Zeroes for Zeroes

There's a lot of hostility in society to the largesse that some banks continue to show their staff, despite the complete disaster they've created. The banks argue that they need to pay big bonuses to keep the brightest staff. There is one counter argument and one assumption here.

The counter argument is to ask the question of where the bankers would go if the banks didn't pay big bonuses. The assumption however is that the brightest work in the financial community in the first place.

When I was at Cambridge, the brightest went into research or built their own companies or pursued more noble goals. Those that I know who headed into the city were not the brightest but they were certainly the most self seeking.

So, exactly where do these super bright individuals who created a house of cards beyond their understanding and squandered trillions gambling with money they didn't have, come from? Also, if they were that bright, why was it that back between 2002-2005 when huge numbers of people were warning of impending collapse through debt, the city was completely silent on the subject?

Some even have the gall to say that no-one saw it coming during a time where many have personally profited whilst creating a toxic dump. Of course, they're hardly likely to say otherwise or accusations of false representation, failing to disclose information and abuse of position would be levelled against them, followed by swift prosecution.

Whilst it's difficult to feel charity towards those who committed such excesses, maybe charity is the root of the problem.

At Harvard, those with sports scholarships or others who lacked talents of the grey matter kind could undertake a simplified classical history course, nicknamed heroes for zeroes. Has this generous & charitable spirit found a new home in the financial community? Are we paying huge bonuses for the least able? The evidence would suggest that lots of Zeroes for Zeroes is rife.

A stable taxonomy ... please

Cloud computing is a consequence of the transition of IT from a product to a service based economy. The concepts behind it are simple enough, and it's not even something new having first been discussed in the 1960s. However, a major problem with the cloud today is confusion.

There exists a plethora of different terms and mental constructs for the same problem. Hence I've been pushing the case for a clear taxonomy, James Urquhart agrees and so does Reuven. This industry desperately needs people to be talking from the same page, I've personally had enough of the *aaS and *OA wars.

Back in 2007, I gave a keynote at OSCON where I talked about the three layers of the computing stack (which we called software, framework & hardware) and how this affected utility computing. This was based upon much older ideas. Within twelve months utility changed to cloud, each of the layers were renamed and the stack was now a cloud triangle.

Now there is nothing wrong with this triangle, it's the same concept of componentisation. My concern is what is this going to degenerate into in a further twelve months? An n-dimensional bubblegum chart?

Whilst Randy argues against a one size fits all taxonomy, I'm not sure who he is arguing against. Any taxonomy must consider componentisation and how the shift from products to services effects all the layers of the computing stack / triangle / paisley coloured bubblegum graph or whatever we end up with. In the last year, I've seen plenty of execution in cloud computing but very few new concepts. However during this time there's been an awful lot of renaming and revisions.

We need a common language.

Singing for the unsung ..

As we all know Edison was the father of the electricity industry. Of course we're all probably wrong. Tesla, Westinghouse and Swan were also giants behind the formation of the modern electricity grid.

However, to the victor goes the spoils and whilst Edison might not be the originator, he was certainly the most successful. Alas, spoils often include history.

I mention this because the analogy with electricity is often used in the cloud computing space and history tends to repeat itself. Once again we have forgotten giants.

So which giants am I talking about? Why none other than Benjamin Black and Chris Pinkham. Who are they you might ask? Why they were the people who created the Amazon EC2 concept. They are the cloud's unsung heroes.

Cassandra's crossing ...

Many years ago, I was predicting trouble in our economic system due to the excessive debt burden, the overheated housing boom and the actions of the OTC market. I'm no Cassandra, as my predictions were wrong.

I expected this to happen before 2005 and yet somehow we managed to continue sinking into more debt. I couldn't understand how we muddled along, I was perplexed by our constant assumption of a soft landing. I was still wrong.

The point about prediction is you need to be right about what happens and when it happens. Any fool can predict that eventually time will catch up with our own folly.

However, by all accounts we're about to embark on a new folly called quantitative easing. The use of such a quasi-scientific term is meant to give us reassurance for what is the fiscal equivalent of printing more money. Fortunately, we're told that this money won't be used to buy bad debts (yet) as we'll be busy underwriting the more media friendly euphemism of toxic assets.

Toxic assets are the financial sector's equivalent of friendly fire. Spinning bad news doesn't mean it goes away.

Unfortunately there is likely to be trillions in more bad debts which have yet to flush through the system. As the former masters of the universe know, this is a black hole that the government could continue to shovel money into. I'd rather us avoid the old adage of "In for a penny, then in for a pound".

Whilst the big easing (as I like to call it) will fare little better than the bail-outs, it should not result in the same waste on bankers bonuses, hoarding and buying jet planes. Instead the big easing will create a relatively short lived increase in share prices, probably benefiting those with deferred share option bonuses along with penalisation of savers through low interest rates. Oh damn, bigger bankers bonus, more inequality and more tension.

However, this unnecessary exposure (the major banks are already well capitalised) will also impair our ability to adapt and manage the hardships that many will experience in the coming years. People will become angry, desperate and disenfranchised.

This brings me to the title of this piece. Having learned the lesson of before, I'll make a cowardly custard prediction containing an element of sense with added vagueness and definitely no timeline. I predict that the slow march to the Rubicon has already begun, we would be wise to turn around soon.

Terms that I use ...

I thought I'd provide a glossary of terms that I use in the "cloud" space.

General

VM: A virtual machine.

Virtual Application: Either a stand-alone or multi-tenanted system which provides a user remote access to an application.

Private cloud: The provision of a cloud for private use i.e. within a company and behind the firewall.

Public cloud: The provision of a cloud for external use.

Fungibility (N.B. This is not the correct use of the word but it is becoming more common): In the context of cloud computing, the term refers to the freedom and portability to move from one service provider to another, at the same level of the computing stack, without hindrance or boundaries. A high level of fungibility requires multiple providers of equivalent services and the easy switching between them without loss of data (including code) and meta-data.

Utility computing: Originating in the 1960s, the idea of providing computing resources as utility services from large utility providers as per the electricity and gas industry. This concept is fundamentally the same as cloud computing, extends beyond billing and has a long history of academic research.

Commoditisation (early to mid 1990s, Neologism): The process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition, from monopolistic to perfect competition. This process describes how an innovation transitions from something new to something commonplace through various stages. Initially an innovation with value that provides a differential advantage will be copied by others as custom built systems. As time progresses and the understanding of the innovation increases, standardised products will appear. Finally, given the right circumstances and a high enough demand, services and ultimately utility-like services will appear. This process is complex, non-linear and applies to top level constructs and activities (such as CRM, ERP etc rather than specific products). There is a pressure towards commoditisation arising from the natural cost of copying information being zero, however this pressure is resisted by activities such as patents, secrecy, branding and bewilderment of choice. Cloud is simply the latest manifestation of the shift of the computing stack from a product world of differentiated goods to a service economy based upon perfect competition.

Commodification (mid to late 1970s, Word): The process by which something which does not have an economic value is assigned a value and hence how market values can replace other social values. It describes a modification of relationships, formerly untainted by commerce, into commercial relationships.

Computing stack: A representation of the provision of computing resources as a stack of discrete layers. These layers include:-

• Infrastructure (previously known as the Hardware layer) : The lowest level of the computing stack representing the bare bones, hypervisor and operating system.
• Platform (previously known as the Framework layer): The mid layer of the computing stack representing the development platform and defined services such as storage, messaging system, databases and object stores.
• Application (previously known as the Software layer): The highest order of the computing stack representing the applications and application data services that are built.

Componentisation: From Herbert Simon's theory of organisation is a mathematical proof that shows that the speed of evolution of any system is directly related to the organisation of its subsystems. In business terms the ability to evolve is commonly described as agility. Hence the further commoditisation of the computing stack to standardised components provided as internet services should increase business agility. This is often cited as one of main reasons why cloud computing is so important.

SaaS: Software as a Service. The common name for the provision of the application layer of the computing stack as a remote service. This really should be called Application as a Service but the acronym isn't that popular.

PaaS (previously known as FaaS and SaaS Platform): Platform as a Service. The common name for the provision of the platform layer of the computing stack as a remote service.

IaaS (previously known as HaaS): Infrastructure as a Service. The common name for the provision of the infrastructure layer of the computing stack as a remote service.

*aaS: A derisory term used to describe simultaneously the concept of provision of the computing stack as a service whilst mocking the constant revisionism of terms.

--- Update 20th August 2013

Removed a whole bunch of useless terms.

A week of interesting developments ...

The week started with the announcement that Joyent had acquired ReasonablySmart. This extends the range of Joyent's offering into the framework space and it's a very smart move. There is a real opportunity here to push for the creation of an open source standard especially since Jason Hoffman, co-founder and CTO at Joyent states "Unlike competing Platform-as-a-Service offerings, we intend to keep this new Joyent offering completely open-source". Good move.

During the week I was invited by Redmonk to the Cloud Interoperability Forum. I'll be landing in San Francisco on Monday. This event promises to be a gathering of some interesting players in the open source cloud computing space. It's one to watch.

Lastly, the week ended with Jesse Robbins' announcement of Chef, an open sourced configuration management tool.

Open source is really starting to make some progress in the cloud computing space with companies like Aptana, 10Gen and the team behind Eucalyptus. Obviously I've been concerned that the Azure framework, which is about to make its entrance this year, might create a marketplace built around a proprietary stack. If this happened it could create years of lock-in under the guise of a functioning market.

However the bold moves made by the open source community and the other actions which I know are in the pipeline give me cause for comfort. In fact, it's so positive that I'll make another prediction for this year.

This is the year of open source and when open source cloud computing becomes the rule and not the exception.

Things will only get better ....

After a whiff of financial sense the government has embarked on a policy of printing more money (for monetarist policy reason of increasing money supply rather than a Keynesian approach of  direct investment), excessive loans, attempting to resurrect a bloated housing market and finally to the idea of bailing-out bad debts.

Who exactly is advising the Government? Estate agents and bankers? This is financial lunacy. You may as well employ me as an advisor, in which case I'll have all the cash and a one way ticket to Acapulco.

Buying up toxic debt is like investing in dead institutions, it's daft. If there is "a sucker born every minute" surely it's time for the Government to let someone else buy the Emperor's new clothes? What Wormtongue is leading our Government to transfer private debt into the taxpayers hands? There are much better ways of resolving the problems, especially as there are trillions more bad debt in the OTC market heading in our direction over the next five years.

Buy-out not bail-out please. The Government shouldn't touch the bad debts. If the banks need more capital then consider, after due diligence, further investment in return for more equity. Make sure the strike price is well below the current market value. Allow them to seek other forms of investment first but if they need our cash then be ruthless, be pirates. If you want to get banks lending then use Northern Rock as an instrument to do this.

If you want my opinion, then in those banks which we have a majority shareholding we should take an active role and flood the boards with Government lackeys. Appoint the National Audit Office as auditors, it's a nice little earner from a body we can trust. Force a share rights issue and create more capital. Control excessive remuneration and above all be brutal in the use of our money. Extract every ounce of flesh and the best return.

Furthermore, stop trying to bring back to life the Frankenstein that is the housing market. The best you'll achieve is an artificial blip of a life enabling the more savvy to offload their hyper inflated assets onto the more unsuspecting. It's an unethical waste of taxpayers' money.

If you want to protect the poorest, accept that the market is going to return to a more historical norm. Nationalise the major building companies and embark on a building programme of civic buildings, council and affordable homes. Give people jobs in the industry (i.e. embark on some Keynesian style direct investment in chosen industries) and a security net rather than waste cash to prop up a failed system and allow the unscrupulous to dump and run.

If you can't do something positive, then give me the cash instead and I'll go look after it. At least you'll get most of it back, minus a few margaritas.

Give us more money ....

To rebuild the economy we need to get rid of our love affair with debt, to create a solid base and rebuild industries. We also need to stimulate the economy but as we know money trickles up, not down. So, we need to put reasonable wages into the hands of as many people as possible. We also need to encourage a measure of austerity, saving and debt-reduction.

Finally we have to deal with the issue that the housing market is built on future money which has already been spent. It's not going to be an easy process, it's going to be painful and there are no quick fix solutions or snake oil cure.

We're in this recession until probably 2012 (possibly much much longer depending upon how daft the policies get). The chickens have come home to roost and they're not going anytime soon.

The latest idea for a magic turnaround is to print more money (not for reasons of direct investment but instead to increase the money supply with money from nothing). This is nothing less than catastrophic, madness and is likely to prolong our pain. At worst it could cause a flight to safety of savers and bring our economy into a full blown spiral of depression, as per the 1930s. The last thing we need in a debt laden economy is for the savers and their liquid assets to take flight.

Only a fool of a took would entertain such a move. If you want to get things going, we're going to need to Tax & Spend. We're going to have to redistribute the wealth and bring confidence to the poorest and largest groups of our society. We're going to need direct investment and create stability as well.

Since I seem to get asked for suggestions a lot, I've listed what I consider our actions should be. These are my thoughts:-

Stability

• The Bank of England needs to return to its original mandate of controlling inflation. Interest rates need to be raised and maintained. Having a weak pound is good for exports and influxes of cheap foreign capital (which is good for house and stock prices) but it can cause inflationary pressures on imports whilst threatening savings and leading to a weaker internal economy. Low interest rates are not going to kick start our economy as people who have saved are not going to be frightened into spending. They are more concerned over the entire economic situation. Unless the situation is mis-managed, the threat of deflation is only problematic for those with large debts or a portfolio of physical assets and pandering to such groups risks economic collapse and social upheaval. Whether you like it or not, house prices need to fall from the current 7-10x average salary to the historical norm of 3-3.5x, if not below.
• Raise the lower tax threshold. You want to put more money into the hands of as many people as possible.
• Introduce and police a fair rent scheme and cap the level of individual housing benefit. Recession is always a good time for the least scrupulous landlords and exploitation. We will need to move fast on this issue.
• Introduce a derelict, vacant and unkempt seizure programme. Allow councils to seize properties both retail and domestic with due notice into national control with no compensation. In a recession some groups will be tempted to leave their properties in a state which will lead to degeneration in our city centres.
• Adopt the EU working time legislation and introduce a mandatory 35 hour week. You're going to need to spread the work.

Raise Capital

• Lower the higher tax threshold and introduce a new higher tax rate band with a 60% tax rate. You're going to have to redistribute wealth. Don't get suckered into this idea of the 'trickle down effect' again.
• Drop the non domicile status. Again you need to raise capital and the threatened flight of some investors is something we should simply accept because any vacuum created will quickly be filled.
• Drop the charitable status of private schools and nationalise those schools which go into bankruptcy. If we want to invest in education we should look at absorbing the private schools on the cheap.
• Drop council tax reductions on second homes.
• Cancel all non-essential government expenditure including ID cards and the NHS system. Redirect savings into building programmes, education and regeneration. Government needs to redirect all high cost, low employment items to high cost, high employment items.
• Show leadership in austerity measures by freezing MP's pay and simultaneously reducing the range of expenses. The last major recession saw MPs freeze wages but enjoy massive increases in expense - this won't wash again.
• Reduce the death tax threshold.
• Introduce equity fines such that companies (& parent companies) found to be in neglect of health and safety, environmental or other government legislation can be fined in terms of cash and penalised in terms of equity. We need to prevent, especially in a recession, companies exploiting the situation and using the defence that fines will bankrupt them. To this effect fines should be cash and equity.

Investment

• Force the nationalisation of the major building companies and embark on a national building programme. Rapidly increase the stock of council homes, public buildings and infrastructure works. We need to kick start the building industry and stop the loss of jobs. We need to build around 3 million homes by 2025, however our focus must be in putting wages into the hands of as many people as possible and not in supporting shareholders.
• Invest in education, training and adult learning programmes. Rapidly increase our basic R&D funding. We've got to work on the principle of building for the future not the past.
• Introduce a significant Government VC & National Wealth Fund to invest in start-ups rather than propping up failing companies. Don't get suckered into VC tax breaks, focus on increasing mobility for the poorest and support those wanting to start companies. It's far better to listen to the poorest and start-ups on how we can meet their needs, give them a better future than to listen to entrenched views of the successful and wealthy who will just try to reinforce their position.
• Introduce a government paid national wage to all NI holders who are registered voters. This wage should be paid regardless of employment status and replaces other basic social security benefits. We need to create the feeling that everyone has a safety net and reduce the fear (and hence loss of confidence) associated with the current economic situation.
• With the exception of the national wage, all income should be taxed. Firstly to pay for the national wage but more importantly to break the idea that you will lose benefits by working.

--- 4th Sept 2014

Alas, we pretty much didn't do any of these. We instead did a whole lot of things I wish we hadn't. Fortunately there was some good movement in terms of Gov IT. I'm reminded of this because it's manifesto time again and all the lobbyists are out in force promoting their own self interests. It'll be interesting to see which Party (if any) stands up for societal best interest.

For those who want to know my political view - I'm a great advocate of Deng Xiapong's approach of "it doesn't matter if a cat is black or white as long as it catches mice". I view the market system as an extremely useful tool but not an ends. The role of Government should be to game and exploit all such systems to its advantage, to consider the effects of social inequality on growth, to invest to overcome inertia, to game certain beneficial behaviours and to leave alone when needed. I follow a dual path of both Keynes and Hayek used simultaneously in different markets. In one market you leave alone whilst in another you directly invest, exploit and game. In my world, a Government should doth the caps of both investor (in basic R&D, in encouraging change) and pirate (exploiting other markets for long term gain).

I'm 'old' labour. I view putting our society, the social contract and the the needs of our citizens first as the entire purpose of Government. This is the 'catch the mice'. to create a beneficial outcome for society. It doesn't bother me whether we use markets, or gaming of markets, nationalisation or centrally planned to achieve this and experience dictates that effective management requires all of these methods to be exploited. 

Hence my view of a mixed economic system as being the most likely to create benefit over any single method. I'm very firmly in favour of markets and governments. I'm a bit of a dinosaur to some because I'm from the 'Adam Smith' school of economic thought and no, I'm not a friend to the 'Laissez faire' world.

P.S. I do love the T-Shirt "Labour, I preferred their early work" ... I do miss them.

Mystic Me 2.0

Last year I made some cowardly custard predictions for 2008 and I was pretty much spot on with all ten. How did I do it? Well they were already occurring trends.

So this year, I thought I'd try much luck with ten more cowardly custard predictions.

These are:-

• Economists at the end of the year will be predicting that the U.K. recession in 2010 will be more severe than previously predicted.
• House prices will continue to fall.
• "Cloud" computing and Open Source Technologies will continue to become major growth areas for IT.
• The FTSE 100 will drop below 3,500.
• Bored with SOA, ROA, WOA, SaaS, HaaS, IaaS and so on? This year new acronyms will be created to describe the convergence of "cloud" computing and service oriented architecture (as if they weren't already part of the same phenomenon). Expect lots of arguments and people getting rather antsy.
• With the adoption of 3G network enabled devices, mobile security and malicious mobile applications will become a serious security concern.
• Camping holidays and knitting will enjoy a resurgence.
• Yahoo will be sold for less than $15bn.
• The use of printed organic semiconducting materials, printed nano-particle solutions, printed OLEDs and the field of printed electronics in general will receive a boost as the first commercial printed OLED displays are released.
• Lots of people will grumble that the new Dr Who isn't as good as "David Tennant".