Web 2.0 Is Everywhere, Except in the Productivity Statistics

Web 2.0 moves us closer to frictionless (free, instantaneous) communication, but we were already pretty close.

We have a productivity paradox. Web 2.0 (including social media) is radically transforming society and entire industries — Facebook has about 800 million users, Twitter has about 500 million usersMcKinsey & Company predicts as much as ~$1 trillion/year in productivity gains from the Web 2.0 “revolution,” with anticipated productivity gains of up to 35 percent for some activities. Clay Shirky believes Web 2.0 radically lowers transaction costs, making fundamentally new methods of production feasible (for example, the volunteer community that builds/edits Wikipedia).

So far, and paradoxically (considering how much Web 2.0 has touched our lives), no productivity revolution is visible. During 1948-2011, U.S. non-farm business labor productivity (i.e., output per work hour) grew by an average of only 2.2 percent/year, and during 2007-2011, by just 1.8 percent/year. Looking to the future, don’t hold your breath awaiting a Web 2.0 productivity revolution. In historical context, Web 2.0 is an incremental communications improvement — not a revolutionary one.

For most of human history, productivity growth was negligible, causing per capita income to remain the same from one generation to the next. Significant productivity growth only began about 250 years ago with the Industrial Revolution. A major contributor to this productivity growth came from rapid improvement in communications.

Until the telegraph’s appearance about 200 years ago, communications moved only at the speed of physical travel, and that speed had been constant for millennia. Prior to the transatlantic telegraph cable in 1866, at least nine days were needed to transmit information between London and NYC. Imagine the inefficiency in running a business when communications between branches took weeks.

Prior to the telegraph: Replenishment of supplies was slow; Prices were highly uncertain for orders from a supplier any distance away; Markets were local (since nothing could be coordinated over a region, let alone a country); Economies of scale didn’t exist, because everything was so localized. In the early 19th century — NYC, Boston and every city in the world was a separate market — with separate prices for grain, food, and so on. The telegraph began to overturn these market limitations by converging prices between different cities, thereby causing productivity growth (which resulted in increasing per capita income).

However, telegraph cables only linked up telegraph offices. Information (conveyed at the speed of light across the Atlantic) traveled only at the speed of the messenger’s pace, horse or vehicle — for that “last mile” to the customer. Speeding up this “last mile” has been a long process. As late as the 1960s, some 10 million telegrams/year were still delivered by hand in the UK.

In 1885, AT&T completed its first commercial telephone line. In 1927, the first commercial transatlantic phone call was made. The mobile phone first became widely available during the 1980s-1990s.

ARPANET (forerunner of the Internet) commenced in the 1960s, and email accounts in the1970s. The World Wide Web arrived circa 1993.

These communications improvements weren’t just about increasing speed, expanding service and improving quality — they were also about reducing cost. When transatlantic telephone service began in 1927, a three-minute call cost $75 ($750 in current dollars). By the 1990s, companies could make calls between London and NYC for just pennies per minute.

At $750 for a three-minute call, only the highest value information will be conveyed. As transmission costs approach zero, less valuable information can be shared with more people.

Decreased communication costs (almost zero) make it feasible for Kim Kardashian to communicate with her 16 million Twitter followers very frequently, but the economic value of these communications is low (perhaps no more than a penny per follower). This isn’t a value judgment; it’s an observation. Even before social media, celebrities communicated with their followers (through snail mail and fan clubs), at a cost of pennies per follower. It was the Web 2.0 cost reduction, to almost zero marginal communication cost per follower, that created Ms. Kardashian’s massive communication opportunities.

Web 2.0 brings us one step closer to frictionless communication, and will impact everything. Many newspapers, independent booksellers and encyclopedia makers have gone out of business (or will soon do so) because of Web 2.0’s impact. But the aggregate economic gain from these transformations (e.g., buying books online, celebrities communicating with millions of fans, Wikipedia, and so on) won’t have a revolutionary effect on productivity — because the existing alternatives were pretty good/relatively inexpensive. We’d already gone the lion’s share of the journey to frictionless communication, even before Web 2.0.

This isn’t just a story about communications and productivity. In the last 200 years, as economist Robert Gordon noted, we’ve benefited from many one-shot productivity gains — in public health, infrastructure, etc. The quick wins and easy gains are behind us. Just maintaining 2 percent/year productivity growth will require hard work and difficult choices. Web 2.0 will provide no miracle solutions.

Steven Strauss was founding managing director of the Center for Economic Transformation at the New York City Economic Development Corporation (NYCEDC). He is a 2012 Advanced Leadership Fellow at Harvard University. He has a Ph.D. in Management from Yale University and over 20 years’ private sector work experience. You can follow him on Twitter @Steven_Strauss, or on Facebook.

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
This is cross posted from my blog, and originally published on November 18th, 2012 as Web 2.0 Is Everywhere, Except in the Productivity Statistics

Online Freedom of Speech: Still Safe, but for How Much Longer?

In the world of UN conference boondoggles, luxury-loving oppressors masquerade as the oppressed, while seeking to restrict everyone else’s freedom.

In December 2012, under the auspices of the UN’s International Telecommunications Union (ITU), representatives from 193 countries will meet in Dubai, in the UAE (ranked 112th in the world for press freedom) to discuss the future of the Internet. Slated for discussion are such basic online rights as: individual privacy, freedom of expression, and protection for individuals from tyrannical governments.

In November (perhaps, as a welcoming gesture to the ITU conference), the UAE issued bydecree (without public debate, comment periods, or other democratic niceties) a new law making it a crime to deride, insult, mock or criticize, by using the Internet, the leaders of the UAE. Or perhaps the UAE issued this decree to celebrate its recent appointment to the UN’s Human Rights Council (UNHRC). After all, nothing expresses a country’s respect for humans rights (and/or the UNHRC) like a decree making online criticism of the government punishable by a three-year minimum jail sentence.

The UAE fits surprisingly well with its peer group on the UNHRC. Some other members (with their press freedom rankings) are: Ethiopia (127th), Gabon (101st), Kazakhstan (154th), Pakistan (151st), and Venezuela (117th). Somehow the UN failed to include Saudi Arabia (158th), where adult women need permission from a male guardian to leave the country — perhaps it can join the UNHRC next year.

Ironically, one discussion topic for the ITU’s UAE conference is the role of national governments in managing the Internet, as communications become increasingly global. A number of countries view freedom of expression as an annoying Western folk custom (which inconveniences their ruling kleptocracies). They want more power to manage/control the Internet on a global basis. For example, I can’t safely call the UAE’s rulers (on a UAE website) an unelected, unaccountable non-transparent hereditary kleptocracy. But I can do so from the U.S. — without fear of having the website closed or ordered to remove the offending material. I can also do so without fear of going to jail — unless I’m silly enough to travel to the ITU conference in the UAE. 

This isn’t an abstract concern, or just a UAE issue. Internet users in China only see news filtered by the Great Firewall of China, so they’re often unaware of their leaders’ kleptocratic inclinations. For example, when the New York Times published a well-researched, highly-documented story describing the nearly $3 billion fortune accumulated by the family of China’s outgoing Prime Minister, the Chinese government didn’t deny the article’s accuracy, but blocked Chinese access to the Times.

As another example, consider the case of famous Chinese architect Ai Weiwei (as discussed in Rebecca McKinnon’s bookThe Consent of the Networked) who vanished from the Beijing airport. Ai Weiwei’s crime was that, after a horrendous Chinese earthquake:

"Ai used his fame and influence to support and promote efforts by local families, activist bloggers, and human rights lawyers to compile and disseminate information about the children who had died in schools that collapsed while surrounding buildings remained intact. Corrupt local officials had allowed construction firms to cut corners on school buildings across the province. Angry parents wanted answers. They wanted those responsible to be punished. "

In response to this corruption and loss of human life, the Chinese government detained:

"… several activists and convicted a few on charges of subversion. Names of people and places related to this accountability movement, as well as a range of related phrases, were put on the list of things that Internet companies must remove from blogs and social networking sites. Ai Weiwei’s name, and all discussion of his case, is also banned from China’s social networking platforms."

Currently, Chinese leaders’ control of the Internet doesn’t extend beyond China’s borders. So, we’re free to read about Ai Weiwei and similar cases — in other places in the world. But, the Chinese government (and like-minded governments) want the power — to force global removal from the Web — of any information they disapprove of.

The December ITU conference isn’t one of the standard meaningless international boondoggles — where high-level functionaries travel (at great expense, and in extravagant luxury) to demand, that someone else do something, about some important problem. This ITU conference is potentially dangerous because it has real authority. The Internet exists in its current form under the auspices of an ITU treaty, and many of the conference’s participants want that treaty amended to give themselves greater control.

The risk to freedom in the United States from this sort of nonsense is probably limited. American courts still function to protect our liberties, and no legal barriers are likely to be imposed to prevent Fox News’ continued ability to report events in whatever form serves Rupert Murdoch’s corporate interests. But if the ITU treaty is changed to give governments more power — smaller countries and companies will be more easily bullied.

In general, expect continued clashes about online freedom of speech. More specifically, if you find yourself in the UAE: Don’t criticize, deride, mock or insult that country’s leaders — or you might end up in jail. And, if you find yourself in China: Don’t mention that the 70 wealthiest members of China’s legislature are worth $90 billion (rather difficult to explain on Chinese government salaries) — or you might disappear without a trace.

In either case, don’t expect the UN’s Human Rights Council to protect your rights.

Steven Strauss was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation (NYCEDC). He is an Advanced Leadership Fellow at Harvard University for 2012. He has a Ph.D. in Management from Yale University, over 20 years’ private sector work experience, and has worked in the Middle East in various capacities.

Follow Steven Strauss on Facebook here.

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
This is cross posted from my blog, and originally published on December 02nd, 2012 as Online Freedom of Speech: Still Safe, but for How Much Longer?

Is Our Republic Ending?

Eight Parallels Between the Collapse of Rome’s Republic and Contemporary America

"History repeats itself, first as tragedy, second as farce."
-Karl Marx

Lawrence Lessig’s Republic Lost documents the corrosive effect of money on our political process. Lessig persuasively makes the case that we are witnessing the loss of our republican form of government, as politicians increasingly represent those who fund their campaigns, rather than our citizens.

Anthony Everitt’s Rise of Rome is fascinating history and a great read. It tells the story of ancient Rome, from its founding (circa 750 BCE) to the fall of the Roman Republic (circa 45 BCE).

When read together, striking parallels emerge — between our failings and the failings that destroyed the Roman Republic. As with Rome just before the Republic’s fall, America has seen:

1 — Staggering Increase in the Cost of Elections, with Dubious Campaign Funding Sources: Our 2012 election reportedly cost $3 billion. All of it was raised from private sources - often creating the appearance, or the reality, that our leaders are beholden to special interest groups. During the late Roman Republic, elections became staggeringly expensive, with equally deplorable results. Caesar reportedly borrowed so heavily for one political campaign, he feared he would be ruined, if not elected.

2 — Politics as the Road to Personal Wealth: During the late Roman Republic period, one of the main roads to wealth was holding public office, and exploiting such positions to accumulate personal wealth. As Lessig notes: Congressman, Senators and their staffs leverage their government service to move to private sector positions - that pay three to ten times their government compensation. Given this financial arrangement, “Their focus is therefore not so much on the people who sent them to Washington. Their focus is instead on those who will make them rich.” (Republic Lost)

3 — Continuous War: A national state of security arises, distracting attention from domestic challenges with foreign wars. Similar to the late Roman Republic, the US - for the past 100 years — has either been fighting a war, recovering from a war, or preparing for a new war: WW I (1917-18), WW II (1941-1945), Cold War (1947-1991), Korean War (1950-1953), Vietnam (1953-1975), Gulf War (1990-1991), Afghanistan (2001-ongoing), and Iraq (2003-2011). And, this list is far from complete.

4 — Foreign Powers Lavish Money/Attention on the Republic’s Leaders: Foreign wars lead to growing influence, by foreign powers and interests, on the Republic’s political leaders — true for Rome and true for us. In the past century, foreign embassies, agents and lobbyists have proliferated in our nation’s capital. As one specific example: A foreign businessman donated $100 million to Bill Clinton's various activities. Clinton “opened doors” for him, and sometimes acted in ways contrary to stated American interests and foreign policy.

5 — Profits Made Overseas Shape the Republic’s Internal Policies: As the fortunes of Rome’s aristocracy increasingly derived from foreign lands, Roman policy was shaped to facilitate these fortunes. American billionaires and corporations increasingly influence our elections. In many cases, they are only nominally American - with interests not aligned with those of the American public. For example, Fox News is part of international media group News Corp., with over $30 billion in revenues worldwide. Is Fox News’ jingoism a product of News Corp.’s non-U.S. interests?

6 — Collapse of the Middle Class: In the period just before the Roman Republic’s fall, the Roman middle class was crushed — destroyed by cheap overseas slave labor. In our own day, we’ve witnessed rising income inequality, a stagnating middle class, and the loss of American jobs to overseas workers who are paid less and have fewer rights. 

7 — Gerrymandering: 
Rome’s late Republic used various methods to reduce the power of common citizens. The GOP has so effectively gerrymandered Congressional districts that, even though House Republican candidates received only about 48 percent of the popular vote in the 2012 election — they ended up with the majority (53 percent) of the seats.

8 — Loss of the Spirit of Compromise: The Roman Republic, like ours, relied on a system of checks and balances. Compromise is needed for this type of system to function. In the end, the Roman Republic lost that spirit of compromise, with politics increasingly polarized between Optimates (the rich, entrenched elites) and Populares (the common people). Sound familiar? Compromise is in noticeably short supply in our own time also.For example, “There were more filibusters between 2009 and 2010 than there were in the 1950s, 1960s and 1970s combined.”

As Benjamin Franklin observed, we have a Republic — but only if we can keep it.

About the Author: Steven Strauss was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation (NYCEDC). Steven was one of the NYC leads for Applied Sciences NYC, NYC BigApps and many other initiatives to foster job growth, innovation and entrepreneurship. He is an Advanced Leadership Fellow at Harvard University for 2012. In 2010, Steven was selected as a member of the Silicon Alley 100 in NYC. He has a Ph.D. in Management from Yale University, and over 20 years’ private sector work experience. Geographically, Steven has worked in the US, Asia, Europe and the Middle East.

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
This is cross posted from my blog, and originally published on December 16th, 2012 as Is Our Republic Ending?

10 Reasons Stricter Gun Regulation Will Be Difficult to Achieve in America

I have strongly criticized ludicrous gun enforcement that criminalizes ordinary citizens, but I also support Mayor Bloomberg’s andMayors Against Illegal Guns’ (a coalition of over 700 Mayors of American cities and towns) efforts to Demand a Plan to reduce gun violence.

However, whatever our individual views, broad agreement on the proper level of gun regulation will be difficult because:

1. Americans Are Divided On the Issue of Guns — According to a Pew Research pollconducted after Newtown, 42 percent of Americans strongly believe gun control is more important than gun rights. However, about 37 percent strongly believe gun rights are more important than gun control. A significant number of American citizens reject even the most basic limitations on gun rights. And such citizens vote for candidates based on this strongly-held issue. Citizens supporting gun control, however, don’t let that issue determine how they choose their representatives.

2. Gun Advocacy Groups are Well-Funded — Because many Americans are passionate about gun rights, groups such as the National Rifle Association (NRA) have the resources for a prolonged fight. The NRA’s annual budget is approximately $300 million and it has about four million members. It’s one of the largest, and most powerful, advocacy groups in America. For example, the NRA outspends gun control advocacy groups, in lobbying expenses, by 10 to 1. Many NRA members disagree with the NRA’s position on gun control, but they all receive its mailings — giving the NRA a massive platform to highlight (positively or negatively) any politician (or issue) it targets. As a consequence, few politicians are willing to risk the NRA’s ire by supporting gun control legislation.

3. Americans Increasingly Live in Belief Communities - As the Pew Research dataillustrates, Americans are deeply divided on gun issues. But these two groups of Americans don’t talk with each other. They often live in very different regions, and (in many cases) exist in sub-cultures where they only talk with, and get news from, people who share their beliefs. This separation of our society into different Belief Communities, on issues such as gun rights, makes it difficult for our political leaders to find effective compromises.

4. Even Assuming a Clear Majority Favors Gun Control, the American Political System Protects the Rights of Political Minorities — Gun rights groups will have many opportunities to oppose gun control legislation, whether through: filibustering in the Senate; preventing legislation from ever coming to a vote in the House (where a gun rights-sympathetic GOP has a majority of votes); adding amendments that reduce the effectiveness of any gun control legislation enacted; preventing funding for enforcement of such new legislation; or 2nd Amendment challenges to any legislation in the courts.

5. The NRA is Deeply Embedded in the Republican Party — It’s not clear whether the NRA controls the GOP, or the GOP controls the NRA. What’s very clear is that the two organizations are tightly intertwined. According to OpenSecrets.org, about 90 percent of the NRA’s political contributions go to the GOP. The NRA board is dominated by conservatives/GOP operatives such as: Grover NorquistLarry “wide stance” CraigBob Barr and other Washington insiders/lobbyists.

For example, the only gun legislation President Obama signed during his first term — actually changed existing law to permit concealed weapons in America’s parks. President Obama was given a grade of F, by gun control groups, for his failure to support gun control legislation. Despite this, instead of remaining neutral in the 2012 elections, the NRA endorsed Romney-Ryan (in very apocalyptic terms, see below) and spent almost $20 million attempting to defeat Democrats/President Obama. These deep Republican connections give the NRA immense leverage in any congressional negotiations about gun control.

6. Most GOP Congressional Representatives are from Conservative Safe Districts, Where Gun Rights Supporters are Concentrated — Congressional Republicans received only 48 percent of the votes cast — but acquired 53 percent of the seats— due to gerrymandering and safe seats. Whether these Republican representatives are true believers, or moderates who fear a primary challenge — they will oppose gun control as commanded by the NRA.

7. The NRA Feeds, and Is Fed by, GOP Paranoia — I believe many Americans who voted for Romney were nonetheless appalled by the tone of the NRA statement endorsing Romney-Ryan: “Today, we live in an America that is getting harder to recognize every day led by a President who mocks our values, belittles our faith, and is threatened by our freedom.”

Further, the NRA claims President Obama is part of a conspiracy (involving the United Nations) to confiscate all of America’s guns. The NRA’s policy has been to align itself with the worst elements of the American right and to feed their dangerous paranoia. I’m referring to the: Approximately 25 percent of Republicans who believe Obama was not born in the U.S.; and the staggering 50 percent of Republicans who believe the 2012 election was stolen by President Obama using voter fraud, even though Romney lost by a significant margin. This fact-resistant base can be manipulated to do the NRA’s bidding.

8. A Fight Over Gun Control Is Exactly What the NRA Wants — The NRA is a gun rights advocacy group. Its major basis for fundraising is its claim that gun rights are threatened. It thrives on conflict, not on compromise. The NRA will, no doubt, feature its opposition to any proposed gun control legislation in fund-raising appeals to its base.

9. The NRA is Highly Lucrative for Its Leaders — Consequently, the NRA’s leadership will likely resist solutions which permanently resolve gun control issues. Wayne LaPierre is paid approximately $1 million a year, and has been the CEO for about 20 years. The NRA’s chief political strategist and lobbyist is paid about $600,000 a year; its other officers also receive lucrative compensation packages. Compromise, and a permanent solution to America’s gun discussion, wouldn’t be good for their compensation. If a broad compromise were reached, removing gun control from the political agenda for the next 20 years — why would the NRA need LaPierre and a highly-paid lobbying staff?

10. President Obama Faces Multiple Challenges and Must Prioritize — The president needs GOP cooperation to: resolve the fiscal cliff; obtain confirmation of new Cabinet officers; handle potential conflicts in the Middle East; undertake long-term entitlement reform; achieve immigration reform and much else. Gun control legislation could be lost in the shuffle or, as part of some grand bargain, sacrificed entirely.

Real and effective solutions are possible, but achieving them will be a tough battle.

About the Author: Steven Strauss was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. Steven was one of the NYC leads for Applied Sciences NYC (Mayor Bloomberg’s plan to build a new engineering and innovation center in NYC), NYC BigApps and many other initiatives to foster job growth, innovation and entrepreneurship. In 2010, Steven was selected as a member of the Silicon Alley 100 in NYC. He has a Ph.D. in Management from Yale University, and over 20 years’ private sector work experience. Geographically, Steven has worked in the US, Asia, Europe and the Middle East.

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
This is cross posted from my blog, and originally published on December 02nd, 2012 as 10 Reasons Stricter Gun Regulation Will Be Difficult to Achieve in America

Are We a Nation of Sheep?

It’s time to appoint an independent special prosecutor to investigate the Department of Justice (DoJ) and U.S. Attorney Carmen Ortiz about the death of Aaron Swartz.

To the best of my recollection, I’ve never met Ortiz or Swartz. I write not from any personal connection to this case, but as a deeply concerned American. If we allow the circumstances of Swartz’ death to go un-investigated, we’ll be a nation of sheep, afraid to question the use of governmental power. Make no mistake: What happened to Swartz could happen to any of us — gun rights or gun control advocate, Tea Party or Occupy Wall Street supporter, Democrat or Republican — we’ll all be at risk of arbitrary prosecution by DoJ on trumped-up charges. This fight belongs to all of us.

Swartz was a young, highly-talented computer scientist and an activist who was a thorn in the side of powerful established interests. He was accused by DoJ U.S. Attorney Ortiz of downloading (stealing) several million obscure academic research papers from the Journal Storage Project (JSTOR). Ortiz never claimed these documents were of value for terroristic or other harmful purposes, but simply that:

"Stealing is stealing whether you use a computer command or a crowbar, and whether you take documents, data or dollars. It is equally harmful to the victim whether you sell what you have stolen or give it away," said Ortiz regarding the indictment of Swartz.

Assuming Swartz downloaded the documents, it’s unclear whether he wanted the papers to make them public as some political statement or prank, use them for a research project, or demonstrate the lack of security in the system. One thing everyone agrees on — includingOrtiz — is that Swartz didn’t intend to personally profit from the material. And JSTOR, from whom these documents were purportedly “stolen,” didn’t want any criminal or civil charges brought against Swartz.

In this victimless crime — where the purported victim didn’t want to press charges — Ortiz indicted Swartz on multiple felony counts:

"If convicted on these charges, SWARTZ faces up to 35 years in prison, to be followed by three years of supervised release, restitution, forfeiture and a fine of up to $1 million." Source: Ortiz

Swartz had the right to defend himself in court, but a victory would have left his reputation in ruins (felony accusations, even if false, have a lingering negative effect) and litigation costs would have bankrupted him. If the government lost its first court case, it still might have found reasons to appeal, refile with civil litigation, or invent new charges. Swartz, even if eventually victorious, faced the possibility of years of nasty, ruinous litigation.

But Ortiz wasn’t a heartless monster — she offered Swartz a deal. If Swartz didn’t want to endure the risk, ordeal and expense of trial, he merely had to give Ortiz a guilty plea for the felony charges. In exchange for giving up his rights as a U.S. citizen — and being branded a felon forever — Ortiz would recommend Swartz serve a mere 6 months in jail (on a charge the purported victim hadn’t wanted prosecuted).

Faced with Ortiz’ generosity, Swartz committed suicide. 

It’s enlightening to contrast DoJ’s treatment of Swartz with its recent treatment of global banking giant HSBC. According to DoJ, HSBC engaged in a highly-illegal, multi-year program of laundering money for drug dealers, terrorists and even the Iranian government, and actively assisting those customers in avoiding US laws. HSBC’s punishment for its illegal actions — a fine equal to one month’s profit. Neither HSBC, nor any of its employees, had to plead to even one felony.

Another example of DoJ inconsistency — it’s been widely reported that congressional staffers illegally download pirated copies of copyrighted movies and TV shows — during working hours, on government computers. The entertainment industry objects (vehemently) to such illegal downloads.

Although the staffers’ activities have been reported for over a year and apparently haven’t stopped, DoJ hasn’t announced any investigation of seemingly flagrant, ongoing violations. The congressional staffers’ actions, if true, are exactly analogous to what Swartz was accused of, except: they involve multiple incidents, multiple perpetrators, and actual theft. Yet DoJ appears to be doing nothing — not even warning these staffers to stop.

The contrast between Swartz’ treatment, and the treatment accorded HSBC and the congressional staffers, demands an explanation. If DoJ really believes “theft is theft,” why not investigate and indict the congressional staffers? So far, Ortiz’ press release explaining her conduct reads like North Korea’s justifications for show trials.

Since Ortiz won’t enlighten us, we’re left to speculate. The most benign possibility is that Ortiz had some legitimate reason for this prosecution, which she hasn’t been able to explain clearly. The less benign possibilities are that Ortiz is incompetent or corrupt. If incompetent, Ortiz should lose her license to practice law before destroying more Americans.

However, if (and I truly hope this isn’t so) Swartz was prosecuted: To curry favor with powerful entities annoyed by Swartz’ activism; To further DoJ careers by inventing a major prosecution against a target without deep-pocket funds or connections; or because of other corruption within DoJ, then the relevant DoJ attorneys should be prosecuted to the fullest extent of the law.

Retired U.S. District Court Judge Nancy Gertner, Harvard Law Prof. Lawrence Lessig and many other Americans with significant legal experience have expressed their concerns over Swartz’ treatment in this case.

If Ortiz is truly innocent of wrong-doing and can explain her actions, she has nothing to fear from an independent investigation and should welcome the opportunity to resolve this matter.

If you agree DoJ’s treatment of Swartz deserves examination, I hope you’ll take the time to sign this petition for an independent investigation. Our ability to exercise the freedoms we have as Americans might depend on it.

Note: If you would like further information about this case, I suggest reading Ortiz’ original press release explaining her logic in indicting Swartz, and the blog post of the expert witness retained by Swartz’ counsel explaining his objections to the indictment.

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss

This is cross posted from my blog, and originally published on January 22nd, 2013 as Are We a Nation of Sheep? 

Shouldn’t We Drug Test CEOs of Banks Receiving Federal Aid?

Conservative politicians, including Mitt Romneyduring his presidential campaign, supported legislation mandating drug testing for recipients of federal aid, such as: the unemployed, families in assistance programs — in general, citizens down on their luck or in trouble. Interestingly, none of these politicians has suggested drug tests for executives whose banks benefit from billions in federal aid and bailouts.

Since 2011 (generally, at Republican insistence): 

"Seven states have passed laws mandating drug tests for [welfare] recipients, and in 2012 at least twenty-five other states considered proposals to tie welfare cash assistance, and in some cases also food stamps, to drug tests." (Source: The Nation.)

For example, in 2011, GOP Governor Scott of Florida signed a law requiring all applicants for that state’s welfare program to take a drug test. And in 2012: 

"Congress passed a law paving the way for states to urine-test the recipients of unemployment benefits … Since then, sixteen states have considered laws tying unemployment insurance benefits to drug tests." (Source: The Nation.)

And, in 2013, in response to various court decisions concerned that mandatory drug testing violated welfare recipients’ constitutional rights: 

"Rep. Fincher (R-TN) introduced a bill … that would require states that want to receive full funding for welfare assistance to force its citizens to waive their Fourth Amendment rights and submit to random drug testing." (Source: ThinkProgress.)

One touted justification for drug-testing assistance applicants is that people who’ve fallen on hard times because of drug problems shouldn’t get a taxpayer bailout. In short, if people can’t run their lives, or businesses, because of drug use, they shouldn’t be subsidized with government money. And, speaking of people who can’t run their businesses without a government subsidy, that does brings us back to our largest banks.

Bloomberg News recently reported that America’s largest banks receive a federal subsidy of about $80 billion per year, and that, without this subsidy, they would not be able stay in business. To put the bank subsidy in perspective, federal payments under the welfare programs and food stamps combined are about $70 billion per year.

Looking at the actions of our financial services sector, at least one plausible explanation may be that some bank executives were stoned out of their minds. Consider a few examples:

  • The 2008 financial crisis, when, in addition to their annual $80 billion subsidy, our banks needed a $400 billion bailout.
  • The collapse of Bear Stearns, Lehman Brothers and AIG.
  • Five banks (Ally Bank, Bank of America, Citi, J.P. Morgan Chase and Wells Fargo) paid $25 billion to settle claims that they “routinely signed foreclosure related documents … without actually knowing whether the facts contained in those documents were correct.” Seriously, you’d have to be high as a kite, incredibly arrogant, or amazingly incompetent to think you could get away with this behavior.
  • Money Laundering — “Credit Suisse, Lloyds Bank, ABN Amro, ING Bank and now HSBC — have reached settlements in the past couple of years with the U.S. government for billions of dollars in tainted transactions.” For example, “between 2006 and 2010, the Sinaloa Cartel in Mexico, the Norte del Valle Cartel in Colombia and other drug traffickers laundered at least $881 million in illegal narcotics trafficking proceeds through HSBC”. Since these banks were doing business, on a large-scale, with drug traffickers, did some bank executives perhaps try samples?

The actions of the financial services industry can only be explained by some combination of bad luck, innocent incompetence, criminal intent, or significant drug use. Unless we ask our bank CEOs (and other senior executives) to “pee in the cup,” how will we know whether they “deserve” taxpayer assistance? If this seems far-fetched, it’s been widely reported that James Cayne, the CEO of Bear Stearns as it lurched into insolvency: 

"Sometimes smoked marijuana at the end of the day … He also has used pot in more private settings, according to people who say they witnessed him doing so or participated with him." (Source: WSJ, Bear CEO’s Handling Of Crisis Raises Issues.)

The banking industry has demonstrated an ongoing pattern of law-breaking behavior, wouldn’t be profitable without a massive government subsidy, and is filled with credible rumors that senior bank personnel use illegal drugs. Further, a senior bank executive with a drug problem is in a position to do real damage to our economy, unlike the average person on unemployment insurance. If bank executives don’t want to submit to drug testing in exchange for federal aid for their bank, they could always resign.

So why aren’t our political leaders demanding that these corporate welfare recipients join other welfare recipients in mandatory drug testing programs? Let me offer a few thoughts:

  • Political Donations: No one on food stamps makes substantial political contributions. However, America’s financial services industry (broadly defined) donated $650 million to political campaigns in 2012.
  • Future High-Paying Jobs: Many of our current political leaders, and their staffs, are tomorrow’s highly-paid lobbyists for banks. They might not want to annoy potential future employers.
  • Class Bias: Our Congress knows and socializes with bank executives. But how many congressional leaders have shared a meal with a family on food stamps? Or lunched with someone who worked hard for 20 years, lost his/her job in the financial crisis, and now must “pee in a cup” to satisfy the whims of hypocritical politicians?

For a variety of reasons, I believe drug testing of aid recipients is bad policy; the tests are often inaccurate, several courts believe these laws violate our constitutional rights, and so on. But if we’re going to require it, let’s test our corporate welfare recipients as well as ordinary Americans. 

Steven Strauss is an adjunct lecturer in public policy at Harvard’s Kennedy School of Government. Immediately prior to Harvard, he was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. Steven was one of the NYC leads for Applied Sciences NYC (Mayor Bloomberg’s plan to build a new engineering and innovation center in NYC), NYC BigApps and many other initiatives to foster job growth, innovation and entrepreneurship. In 2010, Steven was selected as a member of the Silicon Alley 100 in NYC. He has a Ph.D. in Management from Yale University, and over 20 years’ private sector work experience. Geographically, Steven has worked in the US, Asia, Europe and the Middle East. You can follow him on Twitter at: @Steven_Strauss 

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
This is cross posted from my blog, and originally published on April 07th, 2013 as Shouldn’t We Drug Test CEOs of Banks Receiving Federal Aid?

Nine Trust-Based Problems With Bitcoin

Bitcoin seeks to be an electronic cash (currency) system that doesn’t rely on trust. Paradoxically, Bitcoin requires a trust-based ecosystem.

As a brief summary: The Bitcoin system was developed as an electronic currency by Satoshi Nakamoto (apparently, a pseudonym). Bitcoins exist only in the online world (they have no physical form). Each Bitcoin is uniquely identified, and is part of a limited edition (only a pre-set number will be issued). And, if properly executed, Bitcoin transactions are anonymous and non-reversible. For a more detailed explanation of Bitcoin’s architecture, see Benjamin Wallace (Wired) or The Economist.

Bitcoin is intended to be digital cash/currency, based on cryptography and peer-to-peer networks, rather than trust. As Nakamoto explains:

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.

Nakomoto cites as conventional currency’s root problem: “all the trust that’s required to make it work.” But Bitcoin requires us to replace trust in legal systems, institutions and procedures, with a system where we must:

  1. Trust the willingness of counterparties to accept Bitcoin as currency for payment — a huge leap of faith. Purchasing Bitcoins means participation in a 100 percent trust-based system, without any legal mechanism to compel their acceptance. Conventional currencies rely not just on trust, but also on the force of law. For example, in America the “Legal Tender Statute” (31 USC Sec. 5103) specifies that: “United States coins and currency … are legal tender for all debts, public charges, taxes, and dues.” No country issues Bitcoins, and no government legally compels anyone to accept them as payment.
  2. Trust unregulated institutions with your personal bank information just to purchase Bitcoins. As described in Mother Jones:

… if you … have qualms about handing over all of your bank information to an anonymous internet stranger, then you might want to just give up now. The major Bitcoin exchanges don’t accept credit cards …

     3. Trust a cryptographic, peer-to-peer network computer technology most Bitcoin users don’t understand.

     4. Trust that Bitcoin (really, a beta) won’t be replaced by a superior digital currency system, rendering original Bitcoins obsolete and worthless.

     5. Trust that the Bitcoin Foundation/other participants won’t create additional Bitcoin series, thereby diluting the value of the original Bitcoins.

     6. Trust that governments won’t intervene to render Bitcoins worthless (e.g., if Bitcoins facilitate too much drug-dealing or money laundering, the U.S. government could make their possession illegal).

     7. Trust an anonymous creator (Nakamoto) who’s mysteriously “moved on to other projects” and disappeared.

     8. Trust that Bitcoin markets will be available to provide prices in real currencies — as recent events demonstrate, also a leap of faith.

     9. Trust that your Bitcoins are stored in a secure location. Precisely because Bitcoin transactions are anonymous and non-reversible, they’re highly vulnerable to theft. If your Bitcoins are stolen, they’re pretty much untraceable. For a non-exhaustive list of major Bitcoin theft incidents, click here.

Rather than as currency, perhaps we should evaluate Bitcoin as the first example of Dadaist Digital art. An art work exists as part of some limited edition and has no intrinsic use. If you purchase art (for financial reasons), you must believe/trust that members of the art ecosystem will value/be willing to purchase that work at a future time. 

Dadaism was: 

an … international movement … repudiating and mocking artistic and social conventions and emphasizing the illogical and absurd.

One of Dadaism’s first major works was Duchamp’s Fountain (created under the pseudonym R. Mutt). As shown below, Fountain is an off-the-shelf, mass-produced urinal.

Source: Wikipedia; Marcel Duchamp, Fountain 1917. Photograph by Alfred Stieglitz

The urinal designated as Fountain, however, had considerable value. Replicas, authorized by Duchamp, have sold for over $1 million each.

Duchamp made an important artistic statement with Fountain; but on another level, he created an intellectual joke about the nature of art.

Nakamoto, in “Bitcoin: A Peer-to-Peer Electronic Cash System" and other writings, makes important observations about cryptography, currency and the nature of trust.

Bitcoin’s design is highly significant and will likely influence payment systems for years to come. However, Bitcoin’s implementation feels like an elaborate intellectual joke. Under the guise of eliminating the need for trust, Nakamoto demonstrates that trust is an inescapable part of payment systems.

Is Satoshi Nakamoto the Duchamp of our Digital generation? Bitcoin’s inventor seems sophisticated enough to understand that, as currency, Bitcoin’s long term value might be zero. But analogous to Duchamp’s Fountain, Bitcoin might be intellectually priceless — for the issues it highlights (or as the first example of Dadaistic Digital Art).

Steven Strauss is an adjunct lecturer in public policy at Harvard’s Kennedy School of Government. Immediately prior to Harvard, he was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. Steven was one of the NYC leads for Applied Sciences NYC (Mayor Bloomberg’s plan to build a new engineering and innovation center in NYC), NYC BigApps and many other initiatives to foster job growth, innovation and entrepreneurship. In 2010, Steven was selected as a member of the Silicon Alley 100 in NYC. He has a Ph.D. in Management from Yale University, and over 20 years’ private sector work experience. Geographically, Steven has worked in the US, Asia, Europe and the Middle East. You can follow him on Twitter at: @Steven_Strauss

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
This is cross posted from my blog, and originally published on April 14th, 2013 as Nine Trust-Based Problems With Bitcoin

Profiles in Political Hypocrisy: The U.S. Congress

Only hypocrisy and demagoguery can explain Republican opposition to gun regulation, alleging potential infringement of constitutional freedoms — alongside Republican support for monitoring American citizens based solely on religion and empowering the government to deprive citizens of their rights, by deeming them enemy combatants.

The Congress won’t restrict sales of automatic weapons and high capacity magazine ammunition, or enact universal background checks on gun purchases, claiming these measures: Restrict Americans’ freedoms, inexorably lead to additional restrictions on constitutional rights, and increase the power of a government which can’t be trusted. However, following the Boston Marathon bombing, these same politicians now demand suspensions of significant American rights — without any concern for legality, the slippery path to additional restrictions on constitutional rights, whether the government will use its new powers wisely, or how religious prejudices will be inflamed.

According to Wayne LaPierre, executive vice president of the National Rifle Association (NRA) and his primarily Republican allies in Congress, the government can’t be trusted on gun control because it’s the first step in a conspiracy to confiscate all guns by erasing “the Second Amendment from the Bill of Rights and excise it from the U.S. Constitution.” Americans, according to the NRA, need their guns to protect themselves from threats (such as Latin American drug gangs) that: “have invaded every city of significant size in the United States.”

Senator Graham (Republican, SC) proudly tells us he voted against legislation that would have required universal background checks for gun purchasers, limited magazine size, and banned the sale of assault weapons — because these limitations would allow a government which can’t be trusted to restrict Americans’ freedoms. And, thanks to Senator Graham and the GOP, none of these proposals became law.

We don’t even know how many Americans own firearms because Congress prevented collection of this information — since the government can’t be trusted with a national firearms database.

Surprisingly, these same politicians now demand that Americans trust the government to conduct surveillance of citizens based on their religion and to decide when citizens can be detained indefinitely as enemy combatants without a right to counsel. These rights (according to the GOP) are privileges, allowed at the government’s discretion. By contrast, the right to buy a private arsenal of automatic weapons without submitting to a background check is sacrosanct — even for paranoid, out-of-touch-with-reality gun owners who (despite overwhelming evidence to the contrary) believe the U.N. is about to take over America, and President Obama is a Kenyan-born Muslim.

If this sounds harsh, let’s review what’s these defenders of gun rights are proposing. Senator Graham (and other GOP members of Congress), referring to the Boston Marathon bombing, insist the government can classify American citizens as "enemy combatants", thereby depriving them of their constitutional rights and allowing the military to hold them indefinitely. I have no sympathy for the suspect in the Boston Marathon bombing. But, as far as I can tell, the GOP’s only criterion for when the right to counsel can be suspended, and citizens be held by the military is whenever enough Republicans demand it.

Senator Graham claims:

"Radical jihadists are trying to attack us here at home… Every day we face threats from radical Islamists and they are coming through our back yard and trying to radicalize American citizens."

Representative King (Republican, NY) demands:

"Police … have to realize that the threat is coming from the Muslim community and increase surveillance there … We can’t be bound by political correctness. I think we need more police and more surveillance in the communities where the threat is coming from."

Since 2002, about 19 Americans have died in domestic terrorism-related incidents (this includes the three people killed in the recent Boston Marathon bombing). Over the same period, about 300,000 Americans have died from gun violence — and overwhelmingly at the hands of Christian Americans. The death of any individual is a tragedy, but the risk from firearms vastly exceeds the risk from terrorism.

Representative King demands that police realize where the threat is coming from. Well, in any given year, about one out of 1000 1 gun-owning households will be involved in incidents of gun violence — while only about one out of one million American Muslims 2will be involved in a terrorist incident. Given these facts, and Republican logic, it’s obvious who the police should be monitoring. But if our police ever stepped up monitoring of gun owners (anywhere near the level proposed for America’s Muslims), imagine the screams from the NRA and its toadies in Congress.

Republican concerns about keeping us safe from radical jihadists are hypocritical twaddle, intended to divide Americans along religious/racial lines and distract attention from the GOP’s complete lack of proposals to address a major source of death and injury in the U.S. — gun violence. We don’t have a domestic Muslim terrorism problem in the U.S. — we do have a gun violence problem.

(1) The United States has an estimated 50 million gun-owning households with 30,000 deaths and about 50,000 non-lethal assaults from firearms each year.

(2) The Muslim population of the United States is estimated at 2.6 million, and since 2002 the U.S. has had about two terrorist deaths per year with an Islamic connection.

Steven Strauss is an adjunct lecturer in public policy at Harvard’s Kennedy School of Government. Immediately prior to Harvard, he was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. Steven was one of the NYC leads for Applied Sciences NYC (Mayor Bloomberg’s plan to build several new engineering and innovation centers in NYC), NYC BigApps, and many other initiatives to foster job growth, innovation and entrepreneurship. In 2010, Steven was selected as a member of the Silicon Alley 100 in NYC. He has a Ph.D. in Management from Yale University, and over 20 years’ private sector work experience. Geographically, Steven has worked in the US, Asia, Europe and the Middle East. You can follow him on Twitter at: @Steven_Strauss

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
This is cross posted from my blog, and originally published on May 05th, 2013 as Profiles in Political Hypocrisy: The U.S. Congress

Preparing to Live in That Unknown Country: The Future

New York Ideas 2013 — Some Reflections

The recent New York Ideas 2013 conference, sponsored by The Aspen Institute and The Atlantic Magazine, brought together about 600 New York and national thought leaders.

Among the many participants were people such as: Robert K. Steel (NYC Deputy Mayor for Economic Development), John Borthwick (Founder and CEO, Betaworks), Eric Schmidt (Executive Chairman, Google), Alexa Von Tobel (Founder and CEO, Learnvest), and Katherine Oliver (Commissioner NYC Mayor’s Office of Film, Theatre and Broadcasting). The discussions were excellent, but mainly around technologies, policies and business innovations that shaped the past five years, and might shape the next three to five years.

In the 1950s, Detroit’s population peaked at around two million; by 2010, its population had declined to 700,000. Detroit became a byword for urban collapse, because it failed to respond to the latter 20th century’s changes (primarily the long-term implosion of America’s auto industry). Its citizens paid a heavy price. With Detroit’s example in mind, it’s worth asking what changes the 21st Century might bring, and how they might impact the global, U.S. and NYC economies.

Below are some themes that I believe might shape the next 50 years, and need to be addressed. With each, consider what new product opportunities (if any) might be created, the challenges and opportunities for the global and U.S. economies/political systems, and the implications for entrepreneurs.

"We wanted flying cars, instead we got 140 characters." Peter Thiel . Zipcar, Warby Parker, and other recent successful start-ups are great companies, and will earn well-deserved fortunes for their founders. But none of these companies, singly or collectively, will have as much impact on civilization as the invention of penicillin. Have we entered a period of reduced productivity growth, as Robert Gordon (“Is U.S. Economic Growth Over?”, NBER 2012) and others suggest?

Are Google’s driverless car and Siri just the beginning for applied machine intelligence/Big Data? Automated trucks, for example, could eliminate millions of jobs. Will this type of automation be good or bad — economically and socially? How will it transform society?

Many projections have China’s GDP surpassing the U.S. in the 21st century. New York City became the world’s business center because, in the early 20th century, America became the world’s largest economy. As the U.S. becomes the world’s largest regional market, and China becomes the world’s largest market, how will America and NYC adapt?

The U.S. population is aging. Between now and the mid-21st Century, the number of Americans over 65 will double; by 2030, one in five Americans will be over 65. Is mid-late 60s retirement really appropriate anymore? What kinds of new non-medical products and services will be developed to serve an aging boomer population? Given America’s current health care system (which costs 18 percent of GDP), how can it afford this demographic transition?

When the media industry stabilizes, what will it look like? Will feature films, news and music be crowd-sourced? Will all the global/national brands (e.g., New York Times) be gone, and the survivors be smaller, nimbler participants with extensive use of User Generated Content? Or will the future have a few giant global participants (e.g., Google, Facebook, Amazon), the collapse of the middle, and a forest of small niche players?

If anthropogenic climate change is real and nothing is done, disastrous occurrences like Hurricane Sandy will become commonplace. Will America’s coastal cities start to shrink, in population and importance? 

Over the last two generations, the gap between the top 1/3rd (particularly the 1 percent) and the bottom 1/3rd of America’s population has widened to a chasm.For example: In April 2013, the unemployment rate for those with a bachelor’s degree or higher was 4 percent, but exceeded 11 percent for those with less than a high school education. Can America survive as two countries — one affluent and the other marginalized? 

Is the rejection of secular humanism merely a short-term bubble or a long-term trend? Francis Fukuyama famously declared "The End of History", and that Western liberal democracy had triumphed. Well, history’s returned with a vengeance. In parts of the developed world (and even more strikingly in emerging markets), we see sharp, sustained rejections of liberal democracy, market economics and secular humanism. What do these developments mean when world views, values and goals diverge so radically?

We may be on the threshold of a scientific revolution in human genomics, giving us (for better or worse) an incredible ability to shape our genetic inheritance. In what ways should we utilize these abilities? Who will decide how these capabilities will be developed? Will we use these new powers wisely? For more on this important topic, see the recently published book Regenesis.

Emergence of global ‘superbugs.’ Will decision-makers respond rapidly, and wisely, to potential pandemics? How will such events (and their aftermath) affect commerce, travel, individual rights, and other features of our economy and society, particularly in global cities, such as NYC?

What will be the next 9/11 event? Will it come from the Middle East, North Korea or a failed state? Will it be cyber warfare, nuclear, chemical, biological, or something else? Are we preparing sufficiently for the next generation of risk?

The list above is far from exhaustive, and some items are contradictory or ambiguous. I don’t claim to have answers (and, I’m not even sure these are the right topics). But discussing and debating topics of this type is the best way I know to prepare to live in the unknown country that is our future.

Steven Strauss is an adjunct lecturer in public policy at Harvard’s Kennedy School of Government. Immediately prior to Harvard, he was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. Steven was one of the NYC leads for Applied Sciences NYC (Mayor Bloomberg’s plan to build several new engineering and innovation centers in NYC), NYC BigApps and many other initiatives to foster job growth, innovation and entrepreneurship. In 2010, Steven was selected as a member of the Silicon Alley 100 in NYC. He has a Ph.D. in Management from Yale University, and over 20 years’ private sector work experience. Geographically, Steven has worked in the U.S., Asia, Europe and the Middle East. You can follow him on Twitter at: @Steven_Strauss

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
This is cross posted from my blog, and originally published on May 12th, 2013 as Preparing to Live in That Unknown Country: The Future

Managing Innovation

Begin by Defining Outcomes, Outputs and Inputs

Innovation is the buzz word du jour. Each year, vast piles of PowerPoint handouts are distributed to cultivate and fertilize innovation — many containing concepts (figuratively speaking) with the aroma of manure. Innovation is difficult, but presenting it as an obscure unmeasurable esoteric art does not make it easier. Definition and measurement matter, as Peter Drucker observed: “If you can’t measure it, you can’t manage it.”

An Internet search for “innovation” yields over 200 million results, including listings for Chief Innovation Officers of companies (such as AMD, Citigroup, Coca Cola, DuPont, and Humana) and cities. Venture capitalists speak at conferences on innovation, and all startup presentations boast of the founder’s innovative strategy. BCG, McKinsey and other management consultants have entire practice groups dedicated to innovation.

On the political front, innovation (as a goal) receives bipartisan political support, a rarity in these partisan times. The White House website has an entire section on innovation, where President Obama tells us:

"The first step in winning the future is encouraging American innovation."

So what do we mean by innovation, and how should we measure it? At the NYC Economic Development Corporation, we used the following definition of innovation:

"The design, invention, development, and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm." (Source: NYCEDC Innovation Index and U.S. Department of Commerce)

Innovation is about creating value, and doesn’t necessarily require a new invention, technology or product. No particular part of the original iPhone was a radically new invention. But in the context of the ecosystem created around the product - it was truly revolutionary. Apple and its success with the iPhone/iPad ecosystem have been as much (or even more) about innovating the customer experience (e.g., visiting an Apple store Genius Bar vs. calling Dell customer support) as about technology. Innovation can also be a new business model/approach (e.g., Walmart’s leadership in supply chain management).

Given a working definition of innovation, three categories of metrics have proven useful:

Outcomes - This metric is about defining a vision for the future - the end state you’re seeking: such as a radically new approach to the customer’s user experience. As Steve Jobs said: “Innovation distinguishes between a leader and a follower.” Leaders know where they want to go.

Outputs - Outcomes are the end-state sought, but they can (sometimes) take years to materialize, and are often dependent on many factors - not just the quality of the innovation. Consequently, it’s important to have measurable output goals, related to the outcomes you’re seeking. For a company, outputs might be pilot projects, prototypes, experiments, or patents issued. One of Swedish social entrepreneur Billy Olsson’s output metrics was that he wanted everyone in his organization to break one rule each day. He wanted people to experiment, and passionately believed that rules, if followed too religiously, would stifle innovation and creativity.

Inputs - Innovation isn’t simply about throwing resources at a problem:

"When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it." — Steve Jobs

Resources do matter — but more for their quality than their quantity. Extraordinary people such as: Alan Turing, John Von Neumann, and Claude Shannon were priceless resources.

For a fashion business, key inputs might be the number and quality of fashion designers employed or hired. For a technology firm, it might be the number and quality of computer science Ph.D.s hired. Keep in mind that inputs aren’t just tangible things. Culture, for example, is an intangible, but very significant input. An organization’s culture should align with its innovation goals.

Innovation is an iterative process — each of these metrics must be updated and re-evaluated as new information and results become available. And innovation requires focus - you need to be willing to say “no”:

"People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things." — Steve Jobs

In summary, successful innovation means: Having a vision of the future (e.g., for Mayor Bloomberg, an economic development vision of NYC as the preeminent global center for entrepreneurship and venture capital); Establishing measurable output goals closely connected to outcomes (for NYC, this was more startups, venture funding, employment in the targeted sector, and local engineering talent); and Having measurable input milestones (e.g., construction and expansion of NYC’s engineering schools as part of Mayor Bloomberg’s Applied Sciences NYC initiative). It also means knowing when to say “no,” and re-evaluating and updating goals on a regular basis to reflect changed circumstances.

As a final bit of advice from one of America’s greatest innovators, Thomas Edison, invention and genius are: “one percent inspiration, ninety-nine percent perspiration.”  

Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss

This is cross posted from my blog, and originally published on June 02nd, 2013 as Managing Innovation