Vote Leave ignores the impact of shipping on climate change

smoking container ship

One of the main arguments of the Vote Leave campaign is that it would free Britain to make new trading agreements with major emerging economies such as China and India. But this would imply that we will need to ship British goods over far greater distances than now, a strategy that is at odds with the struggle against climate change.
Shipping is a significant contributor to world greenhouse gas emissions; the International Maritime Organisation estimates its share at 2-3%. Although carbon and other greenhouse gas emissions from shipping and aircraft were left out of the Paris Climate Agreement, a recent OECD publication made a case for global co-operation in reducing emissions from shipping. Some technical measures to reduce emissions are possible, such as mandating cleaner fuels. However, it is clear that the most important driver of maritime emissions is the sheer volume of transport taking place. The most obvious way to reduce maritime emissions is thus simply to limit and reduce the volume of transport, either in tonnage, distance or both.
Any international co-operation in this area is likely to rely on a combination of mandatory environmental standards and emission pricing, both of which will drive the cost of shipping up over the coming decades. A long term effect has to be that a significant volume of trade will become more localised.
So an argument for a future in which Britain needs to ship its exports over vastly greater distances makes a bad long term economic assumption. It is time we considered the implications of a future in which long distance transport is considerably more expensive in real terms than it is today. Vote Leave has clearly failed to do so.

The Dutch Republic welcomes its new King

The royal guests thronging Amsterdam’s New Church today probably thought they were attending a coronation. They were attending nothing of the sort. Although the trappings of hereditary kingship were all there – crown, mantle, trumpets – they were actually attending a sitting of Parliament. A close observer would have seen that the crown stayed on its cushion and there was no divine anointing. Instead, there was a lot of opaque Dutch verbiage involving promises back and forth.

What the royal guests were witnessing was the re-enactment of an uneasy compromise between the Dutch merchant elite and the House of Orange. In the days of the United Provinces, the House of Orange provided stewards (‘stadhouders‘) to the Republic, assuring law and order and coordinating military protection. This was never an easy relationship. The republican merchant elite regarded themselves as the seventeenth-century Masters of the Universe, as the hierarchy of the Amsterdam canals still demonstrates (the Gentlemen of the East India Company have pre-eminence over the Holy Roman Emperor and the Princes). The masses, however, identified strongly with the House of Orange, a tradition that continues to this day. The result was several bloody conflicts, including the lynching of the republican leader Johan de Witt by an Orangist mob in 1672.

The French Revolution and the rise and fall of Bonaparte brought about the Dutch state we know today. The process started with the Batavian Republic, the product of a popular uprising supported by Republican France in 1795. This turned the Netherlands into a single state instead of a loose federation and developed the constitution that forms the basis for the current arrangements. In a brief aberration that followed, Napoleon parachuted his brother Louis as King, an arrangement that effectively suspended the constitution. The victors of the Napoleonic wars – effectively an alliance of monarchist Britain and German princely states – made a poor job of patching things up and gave the Netherlands yet another Orange back as King in 1815. It was not until 1848 that the Dutch statesman Thorbecke managed to repair the constitution. True to the Dutch spirit of trading and compromise, the 1848 constitution is basically a republican affair but with a hereditary ceremonial head of state.

This tricky arrangement has not proved easy to deal with for successive Dutch monarchs, several of whom have got themselves into hot water with Parliament. Juliana’s reign was a messy affair and her mother Wilhelmina’s was little better. Beatrix, however, demonstrated an absolute mastery of the game and a dedication that arguably no other monarch has managed. True to the last, her farewell address to the nation on 29th April was more of a lecture on constitutional law than a ceremonial affair, though she showed humanity by cracking visibly when she spoke of the late Prince Claus (“my best decision”). She has clearly moulded Willem-Alexander to pick up where she left off.


It’s Amalia’s turn next

The events of 30th April mirrored the uneasy compromise perfectly. The ceremony in the New Church may have had the trappings of royalty, but the essence was a deal between Parliament (the merchant elite) and the Steward (oops, King); on the Dam and along the IJ were the masses cheering on the House of Orange. For me the most telling part of the day was the solemn gaze of Princess Amalia,  nine years old but going on nineteen, following the constitutional proceedings with grave dedication. It’s her turn next.

In memory of Vaclav Havel

A few words in memory of Vaclav Havel: a gifted, highly moral human who stood for his beliefs for many years on the face of adversity, saw his dream realised and then damaged, and who was never afraid to admit his own failings.

The need for legacy knowledge and talent management

Modern life seems to confront us with a continuing avalanche of new technical developments. Every week there are new product announcements: an iPhone 4S, a new tablet, technology to regulate our home from a distance or the ability to pay in shops using our mobile phones. Yet this impression is deceptive. Much of what shapes our lives today is long lived. The material and immaterial infrastructure that supports our daily lives represent decades of investment and maintenance.

Railway relays

Railway control relays

Some of the material infrastructure is readily visible. The railway tracks over which our commuter train takes us to work have often existed in some form for over 100 years. The rails, power and signalling systems that guide the train may be up to 40 years old. Switchgear and cables in electricity networks may last 60 years, while less visible infrastructure such as underground water mains and sewers may be up to 200 years old.

There is a natural evolution in this infrastructure that is coupled to a human lifespan. In a country with a stable population about 2.5% of the workforce retires each year, taking its knowledge with it. Over four years that is 10% of the workforce. This factor alone is a strong driver of innovation in infrastructure: it is natural that each new generation applies its own technology and insights, sometimes regardless of whether this actually makes economic sense.

It is my belief that three factors will combine to change the way we manage long-lived infrastructure and place a premium on “legacy knowledge”. The three factors are:

  1. A shortage of capital for infrastructure investment: an outcome of the current financial upheavals is likely to be reduced availability of capital for investments which create value only over the longer term (>10 years).
  2. The disappearance from the active workforce of many of those who worked on major post-war infrastructures from the mid-60s onwards.
  3. The increased life expectation and reduced financial circumstances of many of these retired people.

How will this happen? The reduced availability of capital for infrastructure investment is likely to mean that extending the life of expensive assets will often be a more attractive option than replacing them. Sometimes, this may also include upgrading these assets so that they can carry increased volume or traffic.

Archive messThe real challenge comes when one tries to extend the life of an old asset or upgrade it. The first practical problem that one encounters is the availability of documentation. Within large, structured organisations with a high degree of continuity, such as railway infrastructure managers, there will often be well-ordered design archives going back more than 100 years. However, many of those maintaining or managing old assets do not have the benefit of such archives. Either the documentation does not exist, or what exists has simply been dumped in an archive and the order has been lost. In such a case, the first problem is actually just to find the relevant documents.

switchgearIf one can actually find the documents, the next problem is their interpretation. Most design documents only provide full information if the context in which they were created is understood. This may require an understanding of the design principles used as well as the documentation structures and conventions. Because most product development processes emphasise documentation of the end result and not of the design process itself, this meta-information may simply be unavailable. The only place in which this information can be found is in the heads of those who worked on the development or engineering in the first place.

The ultimate implication is that we can anticipate the growth of a market in what could be described as “senior talent management”. In practical terms this means that we need to know some essential facts about the retired population. For instance:

  1. Who has what legacy (design) knowledge?
  2. Are they willing and able to help those who need it?
  3. If they do so, what is their performance on the job?

The ability to leverage the legacy knowledge hidden in the retired population may prove to be one of the keys to maintaining the quality of our infrastructures while reducing their costs. It is also a potential significant business opportunity for those who have the vision and ability to exploit it.

POSTSCRIPT: see also Baby Boomers: Are They or Aren’t They Retiring?(And Then What Do We Do?)

The evil dynamics of national infrastructure management

Autumn is upon us and winter is approaching steadily. It is the time of year when we can start to expect stories in the media about disruptions due to leaves on the railway line, failing power lines and blocked roads. Winter is a tough time for public infrastructure managers. Yet arguably few times are good times. Incidents such as the 2003 London power blackout can happen without warning; and there is a devilish dynamic in the politics around infrastructures that makes the infrastructure manager’s task hard even at the best of times.

The root of this devilry is the life of a government is much shorter than the life of most parts of the infrastructure. Maintaining a national infrastructure costs a lot of money. For instance, the Dutch railway network costs in the region of €1 billion per year to maintain and operate, and the UK National Grid about €1.7 billion. However, the economic life of many parts of an infrastructure is several times longer than the lifetime of a government. For a politician, being responsible for maintaining and infrastructure is thus a dog. Under normal circumstances, you cannot score political points with it, but it can get you into trouble. So any minister responsible to infrastructure usually only wants two things from an infrastructure manager:

  1. Do your work as cheaply as possible;
  2. Don’t get me into trouble in the media (e.g. because of disruptions due to leaves on the line in autumn).

In a period of economic weakness and troubled government finances, there is considerable pressure to cut the cost of infrastructure maintenance. Inevitably, despite the professionalism of those involved within infrastructure management organisations, this leads to cutting corners. Infrastructure managers know full well how to minimise the lifetime cost of a piece of infrastructure, but this may easily involve spending money at a time that does not suit the political master.

Failure to commit the right expenditures at the right time inevitably leads to higher long-term costs and often to a deteriorating infrastructure. However, the damage caused by such behaviour never reflects on politicians who were responsible. Instead, it creates a political opportunity for their successors. Once the performance of a piece of infrastructure deteriorates far enough, this creates a political opportunity to “clear up the mess”. Inevitably this costs a lot of money, but if this is spent at a time when national impatience with the poor state of roads, railways or power grids has reached a climax, then the minister will be a hero.

The devilish dynamic

The devilish dynamic

So is there an answer to this issue? It may lie in how a recent management framework is used.

Infrastructure managers are, by and large, highly professional organisations. They have developed sophisticated management systems to help them optimise the way they maintain their infrastructure and adapt it to meet new needs. One such system is PAS 55 (2008), a framework for physical asset management. It promises to provide a basis for further professionalisation and sharing between infrastructure managers. As the diagram shows, it is a hierarchical mechanism for at establishing (long-term) planning and control discipline, steered at the highest level by legal and stakeholder requirements and expectations.

PAS 55 scope

PAS 55 scope

If implemented well, a mechanism such as PAS 55 can be a powerful tool for ensuring that what the organisation actually does is entirely in line with this steering. It can help break down the silos between departments, identify and avoid structural risks and prevent the “gold plating” of one aspect of an infrastructure while another one receives too little attention. Moreover, the feedback loops in the framework should ensure that the likely consequences of policy decisions are made known to those who take them.

However, the result is ultimately dependent on whether the steering at the highest level is consistent and effective. For this to happen effectively, an infrastructure manager must be able to show its political masters what the consequences of their steering will be in the longer term, and must ensure that an effective system of political checks and balances is in place to prevent actions that are ultimately not in the public interest. For most infrastructure managers this is a difficult puzzle to solve. So the evil dynamic may be long with us.

The Revenge of the Chinese

This morning a man and a boy delivered a dishwasher to my son’s second floor apartment in Amsterdam. As I unpacked it I began to have the feeling that something was very wrong in a world that delivers a flimsy machine to me from China for for the price of €249.95 all found including €5 recycling levy. Let’s look at what it takes to do it:

The shiny new dishwasher

The shiny new dishwasher

  1. Raw materials: steel for the casing and lining, copper for the wiring, plastics derived from oil for almost everything else;
  2. The energy and large plant needed to convert the raw materials into the components;
  3. The labour and facilities needed to assemble it;
  4. Everything needed to transport it from China to Holland: container, truck, ship, port facilities, fuel;
  5. The labour and infrastructure costs of the on-line retailer;
  6. The labour, warehouse, fuel and administration needed to store it in Holland and get it to my son’s door;
  7. Banking and financing to support all the above, right down to my payment;
  8. Taxes and levies.
Now let’s suppose for the sake of argument that each of the above is worth the same, so €30 each. Furthermore, let’s suppose the labour involved in the Chinese steps is about 20% of the manufacturing cost. Then about €6 of direct labour cost went into assembling the machine. It probably took about 2 hours to do, so that’s €3 an hour labour cost. By contrast, the delivery man who put the box on my son’s floor probably cost €20 an hour all found. Was his labour worth six times that of his Chinese colleague? Probably not, and that’s the imbalance with which the world is now faced. Even if we suppose that the driver is more highly qualified than his Chinese colleague and works much more efficiently, that’s never going to make him worth more than double. So he’s paid three times too much, or his Chinese colleague three times too little.
That is going to cause a lot of grief in the West before we have sorted it out.

Conflict on bonus system reveals shortcomings in strategy

A client contacted me last week about an issue with a bonus scheme. The company is reorganizing the way it handles one of its core activities. An employee raised a red flag because he foresaw that his ability to earn bonus would be reduced in the new situation. His work is linked fairly directly to a revenue stream, he works fast and thus he often earns a large bonus. His concern was thus both about his own income and about the general effect on revenue. So the immediate question was whether a method could be found to ‘tweak’ the bonus scheme so that employees such as he could keep up their earnings in the new situation. However, when we started to look at the issue, it raised some questions that got steadily more fundamental. The list went something like this:

  1. For what, exactly, is the employee being rewarded?
  2. Does it conflict with other company priorities, and if so, which revenue stream should take precedence?
  3. How does the company create value for its customers and thus profit for its shareholders?
  4. Does the way the company is run actually steer it in the direction of creating value for its customers?
  5. What all does that mean for the other bonus schemes in the company?

So from a simple question about a bonus scheme in one small corner of the company we progressed in less than an hour to fundamental questions about the company’s strategy. More worryingly, the process revealed that the company hadn’t really decided on its strategic priorities and was at some risk of ‘painting itself into a corner’.

Motto for the day, to paraphrase Tom DeMarco: you get what you measure, so you’d better have a pretty good idea about what you want to measure.