contagion, and the global economy, with considerable investment in basic and applied research focused on technologies specifically designed to prevent systemic crises.

In the era of high performance computing on an increasingly interconnected planet with ever expanding pipes, economic tipping points can be reached very quickly that can bankrupt even the previously most wealthy nation on earth, particularly in a weakened economic condition suffering from structural problems. Focusing on SIFIs is of course essential, even if tardy by decades, but the emphasis should be on managing real systemic risk, which requires a very specific data structure that ensures data integrity, enhanced security, system-wide automation, modernized organizational structures, and continual, real-time improvement.

Without deep intelligence on the constantly changing relationships in a carefully constructed semantic layer, and automatically managed by pre-configured data valves, systemic risk is impossible to manage well, or even I argue at a level that is minimally acceptable.

Sophisticated new multi-disciplinary systems have been designed specifically to address the modern challenges in systemic risk management, but have yet to be built out and deployed. Policy makers should insist on the new generation of technologies to better protect citizens and the economy; regulators should embrace and promote the technology for it’s impossible to meet their mission otherwise; and financial institutions should adopt the technology due to rare ROI and sharply reduced levels of risk.

Clever is Cute as Sustainable is Wise

If the financial crisis confirmed anything, it is that the majority of humans are followers, not leaders, and that leaders throughout our society have yet to capture the significance of technology to their members and organizations.

One of the primary causal factors cited by thought leaders in studying crises is poor leadership, to include those who accept misaligned or conflicted interests. When we see “skimming off the top” in others we label it corruption, yet few see it in themselves at all, or choose to ignore it, resulting in the same outcome. While balance is obviously needed for survival—indeed managing that balance well is key for modern leaders, when we over-emphasize short-term profits, we then elevate the influence and power of those who are skilled at winning very short-term battles, rather than long-term wars. I have personally experienced that strategy in organizations and observed it in many others; it doesn’t end well.

One problem with the short-term leadership model is that the skills for software programming, instant trading, manipulating markets, or otherwise amassing great wealth quickly, does not necessarily translate to good leadership in a private company, government, or stewardship in philanthropy. Indeed, in my own observations and those of many others, quite the opposite is often true, yet our information institutions instruct society to emulate the clever rather than the wise. Should we be surprised then at the trend line of manipulation, polarization, and ever deeper crises?

Unlike the early days of the industrial revolution, in the second inning of the information revolution we now understand that most of the challenges facing the human species are long-term in nature, so we must realign our thinking and structures accordingly, including financial incentives and leadership development. Alas, since the long-term has been greatly compressed by consistent failure of short-term behavior, our entire species must now learn to act in the short-term on behalf of our mutual long-term interests. Easier said than done in our culture. The good news is that it’s quite possible…tick-tock, tick-tock, tick-tock.

The process of identifying, mentoring, and recruiting strong leaders often consists of conflicting advice that tends towards self-propelling cultures, regardless of organizational type. In addition to skill sets and track records sketched from misleading data, leaders are often selected based on ideology, dysfunctional networks, and susceptibility to peer pressure, instead of independent thought, good decision making, and wisdom.

Given the evidence, a rational and intelligent path would be to reconstruct our thinking and behavior surrounding the entire topic of leadership and organizational structures, and then tailor that thinking specifically for the environment we actually face, with tools specifically designed for the actual task. For many cultures, such a path begins by emerging from deep denial and embracing evidence-based decision making. Once emerged from the pit of denial, they soon discover among other truths that resources are not infinite after all, personal accountability is not limited to the inefficiencies of organizations, and that both the problems and solutions we face are inextricable from computing, organizational management, and personal accountability. Only then will the path to sustainability began to take shape in the vision field in sufficient form to differentiate the forest from the trees.

Yet another of the many disciplines related to this topic defines psychosis as a “mental disorder characterized by symptoms, such as delusions that indicate impaired contact with reality”.  An appropriate translation of insanity might be “refusal to adopt tools and models designed to achieve sustainability”, aka survival.

If this sounds familiar in your organization, it could well be traced to your leadership development model and process, for leaders are the decision makers who have budget authority. Perhaps it’s time for your organization to redefine strategic from clever to wise, and synchronize the organizational clock with present-day reality?

Unacceptably High Costs of Data Silos

Above is a screen capture of an internal Kyield document that displays an illustration of the high costs of data silos to individual organizations, regions, and society based on actual cases we have studied; in some case based on public information and in others private, confidential information. This is intended for a slide-show type of presentation so does not go into great detail. Suffice to say that human suffering, lives lost–human and otherwise, and wars that could have been prevented that were not are inseparably intertwined with economics and ecology, which is why I have viewed this issue for 15 years as one ultimately of sustainability, particularly when considering the obstacles of silos to scientific discovery, innovation, and learning as well as crisis prevention.

Mark Montgomery
Founder & CEO

Regulatory Failure on the Web; Consequences and Solutions

I have argued consistently since the mid 1990s that the global medium (combined Internet and Web) increasingly reflects the global economy and that rational, functional regulation is essential. I started this journey then with a very similar ideology to Alan Greenspan’s before the financial crisis; that self-regulation should be sufficient to prevent systemic crises, but unfortunately in practice it has failed to do so.

Most of the actual regulation in computer networking today is accomplished via manipulation of architecture in one form or another, but technical standards on the web are voluntary, as the Tech Review article The Web is Reborn highlights, which was apparently in response to the article The Web is Dead at Wired earlier in the year. In the U.S. we are really reliant primarily on one form of regulation on the web, other than proprietary architecture and voluntary standards, which is social. Social regulation has evolved with the consumer web, occasionally demonstrating some power—as was recently demonstrated with Facebook security issues, but social regulation has also proven to be self-destructive at times, particularly regarding sustainable economics and jobs. Few if any consumers can see how their actions on the web are impacting their own regional economy or industry, meaning that the blind is often leading the blind towards dangerous hazards in a similar fashion to the housing crisis. Ignorance is being exploited.

Two eras, opposing needs, yet same reaction

In order to provide some context with continuity let’s begin with the PC revolution about 30 years ago when the lack of interoperability allowed Microsoft to extend its growth from the operating system into productivity, communications, and eventually networking, forming one of the strongest strategic partnerships and business ecosystems in history.

During the PC era regulation was essentially outsourced to industry which employed a combination of proprietary computer code, strategic alliances and the failure of others to work together in a competitive manner to establish the standard, which of course led to a monopoly. The political, social and cultural dynamics at play were very interesting at the time, dominated by the view still common today that the only other option was government which couldn’t be relied upon to regulate technology.  It turns out that many other forms of regulation exist that can be learned from in natural sciences, physical sciences, social sciences, and architecture, among others.

Among the most important business lessons in the PC era was that Microsoft bet against the abilities of others to work together which when combined with strong execution was rewarded at historic levels. At the time I clearly recall arguments from investors, customers, government officials and even competitors agreeing with Microsoft that the PC revolution was too young for external regulation (which I heard again this week regarding the web), so “let the best man win”.  I myself said much the same then—not having the benefit of observing this case (and many others) in what is a very complex, quickly evolving environment.

In hindsight I believe we were correct regarding regulation in the PC era, but only for a very brief time—less than a decade; that’s how fast the big innovation door opened, scaled, and began to close. Our society cannot respond that quickly. This was new territory, just as the web would be a decade later.

In a very similar manner to the PC era the lack of regulation on the early web fostered a highly innovative environment during the very early days, but the era peaked much quicker on the web due to the toxic flood of capital during the inflation of the dot-com bubble; and the web was very quickly taken over by entrenched interests.  Opportunity still exists of course, but the dirty secret few discuss is that the failure rate for new IT ventures is very likely at an all time high—no credible statistics exist on the entire ecosystem to my knowledge; only portions thereof.  Of course knowledge, experience, relationships, resources and luck play a big role on outcomes, as usual, but lack of effective regulation generally favors and rewards predatory behavior.

The PC was sustaining innovation; the web is disruptive innovation

It’s important to understand that in the pre-network era economic alignment in desktop computing was primarily positive for everyone except direct competitors to Microsoft (or Intel in semiconductors), which was managed masterfully by a brilliant entrepreneur who became the world’s wealthiest human, and supported by many other brilliant people.  The world needed a standard for interoperability, and since few were negatively impacted the increases in productivity from authoritarian rule were viewed largely as positive within the social regulation realm, even if only for a brief time.  In hindsight government regulation failed not only to prevent the monopoly but also in resolving it. Government was then and still is today complicit in the creation and protection of  monopolies, regardless of how they form, particularly in the U.S. and EU within the IT cluster, which is I think driving future industry leaders to other countries.

Once monopoly power sets in it can be very destructive, including to the long-term company culture within the monopoly itself, which provides a strong case to manage market share very carefully.  The largest impact, however, is invisible, which usually manifests as aborted innovation within the specific market and industry, lack of adoption of competing technologies, and failed investment, which is evident today in most consolidated industries as reflected by very poor economic performance.

Failed regulation often leads to market failure, which is a real possibility for the web unless a sustainable economic structure is formed. This is essentially the argument behind the claim the “Web is dead”—with Chris Anderson suggesting that the Internet was moving over to wireless devices where a more viable economic structure is forming; customers are far more likely to pay for services rendered in the iPhone structure than the web structure.

As I have often argued since the commercialization of the web, the advertising industry is not nearly large enough to compensate for the economic displacement of industries from the disruption, particularly in the service dominated economies in the West.  Silicon Valley, Madison Ave, Wall St. and D.C. cultures still don’t seem to fully understand this reality and equation, or presumably policy would reflect it.  China and Germany on the other hand seem to understand the issue with abundant clarity, and are exploiting the situation brilliantly, as is India and others.  A nation does not want to be dependent upon a service economy within a global economy that is increasingly delivering services over an ad supported medium; particularly a nation deep in debt that is challenged educationally.

The often misunderstood lesson here is that the PC ecosystem was not a disruptive innovation but rather a sustaining innovation—meaning that it threatened very few. In direct contrast the web is very disruptive—not only to specific companies, but to entire industry clusters, regional, and national economies, which affects everyone on the planet.

Despite this extremely important difference, regulatory schemes reacting to the two very different situations are essentially the same, and will very likely result in a similar outcome unless regulation improves quickly, particularly relating to technical standardization.  As market share becomes more dominant in corporate cultures, so does hubris—the cultures become increasingly less influenced by voluntary standard processes or social regulation.  Eventually, as we’ve seen in our recent past, the monopoly cultures can even directly challenge the authority of sovereign governments with the potential exist for global companies to actually dominate national policy.  Currently Ireland provides a fine case study of why such a situation should be avoided.

I maintain that the winner-takes-all approach of the PC era would be catastrophic for the web and the global economy, perhaps even leading indirectly to civil disruption and conflict. Many wars have been fought over far less economic disruption so in a very real sense this issue is one of national and global security.

So is the web dead or reborn?

The web is primarily lost in a sea of confusion from lack of structure, which is largely due to the lack of effective regulation, which is in turn due to spin from those who benefit from the lack of regulation, and perhaps the impact of that spin on the ideology within our culture.  As in all previous standards wars free from effective regulation, a continuous battle rages, albeit somewhat more rational given the global nature of the beast than in previous sector or geographic standards wars.

In an invited letter to the editor in an upcoming issue of a leading publication, I will argue for functional regulation of the web relating to the creation and enforcement of technical standards, which are necessary to achieve security, privacy, and a host of other essential issues, including some degree of certainty for investors and entrepreneurs like myself.  It is far more important that credible independent standards exist than what the specific standards are, which is lost on the academic CS community almost entirely.  The current scheme is without power, glacial, and entirely without dependability, the latter of which is synonymous with credibility outside of academia.

I will save my detailed suggestions on how such a regulatory body might be structured for my book, but there is an emerging regulatory scheme on the web worth noting within the largest industry.  The U.S. health care legislation, as messy as it was, did empower the HHS to determine technical standards for electronic health records, which was tied to funding and reimbursement.  While substantially less than perfect, this standards process does appear to have the ability to gain traction due to a combination of initial funding, need for interoperable data, and leverage from other governments around the world to achieve a functional global standard.

Just one example of how this may occur is the relationship between life sciences, government regulation over drugs and devices, and the delivery of health care, all of which will require interoperability in order to function with any degree of efficiency.  In the current environment the health care technical standards process appears to be the most functional regulatory path towards adoption of a more intelligent web, aka the semantic web.

While we are all aware of the messiness of democracy, this alternate path towards regulation of standards on the web should not be viewed as a substitute for a rational, long-term solution.  Welcoming luck once it occurs is one thing; depending on it for survival quite another.  Our economy is too fragile and complex to depend on luck alone.  Conflicted interests simply cannot be trusted, whether corporate, academic, or otherwise.

The laws of physics eventually wins, even in cyberspace

“If a more advanced life form were given the task of providing to the human species a tool that possessed the potential to save itself from itself, it would have invented the Internet. What remains to be seen is whether the species is sufficiently evolved to properly manage the tool.”

– My thought for the day published in Comlink, 12/31/1996

The net neutrality issue is finally being debated, thanks not to populist politics, but rather the supply and demand dynamics of electromagnetic spectrum. Unfortunately, I believe activists and advocates have been exploited all along on this issue, often apparently without their awareness.

I beg people to not limit their scope or the debate to consumer publishing and communication, which may account for the super majority of time and bandwidth, but a tiny portion of impact. The modern Internet increasingly represents the service economy worldwide—meaning the majority of the U.S. jobs and economy, the marketing and transaction mechanism for global trade, banking, education, and e-government. Even raw commodities are substantially included in this debate as the pricing, marketing, education, trade and logistics are increasingly conducted over the Internet. Internet economics and global economics are now substantially the same issue, so this is much less an access and free speech issue today than one of global economic security—one cannot function without the other.

When was the net neutral?

For a very brief time following the commercialization of the Internet, the medium was a reasonably level playing field. Small businesses around the world were able to sell products through an uncorrupted distribution channel in a manner that was sustainable with modest upfront investment and could scale with organic revenue. From 1995 through 1997, or before the trillion dollar herd stampeded, a very diverse and functional economy was in its infancy. It was then a classic pay as you go system that was mutually beneficial to customer and vendor. The burgeoning sustainable economy was then substantially replaced by the largest price war in human history, and quickly transformed into a battle of manipulation between institutions, regions, and nations as the scope and scale of the opportunity and threat became apparent.

This historic and relatively pure medium, which I referred to as phase 1 of e-commerce (IJHIT- ISBN 0-9624990-8-0), lasted less than three years. As institutional investors began to study growth rates in cases like our incubator, even relatively challenged MBA analysts of the type that tend to filter institutional investments could see the best opportunity since the wheel, but few could see the collective damage of their individual behavior. To do so would have been career suicide anyway—truth wasn’t politically correct in this era.

Companies like Amazon were founded that would require several billion dollars in funding before break even, and many years of profits in the best of the best to earn back their ‘start-up costs’. Amazon was at least charging for products with a real business model; many that followed were pure capital predators, some of which went beyond giving away free services that cost tens of $millions to paying more for eyeballs than the profit margins of advertisers could pay for.

What drove the predatory insanity?

Some pension funds saw the medium as the answer to decades of under-funding amidst cost of living inflation that was increasingly self-created. University endowments began to achieve academic Nirvana where in some cases funds became so large with such high returns that the most expensive institutions could have provided free education, but did not—rather salaries, bonuses and overhead grew. Dorm rats who lusted for rich parties paid for by others were drawn to capital centers where get-rich-and-out investors manipulated relationships from seed to exit in what appeared to me to be systemic fraud. Governments surrounding the capital centers on the coasts became so fat on the feast that their self-destructive engines would soon redefine unsustainable. Fly over states suffered with an increasingly difficult moral dilemma—participate in the frenzy or starve? Does this sound like a level playing field?

It can be a very difficult emotional process for humans to voluntarily wean themselves from harmful or self-destructive practices, particularly after entire ecosystems become dependent and those involved are getting very rich, but at some point it must substantially find some equilibrium.

Bubbles tend to occur in clusters—the culture and skills tend to move from one bursting bubble to the next until people wise up. The financial crisis finally ended the price war, with a few exceptions like social networking that continued to be funded at worse odds for success than the regulated casino industry.

Who doesn’t like free?

The free or nearly free addiction model has been exploited since trade was invented. Unless tightly restricted and regulated—preferably with highly ethical folks involved, free empowers consolidation of power in those who control forms of duopolies and oligopolies, to include (eventually) national governments and financial centers with corporate partners. Sound familiar? Free invites and then demands manipulation, for it lacks the governing forces that enable diversified and dynamic markets to correct. For a good example look at the destructive forces of health insurance when healthcare costs appear free and unregulated; any such system will eventually fail when corrective action is not allowed in some form—whether competition, regulation or more commonly necessary; both.

In contrast, pay as you go empowers consumers and small businesses that create jobs in a diversified, sustainable ecosystem that ultimately government and institutions depend upon, without which they too eventually fail. To my knowledge no model has yet been crafted that works better than the simple exchange of currency for products and services.

Whether dealing with unaffordable housing, healthcare, or bandwidth, subsidies deemed necessary due to injustice are most appropriately dealt with by co-ops, non-profits, and governments—preferably in that order, NOT startups or corporations. Private corporations, particularly publicly traded giants, should not be in the subsidy business, as they are in the best position to expand dominant market share from one industry to another, precisely what anti-trust was intended to prevent. The inevitable result of market manipulation is some form of privatization of profits at the public expense with increasing influence over the political process.

Pay as you go is the most just referee I have found, sporting honesty, transparency and adaptability as virtues, which is no doubt why those threatened by same resist the simple model.

Why tail wagging the dog is bad for everyone

Having tested the hypothesis of self-regulation in the modern economy, with our global economy nearly collapsing, one would think the lesson would still be fresh, but we’ve seen the result with reform attempts regardless of party. The biggest risk moving forward however may well be a conclusion by the masses that regulation isn’t necessary, or worse—even possible. Lord help us.

We are still employing primarily industrial policy and tools for a computer driven economy, with only modest exceptions recently in real-time reporting by the SEC. While it’s true that national power in a global economy has been severely eroded, multi-nationals are not a viable alternative to functional government. We cannot expect multi-nationals to manage the global economy—management is legally bound to serve corporate interests within the limits of regulation, period—everything else is noise. I have yet to observe a viable alternative to functional government, rather only conflicted claims and ideological spin to the contrary.

The bandwidth proposal by Google and Verizon is nothing more than another long overdue wakeup call to national governments within a global economy that is increasingly conducted via the Internet and Web. When governments charged with the responsibility fail to regulate in some rational form, those with the greatest interests at stake tend to do so. This phenomenon is as predictable as the water wars in the wild west, the shadow banking system peddling 120% L to V paper, or states defending against open borders. That organizations would move to protect their interests should not come as a surprise—by law, public corporations in the U.S. are compelled to do so, regardless of claims to the contrary—we call it fiduciary responsibility.

Mark Montgomery
Founder & CEO

Why Kyield is not supporting the mHealth Summit

After struggling with a very difficult decision, we have decided not to attend the mHealth Summit hosted by the Foundation for the National Institute of Health.

From the mHealth Summit web site: “The mHealth Summit: A public-private partnership of the Foundation for NIH, is an unprecedented event that will bring together researchers, policy-makers, collaborators and visionaries from around the world to exchange ideas, novel approaches, research and findings surrounding mHealth issues both in the United States and in developing countries.”

Mission statement of the Summit:

“The mission of the mHealth Summit is to explore the use of mobile technologies to improve public health, particularly regarding underserved populations; health research, training, and education applications; and delivery systems, in the U.S. and around the world.”

To the best of my knowledge, the Kyield healthcare platform is the most novel in the world relative to meeting the mission and objectives of the Summit, but the mHealth policies contain a fatal flaw that may prevent those who engage from achieving an economically sustainable model, without which it will be impossible to achieve their stated goals. The applicants for the mHealth technology presentations were required to be free to consumers (see quote at bottom of article).

While the proposed model for our semantic healthcare platform is currently “free” to consumers, professionals are well aware that this is a misleading statement. The consumer of course pays for the service, but may do so through insurance premiums or taxes. In fact we simply cannot know yet which economic model will prevail as it depends in part on choices made in the future by regulators, consumers, and industry partners, aka the market.

An additional troubling issue is that Bill Gates has agreed to be the keynote speaker. I clearly recall as an early booster to Microsoft in the early 1980s when Bill was battling the destructive economic force of “amateurs” providing free open source software. He correctly argued then that an industry built on free services could not support the essential ecosystem required of the challenge and also achieve the vast potential of the technology. I and many others supported Microsoft then in part due to their economic model, which was dependent upon a very diverse ecosystem of primarily small business developers to serve customer needs. The Microsoft model was then a powerful force in helping the economy emerge from a deep recession, particularly in Washington State following the Boeing crisis.

I argue strongly that healthcare technologies cannot be supported financially by advertising, government, and/or philanthropic models alone. Indeed, it is a tragic mistake to use the mHealth platform in an attempt to force this unrealistic economic idealism on emerging novel applications. Regardless of location, patients need not more dependence on gatekeepers with conflicting interests, but rather empowerment to make better decisions based on actual data, certainly to include economic choices that lead to sustainable systems. The novel innovations the Summit sponsors are seeking similarly do not need charity, but rather viable and sustainable economic models with the flexibility to test various models free from ideology or strategic conflicts.

The leading cause of unsustainable healthcare costs in the U.S. is the lack of functional markets due to just this type cultural influence. Whether sourced from idealism or strategic conflicts, the results are the same. Are medical devices and pharmaceutical ventures required to provide free services to consumers to be included in this mHealth global network? Are doctors and hospitals required to provide free services? Are foundation staff members required to work for free? I assume not.

Free is not a sustainable economic model. In the near term the model serves the interests of predatory pricing strategies by those very few entities that can afford historic price wars. In the long-term free economic modeling leads to dependency on entrenched interests, which is precisely how our healthcare system became unsustainable. As the decision maker for Kyield, I therefore cannot in good conscience support or participate in the mHealth Summit.

Mark Montgomery
Founder & CEO

PS: The actual mHealth Summit language for Research Technology Demonstrations (after a paragraph of technologies sought):

“Technologies must have a demonstrated health research application, and be alpha/beta prototypes or available to consumers free of charge. Commercially available technology are not eligible for this technology demonstration session, but can be shown on the exhibit floor…”

Clear Choice: Semantic Structure or Systemic Crises

I was recently approached by a consultant who came out of “big oil”. This person was writing a book on credibility and making the ancient pitch that perception is reality—all that mattered was the perception of the oil industry.

We exchanged about a dozen emails on the Gulf disaster, innovation, and crisis prevention, until I honestly admitted that it was a distraction to my work, that these were archaic arguments, that denial and arrogance were yet again proven resilient, and that the oil industry culture and by extension government regulators were very poorly informed (actually to the point of being self destructive).

Among other serious problems, the institutional cultures in government and industry are suffering a delusion that experts in specific disciplines hold the keys to the innovation door. From a business perspective, I see this crisis as a major opportunity for alternative energy and smaller oil companies that are more innovative. From a macro global economics perspective, I see the argument for more engineers and entrepreneurs at decision levels like in China instead of lawyers like in the U.S. (one of few lessons from China the U.S. would be well served to follow).

Of course the individual didn’t take it well: “for someone who claims they know a lot about innovation—you sure have a closed mind”.  I do have a closed mind on some issues, or actually no time, for conflicted debates attempting to persuade me that the sun didn’t rise this morning given that I witnessed same with my own eyes. The live cam of the oil spill would seem to negate attempts at denial, but no—we’ve just seen the blame game move from oil partners to industry/government partners.

Copyright Mark Montgomery -- Oil Tanker on Wave

From my financial newsletter when oil exceeded $140 per bbl (copyrighted)

My view is that all of the actors involved lost credibility based on the evidence, not perception, and should no longer enjoy the privilege to be in the decision chain. Credible leaders would step aside and seek wisdom outside of their failed system. I suspect that the attempt at persuading me was part of a large damage control effort from other giants in the oil industry who will no doubt be harmed from the reaction to this crisis; part of the macro problem today in not knowing who is working for whom, particularly in consulting and increasingly academia.

Enter the polymath

Whether dealing with systemic risk on Wall Street, the FRB, MMS, or an oil rig, one of my favorite quotes is often ignored, but should be kept front and center:

“We can’t solve problems by using the same kind of thinking we used when we created them.” – Attributed to Albert Einstein

Not normally thought of as a polymath, rather a genius physicist, Einstein’s actual writings demonstrating the ability to apply lessons in one discipline to another suggests to me otherwise. While we hear a great deal of talk and hype about interdisciplinary approaches today, we do not see much evidence of the polymath philosophy in our institutions, including at the highest levels of government and industry. That is a very serious problem (for more on polymaths, I recommend reading Abbie Lundberg’s review of the book ‘The New Polymath’).

When working to solve the vast majority of difficult problems today, the complexity requires a broad perspective that is sufficiently deep in multiple disciplines to be able to combine the fragments in a coherent, functional system of solutions. Most of the decision makers in large organizations like BP and the U.S. Government, even those in engineering, have long been bureaucrats by necessity—otherwise they wouldn’t have survived.

“Look at the oil spill problem. Everyone thinks it’s a technological problem. It’s not. It’s a management problem.” – UC Berkeley engineering professor Robert Bea.

I first came across Robert Bea’s work about a decade ago when I dove deep into the study of systemic crisis and prevention. (The final report on the Deepwater Horizon disaster can be viewed here.)

While Professor Bea is an engineer with significant experience in the oil industry, his breadth of knowledge becomes obvious when reading his reports, to include Katrina, which was an event I studied closely.

“It’s an attitude of independence, an attitude of being willing to be very, very deeply immersed in data, an attitude of healthy skepticism, an attitude of being able to question other people’s findings,” –Kathleen Tierney, Natural Hazards Center at the University of Colorado at Boulder.

“He’s a giant in our industry,” said J. David Rogers, Missouri University of Science and Technology. “Bob has the big-picture view that you just don’t see much anymore. We’ve become a culture of specialists. And those aren’t the kind of people who can figure out failures.” (Quotes from a profile on Bea at SFGate)

He may not represent a classic polymath, but Bea does provide the breadth of experience and knowledge rarely found. Unfortunately, like every other well conceived report on crises, his reports have been largely ignored within the same type of phenomenon that enabled the crises to occur, representing an ever larger negative spiral of systemic crises, which taken together appear more like a series, or even perhaps a single event in hindsight.

The collapse of the Deepwater Horizon and continuing oil gusher from the Gulf seafloor is the latest preventable disaster calling for structured multi-organizational systems. Until we hardwire structured data in a logical, adaptive organizational architecture, accountability is not possible in large organizations; and without accountability all manner of human manipulation and error can and will occur.

Toyota’s failure to act on the dots

It seems that every few weeks we hear of another major series of tragedies leading to a crisis that could have been substantially mitigated, if not entirely prevented. Among the most disturbing to discover, and most costly, are those involving safety issues that either threaten or cause loss of life.

Often has been the case during the past decade when the organization involved has been a government agency, but this quarter Toyota wins the prize for failure to act on the digital dots in the enterprise (in fairness Toyota should share the prize with NHTSA—also the front runners for the annual prize—it’s still early in the year).

In the case of  Toyota, we may never know how many digital red flags existed within the enterprise network, but the clear pattern in other cases suggests that the probabilities are high that warnings were common within communications, documents, and web servers indexed by enterprise search engines. Similar to previous events, these problems were known for years by the corporation and the agencies charged with regulation, yet they collectively failed to prevent loss of life, resulting in personal tragedy for a few and far reaching economic destruction in one of the world’s premier corporations.

While growing too fast may have contributed to this problem, it was organizational system design that allowed it to become one of the worst crises in the company’s history, and a serious threat to the future. Toyota has done a good job with innovation in product design compared to most of its competitors, but failed in adopting innovation in organizational management that would sustain their success.

When will leaders of the largest organizations finally understand that failing to invest in how organizations function is often the most expensive mistake executives will ever make? Given the size and impact of industry leaders, combined with the systemic nature of the global economy, these types of failures are unacceptable to growing numbers of communities, companies, and consumers.

An article in the WSJ sums it up well with this quote:

Liu Jiaxiang, a Toyota dealer in Shenzhen, said sales at his stores in southern China have been “steady” since late January. “What keeps me awake at night is a possible long-term erosion of customer confidence in the Toyota brand” because of the recall problem, he said.

Denial is a powerful force in humans, particularly when combined with peer pressure, social herding, politics, bureaucracy, contradictory information, and sheer inertia that seems unstoppable at times. It’s also true that cultures of invincibility have a consistent track record of experiencing crisis and decline soon thereafter.

Mr. Toyoda, if this post finds you, I invite your team to revisit our publications and jointly explore how our holistic semantic enterprise platform could have reduced or prevented this series of recalls. Even if  Toyota had deployed Kyield when your domain first appeared in our Web logs, we almost certainly could have contained this event to a multi-million dollar product defect issue, rather than the multi-billion dollar corporate crisis that it has become.

Mark Montgomery
Founder & CEO – Kyield
Web: http://www.kyield.com
Blog: https://kyield.wordpress.com
email: markm@kyield.com
Twitter: @kyield

Web 3.0 Leaders Look to the Year Ahead

Jenny Zaino at SemanticWeb.com asked a group of us to provide predictions for 2010. An interesting mix and worth a close look, particularly for those seeking input from the front lines of Web innovation.