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Foreign Direct Investment In North Korea’s Kaesong Industrial Park

For many people North Korea evokes the comic image of the lonely playboy Kim Jong-il in Trey Parker & Matt Stone’s Team America World Police (2004).  I found a more complex sociopolitical reality in 2006 whilst researching a Masters mini-thesis which dealt in part with North Korea’s covert nuclear weapons program.  A week after handing the mini-thesis in Disinformation’s video producer Nimrod Erez sent me links to stark photos of daily life in North Korea’s capital Pyonyang (folio 1, folio 2 & discussion board): deserted highways, military monuments to past battles and derilect residential towers.

Kim Jong-il’s nuclear ambitions were a significant barrier to foreign direct investment (FDI) in North Korea notably under South Korea’s Sunshine Policy to achieve geostrategic stability in the Korean Peninsula.  Jong-il’s nuclear rollback “opens the way” to Hyundai Asan‘s FDI investment in the Kaesong Industrial Park (YouTube promotional video).  South Korea’s small and medium enterprises (SMEs) spearhead the FDI initiative which creates an emerging market, provides knowledge transfer, and hedges against country and currency risks.  South Korea’s government further offsets the SME’s country and operational risks with “low-interest loans and insurance.”  The SME’s engagement strategy also benefits emerging market watchers such as the blog North Korean Economic Watch.

If the FDI initiative fails then North Korea officials can always turn Kaesong Industrial Park into a subsidiary of the Erich von Daniken theme park in Interlaken, Switzerland.

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Duelling Web 2.0 Scenarios: Boom/Bust

Has Tim O’Reilly’s Web 2.0 meme become a high-tech bubble about to burst?

Origins of the Web 2.0 Boom

O’Reilly’s vision of a new Web platform originally fused two developments.

The first development: C, Smalltalk and object oriented programmers devised design patterns in the early 1990s to reuse software code and workaround solutions across projects.  A 1995 catalog catapulted its four authors to software engineering fame.  To capture the rapidly growing number of design patterns programmer Ward Cunningham created the first wiki: the Portland Patterns Repository.

The second development: a re-evaluation of dotcom era business models to encompass new technologies that enhanced the end-user experience including the site interface and information architecture.  Industry buzz around News Corporation’s acquisition of MySpace (18th July 2005), Yahoo!’s purchase of Flickr (21st March 2005) and del.ico.us (9th December 2005), and Google’s stock-for-stock deal for YouTube (9th October 2006) made O’Reilly’s vision the ‘default’ vision for Web pundits and investors.

The media’s buzz cycle soon went into warp speed as Facebook frenzy replaced MySpace mania.  In a move that exemplified the pivotal role of complementors O’Reilly & Associates morphed into the juggernaut O’Reilly Media.  Ajax and Ruby Rails soon replaced Java and C# as the languages for new programmers to learn.  For activists in community-based media, angel investors investing in scalable programming prototypes and international conglomerates seeking to control their industry white-spaces Web 2.0 provided an all-encompassing answer to venture capitalists on how they would change the world.

Two Scenarios: Web 2.0 Boom & Bust

For industry pundits Google’s decision in October 2008 not to acquire Digg may signal the Web 2.0 boom has become a bubble.  If true Google’s decision could be the mirror of News Corporation and Yahoo!’s acquisitions in 2005.  Slate‘s Chris Anderson points to several factors: no tech IPOs in the second quarter of 2008, the cyclical nature of the digital consumer market, the exit of Yahoo! as a potential buyer due to internal problems, market noise due to low barriers of entry for startups, and a smaller “window of opportunity in which startups can think of a new neat trick, generate buzz, and cash out.”  YouTube’s co-founder Jawed Karim adamently believes that Silicon Valley is in a bubble.

Twitter is the latest startup in the duelling scenarios of Web 2.0 boom versus bust. New York Times journalist Adam Lashinsky experiences a similar euphoria to Facebook and YouTube when he visits Twitter’s co-founder Jack Dorsey.  Sceptics counter that Facebook and YouTube have not ‘monetised’ their business models into profitable revenues.  Portfolio‘s Sam Gustin raises the ‘monetisation’ problem with Twitter co-founder Biz Stone who believes that service reliability is a priority over the “distraction” of revenue pressures.  In support of Stone’s position Anderson observes that cloud computing and open source software are lowering the operational costs and slowing the burn rates of startups.

Yet monetisation remains a primary concern for Sand Hill Road entrepreneurs and other venture capitalists.  They differ in their decision-making criteria to Web 2.0 pundits and high-tech futurists: for angel investors and first round VC funding the entrepreneurs will demand a solid management team, the execution ability to control an industry whitespace, and viable sources of future revenue growth.  This is the realm of financial ratios and mark-to-market valuation rather than normative beliefs and ideals which probably influenced the acquiring firm’s decisions and valuation models in 2005-06.

Furthermore, if a Web 2.0 bust scenario is in play, the ‘contrarian’ sceptics will look to Charles Mackay, Charles P. Kindleberger, Joseph Stiglitz and other chroniclers of past bubbles, contagion and manias for guidance.  With different frames and time horizons the Web 2.0 pundits, high-tech futurists and venture capitalists will continue to talk past each other, creating still more Twitter microblogging, blog posts and media coverage.

Several preliminary conclusions can be drawn from the Web 2.0 boom/bust debate.  In a powerful case of futures thinking O’Reilly’s original Web 2.0 definition envisioned the conceptual frontier which enabled the social network or user-generated site of your choice to come into being.  The successful Web 2.0 startups in Silicon Valley have a distinctive strategy comparable to their dotcom era counterparts in Los Angeles and New York’s Silicon Alley.  Web 2.0 advocates who justify their stance with MySpace, YouTube and del.icio.us are still vulnerable to hindsight and survivorship biases. There’s a middle ground here to integrate the deep conceptual insights
of high-tech futurists with the quantitative precision of valuation
models.

It’s possible that the high-visibility Web 2.0 acquisitions in 2005-06 were due to a consolidation wave and strategic moves/counter-moves by their acquirers in a larger competitive game.  There are two precedents for this view.  Industry deregulation sparked a mergers and acquisitions boom in Europe’s telecommunications sector in the late 1990s comparable to the mid-1980s leveraged buyout wave in the United States.  Several factors including pension fund managers, day trading culture and the 1999 repeal of the US Glass-Steagall Act combined to accelerate the 1995-2000 dotcom bubble.  Thus, analysts who want to understand the boom/bust dynamics need to combine elements and factors from Web 2.0 pundits, high tech futurists and venture capitalists.

If the Web 2.0 boom has become a bubble then all is not lost.  Future entrepreneurs can take their cue from Newsweek journalist Daniel Gross and his book Pop! Why Bubbles Are Great for the Economy (Collins, New York, 2007): the wreckage from near-future busts may become the foundation of future bubbles.  Web 3.0 debates are already in play and will soon be eclipsed by Ray Kurzweil‘s Transhumanist agenda for Web 23.0.

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Foreclosure Of A Hedge Fund Dream

Media personalities who took a career detour into managing hedge funds are the latest casualty of the subprime fallout, reports New York Times journalist Andrew Ross Sorkin.

Sorkin profiles Ron Insana the former CNBC news anchor who founded Insana Capital Partners at the height of easy credit in 2006 and closed ICP in August 2008.  Insana raised $US116 million from major investor Deutsche Bank and media contacts.  Rather than invest directly in complex financial instruments Insana chose an intermediary position: a fund of funds investor in a diversified portfolio of hedge funds.

Insana made several errors that led to ICP’s blow-up.  Sorkin notes the US$116 million was a smaller capital raising than its blue chip competitors.  The fund of funds positioning meant a rational herds strategy on the hedge funds that ICP invested in.  Subprime-caused market volatility set off a cascade: the hedge funds didn’t make alpha returns above the market and ICP didn’t have the diversified portfolio to weather the volatility.  Consequently, ICP still had to pay out investors in full for their original investments (the ‘high water mark’ rule) before it could earn its ‘1.5 of 20’ fee (1.5% management fee on funds and 20% of fund profits).

Sorkin is insightful about the cost structures of hedge funds:

That would have been enough if it was just Mr. Insana, a secretary and
a dog. But Mr. Insana was hoping to attract more than $1 billion from
investors. And most big institutions won’t even consider investing in a
fund that doesn’t have a proper infrastructure: a compliance officer,
an accountant, analysts and so on. Mr. Insana had seven employees, and
was paying for office space in the former CNBC studios in Fort Lee,
N.J., and Bloomberg terminals — at more than $1,500 a pop a month —
while traveling the globe in search of investors. Under the
circumstances, $870,000 just wasn’t going to last very long.

This ‘contrarian’ observation highlights the leverage of institutional investors, and, in contrast to the usual media portrayal, the regulatory burdens of institutional compliance on funds.

Sorkin’s profile raises some interesting questions beyond his comparison of Insana and the media-savvy millionaires who blew-up after the April 2000 dotcom crash.  Did ICP adopt the trend following strategy from CNBC’s media coverage and Insana’s popular books?  If so, could Insana distinguish between market noise and critical events?  How did Insana grapple with the career change from CNBC news anchor to hedge fund head?  What risk mitigation steps did ICP’s investors demand, and did Insana exercise prudential caution? When he had to close ICP was Insana able to be self-critical about his past decisions and errrors?  Are there firm-specific, operational and positioning risks for fund of funds?  That would be a really interesting post-implementation review for aspiring hedge fund mavens.

Don’t expect to see it in CNBC European Business or Bloomberg Markets anytime soon.

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Global Metal

York University anthropologist Sam Dunn has found a communication strategy to reach a broader audience than many academics and scholars.  Metal: A Headbanger’s Journey (2005) combined Dunn’s fandom of heavy metal music, a taxonomy of subgenres, interviews with influential musicians and a field trip to the Wacken Open Air festival in Germany.  Dunn’s follow-up documentary Global Metal (2008) travels from Wacken to three BRIC members (Brazil, India and China), China, Israel, Indonesia, and the United Arab Emirates.  Global Metal has rich insights on the coevolution of nation-states in the world system, the challenges of market design, indigenous and hybrid responses to globalisation, and new voices on old debates in heavy metal subcultures.

Anthropologists need an entry point into a new culture.  Dunn achieves this by interviewing Max Cavalera the cofounder of Brazil’s Sepultura and frontman for Soulfly and Cavalera Conspiracy.  Cavalera explains that Sepultura emerged in the mid-1980s as Brazil evolved from a military dictatorship to a neoliberal market society.  For many heavy metal fans Sepultura’s album Roots (1996) was their first encounter with an indigenous worldview as the band included field recordings with the Xavante Indians and Brazilian percussion.  Dunn’s interview with Cavalera uses Roots to tacitly bring the anthropological models and theories of Clifford Geertz, David Horowitz, Stanley Tambiah and others to fans who are unfamiliar with these influential scholars.  In contrast to this immersive approach Global Metal ends with a more familiar event: Iron Maiden‘s concert on 1st February 2008 the first time that a major Western heavy metal band has played Mumbia, India.

A second entry point for fans is when Dunn revisits past controversies and debates in heavy metal media to include new voices and perspectives.  Does Slayer‘s song ‘Angel of Death’ about the Nazi doctor Josef Mengele promote Holocaust denial and racism?  Dunn turns to the Israeli band Orphaned Land who note that although the song was written for shock value it has been used by politicians to inform Israeli youth about the Holocaust.  Orphaned Land then talk about Jerusalem as a global city and the past religious conflicts between Judaism, Christianity and Islam.  Far scarier than Middle Ages imagery and occult demons is Orphaned Land’s reality of having to live daily with potential suicide bombers in crowded urban areas.

Dunn returns to this debate throughout Global Metal to show how different individuals and groups reinterpret a meme or symbol and how this can have unforseeable outcomes.  Orphaned Land recount how after playing ‘Angel of Death’ live for Israeli audiences they were sent a mail bomb by Varg Vikernes a notorious Norwegian black metal musician and Holocaust denier.  Iranian fans who are photographed next to Slayer graffiti face possible arrest and torture by religious police – which provokes Slayer’s frontman Tom Araya to comment that the fans seek a death sentence.

More disturbingly, Dunn interviews the Indonesian band Tengkorak whose song ‘Jihad Soldiers’ embraces a militant Islamist worldview.  When Tengorak’s lead singer quotes conspiracy theories from The Protocols of the Elders of Zion, Dunn observes his jacket has a crossed out Nazi swastika.  “We’re not against Jews,” the singer explains, “just the Jewish system.”  Dunn then visits a Muslim mosque with another Indonesian musician.  Tengorak’s context is the 1997 Asian currency crisis which sparked a wave of conspiracy theories within Indonesia due to macroeconomic destabilisation.

Many of the interviewees give examples of how heavy metal music is reinterpreted differently to Western narratives.  Japanese fans reject Western alienation as an existential motivation and instead create a more emotional and direct identity that is an alternative to their conformist work identity.  KISS had an immediate impact in Japan as the band’s makeup is comparable to Kabuki theatre.  The live improvisation which closed Deep Purple‘s first concert at Tokyo’s Nippon Budokan in 1972 has sparked a subculture of ageing salarymen who reform their teenage bands to play ‘Highway Star’.  Former Megadeth guitarist Marty Friedman explains how X-Japan and Death Panda have fused heavy metal with Japanese game shows like Rock Fujiyama and pop music to create rifts within and between subcultures.  In China heavy metal music is used as part of a Confucian state policy to give youth an outlet for aggression, even though the music is officially frowned upon.  Whilst visiting Mumbai, Dunn intercuts scenes of Indian bands playing a local bar with the Hindu wedding playing Bollywood music next door: two alternative cultures coexist.

The heavy metal subcultures that Dunn visits serve as barometers for nation-state development; freedom for religious and political views; and in a nod to Ulrich Beck, P.R. Sarkar and Amy Chua, the relationship of subcultural groups to mainstream society and sociopolitical power.  Japan has a Janus-faced subculture which has Western and indigenous elements.  India and the United Arab Emirates’ subcultures are at an infancy stage which Dunn links explicitly to democratic political institutions and modernisation: UAE hosts a festival with bands and fans who cannot perform in their home countries due to restrictions.  China, Iran and Turkey have subcultures that are underground due to religious authorities who perceive them as antinomian youth subcultures.  Beck’s concept of subpolitics from below and Sarkar’s Law of the Social Cycle provide theoretical insights here: if the fans are shudra (workers) they have coopted insights from vaeshya (entrepreneurs, merchants) and vipra (intellectuals) to create soft power which counteracts the influence of ksatriya (military).

Brazil and Indonesia are two test cases of this hypothesis.  Cavalera’s narrative of Brazil’s transition to democracy st
ands in contrast to Samuel P. Huntington’s Political Order in Changing Societies (1968) which warned of the gap between rapid sociopolitical change and lagging political institutions.  Instead, Cavalera argues that Sepultura’s music signified a subpolitics response by the shudra underclass to poverty and the lack of macroeconomic and sociopolitical reforms by social elites.  The flashpoint is Metallica’s concert on 11th April 1993 at Lebak Bulus Stadiam in Jakarta, Indonesia.  Metallica’s drummer Lars Ulrich explains that in order to protect a middle class area Indonesian police prevent fans from entering the stadium.  Fans retaliate by setting fire to the surrounding buildings; the smoke is visible on a bootleg concert tape.  Indonesian authorites then banned all heavy metal bands and live tours until the Suharto regime ended in 1998.  Indonesia’s heavy metal subculture have since gained greater visibility although Tengorak gives voice to subcultural fears of Western geoeconomic, cultural and religious domination.

The consensus of most fans in Global Metal is that heavy metal’s ‘identity politics’ is evolving into a transnational network with a cosmopolitan worldview.  Almost everyone in the documentary wars an Iron Maiden t-shirt – the power of Chinese sweatshops, marketing and passionbrands.  The major facilitator is the heavy metal entrepreneur, such as the cofounder of China’s Tang Dynasty who imported Western heavy metal in the late 1980s and then evolved into an indigenous worldview.  The major barrier to this cosmopolitan ideal and diffusion process is when subcultural identities are caught in Muzafer Sherif‘s assimilation-contrast effect of social judgment: Japanese purist fans who decry the fusion of pop-metal or Indian fans who are caught in a power struggle with authority figures and family traditions.

Failures in market design are one source of these infra-subcultural battles.  In order to change their financial account reporting Western conglomerates dumped their excess back catalogue such as Extreme‘s 1989 debut album as cheap CDs into India and other countries.  Third World countries were the beneficiaries of bootlegs, MP3s and illegal downloads.  Dunn coaxs an admission from Ulrich that this is a positive trend, a reversal of Metallica’s lawsuit against Napster in 2000.  Black markets emerge where demand exists yet there are no official agents and major price differentials exist.  Ironically,  Global Metal is a victim of this trend: the documentary and a soundtrack of featured bands now circulates on illegal BitTorrent networks.  Turn up the distortion to 11.

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The Debt

Assaf Bernstein’s The Debt (2007) portrays the breakdown of accountability during a fictional operation by Israel’s Mossad agency to capture a Nazi war criminal.

The film opens with the Mossad team of Rachel Brenner (Gila Almagor, Neta Garty), Zvi and Ehud arriving home triumphantly in April 1965: a scene reminiscent of Beatles mania.  Flashforward 30 years later and Rachel explains to Israeli intelligence trainees what it was like to kill the Nazi war criminal Maximilian Rainer (Edgar Selge) in a safehouse shootout: ‘I didn’t think of anything, I just closed my eyes, thought of my mother and what she had been through.’  The trainees joke about the Surgeon of Burkenau as a symbol of evil.

At a launch party for her memoir My Mission we hear an account of Rachel’s bravery and see her signing books like a celebrity.  As the party ends Zvi arrives with a newspaper story that will shatter the bubble: an old man in a nursing home 40 minutes outside of the Ukrainian industrial city Kiev now claims to be Rainer.  Rachel, Zvi and Ehud all know the truth that has been hidden for 30 years: Rainer escaped from the safehouse and they created the cover-story to hide the truth about the Surgeon of Burkenau’s fate that would have shocked Israel. 

The team is being reactived before Mossad and the Israeli public find out the truth.  Ehud is already in Kiev whilst Zvi cannot go due to wounds from an Israeli embassy bombing 10 years earlier.  Zvi convinces Rachel to go to Kiev armed with poison to confirm Rainer’s identity and to kill him.  She is unsure about the newspaper photograph.  ‘People change a lot in 30 years’, Zvi tells her.  ‘We were different then, weren’t we?’, Rachel wonders.

The Debt‘s narrative cuts back and forth between the 1964 Berlin operation and Rachel’s 1994 visit to Kiev.  Bernstein thus creates a cause-effect relationship between the team’s initial decisions and their consequences.

Mossad tracks Rainer to Berlin in 1964 after a 15-year search.  The night before the team’s operation begins Rachel examines photographs of Rainer’s atrocities in Auschwitz-Birkenau.  Rainer now works as a gynecologist so Rachel poses as Mrs. Roget and gets several appointments for an infertility examination.  These scenes have a starkness similar to David Cronenberg’s Dead Ringers (1988) as Rainer attempts to discover Rachel’s true identity.  Eventually the team resorts to an extraction operation: Rachel injects Rainer with a serum whilst Zvi and Ehud arrive with a fake ambulance.

Holed up in a safehouse with Rainer imprisoned the team begins to fall apart.  The cover operation to use an embassy party is delayed several times.  The team starts infighting over their motives: Rachel has unrequited love for Zvi, Ehud’s tough personal masks his fears and Zvi is hauned by the deaths of his entire family at Auschwitz.

Rainer emotionally manipulates Rachel and Ehud when they break Zvi’s rule not to speak to their prisoner.  He offers several rationalisations: his work was done for ‘scientific progress’, ‘hundreds of deaths’ were necessary to save millions, and that ‘we could do anything we wanted with the Jews’.  Rachel taunts Rainer that he will endure a public trial similar to Adolf Eichmann
in Jerusalem in 1961.  Rainer explains to Rachel and Ehud that only four guards were needed to send entire families to their deaths: Jewish ‘egoists’ meant that individuals only thought for themselves.  ‘Jews only knew how to die, they didn’t know how to kill,’ Rainer concludes.  The exchanges are a misdirection ploy: with Ehud and Zvi now out of the room Rainer attacks the sleeping Rachel with a razor that she has dropped and escapes.  ‘It took 15 years to find him, we aren’t going to find him in 10 minutes,’ Ehud and Zvi argue.  The truth that happened in Berlin is not the truth that Israel must know.

30 years later Zvi, Ehud and Rachel are each haunted by their lie.  When Rachel arrives in Kiev she meets Ehud who is now an arms dealer to both sides in Sierra Leone: ‘rebel against them’ he explains over a double malt whiskey.  Ehud and Rachel are unable to get into the Kiev nursing home which is a high security facility for former Soviet military.  The next morning Rachel discovers that Ehud has committed suicide because he is a coward.  Zvi asks her to return but Rachel wants to finish what should have been done in Berlin.

After several cat-and-mouse attempts Rachel disguises herself as a nurse to infiltrate the nursing home.  She sees the old man on a balcony.  A Berliner Zeitung reporter also wants to interview the old man and phones his editor in advance to claim a double-spread cover story.  In these scenes Rachel seems cautious to conduct a field operation, unsure of the old man’s true identity and out-of-place in a life after espionage.  Both she and the reporter discover the truth: the old man has Alzheimers and started the story a month ago to the concern of his son.  The reporter leaves in disgust.

Only then does Rachel discover the deeper truth underneath the surface truth and by accident:  she follows the old man’s grandson and his remote controlled car to discover an elderly Rainer playing cards in the dining room.  ‘I should never have confessed to him,’ he tells Rachel, ‘I should have taken this secret to my grave.’  Rachel and Rainer’s bathroom knife fight leave both fatall wounded, and Rachel dies on a train platform, remembering the team’s triumphant return to Israel, the black and white news footage now in colour.

The Debt explores the ethical challenges of intelligence fieldwork, coming face to face with ontological evil, and the cost of living with a lie.  However two other dimensions are only hinted at.  The team’s lie is necessary to maintain Mossad’s invincibility and as a counter-myth against the Nazi postwar survival myths of Adolf Hitler, Martin Bormann and the Odessa in South America.  More cryptic is Rainer’s explanation to Rachel about World War II’s intergenerational trauma: ‘The war changed a lot of people.’

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Anvil! The Story of Anvil & Prospect Theory

Music lasts forever . . . and sometimes the debt does too!
– Steve ‘Lips’ Kudlow, Anvil

Sacha Gervasi‘s Anvil! The Story of Anvil (2008) is more than a documentary on the Canadian heavy metal band Anvil: it’s one of the most poignant films yet on how our beliefs and emotions affect our decision-making abilities.

Gervasi’s film begins with Anvil’s triumph: a support set at Super Rock ’84 Japan where lead guitarist/vocalist Steve ‘Lips’ Kudlow wears bondage gear and plays a guitar solo with a dildo whilst drummer Robb Reiner unleashes fast blast beats.  Anvil’s albums Metal on Metal (1982) and Forged in Fire (1983) combine two different strands of heavy metal music: the New Wave of British Heavy Metal movement of the early 1980s that Def Leppard and Iron Maiden popularised, and outrageous tactics that Motley Crue and other Los Angeles bands would adopt in the mid-1980s.  The other bands at Super Rock ’84 sold millions of albums: Scorpions, MSG (Michael Schenker Group), Whitesnake, and Bon Jovi.

But Anvil didn’t and Gervasi explores why.

Anvil’s peers offer several explanations.  Metallica‘s Lars Ulrich suggests Anvil’s Toronto home disadvantaged them compared to the US heavy metal subcultures in Los Angeles and New York.  Motorhead‘s Lemmy Kilmister believes Anvil’s original lineup had talented musicians who never received their due recognition.  Slash the iconic guitarist from Guns ‘n’ Roses and Velvet Revolver contends that other bands took what Anvil did well and just ripped them off.  Anthrax guitarist Scott Ian just wonders where did Anvil go in the past 25 years?

Gervasi tracks down Kudlow and Reiner who are Anvil’s sole original members to Toronto.  Kudlow’s day job is a driver for Choice Children’s Catering whilst Reiner is a sandblaster.  Bassist Glen Five and guitarist Ivan Hurd struggle to survive.  Anvil’s only gigs are at a local sports bar.  They have no management, no producer, no record label contract and will rely on luck and perseverence to get to the ‘next level’ of their careers.

Anvil! documents Kudlow and Reiner’s attempts to achieve the heights of their Super Rock ’84 Japan success: a disastrous European tour and the recording sessions for This is Thirteen (2007).  Gervasi captures Kudlow and Reiner’s decisions during this process, their rationalisations when things go wrong, and the reactions of other band members, friends and collaborators.  Anvil! is thus less a mockumentary like Bad News (1983) and Spinal Tap (1984) and closer to a great case study in Amos Tversky and Daniel Kahneman‘s Prospect Theory: decision-making about risk where there are differences, known outcomes and unconscious biases.  Despite the improbability of achieving the rockstar dream after 30 years Kudlow and Reiner continue to strive because of their ‘Loser Take All’ passion and self-image, their early success at Super Rock ’84 Japan and the path dependence of their past decisions.

The European tour becomes a series of bad decisions: the tour manager doesn’t book train tickets for transport, Kudlow and Reiner fight with a club owner to pay a gig when only seven people turn up (‘We aren’t getting paid!’), and only 174 people turn up to a Transylvanian heavy metal festival in a 10,000-capacity venue (‘How much love could one person put into something?’).  The tour manager expresses remorse due to hindsight bias, falls in love with and then marries guitarist Ivan Hurd who leaves Anvil in 2007.  Kudlow and Reiner also have to fend against adverse selection when lawyers and others cluster around to take Anvil’s money.  Kudlow takes five weeks off work for the tour in which Anvil makes no money: ‘When we’re on tour we’re on vacation’ he tells Gervasi.

In the tour’s aftermath Kudlow admits to Gervasi why Anvil have not succeeded: they made bad decisions early on in their career, have no management to promote them, the past few albums have poor material and no production, and the band was ripped off by ‘indie’ record labels who never payed their artists (‘99.9% of bands never get paid’).

Kudlow’s solution is to approach producer Chris Tsangarides who worked with Anvil to record a new album.  Kudlow struggles to raise the $13,000 that Tsangarides requests: he lasts eight hours at a telemarketing job run by Anvil’s fan club president before turning to his sister who is a successful businesswoman and gives him the money.  The band decamps to Tsangarides’ studio in Dover, England, to write, record and mix This Is Thirteen
(2007).  The studio appears to consist of a band gear room, a vocalist room, and an audio engineering room with Protools software and a small mixing desk.  (Although Gervasi doesn’t explore it further the studio shots suggest that Tsangarides is also down on his luck and that his surface altruism hides the more pragmatic motive of generating income from any source to survive and trading on his past with Black Sabbath and Judas Priest).  Reiner argues with Kudlow over the lyrics and poor takes, and storms out.  Kudlow apologises and tries to bring Reiner back with a reminder about their teenage pact whilst Tsangarides tries to de-escalate the conflict and deal with the inevitable group tensions during the recording process.  Kudlow and Reiner reconcile during a Stonehenge visit.

Afterwards, Kudlow uses guerrilla marketing tactics to visit the offices of US record companies, and receives no interest after two weeks.  Kudlow then visits EMI Canada’s officer where an A&R manager turns off This is Thirteen after hearing Kudlow’s over-the-top vocals.  Gervasi ends Anvil! with an unlikely triumph when a Japanese promoter who saw Anvil on their European tour books the band to play a Tokyo festival.  Kudlow and Reiner worry backstage about if anyone will turn up and emerge to find the room full of thousands of fans who remember their Super Rock ’84 Japan performance.

Tversky and Kahneman’s work on Prospect Theory is central to Anvil!‘s narrative about Anvil’s tours and album recording sessions.  Kudlow’s nostalgia about Super Rock ’84 Japan highlights why he has an emotional overinvestment in Anvil’s self-image and appears stuck in a time-warp.  Others share this: bassist Glen Five is an Anvil fan whose belongings are in a garage because he can’t afford a house, the European tour manager has plenty of love and passion but fails in strategic execution, and Kudlow’s wife admits near the film’s end that because of her interest in 1980s heavy metal music and lifestyles she had wanted Anvil to succeed commercially in a moment that has passed.  Kudlow is overconfident about Anvil’s chances, he manages risks through the affect heuristic of immediate problems rather than consequences, and illustrates the knowing-doing problem of knowing what the barriers are and yet not developing mitigative strategies to bypass them.  Gervasi hints that Anvil might have pursued other options, from doing children’s parties at Kudlow’s catering firm to Reiner’s private collection of landscape paintings.  Luckily, Anvil!’s success has opened up new possibilities for Anvil including a MySpace page and street team.

Anvil frequently make comparisons between themselves and the successful bands at Super Rock ’84 Japan.  This is a self-narrative that illustrates Tversky and Kahneman’s anchoring a  cognitive bias which focuses on specific information in decision-making.  Anvil! would be even more interesting if it contrasted Anvil’s underdog failure with the comparison bands who have all run into major problems yet survived due to business savvy managers and major label support: albums recorded for tax purposes (Anthrax), management problems and hostile fans (Metallica and its managers QPrime), lineup, recording and tour problems (Anthrax, Black Sabbath, Guns ‘n’ Roses, Iron Maiden, Judas Priest, Motorhead, Velvet Revolver), and peaks and troughs in their careers (Anthrax, Black Sabbath, Bon Jovi, Iron Maiden, Metallica, Motorhead, Scorpions).  Nor are the costs of these ‘sucesses’ explored: on the first date of Anvil’s European tour Kudlow reunites with Twisted Sister guitarist Eddie Ojeda who looks to be a drugged, emaciated mess.

If that’s heavy metal ‘success’ then Anvil’s hometown longevity, label independence, lifelong friends and supportive family may have been a better long-term choice.

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Predicting The Unthinkable In Financial Markets

The nuclear strategist Herman Kahn coined the phrase ‘thinking about the unthinkable’ in a series of black comic Air Force briefings that became On Thermonuclear War (Princeton University Press, 1960).  Faced with a year-long crisis in US credit markets analysts have embraced similar imagery in their forecasts of catastrophic risk.

Several different players in the financial ecosystem rely on the forecasts for multiple payoffs, one for their target audience and the other for themselves:

  • Research Analysts: (1) Provide clients with guidance and metrics to the market turbulence; (2) stand out in the pecking order of research firms and competing industry/sectoral analysts to remain relevant.
  • Investment Media: (1) Catastrophes as the source of drama and headlines to keep consumers engaged; (2) Financial and operational synergies of convergent media production.
  • Fund Managers: (1) An external input to valuation models for visiting potential firms to invest in; (2) A parameter for deciding on the asset classes, diversification and hedging for investment portfolios.

Some questions to ask in evaluating any catastrophic forecasts that predict the unthinkable:

  • What is the source, type and timeframe of the evidence presented?  The source may be company interviews, earnings calls, investment calls and trade seminars.  The type may be firsthand observation, market rumour, financial model, computer simulation or analyst conjecture.  The timeframe may be historical simulation of past data, quarterly forecasts or a longer time horizon for capital financing, global market entry, innovation pipelines or sustainability projects.  The source enables you to filter any possible agendas, the type refers to the information structure, whilst the timeframe often has embedded assumptions about cause-effect relationships, impacts, and the actions of others.
  • Why is the analyst making this forecast and could there be other agendas? Analysts have biases and personal theories that an attention economy might amplify.  At a group level this becomes self-reinforcing collective wisdom that may turn out to be flawed.  In embracing a current meme in a true believer stance analysts create a cognitive frame prevents them from considering alternative outcomes, options and possibilities.  At its most cynical this question is a reminder that forecasts are not objective or value-neutral, especially if the analyst is under pressure to generate earnings revenue or has a different private opinion to their public view.
  • What is the analyst’s track record in accurate forecasting?  This focuses on the analyst’s patterns of thinking and rhetoric in forecasts; how their performance compares to an industry, market or sectoral baseline; and the margin of error in their past forecasts.  This can be used to construct a brains syndicate, to filter out media reports and noise, to surface hidden assumptions and how they affect performance, and as a quality assurance check.
  • How might the catastrophic forecast be hedged? This shifts the focus from optimistic versus pessimistic views to the risk management focus on mitigative strategies and action planning.  To be effective, this requires an understanding of your risk profile and risk-return needs (risk averse, neutral or seeking), your time horizon, and the nature of the financial instruments, investment portfolio and markets to be used.
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The Devolution Is Here

Devo‘s first Melbourne performance in 25 years was ‘a dream come true’ cofounder Mark Mothersbaugh told the audience – in falsetto – as Booji Boy during the finale ‘Beautiful World’. Most of the audience were ‘less beautiful than their parents’ who had attended Devo‘s last show in 1983.  Australia was ‘relatively untouched then’ compared to the post-industrial decay in Devo’s hometown of Akron, Ohio.
 
The 90-minute setlist centered on Devo’s first three albums from 1978-82.  After opening with clips from Chuck Statler’s film In the Beginning Was the End: The Truth About De-Evolution (1975) the band played the MTV hits ‘Whip It’ and ‘Girl U Want’ early in the set.  Devo’s heavy rock arrangements became even more intense when they dispensed with the Korg keyboard at the front-of-stage and their trademark yellow radiation suits to reveal black t-shirts and shorts.  Session drummer Josh Freese kept a fast drum tempo, Bob Casale switched deftly between keyboards and rhythm guitar, Bob Mothersbaugh added lead guitar histrionics to ‘Uncontrollable Urge’, ‘Gut Feeling’ and the Rolling Stones cover ‘I Can’t Get No (Satisfaction)’, whilst Gerald Casale’s vocals on ‘Secret Agent Man’ highlighted the band’s humour.  The first encore ‘Freedom of Choice’ became a satire on Pax America: ‘If you want proof of devolution just look at the current White House’, Mark Mothersbraugh told fans.  For me, ‘Jocko Homo’ was the standout track with MIDI keyboard samples, jerky robotic stage moves, a wall of sound, and the audience singing the anthematic chorus.

I took away three lessons about innovation from Devo’s 2008 tour.

Devo’s expertise in art direction differentiates their live show from others: a Pop Art aesthetic now fused with New Wave nostalgia.  This sensibility may be why Brian Eno, Iggy Pop and David Bowie engaged in a bidding war to produce Devo’s first album Q: Are We Not Men? A: We Are Devo (1978).  It’s also why Virgin’s Richard Branson invited Devo to Jamaica in a ploy to sign John Lydon as their frontman, which Simon Reynolds recounts in Rip It Up And Start Again (Faber & Faber, London, 2005).  Branson perceived Devo as the New Wave heirs to the Sex Pistols‘ Situationist critique (p. 80-81).  This New Wave branding ensures Devo has a core fanbase and branding that resonates enough to sell plenty of red flowerpot hats 25 years later.  It’s also evident in the Australian support band Regurgitator‘s aesthetics and Band in a Bubble experiment, and the Primus theme for South Park.

Devo mania was however a New Wave subculture that did not go mainstream.  Despite MTV’s heavy rotation of ‘Whip It’ and ‘Girl U Want’ the network became the ‘Home
Shopping Network for record labels’ claims Mark Mothersbaugh, rather than maintain its avantgarde and experimental credentials (p. 349).  A mainstream audience would not understand Devo’s satirical parodies of Christian fundamentalist and 19th century eugenicist doctrines on human and cultural evolution nor its embrace of the Church of the Subgenius.  Devo by the mid-1980s was consigned to mid-level status on Enigma Records: what happens after a fad or mania fades away can be just as much a lesson as the subcultural tipping point.

The production company Mutato Muzika offers a synthesis of how to escape the half-lives of subcultural fads and the limits of mid-level success.  Mark & Bob Mothersbaugh and Bob Casale have refocused on composing advertising jingles, film and television scores.  Mutato provides a small team environment which composer John Enroth describes as a focus on pragmatic ‘craft’ with timeboxes for project delivery that are differentiated from the ‘art’ projects that members pursue elsewhere.  Mutato developed business models including corporate sponsors for songs and Apple iTunes release and distribution that are now ‘indie’ common practices.

As the next stage in devolution Mutato looks to be a sustainable business that can collaborate with the mainstream media yet is also centred on a personal aesthetic experience and philosophical outlook.

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Ebook Textbooks & The Market for Lemons

The software consultant Ed Yourdon once warned US programmers in his book Decline and Fall of the American Programmer (1992) that they faced global hypercompetition.  This was a fashionable message in the turbulent early 1990s of industry deregulation, export tariffs, mega-mergers, downsizing and reengineering.  Spenglerian pessimism made Decline and Fall an IT bestseller as Eastern European and Russian computer programmers emerged as low cost competition with their US counterparts.  Now in Thomas Friedman‘s vision of a flatter world the Eastern European and Russian computer programmers have help from an unlikely source: electronic copies of IT textbooks.

Several barriers mean that US textbook publishers are cautious about embracing ebook versions.  Publishers fear the Napsterisation of ebooks on peer-to-peer networks.  There’s no standard ebook device although Amazon’s Kindle is the latest candidate.  There’s no standard ebook format: most use Adobe PDF, however when Acrobat 8 was released Adobe shifted its ebook functionality to a new Digital Reader that did not necessarily read a user’s existing ebook collection.  Potential customers do not have a utility function to necessarily favour ebooks over printed copies: publishers charge high prices for ebook versions that may contribute a higher contribution margin to profits but that give the customer little price differential compared with print counterparts.

The implementation of digital rights management (DRM) also leaves much to be desired: McGraw-Hill’s Primis uses a digital fingerprint on a hard-drive that voids an ebook even if reinstalled on a reformatted drive due to a virus, whilst Thomson’s Cengage Learning uses a time-sensitive model which gives the user access for one semester to an ebook with the full price of its exact print version.  Publishers are also slow to adjust cross-currency rates: Australian textbooks still cost $A120-$200 despite near parity between the Australian and US dollars.

Thus, it’s no surprise that ebook divisions remain small in multinational publishing conglomerates.  One exception is Harvard Business School Press which appears to have ditched Sealed Media’s DRM plugin for Adobe Acrobat after Oracle acquired SM in August 2006 and then had integration problems with information rights management.

These barriers suggest a failure in market design with analogies to George Akerlof‘s study of the used car market in his influential paper The Market for Lemons (1970).  Publishers counter that although there is a lack of ebook standards similar to Akerlof’s paper the economics of publishing provide a disincentive to lower prices.  They claim high fixed costs in printing, photography rights and licensing fees for the case studies taken from Businessweek, Fortune and The Wall Street Journal.  Author fees and promotional budgets to professional associations add variable costs –  however, Australian academics have a disincentive to publish textbooks compared with their US colleagues, as Australia’s Department of Education, Employment & Workplace Relations does not provide recognition points.

To survive US textbook publishers have turned to global market models with regional editions of popular texts (such as Asia-Pacific editions with local coauthors), and adopted the music industry’s business model of electronic and online content (similar to how record labels have released Dualdisc, DVD and collectors editions of albums).  However as Yourdon warned US programmers this may not be a business model with longterm sustainability.  MIT’s OpenCourseWare, Apple’s iTunesU and Scribd all provide free content that mirrors the generic content in most textbooks, although some differentiate via a problem-based approach.

Yourdon’s ‘challenger’ computer programmers now also have illegal BitTorrent sites such as The Pirate Bay, filehosting networks such as Rapidshare, and ebook sites including Avaxsphere.com and PDFCHM to choose from.  The last two provide solutions to Akerlof’s challenge in market design: they have an easier user interface, a broader (illegal) catalogue of ebook titles, and DRM-free files compared to Cengage Learning or McGraw-Hill.  Even business strategists are getting in on the act, as Clayton Christensen, Curtis Johnson & Michael Horn explore in Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns (McGraw-Hill, New York, 2008).

There’s one textbook coauthor who came up with a unique solution to Akerlof’s dilemma in market design.  His Macroeconomics book coauthors Andrew Abel and Dean Croushore opted for the mod-cons from publisher Addison-Wesley: an online site and a one-semester ebook version as a bundle deal.  The textbook coauthor?

Federal Reserve Chairman Ben Bernanke.