March 29, 2009

Danish Awareness of "Earth Hour" Dim

After the American Century

Across the world, in 88 countries, cities turned out their lights last night for one hour, starting at 20:30 local time. The Houses of Parliament and Big Ben, dark. The Eiffel Tower? Noir. The Chinese Olympic stadium, Sydney's harbor bridge and opera house, Atlanta's Coca Cola Building, dark. Toronto reduced its total electricity consumption by 15% during "Earth Hour," more than twice as much as last year. It may have been the biggest global demonstration in history.

In most of the participating 2800 cities and towns, the local newspapers and politicians were actively promoting Earth Hour. However, I looked in vain for anything about Earth Hour II in two Danish newspapers this morning. Last night, the City of Odense turned out its streetlights at 20:30, as we did at our house. Yet, as I walked around our neighborhood, few others seemed to have done so. Using the simple test of looking for lighted candles showing in windows, it appeared that most people had lots of light bulbs on, and that perhaps one in ten actively supported "Earth Hour." I hope I am estimating incorrectly, but in the last week I have not sensed any awareness of this event. Not a single student, colleague, or neighbor has mentioned Earth Hour to me, or showed any interest in it when I mentioned it.
Not one journalist has called or written an email asking for my view of Earth Hour, from the viewpoint of an energy historian.

This morning, the local newspaper (Fyens Stiftstidende) has not written a single word about "Earth Hour" that I can find. The front page features a photograph of two girls eating ice cream. The three stories on page one are about increasing service charges on house loans, Conservative tactics for the next (hypothetical) election, and an extremely important piece on the development of a cardboard, biodegradable "Paradise coffin" for pets, available in five sizes. On the plus side, the same newspaper has five pages about energy-saving forms of electric lighting in its second section, without, however, mentioning Earth Hour anywhere that I can see.

Apparently, for all-too-many Danes, global warming is only an issue of concern for thousands of cities in other parts of the world. Judging by this event, you would never know that Denmark is hosting a major climate conference that will seek a replacement for the Kyoto Accords. Political parties paid lip service to the event, but except for a single concert in Copenhagen, the event was a non-event in Denmark. For 2009, the clear message from Denmark seems to be that hardly anyone cares very much about Earth Hour or about forging a world consensus to reduce global warming. To anyone familiar with the current government, this should come as no surprise. Maybe next year they will use their wall switches to vote for change, to proclaim the solidarity with others, and to send their politicians a message.

March 28, 2009

Why You Should Turn Off the Lights Tonight

After the American Century

Turn off the lights for one hour, tonight. Why?

(1) Because this is a way for people all over the world to demonstrate, quite painlessly, that we are concerned about global warming and the over-intensive use of fossil fuels.

(2) Because all of us can use less energy every day, without sacrificing anything, and we need to remember that we are not passive spectators, watching global warming. We are actors. We can make a difference, if we act together. In 1997, the average home in the OECD countries used 38 watts every day just to keep appliances on standby. These 386 million households were wasting 14,634 megawatts a day. Does anyone think this waste is necessary? Of course not. But we need to make an effort.

(3) Because the electrified world is historically new, and once in a while we need to remember what darkness looks like. Human beings evolved without artificial light, and during this hour we might reflect on where we stand in relation to the more than 100,000 years of human history. Human beings have used electricity for light and power for less than one tenth of one percent of human history. In that blink of an eye, historically speaking, we have polluted the atmosphere and the sea and unbalanced ecological systems in ways that we are struggling to understand.

(4) Because your house and your family seen by candlelight are beautiful in ways that you may not have seen lately. The human eye did not evolve to see the world blanketed in electric light, but rather evolved to see somewhat differently by day and by night.

(5) Because if the sky is clear, you will get a good look at the heavens. The urban landscape especially can be improved by reducing electric light. Most urbanites scarcely see the heavens at night, because excessive artificial light reflects into the atmosphere, making it impossible to see more than the brightest stars.

So why let this night be like all the others? Why not turn out the lights, and look for a local arrangement celebrating "Earth Hour" as it is called in many places, following the Australians who began this ritual in Sydney. The Danes are calling it something else, and starting not on the hour but at 20:30.

As the Toronto Star put it last year, “This event is an opportunity to show how individuals acting together as a community can have a huge impact. Ultimately, we hope it gets people thinking and talking here in Toronto and in cities around the world about real solutions to what is arguably the most important issue of our time.”

March 21, 2009

The Bureaucratic Dream of Quantifying Research Results

After the American Century

I can see the attraction for bureaucrats and politicians of giving a numerical score to every book and article that every academic produces. If one could find a way to do this accurately, then individuals, departments, universities, and whole nations could be ranked, and money handed out to the most productive. It seems so logical and easy. Of course, university researchers will resist, but the effort surely would be worth it.

This fantasy has been pursued in different nations, and for the last year has been a key project of the Danish Ministry of Research. As it happens, I was dragooned (not asked) to serve as one of 300 experts charged with drawing up the lists of all scholarly journals and academic publishers, and then dividing them into groups based on quality. More points would be given to work published in the "best" journals. The Ministry considered this task to be so easy that it provided no release time or extra funding for it, and the work was to be done in just a few months. Each sub-committee would send in its lists and the Ministry would combine them into a complete overview.

This reminds me of a story I heard about the Spanish king (centuries ago) deciding to produce a map of his empire by asking each region to prepare a map of itself, the idea being to combine them all into a map of the realm. Each governor had a map drawn, but of course the scale employed and the methods of representation were by no means the same. The King tried to put the pieces together, but instead of a map he had a misshapen patch-work quilt of no value.

Yet making a map of Spain is easy compared to making a map of academic knowledge production. Land, surveyed according to a single system, can be mapped pretty accurately - even if it is not as easy as it might appear, for one one must take account of the curvature of the earth and of slight deviations in measurement due to equipment that reacts to changing temperatures, etc.

But a numerical system to measure knowledge production? Here are some of the problems. First, some fields are intensive, others extensive. In philosophy, for example, the closely reasoned article is the central form of publication, and even a very fine philosopher may not produce so very many in a decade. In my field of history, articles are more frequent, which makes a certain sense, since its subject matter is extremely extensive, with every nation, organization, and institution providing ample areas for study.

Second, in some fields, books are the most important units, in others, articles. Scientists mostly write articles, often of less than 10 pages. For historians, the most significant unit of production is the book. The typical academic book is 250-400 pages, more than ten times the length of the typical history article. How does one compare the two forms? Some university departments in the United States establish "conversion tables" ranging from five articles equals a book to as many as eight articles equals a book. There is no consensus.

The subcommittee of five persons on which I served developed a list of more than 700 English language journals from Britain, Ireland, the United States, Canada, Australia, and New Zealand. The same committee was also responsible for the Spanish and French journals, most of which I cannot offer a qualified opinion about. Imagine that we used only ten minutes to consider the ranking of each of the 700 English language journals. That is far too little time, yet that would take 7000 minutes, or 116 hours. The problem is that even a committee of five will not know all 700 journals.

Nor was this all. We also had to compile a list of academic publishers, a formidable task in itself, for many universities in the English speaking have presses, including some of the most prestigious. We were provided a list to start with, but it was rather useless, as it omitted many of the finest publishers and was not drawn up according to any principles that I could discern. We were told it was a Norwegian list, but I think the Norwegians are far more clever.

Well, we did our best, as did the other sub-committees, but our map of academic knowledge production could not possibly become coherent. And to make matters worse, unidentified persons in the Ministry (none of them with even a Ph.D. so far as I can tell) tried to adjust the rankings without consulting the specialists involved. They made the mess worse and called their own intelligence into question. Example. A physics article published in Science is considered by any university a great achievement. Unfortunately, the Danish Ministry of Research did not know this and assigned Science a low ranking. That should have been a no-brainer. Readers in Denmark will know that this fiasco became part of an on-going news story about the attempt to create a what is called (in rough translation) a "bibliometric measurement system."

For the record, let me say that from day one I felt this was a misguided enterprise, whose real purpose was to take decision-making about quality out of the hands of professors and give it to bean-counters in the Ministry. Furthermore, such experiments in other nations, notably the UK, have shown that it does not foster world class research. Rather, it encourages a calculated response to whatever point system is established. For example, suddenly several short articles are better than one long one, several articles accepted by mediocre journals are "worth more" than one really great article that took years to write and place in a top journal. A book that can be researched quickly is worthwhile, but scholars are, in effect, punished for attempting anything that takes more than a few years. Textbooks are not worth any points, so no one wants to write them. Book reviews are also worth little or nothing, so this essential and very public part of the peer review system is weakened.

Worst of all, academics may possibly come to believe that every article published in a "top" journal is automatically better than one appearing in a "lesser" journal. In fact, innovative work often finds a home in new journals or new publication series, created by upstarts or dissenters. Judging and rewarding academic research based on a point system reifies the present hierarchy and punishes innovators. The goal may be stimulating research, but the result can be ossification.

It may seem astonishing to bureaucrats, but the best judges of what is great research are the specialists themselves - the peers in peer review. Why judge the content of an idea by the venue where it appears? Why suppose that quantity can make up for quality? Why imagine that knowledge is quantifiable in the first place?

March 07, 2009

General Electric Models the Past and Future

After the American Century

Back in 1980s I was something of an expert on the history of General Electric, having written a book about it. Since then I have casually followed the company, as part of my interest in the history of technology, but I have not done any research directly on GE itself. Nevertheless, from a historical viewpoint, GE is a fascinating study in what has happened to the American economy during the last century.

GE began as a merger in the 1890s between a number of electrical manufacturing companies, including those of Thomas Edison. It held a large clutch of valuable patents in electrical lighting, transmission, and so forth, and it was also wise enough to establish the first corporate research and development center in the United States, in 1900. It gave inventors and scientists security in return for patent rights, and managed to parlay its early dominance in the industry into a long-term dominance in most things electrical, including radio, television, and much else.

GE also bought promising small companies that made consumer goods, such as irons or toasters and developed these products. At first each kept its own brand identity, but around 1920 the company was convinced by the legendary advertising man, Bruce Barton, to consolidate all its consumer goods and sell them under the single logo of GE. For generations afterwards the GE label was an assurance of quality, and many consumers bought their refrigerators, stoves, televisions, and other large electrical purchases from GE, which remained one of the largest corporations in the United States for all of the twentieth century.

Of course GE made some mistakes, like missing the emerging computer revolution, and it was unlucky in taking a leading role in nuclear power, which became unacceptable to the American public after the Three Mile Island Accident. Still, until the last quarter of the twentieth century it remained a powerhouse, and a corporation loved by investors, because from the 1930s it just never missed a dividend, and usually paid a little more than expected. GE was the definition of a blue-chip stock.

But last week GE was on the ropes, as it announced a big cut in its dividends. Its stock price fell to little more than $6 a share, a two-thirds drop over just a few months, and even since 2007 when it was selling for $37.

What happened? GE changed its winning strategy. Instead of focusing exclusively on being the best in the world at its core businesses, electrical power generation and electrical consumer goods, its management decided to branch out. It bought coal mines, for example, and got into medical services. This seemed to make sense, as Asian companies were making the appliances at prices so low there was little profit in it, compared to the 1950s. Most tellingly, GE made a lot of money by lending other people money. GE competed with banks, through a financial division.

For years that finance division was the most profitable part of the company. No more. In the late Bush marketplace, GE's lending was apparently no more profitable than the banks' mortgages. Depending on what rumor you believe, the debt ranges from a paltry billion (which I can easily handle) or two to maybe 40 billion. No one outside the company seems to know. And so the stock falls.

Is this not, in miniature, the history of the American economy since 1900? From blue collar jobs and heavy industry to white collar jobs in finance? From patent control and market dominance to loss of control over markets? From blue chip stocks, rock solid in value, to a faltering stock price amid uncertainties about the company?

If GE was the model company for the 20th century, can it revive to be a model for the new century? I submit that GE should get back to its roots. It still has terrific research labs, excellent consumer products, and exciting new alternative energy technologies. It could help to develop a national smart transmission grid, new mass transit, and much else. But to do so, it might need to split itself into two companies, letting the financial arm go it alone, and if necessary, fall into bankruptcy.

[Update: On June 26, 2009, GE was selling for just under $12.00 a share, and had been trading at higher prices since this piece was written, briefly even getting over $16.]

Shootings Plague Normally Placid Copenhagen

After the American Century

In Denmark one almost never gets a message from the American Embassy warning that a certain part of the country is dangerous and should be avoided. In fact, I cannot remember getting one before. But I did receive such an email a few days ago.

Denmark generally is regarded as one of the most peaceful nations on earth. The Economist regularly places it among the three or four safest nations. But in Copenhagen for months casual and unmotivated shootings, with a few dead and many wounded bystanders, have become an almost daily byproduct of a gang war. Sometimes the press presents these shootings as matters of mistaken identity, which would suggest that if you don't look like a drug dealer there is no danger. But many of those shot do not fit that profile, and other motives seem behind the shootings.

Indeed, the City of Copenhagen had to suspend delivery of food to elderly shut-ins because those who make the deliveries were being threatened. (No one is suggesting that these city employees were delivering illegal drugs to the elderly!) When city police were then told to protect workers delivering food to the elderly, there were threats against the police.

So how safe is Copenhagen? And for tourists, is it still worth visiting? My own sense is that most of the city remains quite safe compared to American or British cities, for example. But if the city cannot find a way to stop these shootings, it it cannot control the areas where they most frequently occur, notably Nørrebro and parts of Amager, the image of Copenhagen will suffer. And that will undo the millions being spent to attract tourists to the City.

The world press has begun to take note. The Times of India estimated that there have been at least 60 shootings since last August. called Copenhagen "a shooting gallery." Stories have appeared in The China Post, The Hindustani Times, and in The International Herald Tribune. Tourism to Denmark, already suffering due to the weak world economy, can only be hurt further, as people decide where to take their summer vacations.

An Aside: Danger does draw a certain class of visitors,. "Riot tourism" is promoted by at least one website, promoting the excitement and learning potential of disorder. For those looking for confrontations with the state and solidarity with fellow radicals, Copenhagen might become an attractive destination. If the city is really to draw such tourists, however, the current drug war would have to be politicized, so that it seemed like something else, for example class warfare (the long proclaimed collapse of capitalism?) or perhaps official discrimination against immigrants.

But leave speculation aside. Denmark is not really so dangerous that tourists should avoid it, whatever you may read in the press. However, unless you are a "riot tourist," stay out of Nørrebro.

March 02, 2009

Weird Home Computer Tax in Danish "Reform"

After the American Century

With the world's highest taxes, Denmark periodically goes through the ritual of pretending to lower and simplify taxes. What always seems to result is a more complex tax code than before. I will not try to explain the new law, because after reading through it, I am not certain I understand it. That is why Denmark is a paradise for tax accountants, because you literally cannot figure out what the rules are yourself.

Rather than write about the whole complex package, I want to single out one remarkable new tax that has been added. (In any tax reduction plan in Denmark new taxes are always added). This one is for 5000 DK a year, almost $1000 for anyone who gets a computer or telephone from their employer. I hope I am misreading it, but it might mean that even if you have paid for your home computer, as I have (because the humanities faculties generally are broke), just using the Internet hookup would unleash the tax office on me. That's right, if I have a home office and check emails from home at night or on the weekend - that is, if I want to work a bit overtime, the punishment will be almost $1000 a year.

Now if the real purpose of the tax law was to get people to work less, this might make sense. But the stated purpose of the law is to encourage people to work more, to increase the work people are willing to do by lowering the tax rate. Denmark's baby boomers are marching into retirement soon, and the country cannot afford it unless people work for more years and more hours during those years.

This tax seems particularly stupid because it is aimed at anyone whose work involves communicating with Asia or North America (two rather large markets). Think about time zone differences. Send an email at noon from Denmark to Los Angeles (where it is midnight), and the reply will probably come after 21:00. Under the new law, if an employer wants someone to read and respond to that email, and gives them a computer to do it with, the cost will suddenly be $1000. As I read the law, just one message a year would do it. Nothing seems to be in the law about modulating the tax to take account of whether you have the home computer 24/7, only sometimes on the weekends, or just during a busy month. Apparently, it is all or nothing.

What will people do? They will not accept a computer or phone from their employer any more. Instead, they will try to get by with an older machine, typically with older software, that they have at home. Instead of using the same institutional network both day and night, they will sign up for a separate system that costs less than 5000 DK a year. Corporate security will no doubt be compromised. Messages needed at work will occasionally be inaccessibly at home.

This "reform" will make Denmark less efficient. It may well retard the spread and use of the Internet. It will encourage people not to work at night or on weekends. It will hurt the efficiency of international contacts and likely hurt exports. It can easily compromise corporate IT security, as employees use home systems to avoid the extra tax. It could easily make the university a bit less efficient. This is another example of an inane Danish "reform" that was worked out in a private room between a couple of political parties without the benefit of public discussion.

I get hundreds of emails from students in the off hours, and I guess this means I should not answer any of them until I get to the office, no matter how important, such as the one I got an hour ago asking urgently for a letter of recommendation. Thank goodness in the future I will not read such messages until it is too late. Less work for me to do, and no job at all for the student!

The marvel is that Denmark on the whole is such a great place, despite its tax system.

March 01, 2009

Back to Banking Basics: Learning from Canada

After the American Century

Once upon a time, mortgages were simple. The home buyer went to a bank, which (1) decided whether the house was worth its price, (2) whether the purchaser looked like a good risk, (3) what rate of interest to offer, and (4) how big a down payment was needed to seal the deal. Furthermore, (5) banks kept on hand a decent reserve of capital, in case some buyers defaulted on their loans. In those simpler days, all the risk was divided between just two parties: the customer and the bank. But all five of these elements of the simple mortgage have changed over time, and the disastrous results emerged in the present crisis.

(1) Houses were bought and sold for irrationally high prices. There were years when home prices rose by 20% or more. But salaries were not shooting up that fast, and banks should have considered the potential resale price to be less than the irrationally soaring market price. In Britain, for example, by 2005 people were buying houses for as much as five times their annual salary, but a good rule of thumb in the industry has long been that people cannot afford a house that is more than c. three times their salary. To find a way for ordinary people to pay extraordinary prices, banks invented all sorts of new kinds of loans, including some where the buyer only paid off on interest, without making any attempt to pay down on the loan itself. And so the bubble grew.

(2) Banks failed to make hard-nosed evaluations of whether customers were good risks. In fact, as has been documented again and again, lenders encouraged people to purchase homes that they really could not afford, secure in the knowledge that they would repackage and sell these dodgy mortgages to others. In many cases, banks divided up mortgages, repackaged them, and spread the (as it turns out toxic) risk, and so distributed these risky loans all over the world. By 2008 millions of people were defaulting on their loans, the rate of foreclosures shot up, house prices began to fall, the whole house of cards came tumbling down. In the United States, in January of 2009 alone the number of foreclosures was 274,399. Assuming an average of four occupants per home, that means more than 1 million people lost their house and all they had invested in it, in just one month.

(3) During the years of bad practices, banks also played games with interest rates. In Britain, for example, many banks offered quite low rates for the first years of a mortgage, whose cost then increased dramatically. Borrowers would then go out and pay some high fees to refinance the house and start the process over again, without ever managing to pay off much on the house itself. As a result of such practices and many other manipulation of interest rates, it became quite difficult for consumers to understand what they were really paying for a mortgage. so that "supply and demand" were not as important as (mis)perceptions of capital supply that stimulated irrational demand.

(4) Down payments have fallen over the last century. Back in c. 1920 it was not unusual to demand one third to one half of the total value of a house as a down payment. I am not suggesting that one should return to that standard, but it does put in perspective the developments since that time. After World War II, in the US, veterans could buy a house with a down payment of only $1, as the federal government insured the contract, making it risk free for the banks. Veterans did prove to be good credit risks during the expansive 1950s and 1960s. But the great success of such programs suggested that enormous economic growth could be achieved by extending more credit to more people, notably by asking for smaller down payments. Today, few people put up more than 20% as a down payment, the amount necessary to obtain the best interest rates. In some cases, cash payments were not made, as many people used their pension plans as collateral, putting their old age at risk. Thus there are people in the present crisis who are losing not only their homes but their pensions as well. Others paid higher interest rates but put up as little as a 5% down payment or in some cases even 0%.

(5) As the number of loan defaults snowballed, it quickly became apparent that banks were not prepared. They had not kept decent sized reserves on hand. In many cases, they had purchased mortgage insurance, from companies such as AIG, that is now the dead weight threatening to drown the whole banking system. For AIG became a global player in the mortgage business, giving the appearance of safety and solvency to all sorts of schemes, each of which helped banks to escape from the irritating demand that they actually have some money in their vaults. US banks on average have only about 4% of their capital value on hand in the form of actual money.

President Obama is trying to clean up this enormous mess, but it will not be easy, because the simple borrower-lender relationship has become so complex, with so much division and sale of risk, insurance schemes, and arbitrage that only accountants who specialize in this field can understand the billion dollar details. In the short term, it seems impossible to avoid pumping billions more into the under-regulated industry, to rescue the economic system as a whole. Meanwhile, the public is understandably furious that bankers should continue to be well paid.

Fortunately, there is a model for a better banking system: Canada. There, banks were kept under tighter control, and as a result the Canadians have weathered the world financial storm without much damage. Theie banks did not have so many dodgy mortgages and they had an average of 9.8% capital on hand, more than twice the US average. Canadians did not forget the five essential features to mortgage lending discussed above. In 2008 the Geneva-based World Economic Forum rated Canada's banking system as world's best. Not incidentally, the Canadian dollar today is far stronger against the American dollar than it has been historically.