Specifically, I mentioned that

It is not going to be fought over territory, or politics, or religion. It will be an economic war, a cultural war, a global war, and one in which the civil populations those beliefs support the power base of the status quo will shake those institutions to their very core. Issues over DRM are not the opening shots fired. They are a wake-up call that something radical needs to change – that the fundamental nature of how we value and distribute knowledge and ideas will, in the long run, not be subject to the traditional economics of today’s society.

SOPA is the next round in that battle and is evident proof that the wake-up call has not been heeded. In a nutshell, SOPA is an attempt to reinforce traditional values of copyright and ownership on a system that doesn’t want to be forced in that direction. Rather than trying to work within the direction the socio-informatics wants to naturally go, large corporations are trying to bring those values back in line with the establish processes because that is what they know. Laws, policy, policing.

What is missing is the human element. It is also what makes SOPA so dangerous as a framework from which individuality and the expression of ideas could eventually be eradicated.

Legacy is the essential problem.

The way you keep populations in control is by ensuring that their needs within a society are being met. Let’s take the simple example from Maslow. Those core needs being, in order of importance, physiological, safety, belonging, esteem, and self-actualization. To this list one has to add an additional more primal basic need that supersedes all of these others and that is the need to propagate.

The philosophical statement, cogito ergo sum, represents only half of what it is to be human. It is the rational side of the equation and doesn’t address this idea that within human culture it is not simply enough ‘to be’, one must have prove of one’s existence. That is, we define ourselves not just in terms of how we perceive the world rationally (a priori) but we need to have verifiable proof through external means that we exist (a posteriori).

Up until now, copyright has provided some measure of proof of our existence through the assignment of ownership to physical objects and the definition of legacy that it provides. But what happens in a virtual world where the right to create derivative works is superseded by mega-corporations whose only interest is the next fiscal quarterly report to their shareholders? When you no longer have the right to create works that provide proof of your existence? Or when you as an individually can be wiped out simply for not paying your ISP?

These may seem like extreme examples until you consider that most of what we say and do in the developed world now revolves around some type of electronic exchange of knowledge. The ability to express oneself to society is predicated not just simply on the physical expression of thoughts and ideas but also on their persistence. The creation of physical forms of self-expression be it a book, a record, a painting, a house, a chair, were easy to assign copyright to. The uniqueness of such self-expression was contained within definable geographic constraints. And even with mass production, copyright infringement through the development of substantially similar or derivative works was constrained.

There are only so many different ways you can mill a table leg. After awhile with 7 Billion people on the planet, people in various parts of the world are going to come up with similar solutions to similar problems irrespective of blatant intellectual property theft. So what do you think is going to happen once we add another 2.5 billion people to the planet between now and 2050?

In the last 20 years we have gone from a society in which the persistence of knowledge was predicated on activities that were understood to be one of two types, physical or vapor-ware, to a society which now has a reasonable right and expectation to every word they say lasting generations. Our root belief system has been fundamentally altered such that legacy is no longer about what you physically leave behind but what you virtually leave behind as well.

That is no small paradigm shift. And it’s not localized. It’s global.

Consider by 2050 9.5 billion people all wanting to establish a legacy of their own and wanting to have proof of their existence.

SOPA doesn’t account for this. The players behind SOPA don’t want to account for this. They don’t see it as their responsibility to speak to the future. They only seek to protect an economic system which is no longer viable in an information age.

So here is the fundamental problem: what happens in a society when its sense of self is under attack by those seeking, albeit maybe unintentionally, to eradicate proof of their existence?

Usually its revolution.

Unfortunately we are like the frog in the frying pan where the heat is being turned up slowly. Our hierarchy of needs is being eroded piece by piece under the guise of improved quality of life. The powers behind SOPA likely feel that so long as there are no signs of imminent collapse that all will be right with the world. But as any good doctor can tell you, to look after the care of a patient you need to also pay attention to the symptoms even if there are no outward signs of disease.

We could very easily take a page out of the medical handbook of practicing physicians as to the how to evaluate and assess a law’s ability to influence and improve the social condition. Unfortunately that hasn’t been done here. Which is a shame because an OPRQST assessment against the human hierarchy of needs is exactly what is called for here.

If SOPA passes, and mega-corporations start to use this to assault an individual’s innate ability of self-expression, regardless of what form that self-expression may take, then it will simply be a matter of time before the revolution starts. Similar to DRM, SOPA won’t be the shot heard around the world, but it’s definitely a sign that the musket is being loaded. SOPA is a very badly structured piece of legislation that should never become law.

That’s not to say that there aren’t legitimate issues at stake here. However, we need to start by realizing that our economic system needs a major overhaul. Any legislation needs to accommodate the way society functions today – not the way the nuclear-aged society functioned 60 years ago. That is going to require a heck of a lot more work than a quick fix solution created by the group of people that are at the root cause of many of these issues in the first place.

Revolutions don’t need to take place at the point of a gun. The transformation in society between 1979 and 1999 is ample proof that revolutions can be both transformative and peaceful. I just hope the transformation that needs to happen between 2019 and 2039 will be one of cooperation and not confrontation.

– Kevin Feenan

For example, during World War II, the debt in the US spiralled to almost 130% of GDP. The traditional level however has been below 50% when looked at across the last century or more. This is in keeping with the Maastricht criteria which provide a recommended cap of 60%.

Dr. William Edwards Deming is widely regarded as the father of total quality management – a system of statistical control in which quality is a practice of continual improvement where manufacturing is thought of as a system, not as bits and pieces. By doing so, your fundamental measures of quality can be bounded. It is not the individual measure at a point of time that is important but rather does that point lie within the those bounds.

In this case – the measure is the percentage of debt verses GDP.

If you remove special cause of variability, for example capital spending on World War II, then what you get is a graph which is more or less consistent with D/GDP being in the 20%-70% range. Under normal circumstances, the debt shouldn’t rise above these levels.

Unfortunately, when Bush left office in 2008, he saddled the US with a whopping deficit obligation which was impossible for any President to back away from. In short, G.W. Bush took the system out of statistical control and Congress rode on those coat tails to push it the rest of the way. There were no extraordinary crises which would have mandated these measures if the Government had been doing its job through regulatory policy and putting the health of the nation first.

Being consistently in the upper range of the D/GDP boundary is a clear signal that something fundamental has changed and that it needs to be looked at. Not after the Debt has ballooned to 90% or more of GDP. Clinton knew enough to bring those ratios down.  Bush was the maker of his own ‘crises’. But this just goes to shows what happens when you put personal agendas ahead of managing the economy to weather a real crisis when one comes along.

Which gets back to this original point of the debt ceiling level.

If the normal boundaries for government expenditures are between 20%-70%, then any crisis that pushes the system out of balance should be defined as such by either the President or Congress including the terms by which that problem will be deemed to have been resolved. During those times, the debt ceiling should double which the understanding that it country needs to dedicate itself to the express purpose of getting the economic spending of government back into statistical control with all due haste once that crisis is past. Further, both Congress and the President should be bound by those requirements, superseding all other political agendas.

What is at risk is the US’ ability to address additional crises should one come along.

There are three other points that needs to be made before getting to a resolution on the idea of a debt ceiling.

First – During a crisis, the bills to be paid don’t stop once the crisis is resolved. It will typically take another 2-4 years of increased government spending before the government can be said to have ‘turned the corner’ and can start focusing on real debt reduction.

Second – Governments have typically relied on inflation to reduce the size of the debt compared to GDP by anticipating that, so long as they can cover the interest payments, the size of the debt will shrink naturally. This is because in 10 years time, what cost $100 today will only be worth $60 in 2021. As a percentage of GDP that is huge so long as there is a growing economy. It’s when economies are shrinking or on the verge of collapse that this strategy fails to work.

Third – A crisis is a special circumstance of variation. As such it cannot be systemic. That means that in declaring a crisis, the crisis cannot be on-going – such as the war on drugs which was first announced in the Nixon administration. The ability to declare a crisis means that it must be extraordinary, short-term, and solvable. Anything else is systemic to the functioning of the economic system.

Moody’s point of removing the debt ceiling, while likely practical in the short term, is also short sighted. It removes all restraints which is not good in an era where politicians think money grows on sheep. There needs to be caps in place which are essential trigger points for ensuring the economic health and total quality of the system when looked at as a whole.

Possible Solution

There are three aspects to a possible solution that need to be put in place.

The first is to establish a ‘normalized’ threshold for debt to GDP ratio which is the idealized state, or goal, that both Congress and the President agree to reach. That threshold should be down somewhere in the 20-30% range. Keep in mind that at its peak, WW II raised the D:GDP ratio from 50% to almost 130%, a difference of 80 points. The current financial crisis, has resulted in debt going from 70% to almost 100%, or a 30-point difference. If we can assume the average crisis will therefore take a 50 point increase, then setting a 20% idealized debt threshold means the US could weather almost any crisis short of another world war while keeping the economy vibrant and healthy.

The third is to define the terms and conditions of the crisis at hand which would allow the debt ceiling to be raised from 70% of GDP to 140% of GDP. Similar to establishing a project charter, Congress and the President would need to define what the crisis is and the conditions that need to be satisfied in order to declare the crisis over.

The third is to establish a rule that requires both Congress and the President to enact spending measures that reduce the debt, in real terms, every year starting no more than 4 years after the crisis has been solved. Budgets must continue to be passed which lower the debt ceiling year over year until the debt falls to below 70%. That means the debt ceiling would change from year to year based on the previous year’s spending. Once it is back into a steady state, the restriction comes off and Congress and the President can get back to their normal bickering, finger-pointing, and backstabbing as per usual.

This to me seems to be far more reasonable than the ‘quick fix’ proposed by Moody’s and would be far more fiscally responsible.

— Kevin Feenan

I’m checking my non-existent stocks (read: crash boom ba) due to some other good news I got this week and a funny thing happened on the way to the technical charts. One of them, Rentech, showed a ton of interest today. Not only that but apparently there is a ton of buy orders waiting for the morning on this stock all on rumours that China wants into Rentech’s Fischer-Trophsch process for converting coal into clean burning diesel and jet fuel. If its true that is big news.

For a run down on why this important – check this article by Dan Schrag. The short version: even if every car on the planet converted to electric – trucks, planes, and cargo carriers can’t. There is no current substitute for diesel or aviation fuel which means we still need oil for at least the next 50 years until a substitute can be found.

However . . . this got me thinking – why is China buying into Rentech.

While the CIA World Factbook identifies China as being the world leader in coal production, they are not exactly at the head of the pack in terms of coal reserves. Although the US prides itself on it’s share of the world’s coal reserves, Russia is really the heavyweight in this area.

About 10 years ago when I was studying under Dr. Joe D’Cruz and had the opportunity to take an MBA program with Dr. Alan Rugman, I was introduced to something they called the Rugman Double Diamond model of country competitiveness. This was essentially an extention of Dr. Michael Porter’s Diamond framework. Essentially, what Rugman argued was that to understand the competitive position of an industry within a country you need to express it in terms it ‘factor endowments’ with the countries in which it trades on a regular basis.

So for example, it is difficult to discuss the competitiveness of the Canadian economy without establishing its relationship to the US economy at the same time because over 1/3^rd of all international trade from Canada occurs with the US. The same holds true for a number of other country pairs such as Germany and Austria.

For all of the potential economic energy stored in China, and despite what Goldman Sachs has to say on the subject, surpassing GDPs is not the yardstick measure of true competitiveness. Let’s put this into perspective – China has four times the population of the United States. This means that an extremely modest standard of living increase to $12,500 PER FAMILY (not per person) would be enough to eclipse that of the US economy currently. That is really not a lot.

Essentially however what we are really talking about is a redistribution of wealth within the global economy. The US while having one of the largest standars of living in the world is also some $15 trillion dollars in debt. Currently China appears to be the largest holder of that debt which if left unchecked could eventually bankrupt the US and throwing multiple economies into major crisis. This isn’t like Russia going bankrupt as even at its height as a super power, the USSR wasn’t as integrated into world commerce as the US was and still is today.

One solution obviously is to readjust the balance of trade between the US and its trading partners, like China, in order to level the distribution curve of wealth. We already know from the billions of dollars paid to the Middle-East for oil that there is a huge market for oil reserves. We also know, because there is no currently commercially viable substitutes, that diesel for infrastructure is going to be very attractive for at least the next 30-50 years, maybe longer.

So here you are – you are China. You have a massive inexpensive labour force. You have access to cheap coal. You are holding a debt obligation that there is a good chance will probably be defaulted on, and you have a trading partner that is as addicted to oil and willing to pay for it especially if it can be delivered at a reasonable price. Its sort of like when FTD went into online shopping for floral arrangements. They already had a willing customer base that was addicted to the product and the cost of the delivery channel was already buried in the price so long as your customers don’t start shopping locally. The term “shooting fish in a barrel” comes to mind.

Hmmmmm … this starting to make a bit more sense now when you consider that Rentech’s Fischer-Tropsch process is just barely cost effective on US soil but would certainly be profitable if the technology were exported to an area where land, labour, and materials were substantively reduced. The distances to ship coal between Russia and China are not that different compared to the continental US.

Beyond this however is the fact that in most double diamond relationships, it is the country that is producing the finished goods that are the ones that drive the economic engine, not the raw materials producer. This seems to suggest that any type of Russia-China alliance with regards to coal export and processing would tend to favour China’s economy developing into a double-diamond framework within the energy industry and perhaps supplanting that of the Middle East for the first time in decades.

This is not to say that Rentech is going to change the world but this potential move by China would seem to indicate that there are certainly plans in place to leverage resources and relationships in Oceania in order to undercut a potential move by the US to get control over its own oil reserves.

Essentially the race is on to see whether the US has the where-with-all to take control over its own oil reserves future or whether it would be willing to give up that technological advantage to China and Russia thereby further weakening its economic positioning. To me this isn’t just about a tiny company and a couple of successful tests of synthetic fuels for US military aircraft. This is about who will be in charge of the economy in 50 years and how the global power base may eventually shift within that context. While it doesn’t seem like much the implications of a potential acquisition of technology like this by China I think speaks volumes as to strategic positioning in the longer term – something the US doesn’t seem to do well and for which China is can be masterful at given the right opportunities.

Should be fun over the next couple of years to see if anyone is awake in the US to take notice.

– Kevin Feenan

So who is lying? M and Philip can’t both be right. If M was correct in 2009 then after all these cuts Second Life is definitely in a very solid financial picture at this point in time. It also means that a lot of these cuts to staff and programs were not necessary. If Philip is right however and we are in a good financial position now (compared to then) then we, as a community, were lied to in 2009 which begs the question what else is Linden Lab not telling people.

For example, in the last week Linden Lab has dropped the bomb of closing down the SL Teen Grid in the middle of the school year. 3 days later they just sent an email with 24 hours notice to all community gateway owners that they are shutting down the community gateway program effective immediately.  In both case no substitution was offered for the replacement of the existing service.  In fact the closure of the teen grid, which isn’t that surprising, in the middle of the school year showed remarkable insensitivity to the teachers and educators which have been working all spring and summer to prepare their curriculum only to have the core of that program yanked with 2 weeks to prepare substitute course materials.

I’m sorry as this is not going to be PC BUT —- how dumb do you have to be to think that yanking the teen grid in the middle of the school year is a good idea. (notice that isn’t a question) And we don’t even deal with the teen grid at Rockcliffe. Even I’m mad about this not because it impacts us but because it is a symptom of what Linden Lab has been doing all year long.  That is, making unilateral decisions that impact a very broad community without community input. And driving customers away as a result.

From a strategy stand point this is very bad. One of Second Life’s core assets is the user community. While a good brand can get away with the occasional hit to their reputation, establishing a pattern of behaviour that clearly shows a move away from being customer-centric to being investor-centric is a sure fire way to erode that brand loyalty to the point where any competitive product will drive masses of people away from your core product lines.

Fortunately for Linden Lab there is no such product currently on the market however there are several in development which will be in power positions within the next two years if the Lab doesn’t stop shooting themselves in the foot, stem the bleeding, and start repairing relationships. By the time they are ready to do that it may be too late as OpenSim, Blue Mars, Unity3D and others may have caught up with Second Life at which point it will be game over.

Personally I was really hoping that Philip’s re-introduction as CEO was going to be a sign that calmer heads are ready to prevail. But in continuing these 1980’s MBA-style draconian tactics without involving the community has simply served to erode whatever linguistic capital he had to trade in stepping back up to the plate. In fact, this is exactly the type of thing he should be divorcing himself from as every subsequent announcement of this type drives his personal image away from being the poster boy for 3D collaborative environments.

Anyone new that is brought in to repair all this damage being done is going to have their job cut out for them over the first 2 years of their mandate. Philip was someone who could have repaired that damage in less than half that time and instead he’s just being set-up to look like every other high-paid executive out there which is good for being put in-front of a group of investors but extremely bad if it results in him losing all his identity capital with the customer base supporting Second Life and where it potentially can go. As any business owner can tell you, it’s easy to spend an investor’s money on a business – getting and keeping a loyal customer base is hard and it’s even more difficult if you start with a culture that is ready and willing to walk for a comparable value proposition.

It is an open avenue for any competitive company, like Unity3D, to walk in and pander to the existing client base to say “we care – they don’t”. And people will believe them even if the value proposition isn’t as robust as what Linden Lab can offer simply because the pattern of behaviour established over the last 8 months by Linden Lab has been screaming “we don’t care about you and to prove it we are about to cut another relationship or product or service that is important to the community without offering something better in exchange other than empty promises”.

People are short sighted. In general, long term means “next week” en mass when it comes to decision making and every hole that Linden Lab leaves in their tactical plan is one more hole that leaves their customer based feeling unhappy and unfulfilled. Short of firing their strategists, the Lab should at this point develop a dedicated PAID community strategy group under NDA to knock some sense into them before the community at large just decides that enough is enough and better to move to OpenSim. They may not get everything they want but at least they don’t have to worry about the Lab cutting them off at the knees without compassion, consultation, due warning, and alternative solutions.

Don’t get me wrong – I’m still dedicated to building Rockcliffe up and Second Life is a very large part of that strategic and tactical plan. But that only goes so far. If the Lab continues to alienate the user base all the way to Blue Mars and back then there is no point in staying with a sinking ship. We are nowhere close to that point right now but for the sake of the community I am really hoping that this is the end of the bone-headed manoeuvres that have done nothing but erode Linden Lab’s brand identity and services over the past year.

Somehow I doubt it though. Who knew they had so many shoes.

B2B Social Marketing is the perpetuation of social realities as defined by the relationship between a communal demographic and the brand that symbolizes those ideals.

B2C Social Marketing is the perpetuation of social realities as defined by the relationship between a competitive demographicand the brand that symbolizes those ideals.

While the essence of social marketing is the influence over social constructs of reality (i.e. what is justified is true) the essence of defining a difference in B2B and B2C marketing practices is one of the relationship between the firms competing within that market space.

B2B competitive practices require that both parties defining the relationship identify with a common communal consumer base which reinforces a brand to the benefit of both business parties.  The idea is that if the pie is worth $100M separately in combining forces in a shared approach the pie could be worth $150M. It is obviously therefore in the interest of the business parties involved to collaborate. So by increasing the size of the pie every party in the B2B collaboration receives economies of scale while the balance of power remains relatively constant.

B2C competitive practices by contrast assume that while a common consumer base exists, it is more advantageous for the company to pursue exclusionary marketing practices to gain a larger share of a pie that isn’t necessarily increasing in size. In this case the organization that focuses on B2C social networking is seeking domination of a market segment through competitive practices rather than cooperative engagement with key stakeholders inside and out of its value / supply chain.

That is not to say that there aren’t nuances of positioning in-between these two radically different ideological positions in terms of strategy. It is classic game theory. How much of each does an organization need to build into their business strategy in order to remain competitive without giving up their overall percentage of the pie regardless of which approach is the dominant strategy employed.

Its not a question really because only in looking at the overall make-up of the organization’s strategic partnerships can the decision be made. Also those decisions will change as market and social conditions change. Culture leads – marketers follow. While each influences the other to some degree customers ultimately vote with their feet as Apple learned in the 1990s and PC manufacturers are learning today.

Take for example, Martha Stewart (no really please). In 2004 while Madoff was bilking investors out of billions of dollars, here is Martha being dragged as a symbol for the SEC’s new mandate to go out there and crack down on those people that really were flagrant of the law by developing personal relationships with their brokers. And I’m sure that the millions of dollars that the SEC spend in prosecuting Mrs Stewart was truly justified compared to the $41K tax write off have she benefited by considering her total net worth.

What bothers me about these two scenarios is that it, along with other examples, shows a pattern of behaviour of the most senior levels of the SEC to only be working on those cases which are either high profile or as keeps the SEC’s name out of the papers. When cracks in the SEC’s ability to effectively regulate the equity markets do appear we see this rash of people “more willing now to give information”.

It has been well documented in the media that the SEC didn’t need these people to come forward, they were always there to begin with. Rather, what they needed was to prioritize the information they have been receiving better. I would suggest that the resulting perception is one where the SEC is doing as little as possible on the hopes that they are perceived as doing their jobs and while continuing to mismanage the public trust.

Maybe its time for the SEC to be dismantled, replaced, and new financial rules to be established.

The problem I have is that in protecting the public trust one of the key core competencies you have to be absolutely rock solid on is the proactive adjudication and assessment of risk. While this is not an easy thing to do in practice, the SEC does not seem capable of accomplishing this without the appearance of being in bed with those, such as Madoff, that they are suppose to be regulating. There appears to be this fear that in regulating those who have large established investment networks, investigating breaches of trust could do as much harm or worse than as if the risk were real.

This is a very fine line as a wrongly placed investigation which turns up nothing could very well bankrupt an otherwise healthy investment vehicle. At the same time, as the steward of that public trust you can’t be so timid of launching an investigation as to allow serious violations to go unchecked. 

For example, publicly traded companies that are formed by foreign nationals for the intent and purposes of going bankrupt. This scheme works as follows. You establish a company with a ‘reasonable’ track record and some good possibilities of future sales contracts (like in China for example). The SEC doesn’t verify proof of sales or contracts in 100% of the cases of filings so chances are no one is going to audit the books. You have a number of small investment accounts help drive up the price of the stock encouraging others to buy in. At a predetermined price the principles pull out their monies leaving the small investors holding a company that is worthless. As the sales contracts disappears and the price goes down, the principles short the stock, and hence increase their gains even further without so much as batting an eye. By the end of the scheme the principles have covered their shorts sells – write off the balance – and fold the company having fleeced a large number of small investors of their savings.

Now the existing SEC regulations in place are suppose to prevent this type of thing from happening. And yet I’ve seen this happen on at least two occasions with the SEC doing nothing about it despite having been given fair warning that it does occur. 

There are likely hundreds of other schemes out there which are deliberately aimed at taking advantageof the small investor’s imperfect knowledge of the markets. Certainly investment brokers and their select clients talk in advance about news which isn’t public knowledge. You wouldn’t see such a dramatic rise or fall in some stocks prior to public news releases if their weren’t. And this doesn’t account for the millions of informal chats between employees with privileged knowledge and their friends and associates who, of course, are more than willing to pass a good tip along to others they know.

While the system isn’t perfect the investment community which has a stake in those equity markets under the SEC’s mandate to regulate I feel deserve better than to simply watch the SEC run after whatever ‘shiny’ happens to be making the front page of the news. I would hope that the SEC starts to show some leadership by disclosing how else they are protecting the public interest because chasing after the flavour of the day simply cannot continue to cut it anymore.