Month: April 2012

When the Blackberry hit the scene in 2003, it appeared as a novel slice of multi tasking genius: business folks proudly admitted to being mildly addicted to their shiny “crackberries”. The gadget, a brainchild of Canadian company Research in Motion, seemed invincible. Today we know differently. The past few years have proved taxing for the Blackberry and the triumphant advance of its arch rival the iPhone has deemed it unfashionable in comparison. Last summer’s riots in London soiled the reputation of the brand name further, as Blackberry’s free BBM messenger service was the favoured tool of communication between looters and troublemakers.

As a result of unfortunate associations and mounting competition, Blackberry sales have plummeted dramatically, which is partially to blame for RIM’s disastrous losses; the company suffered a net loss of $125m (£78m) for the three months to March 2012, while it took home a profit of $934m the previous year. The decline of individual consumers has certainly contributed to the company’s shortfall, but the most significant blow has been the drop in orders from big corporations, entities that that now prefer to equip their staff with iPhone or Android devices.

In a desperate attempt to win back its quickly diminishing corporate clientele, the company’s new CEO Thorsten Heins has confirmed that Blackberry will be returning to its foundations and target business customers above all. To realise the plan, the launch of the latest version, the Blackberry 10, is expected to launch later this year, along with a new operating system that is well overdue. Time will tell if these steps will help to turn RIM’s fortunes around.

Fifty years ago, particle physicists faced an unexpected challenge. Their best mathematical models could account for some of the natural forces that explain the structure and behaviour of matter at a fundamental level, such as electromagnetism and the weak nuclear force responsible for radioactive decay. But the models worked only if the particles inside of atoms had no mass. How could huge conglomerations of such particles – proteins, people, planets – behave as they do if their constituent parts weighed nothing at all?

Some physicists invented a clever workaround. They suggested that a type of particle exists that had never been detected; it was eventually named in honor of the British physicist Peter Higgs. For a half-century, physicists searched for the elusive “Higgs boson particle.” Now, following research conducted at CERN, the huge particle-physics laboratory near Geneva, the hunt may soon be over.

At first blush, the idea behind the Higgs boson particle sounds outlandish. Higgs and his colleagues suggested that every elementary particle really is massless, just as the mathematical models require, and hence all particles would ordinarily zip around at the speed of light. But suppose that everything around us – every single particle in the universe – is immersed in a huge, unseen vat of Higgs particles. Whenever most kinds of particles move from point A to point B, they continually bump into Higgs boson particles, slowing their motion. When we observe them, they appear to lumber along like holiday shoppers in a crowded store. From their slow motion, we infer that they have mass. While a 50-year search for a hypothetical particle reminiscent of a bizarre fairytale might seem quixotic, the Higgs boson particle stands at the centre of the “Standard Model” of particle physics. Every experimental test of the model so far has matched theoretical expectations.

In some striking examples, the agreement between prediction and measurement has stretched out to twelve decimal places, making the Standard Model the most accurate scientific theory in human history. The model successfully accounts for three of the four basic forces of nature; only gravity remains beyond its purview.

Cosmic meaning
Higgs boson particles might have played an even more substantial role at earlier moments in cosmic history. My own research, along with that of physicists around the world, has focused on what effects Higgs boson particles might have had just fractions of a second after the big bang – effects that could explain the shape of the universe.

And yet, for all that, we still have no direct evidence that Higgs boson particles even exist. According to the Standard Model, Higgs boson particles scatter off each other, so they too, should have mass. The latest research indicates that Higgs boson particles (if they exist) should be among the most massive critters of the subatomic realm, more than 120 times as massive as the familiar proton.

To produce such a particle in the laboratory requires revving up protons to nearly the speed of light and smashing them together, which the Large Hadron Collider at CERN accomplishes trillions of times per second. The energetic collisions produce all manner of debris, which physicists carefully track with huge detectors and sift with sophisticated computer algorithms.

Physicists confront two major hurdles in their hunt for the Higgs boson. First, they must identify patterns in the debris that could have come from the production and rapid decay of a Higgs boson particle. The sought-after signal is well understood in principle, given what we know about the Standard Model. So is the background noise from all of the other junk that comes flying out when two protons collide with colossal energy. Physicists searching for a few Higgs-like needles in a mind-bogglingly large haystack must comb their data for anomalies in the debris that cannot be accounted for by known processes.

The second difficulty concerns statistics. The rules of quantum theory, on which the Standard Model is built, are at root probabilistic. There will always be statistical flukes in the data, just as any series of coin tosses can produce an unexpected string of seven heads in a row. To know with confidence that the coin is ordinary, with no hidden features, one must log a sufficiently large number of coin flips and check whether the data includes equal numbers of heads and tails over the long run. After thousands of coin tosses, if the data still shows a bias toward heads, one may be justified in thinking that the coin has some rather unusual properties.

The same holds true for all of the chaff from the protons’ collisions. Before physicists can claim that their anomalies really come from Higgs boson particles, they must gather enough data to rule out flukes. At CERN, two independent teams of physicists recently announced that their data were consistent with detection of a Higgs boson particle, though there remained a 1-in-2,000 chance that the signal came from mundane, non-Higgs processes. So the teams will continue smashing protons together, gathering more and more data, and sifting for signs of a Higgs boson.

We might not have the Higgs boson in hand right now. But the latest news is the strongest indication yet that the 50-year hunt for one of the most fundamental bits of matter might well be coming to a successful conclusion. The next time the CERN teams call a press conference, it could be weighty news indeed.

David Kaiser is Professor of Physics and the History of Science, Massachusetts Institute of Technology

(c) Project Syndicate, 2012

Long the most fragmented nation on earth, China is being brought together like never before by a new connectivity. Its internet community is expanding at hyper speed, with profound implications for the Chinese economy, to say nothing of the country’s social norms and political system. This genie cannot be stuffed back in the bottle. Once connected, there is no turning back.

The pace of transformation is breathtaking. According to Internet World Stats, the number of internet users in China has more than tripled since 2006, soaring to 485m in mid-2011 – more than three times that in 2006. Moreover, China’s rush to connectivity is far from over. As of mid-2011, only 36 percent of its 1.3bn people were connected – far short of the nearly 80 percent penetration rates seen in South Korea, Japan, and the US.

Indeed, with the cost of connectivity falling sharply – China’s mobile users are expected to surpass PC users by 2013 – and, with urbanisation and per capita incomes also rising sharply, it is not unreasonable to expect China’s internet penetration rate to cross the 50 percent threshold by 2015. That would be the functional equivalent of adding about three-fourths of all existing internet users in the US to the network.

Nor are the Chinese casual and infrequent internet users. Consistent with what the social-network theorist Clay Shirky has dubbed a society’s penchant for unlocking the “cognitive surplus” embedded in net-based activities, survey data from the China Internet Network Information Centre suggest that Chinese “netizens” log an average of 2.6 hours per day online – a full hour longer than the average 15-49-year-old Chinese citizen spends watching television.

China’s microblogs, or social networks, where usage tends to be most intense, were estimated to have approximately 270m users as of late 2011. And there is plenty of upside. Worldwide, about 70 percent of all internet users currently engage in some form of microblogging, which is the fastest-growing segment of the internet. In China, this share is just 55 percent.

Powering potential  
When it comes to analysing China, it is always easy to get carried away with the numbers – especially those driven by the country’s sheer size. But the real message here concerns the implications of connectivity, not just its scale.

A key implication is the internet’s potential to play a significant role in the emergence of China’s consumer society – a critical structural imperative for a long-unbalanced Chinese economy. With connectivity comes a national awareness of spending habits, tastes, and brands – essential characteristics of any consumer culture.

The consumption share of China’s economy, at less than 35 percent of GDP, is the lowest of any major country. Surging Chinese internet usage could well facilitate the pro-consumption initiatives of the recently enacted twelfth Five-Year Plan.

The internet could also enable freer and more open communications, upward mobility, transparent and rapid dissemination of information and, yes, individuality. China’s leadership has been increasingly vocal in raising concerns about growing inequalities that might otherwise hinder the development of what they call a more “harmonious society.” Online connectivity could be a powerful means to help China come together and achieve this goal.

Finally, there is the internet’s potential as an instrument of political change. That is hardly an inconsequential consideration for any country in the aftermath of last year’s monumental Arab Spring, which was facilitated in many countries (especially Tunisia and Egypt) by network-enabled mobilisation.

While reform of China’s single-party state has always been viewed as an important objective in modern China – from the so-called Fifth Modernisation of Wei Jinsheng in the late 1970’s to recent speeches by Premier Wen Jiabao – meaningful progress has been limited. Is this likely to change as China embraces the Internet?

China is no exception in requiring leadership, accountability and responsiveness as conditions of political stability. Its rapidly expanding internet community has repeatedly raised national awareness of tough local issues. This was especially evident in the aftermath of the Sichuan earthquake of 2008, ethnic violence in Xinjiang in 2009 and the high-speed rail crash in Wenzhou in 2011.

As the Arab Spring demonstrated, the internet can quickly transform local incidents into national flashpoints – turning the new connectivity into a potential source of political instability and turmoil. But that has been the case only in countries ruled by highly unpopular autocratic regimes.

Censoring growth  
By contrast, China’s leadership is viewed with a much greater degree of public sympathy. Their quick and direct response to the recent incidents in Sichuan, Xinjiang, and Wenzhou are important cases in point. Senior Party leaders – especially Premier Wen – were quick to lead an empathetic national response that was largely effective in countering the outpouring of concern expressed on the internet.

None of this is to deny the dark side of the Chinese internet explosion – namely, widespread censorship and constraints on individual freedom of expression. China’s “SkyNet” team (rumored to be greater than 30,000) is the largest cyber police force in the world.

Moreover, while China is not alone in censoring the internet, self-policing by many of the nation’s largest portals amplifies official oversight and surveillance. Recent restrictions on microbloggers – especially denial of access to those who use untraceable aliases – have heightened concerns over Chinese internet freedom. Such restrictions of course, cut both ways – potentially limiting personal expression, but also constraining disguised and reckless vigilante attacks.

Filtered or not, a long-fragmented China now has a viable and rapidly expanding network. The power of that network – especially insofar as economic, social and political change is concerned – is rather hard to predict. But connectivity adds a whole new dimension of cohesion to modern China. That can only accelerate the speed of its extraordinary development journey.

Stephen S. Roach is a member of the faculty at Yale University, a non-executive chairman of Morgan Stanley Asia and the author of The Next Asia.

(c) Project Syndicate, 2012

Economics is at the start of a revolution that is traceable to an unexpected source: medical schools and their research facilities. Neuroscience – the science of how the brain, that physical organ inside one’s head, really works – is beginning to change the way we think about how people make decisions. These findings will inevitably change the way we think about how economies function. In short, we are at the dawn of “neuroeconomics.”

Efforts to link neuroscience to economics have occurred mostly in just the last few years, and the growth of neuroeconomics is still in its early stages. But its nascence follows a pattern: revolutions in science tend to come from completely unexpected places. A field of science can turn barren if no fundamentally new approaches to research are on the horizon. Scholars can become so trapped in their methods – in the language and assumptions of the accepted approach to their discipline – that their research becomes repetitive or trivial.

Then something exciting comes along from someone who was never involved with these methods – some new idea that attracts young scholars and a few iconoclastic old scholars, who are willing to learn a different science and its different research methods. At a certain moment in this process, a scientific revolution is born.

The neuroeconomic revolution has passed some key milestones quite recently, notably the publication last year of neuroscientist Paul Glimcher’s book Foundations of Neuroeconomic Analysis – a pointed variation on the title of Paul Samuelson’s 1947 classic work, Foundations of Economic Analysis, which helped to launch an earlier revolution in economic theory. Ironically, Glimcher himself now holds an appointment at New York University’s extensive economics department (he also works at NYU’s Centre for Neural Science).

To most economists, however, Glimcher might as well have come from outer space. After all, his doctorate is from the University of Pennsylvania School of Medicine’s neuroscience department. Moreover, neuroeconomists like him conduct research that is well beyond their conventional colleagues’ intellectual comfort zone, for they seek to advance some of the core concepts of economics by linking them to specific brain structures.

Brain teasers
Much of modern economic and financial theory is based on the assumption that people are rational, and thus that they systematically maximise their own happiness, or as economists call it, their “utility.” When Samuelson took on the subject in his 1947 book, he did not look into the brain, but relied instead on “revealed preference.” People’s objectives are revealed only by observing their economic activities. Under Samuelson’s guidance, generations of economists have based their research not on any physical structure underlying thought and behaviour, but only on the assumption of rationality.

As a result, Glimcher is rather skeptical of prevailing economic theory, and is seeking a physical basis for it in the brain. He wants to transform “soft” utility theory into “hard” utility theory by discovering the brain mechanisms that underlie it.

In particular, Glimcher wants to identify brain structures that process key elements of utility theory when people face uncertainty: “(1) subjective value, (2) probability, (3) the product of subjective value and probability (expected subjective value), and (4) a neuro-computational mechanism that selects the element from the choice set that has the highest ‘expected subjective value’…”

While Glimcher and his colleagues have uncovered tantalising evidence, they have yet to find most of the fundamental brain structures. Maybe that is because such structures simply do not exist, and the whole utility-maximisation theory is wrong, or at least in need of fundamental revision. If so, that finding alone would shake economics to its foundations.

Risk and reward
Another direction that excites neuroscientists is how the brain deals with ambiguous situations, when probabilities are not known, and when other highly relevant information is not available. It has already been discovered that the brain regions used to deal with problems when probabilities are clear are different from those used when probabilities are unknown. This research might help us to understand how people handle uncertainty and risk in, say, financial markets at a time of crisis.

The hugely influential, John Maynard Keynes thought that most economic decision-making occurs in ambiguous situations in which probabilities are not known. He concluded that much of our business cycle is driven by fluctuations in “animal spirits,” something in the mind – and not understood by economists.

Of course, the problem with economics is that there are often as many interpretations of any crisis as there are economists. An economy is a remarkably complex structure, and fathoming it depends on understanding its laws, regulations, business practices and customs, and balance sheets, among many other details.

Yet it is likely that one day we will know much more about how economies work – or fail to work – by understanding better the physical structures that underlie brain functioning. Those structures – networks of neurons that communicate with each other via axons and dendrites – underlie the familiar analogy of the brain to a computer – networks of transistors that communicate with each other via electric wires. The economy is the next analogy: a huge network of people who communicate with each other via electronic and other connections.

The brain, the computer, and the economy: all three are devices whose purpose is to solve fundamental information problems in coordinating the activities of individual units – the neurons, the transistors, or individual people. As we improve our understanding of the problems that any one of these devices solves – and how it overcomes those obstacles in doing so – we learn something far more valuable about all three.

Robert Shiller is Professor of Economics at Yale University and has been a research associate of the National Bureau of Economic Research since 1988.

(c) Project Syndicate 2012

The outlook for the global economy in 2012 is clear, but it isn’t pretty: recession in Europe, anaemic growth at best in the US, and a sharp slowdown in China and in most emerging-market economies. Asian economies are exposed to China. Latin America is exposed to lower commodity prices (as both China and the advanced economies slow). Central and eastern Europe are exposed to the eurozone. Turmoil in the Middle East is causing serious economic risks – both there and elsewhere – as geopolitical risk remains high and thus high oil prices will constrain global growth.

At this point, a eurozone recession is certain. While its depth and length cannot be predicted, a continued credit crunch, sovereign-debt problems, lack of competitiveness, and fiscal austerity imply a serious downturn.

The US – growing at a snail’s pace since 2010 – faces considerable downside risks from the eurozone crisis. It must also contend with significant fiscal drag, ongoing deleveraging in the household sector (amid weak job creation, stagnant incomes, and persistent downward pressure on real estate and financial wealth), rising inequality, and political gridlock.

Elsewhere among the major advanced economies, the UK is double dipping, as front-loaded fiscal consolidation and eurozone exposure undermine growth. In Japan, the post-earthquake recovery will fizzle out as weak governments fail to implement structural reforms.

Meanwhile, flaws in China’s growth model are becoming obvious. Falling property prices are starting a chain reaction that will have a negative effect on developers, investment, and government revenue. The construction boom is starting to stall, just as net exports have become a drag on growth, owing to weakening US and especially eurozone demand.

Having sought to cool the property market by reining in runaway prices, Chinese leaders will be hard pressed to restart growth. They are not alone. On the policy side the US, Europe and Japan, too, have been postponing the serious economic, fiscal, and financial reforms that are needed to restore sustainable and balanced growth.

Private and public-sector deleveraging in advanced economies has barely begun, with balance sheets of households, banks and financial institutions, and local and central governments still strained. Only the high-grade corporate sector has improved. But, with so many persistent tail risks and global uncertainties weighing on final demand, and with excess capacity remaining stubbornly high owing to past over-investment in real estate in many countries coupled with China’s surge in manufacturing investment in recent years, these companies’ capital spending and hiring have remained muted.

Rising inequality – owing partly to job-slashing corporate restructuring – is reducing aggregate demand further, because households, poorer individuals and labour-income earners have a higher marginal propensity to spend than corporations, richer households and capital-income earners. Moreover, as inequality fuels popular protest around the world, social and political instability could pose an additional risk to economic performance.

Last chance
At the same time, key current-account imbalances – between the US and China (and other emerging-market economies), and within the eurozone between the core and the periphery – remain large. Orderly adjustment requires lower domestic demand in over-spending countries with large current-account deficits and lower trade surpluses in over-saving countries via nominal and real currency appreciation. To maintain growth, over-spending countries need nominal and real depreciation to improve trade balances, while surplus countries need to boost domestic demand, especially consumption.

But this adjustment of relative prices via currency movements is stalled, because surplus countries are resisting exchange-rate appreciation in favour of imposing recessionary deflation on deficit countries. The ensuing currency battles are being fought on several fronts: foreign-exchange intervention, quantitative easing and capital controls on inflows.

Furthermore, with global growth weakening further in 2012, those battles could escalate into trade wars. Finally, policymakers are running out of options. Currency devaluation is a zero-sum game because not all countries can depreciate and improve net exports at the same time. Monetary policy will be eased as inflation becomes a non-issue in advanced economies (and a lesser issue in emerging markets). But monetary policy is increasingly ineffective in advanced economies, where the problems stem from insolvency – and thus creditworthiness – rather than liquidity.

Meanwhile, fiscal policy is constrained by the rise of deficits and debts, bond vigilantes, and new fiscal rules in Europe. Backstopping and bailing out financial institutions is politically unpopular, while near-insolvent governments don’t have the money to do so.

Politically, the promise of the G-20 has given way to the reality of the G-0: weak governments find it hugely difficult to implement international policy coordination, as the worldviews, goals and interests of advanced economies and emerging markets come into conflict.

As a result, dealing with stock imbalances – the large debts of households, financial institutions and governments – by papering over solvency problems with financing and liquidity may eventually give way to painful and possibly disorderly restructurings. Likewise, addressing weak competitiveness and current-account imbalances requires currency adjustments that may eventually lead some members to exit the eurozone.

Restoring robust growth is difficult enough without the ever-present specter of deleveraging and a severe shortage of policy ammunition. But that is the challenge that a fragile and unbalanced global economy faces in 2012. To paraphrase Bette Davis in All About Eve, “Fasten your seatbelts, it’s going to be a bumpy year!”

(c) Project Syndicate 2012

Nouriel Roubini is chairman of Roubini Global Economics and Professor at the Stern School of Business, New York University. His detailed 2012 global growth outlook is available at www.roubini.com