Everyone is Hacked!


 

putin

Photo Courtesy of the Kremlin

 

Every UD intelligence agency has told us that the Russians hacked the 2016 Elections. They also say that the Russians DID NOT (successfully?) attack voting machines or the vote itself. Nor has there (yet?) been proof that the hacking was successful, and handed the election to the Trump camp. Although a Trump victory was the stated goal of hacking the election.

Any President of the United States needs to look at any such acquisition objectively, perhaps appointing an independent body to follow up on something so personal that objectivity may be impossible. To dismiss the threat from Russia, without any information to support the “non-hacking” position, sends a very bad message about how the Whitehouse will deal with bad news. As President, Trump will need to hear a lot of bad news, assuming that he attends his Presidential briefings. If he gets frustrated by issues he does not want to hear and adopts a “kill the messenger” approach, his briefing will eventually omit information that is ignored.    

Trump could be justified in believing that Russia did not hack the Election IF he has another source of credible data (which he has not revealed), or if he was personally an expert in spycraft or cyber warfare. Trump, by his own admission, is not… although back in September when he was told that the Russians were testing the Internet and would possibly hack the election, Trump said that his 10-year-old son Baron might possess the skills to understand the issue.

More importantly, Trump said, “… we have to get very, very tough on cyber and cyber warfare. It is—it is a huge problem… The security aspect of cyber is very, very tough. And maybe it’s hardly doable.” When the issue of Russian hacking was previously brought up, Trump said it could have been China. As far back as 2012, Trump said that that the White House was being hacked by the Chinese. Why does Trump see Chinese political hacking as credible,  yet find it “ridiculous” that Russians might do the same thing?

https://twitter.com/realdonaldtrump/status/253206663664922624

Let’s sort out a few terms. In the past, spycraft was all about spies. Before World War II, stealing state secrets meant human beings stealing documents and maps, verbally communicating secrets, buying a secret (for money, aid, or perhaps in exchange for other secrets) or compromising someone (sexually, criminally, financially, etc.) to obtain current or future information. This all happened in the “real world”, spies had to go behind enemy lines, physically entering other countries, usually with false names and counterfeit passports.  

After WW II, human spies were supplemented by technology. This expanded the sources of intelligence and began a process where spies didn’t alway need to set foot on foreign soil. Photographs could be taken from high flying planes or offshore ships, telephones could be bugged, radios transmissions intercepted, and computers began to break codes and coordinate random information to indirectly determine when and where troop moved and if new weapons were used.      

Today, most of our communications are electronic, so spying had to become electronic… entering the cyber sphere. But now that so much of our data and our economy was in cyber space, cyber spies were becoming more valuable than James Bond-type spies. James Bond would go beyond stealing the occasional Top Secret document, dabbling in assassinations, blowing up weapons factories and getting the girl before the closing credits.

Cyber spies rarely get the girl, but they do get a target rich environment. They can steal emails, plant false data, take down servers and knock down the Internet, turn off ATM’s, blow out every traffic light across a state, crash life support systems in a hospital, down air control systems and crash commercial planes, overload turbines at power plants and dams, killing thousands of people. All without ever setting foot in America, or leaving much evidence as to who did it. Without the need to move warships or troops, cyberspying can evolve into Cyberwar in just days, perhaps just hours. 

In the 2016 Election, the key issues are less dramatic. The main issue was “manipulation of the media”. This breaks down into two actions by Russia. The first is breaking into servers to steal email (from Hillary Clinton, the Democratic National Convention, etc.). These emails were then handed over to Wikileaks and other social media sites, which spread these documents around the world. The second accusation is that the Russia added false information, making minor issues look more important. 

We haven’t yet seen evidence that the Russians took on this project to elect Trump, but it seems likely. If Russia can hack Clinton and the DNC, why couldn’t they hack  Trump and his supporters? We have to assume that the Russians did hack Donald Trump’s email but then chose not to release any of the information they found. Think about it. What are the chances that Donald Trump wrote an offensive email or two? If anything, Russia may have spent time keeping other hackers out of Trump’s email!   

Spies would have been happy to find the launch our nuclear weapons in Clinton’s email, but they weren’t looking for Top Secret data. They want personally embarrassing emails. Nasty comments about important political figures, talking behind a celebrity’s back, personal pettiness, racism, sexism, any ‘ism that make a big voting bloc defect from the Clinton camp. In terms of spycraft, this kind of information is what you would call “pee-wee league.”

For perspective, let us turn to Henry Kissinger, a politician who rose up during the cold war between the US and Russia. In a recent interview on CBS This Morning, Kissinger stated, “Everybody has a hacking capability. And probably every intelligence service is hacking in the territory of other countries”. Even Trump agrees that the US has been repeatedly hacked by North Korea and China. Trump even acknowledges that individuals do hacking; Trump said the DNC hacking, “could be somebody sitting on their bed that weighs 400 pounds. Why not Russia?

What if this isn’t about the 2016 Election? What if this is just an old habit? Russia and America have been spying on each other since the cold war. When the Soviet Union fell and the Russian Federation rose in 1991, what happened to all the communist spies?

One of those spies became the leader of Russia. Vladimir Putin started his career in the KGB as a counterintelligence agent (i.e. spy). If a political leader was raised as a spy, promoted as a spy, and was able to grab the big seat in Russia because of his connections to the intelligence community, wouldn’t he depend on this community to manage Russia’s interests? The SVR (the agency that replaced the KGB) has a comprehensive mandate under the “Law on Foreign Intelligence Organs”, which was approved by then President Boris Yeltsin in 1996. That mandate includes:   

  • Conduct electronic surveillance in foreign countries – One of the accusations against Russia is that they hacked data from Hillary Clinton and from the DNC, handing over those files to Wikileaks and similar sites. Looks like a bullseye.   
  • Conduct military, strategic, economic, scientific and technological espionage – It doesn’t specifically say, “interfere with the US election”, but if you put “military” together with “economic” and add a touch of “strategic”, and you can see where it falls under the SVR’s mandate to sway elections (and the electorate) to minimize risks to Russia.    
  • Implement active measures to ensure Russia’s security – AH! This takes us from just reading someone’s email to manipulating politics. Such as creating fake emails and including them in the release to  Wikileaks. If this did happen, these “truth” sites may have been completely unaware of the original source of the data or that emails were manipulated before they were passed on.   

 

If Putin has spies with a mandate to do exactly what they are accused of and if the US Intelligence community has extremely credible evidence that America was hacked by Russia, wouldn’t you think that the President-Elect would be… interested? When a President, or President to be, is told by all of his spymasters that another country is interfering in their Electoral process it requires their full attention and swift reaction.

Whatever the extent of the tampering, action needs to be taken now, or we can expect even greater interference in 2020. Even if Russia can be dissuaded from future interference, China, and North Korea have plans of their own. As do private hackers, “hacktivists” who believe that disruption can lead to social good. The number of cyber threats is rising. President Elect-Trump must give this issue more attention or we will find out just how hacked our elections can get!

 

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Mr. Trump, Can We Examine Your Email Server?


trump-security

(Previously posted on AndMagazine, 12/10/2016)

Whether you love or hate his policies, you have to admit that Trump IS a definitely, “high energy”! It’s still weeks before he is sworn in as President, and he has already closed deals with Ford Motor Co. and Carrier Air Conditioning to stop the outsourcing of US jobs. The details are a little thin, but it looks like both deals will stick! WOW, just the emails on the Carrier deal could be a whole chapter when they write books about the Trump Presidency. Uhhh… did I say email? DEAR GOD Mr. Trump, please tell us you spent Thanksgiving building a secure email server!

Wait! We don’t need to panic. Just yet. After all, he hasn’t yet been sworn in as President, so he doesn’t need to preserve his emails. Or does he? We just spend years on Hillary Clinton’s here again / gone again email. Surely someone knows the rules?

Or is that the point? Every new four-year term as the president is like the tick of the technology clock. A term as President is a whole generation of technology! With every new Presidency must face a new technology challenge.  And a challenge for the agencies that carry out those regulations.

When it comes to records, there are two justifications for tracking the President. The first is the archive process, managed by the National Archives and Records Administration (NARA). Their job is to preserve “historically important” documents from the President, Congress, and other branches of government.

After each Presidency, NARA ensures that relevant Presidential documents are available to the American public. Traditionally, only 1-2% of government documents are archived, so determining what to archive can be controversial. President Nixon believed in the power of the “Presidential Agreement”. This was usually verbal (no documentation), usually NOT for public discussion, not discussed with or approved by Congress, expired with the end of the President’s term, and open to reinterpretation (since the wording was not documented). Nixon’s agreements involved matters of war, so archivists naturally wanted documentation. But without documentation, can there be archiving?

If this seems like a gap in regulations, it is not. It is a battle over Presidential power. Agreements without documentation might not need to be reported to Congress. The power of the President comes from negotiations, often secret negotiations! Congress repeatedly pointed out that Nixon’s “Presidential Agreements” looked suspiciously like international treaties, which can be negotiated by the President but MUST be ratified by the Senate, leaving little room for secret negotiations.

While the Carrier deal was largely a domestic matter, not a treaty since it did not involve a foreign government, and Trump isn’t yet a member of the government, he probably hasn’t broken any laws. But at the end of his Presidency, will he volunteer copies of these and other historic emails? And will Archives need to archive his Tweets and YouTube uploads?

Trump is not the first President to deal with technology. Long ago, discussions and agreements were either verbal or written (on paper). As long as you didn’t get the two confused, life was good. Yet the media would get “leaked” confidential documents or a verbal agreement (or even comment) would be overheard and become news.  

President George Bush Senior (President #43, 1989-1993) had some very concerned archivists. He had dramatically fewer paper documents than his predecessors. Voice mail and email were replacing paper correspondence. Voice mail was stored on cassette tape, and overwritten when the tape was full. Besides, the archives did not include telephone calls, so why archive v-mail? It was argued that email was used more to tell you that you had a call or a visitor, just like the little slips of paper that said “You have a call”, and these were never archived. So the arguments went, for a while.

By Bill Clinton’s Presidency (1993-2001), email and messaging took off. The Palm Pilot in 1992 was the first successful “computer in your pocket”. It was years before MS Outlook took off (1997), Corporate America fell in love with the Blackberry (1999), or Google created Gmail (2004).

When George W. Bush (President #45, 2001-2009) appointed Colin Powell as Secretary of State, he got a modem to go with the job. Modem? Think of it as a sad little box that squeaked, and slowly… ever so slowly… talked sent data around at 0.0056 MB. That’s right! Your tragically slow phone plan probably has more bandwidth than the entire White House had in 2001.

A lot changed by the time Hillary Clinton was Secretary of State. Besides, her issue wasn’t with her server or home computer. She just wanted a wy to keep her Blackberry and separate work from personal emails. Her logic, and that of many others was, this is a phone, right? But the reality was that her Blackberry was a more powerful computer than Colin Powell’s desktop. The least used feature on today’s smartphone is the… the phone!

Hillary’s downfall was her desire to continue to work the way she was used, without carrying around two phones.  Will President Trump be able to give up his Twitter account? Donald Trump has been a media phenomena. But has he decided where Trump Inc. ends and President Trump begins?

During Bill Clinton’s Administration Hillary Clinton may have been the most powerful First Lady ever, working on meaningful healthcare reform legislation. Ivanka Trump may be the most powerful First Daughter ever. Trump has already asked for top secret clearance for his kids, and Ivanka has attended government meetings. There are hints that Ivanka will run the Trump empire while her father is President, but there are also hints that Trump wants to continue to have Ivanka as an advisor.

Which will it be, or will it be both? Will the entire First Family need to work on government-issued phones and computers? One way or another Donald Trump is going to rewrite the rules on how the government listens to how the President communicates!

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The New iPhone 9 Is Made In America!


apple-tim-cook

(Previously published in AndMagazine 12/17 2016)

Every time a new iPhone comes out, tech and style feeds explode with stories about new first opinions and new tech features.  Well, I don’t want to comment on the features of the iPhone 8, but one of the most interesting features of the iPhone 9 will be where it’s manufactured. Outsourcing is a hot issue for the Trump Presidency, and products like the Phone that are manufactured offshore will be targeted by trump for penalties. How will this affect your next phone? Let’s take a look!

Of the top 10 smartphone manufacturers, only Apple is still US based. The rest are all from brands that are headquartered in Asia. All of the top phones cost about the same, around $700 for an unlocked phone without a contract. The Trump plan (so far) is to tax American products that are built, or assembled, or worked on offshore. Trump believes that a 35% tax on these products will make phone manufacturers build these products once again in America.

Today, the iPhone is primarily assembled in China, for around $4 to $6 per hour. If an American factory built iPhones, it would cost just under $35 per hour (not including the cost of a new factory) to assemble electronics. It takes 23 hours to build an iPhone, which means that the cost of an American built iPhone would be about $1,400. Of course, almost all of the parts in that phone were manufactured offshore. Building dozens of new factories and paying US wages would raise the cost of the phone to $2,000 to $3,000.

You may love your iPhone, and you may love American built products, but will you ever love an iPhone that costs $3,000? Of course, there are other options. It takes 23 hours to assemble an iPhone because the factories in China that do the work, are not very automated. If the work is moved onshore to an advanced, state of the art factory in the US, and the work was automated down to just 2-3 hours, the price of the phone would be virtually unchanged. However, there would be very, very few jobs.

 

Alternatively, Apple could pay Trump’s “outsourcing tax” of 35%. That raises the cost of an iPhone to $925. That’s still a big price increase, but since the iPhone is the only American phone what choice will consumers have? Oh, right. Consumers have a lot of choices. Like Samsung, or LG or any of the other foreign brand phones. Taxing the iPhone would only eliminate the US as a major player in mobile phones.

It doesn’t really make a lot of sense to penalize the last standing US manufacturer of mobile phones. The problem is that there are a lot of products that America no longer produces or that we only have one or two manufacturers left. After all, Trump said that he chose to manufacture his line of men’s clothing offshore because there weren’t any manufacturers left in America. He’s right, there are a few men’s clothing makers left in America, but the vast majority has been offshore since the 1980’s. Maybe Trump outsourcing plan should only focus on a few select industries?

We definitely want to keep high-tech industries in the US, so what other options do we have? Well, we could have an across the board tax on all mobile phones. Yeah, that would work! Every phone would cost a few hundred dollars more, and it just might trigger a trade war with China and the rest of the world, but it might return a few jobs to the US. Of course, if we went further and taxed all imports, we would definitely have a trade war. We would also increase the cost of more than half of the things that American families buy.

Years ago, Walmart was the cutting edge of outsourcing. They replaced American products with much less expensive products manufactured in China and other offshore locations. Slowly,  Walmart grew and replaced many competitors across the US because of their lower prices. Jobs were lost, but consumers greatly benefited. A study from 2010 showed that the average American family saved $2,500 to $3,000 every year just from their savings from shopping at Walmart. If you took all outsourcing into account, American families gained $5,000, $10,000, or more in purchasing power. When outsourcing ends, what happens to that purchasing power?

The problem is that we both consumers and workers. Cheap offshore products don’t create a lot of good jobs.  But middle-class America could also use a raise, and the loss of inexpensive but good products hurts too. The President and Washington may play a big part in writing national policy, but it is the average American that ultimately chooses which products are bought and which are ignored. Give it some thought America, one way or another Apple is going to build an iPhone 9. You get to choose where it will be built!

 

 

 

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Castro Is Dead! So… Who Owns Cuba?


Press conference, Havana

(Previously published in AndMagazine 12/12/2016)

Fidel Castro is dead, and his brother Raul (current leader of Cuba) at a mere 85 years old, must be thinking about his succession plan. For nearly 65 years, Cuba has been quietly sitting just 90 miles off the shores of Florida, enjoying the dubious benefits of Communism. During almost all of this time, Cuba has been under embargo, cut off from trading with most of the world. Now, is the embargo over? Can America really have a normal relationship with Cuba?

Before we answer that question, let’s go back to the beginning of the silent war between the US and Cuba. Why did America create the embargo? In the 1950’s. Cuba had a dictator, President Batista. America agreed that he had to go, and out of the many revolutionaries who wanted to forcefully overthrow Batista, we backed a young and charismatic lawyer by the name of Fidel Castro, and his sidekick Che Guevara. The revolution came, Fidel won, but then something unexpected happened.

The 1950’s and 1960’s was a time of revolution in South America, and the US backed a lot of revolutionaries. Usually, after the revolution, banks reopened, new casinos went up, and the revolutionary (hopefully) became a less bloody dictator than their predecessor. Castro, however, was serious about his promise to divide farmland among the farmers, nationalize banks and corporations, and create a socialist government. 20 years earlier a young and idealistic Batista joined a revolution that made him the President of Cuba, but the temptations of the job quickly turned him into a corrupt dictator. Fidel was determined to be different.

Whether Castro’s government was good or bad, or whether Fidel was a worse dictator than Batista really doesn’t matter anymore. What does matter is that Fidel took a lot of private property and put it into public hands, which triggered the economic embargo in 1958 (expanded in 1962). For half a century, Cuba would be frozen in time, eternally stuck in the economy and politics of 1962.

“Expropriating” private property started the embargo, but the missiles wrote that policy in stone. In 1961 America tried, and failed, to undo Castro’s revolution with our own revolutionaries at the “The Bay of Pigs”. The White House unsuccessfully denied that the counter-revolutionaries were recruited, trained, armed and funded by America. Then, America found signs of Nuclear weapons arriving in Cuba. Foreign nuclear weapons just 90 miles from US territory was completely unacceptable to America. President John Kennedy told the world that it was an unjustified act of war that would trigger a nuclear war. The missiles must go!

And go they did. After very tense negotiations between the US and Russia, it was publically agreed that Russia would remove the missiles and America would give up any invasion plans for Cuba. Privately, America removed its own nuclear weapons that were secretly placed in Italy and Turkey and targeted at the Soviets. President Kennedy was unaware of these missiles, which were probably the real reason for missiles in Cuba. Throughout the crisis, only the US and the Soviets were engaged in negotiations, Cuba was not invited. The Missiles were made in the Soviets Union; Cuba had (and has) no capability to build missiles  or nuclear weapons. The agreement to remove the missiles ignored Cuba.

Yet, the embargo against Cuba lasts to this day. On the other hand, the Soviet union, the most powerful communist nation on earth, closed down in 1992. All but 5 (including Cuba) of the 50 communist nations of the 20th century converted to Democracy, leaving just China as the sole significant communist nation. Naturally, as the most populous nation, with the largest army, nuclear weapons, and a huge manufacturing base, this communist nation is… America’s biggest trade partner.  Yet the embargo still stands for Cuba.

Communism is gone, the Soviets are gone, we’re in a new century, Cuba has not been a threat in half a century and… Fidel Castro is dead. In Miami’s Little Havana neighborhood, ex-Cubans are dancing in the streets. Raul, Fidel’s slightly younger brother, took over the leadership of Cuba in 2011. While he looks a bit more energetic than Fidel did, he doesn’t look that good. Retirement or death is in Rahul’s near future. Then what happens?

Cubans who left Cuba and settled in Florida and surrounding areas are a strong voting bloc, with an almost religious belief that once Fidel died, they would be “compensated” for their losses and suffering. For some, this might just mean being reunited with their families. But many who left or “escaped” Cuba in the early 1960’s were wealthy landowners. They created the political culture of Cuban-Americans, and they want their property back. Later Cuban arrivals were poor and willing to risk death on the open sea for economic opportunity. Not all Cubans have land issues, but landowners shaped Cuban politics in America.

Realistically, ex-Cubans can never be made “whole” again. Families that once owned a sugar refinery would only find a closed factory, crumbling concrete, and rusted metal. If they are lucky! More likely they will find that the factory was dismantled and replaced by someone’s home.

Big land owners? In the 1950’s sugar dominated Cubas’s agriculture, just as cotton did in pre-Civil War America. Cuba was a land of sugar plantations, with very wealthy landowners and many poor farm workers. Plantations broke up a long time ago. The old life of Cuba, as viewed by American tourists, looked like an earlier version of Las Vegas. Away from the City, it looked more like, “Gone With The Wind”. Both images are true, and both have been gone for a very long time.

What can Cuban-Americans expect? Lawyers! Cuba will soon be crowded with high-powered international lawyers looking to compensate their clients for what they lost. Not much land can be transferred because the land now has other owners and other occupants. A little bit of that property might go back to old owners, but not much. The property that Castro took over has been estimated at around $50 billion. If the economy of Cuba recovers, it would be worth even more.

A distant and impotent enemy can be a good thing. Enemies bring together factions. But when the enemy dies, disagreements surface. Can Cuban-Americans be a coherent political force without the dream of a free Cuba? Not all Cubans will benefit equally in coming days. Will this tear apart the unity of Cuban communities? Fidel Castro is dead and Rahul Castro is working with America to undo the old embargo. A free Cuba is almost here. The worn streets and poor people of Cuba tell us the cost of the Cuban embargo. How we’re all going to learn the cost of lifting the embargo.  Only time will tell which is higher.

 

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Can Trump Bring Jobs Back To America?


trump-outsource

(Previously Published in AndMagazine, 11/21/2016)

During an election, politicians make promises. But after the election, we find out what truly matters. Their track record gives us clues, but, as pundits have pointed out, President-Elect Trump lacks a track record. He’s never been elected or worked in government. But he was a very public businessman for decades. He even wrote a book. (Well, 20, but “wrote” may be an exaggeration.)

Trump’s promised to bring jobs back to America. We already know that he is offering business incentives to create jobs and guidelines to reign in outsourcing. But how exactly will this work? Let’s break down the issues…  

Where are we today: Millennials are leaving college with graduate degrees, but working in Starbucks. Coal miners want America to reopen mines in this economically devastated region. But American’s don’t want to burn coal. Besides, in areas like Kentucky, coal is just the crisis that followed the collapse of the Tobacco industry, years earlier. Manufacturing has shrunk to just 8% of the economy, as work moved to offshore factories offering cheap labor.   

The problem that Trump will face is that today’s employment problem was yesterday’s employment solution. Tobacco farms and Coal mines have closed because both industries produced damaging, dangerous products. Tobacco use is way down, and so too is lung cancer. Fewer coal mines mean fewer coal mine collapses and deal coal miners. But that doesn’t compare to the deaths from “black lung disease” in coal workers, and other ailments from the pollution caused by coal use. Most people complain when someone smokes next to them. Imagine having a coal powered electric plant opening down the block from your home.

Problem or solution: Outsourcing cost American jobs, but it also lowered the cost of… everything. Walmart once led the charge for offshoring, reducing costs by introducing America to products that were made in China and elsewhere. Back in 2010, an analysis of Walmart concluded that all of these outsourced products saved the average American family $2,500 to $3,000 every year. In the poorest areas in America, Walmart has replaced the hardware store, department store and local grocer. “Un-outsourcing” Walmart be hurt all consumers but will be devastating to small towns in poor states, where Walmart has the highest sales.

By the 1980’s America had moved from a nation of factories to a nation of service providers. The service industry has both low paying (fast food, taxi drivers, hotel clerks) and well-paying jobs (financial analysts, lawyers, doctors, accountants). Graduating students want the high paying jobs. Or should I say need, if they ever want to pay off their student loans? Yet, these graduates are also consumers, who want more efficient, more digital services. Look at the apps on your phone. You can scan checks, pay for purchases, book vacations, etc. These functions were once jobs. As apps become more powerful and more connected, more jobs disappear. Automation and Artificial Intelligence have replaced more jobs than outsourcing.

The dealmaker: How will “Art of the Deal” Trump fix the problem? Apparently, the President-Elect is… making deals. Before the Election, Ford Motor Company announced the move of some manufacturing from Kentucky to Mexico. After Trump spoke with the Chairman of Ford, the work will remain in Kentucky. It’s hard to say how many jobs this saves or if it is only a temporary fix, but it creates credibility for Trump, which will fuel more dealmaking.

Apple Inc., for example, has been making noises about being open to moving iPhone manufacturing to the USA. Does Trump have an app for “opportunity knocking”? Apple could start reshoring (moving work back onshore) the iPhone tomorrow if they want to. But there will be a cost. Literally.

The onshore difference: Foxconn assembles iPhones in China, and pays workers $4 per hour. If we add benefits and other costs, it could be $6 per hour. A comparable US worker is paid $26.50 per hour, $34.45 with benefits. An iPhone costs $700 and takes 23 hours to assemble. Assembly in the US raises costs by $650, making it a total of $1,350 (not including the cost of building a new factory). Of course, every part in that phone is manufactured offshore. Reshoring that would cost hundreds or thousands of dollars more. 

The onshore price won’t sell any iPhones. You could build a factory in Georgia where the minimum wage is $7.25 an hour, but not many workers will be interested. Higher costs could be offset if the onshore factory was highly automated, reducing assembly time to less than 4 hours. But if you build factories with that much automation, you move work back to the US, but you don’t create a lot of new jobs.

Adidas recently followed this model. For decades, running shoes were made almost entirely offshore. But Adidas built a factory in Germany in 2015, and is building a second factory is Georgia for 2017. Reebok and Nike are discussing factories of their own. Placing factories near major consumer markets will slash transportation costs. However, to make the factory financially viable, most of the jobs are performed by robots. Worked moved, without moving jobs.

Power tweeting: Trump has been America’s most social-media enabled candidate… EVER. Even if he scales way back on Twitter, he will still be the “social media” President. As head of Trump inc., Trump relied on the power of the executive to mandate a lot of changes. As the President, he will do the same, but Congress tends to react negatively when executive powers are used too often, and the power of Congress are bypassed.

Successfully combining executive power with social media would give Trump an enormous advantage. Instead of speaking to citizens in just one or two State of the Union speeches, Trump would have immediate communication. For example, citizens can tell him if outsourcing firms brought offshore workers to the US to replace onshore workers. It’s legal to do this IF there was a search for local workers, IF the worker was paid at local rates, and IF that worker has an H-1B visa. Trump can issue executive orders to limit the number of new and renewed H-1B visas (currently over 300,000). Trump can use Twitter and other tools to prep businesses about upcoming changes and ask citizens to report violations. Likewise, when money is allocated for fixing roads and bridges, social media can gather citizen opinions about government priorities, and see how they align with citizen priorities.    

New legislation: Any lasting changes will require new laws and regulations, but that’s probably not going to be one of Trump’s strengths.  Long detailed arguments over points that everyone’s been chewing on for decades? No, not Trump’s specialty. This is where we’re going to see Trump throw out a few key points and wait for something to show up for him to sign into law.

What’s the score: Trump has some easy wins early on that can show his commitment to returning jobs to America. However, as time goes on Trump will have more issues and the occasional global crises to manage. Employment issues are just going to get more difficult. Self-driving taxis and trucks will eliminate driving jobs, and fast food and cashier jobs will be taken over by technology. On the high end, professional jobs will at first be supported by Artificial Intelligence, and later replaced. Will Trump be able to remain focused for four years? Only time will tell!

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Hail to the Chief’s… Daughter? Ivanka Trump and the White House


ivanka-trump

(Previously Published in AndMagazine, December 7th, 2016)

Ever since Ronald Reagan’s Presidency, the First Lady has done a lot more than bake cookies and gives tours of the White House. At the start of every Presidency, there is speculation about how involved the next First Lady would be in official White House matters. If Hillary Clinton had won the election, we would be all be guessing about the duties of the President’s Husband (the First Gentleman?). But Trump did win, and now it is time to consider the role that will be played by what could be the most powerful woman in America… the First Daughter, Ivanka Trump!

While Nancy Reagan was in many ways projected the image of a traditional housewife, she was also the gatekeeper to the President. Because Reagan was partially deaf in one ear but didn’t make this public until many years later, he sometimes appeared to not be paying attention or not engaged. Nancy often accompanied Reagan to “interpret” what was being said around the President. Over time she naturally became the guardian of the President, the gatekeeper to the power of the White House.

Nancy Reagan also played a significant role in policies for the growing drug epidemic of the 1980’s. When George Bush senior took over residency in the White House, some expected Barbara Bush to look for some issue to pursue, but she believed that the role of the President’s wife was to be… the president’s wife. But when the Clinton’s took power in Washington, Hillary showed that she could handle power roles as the First Lady, and later as Senator from New York and Secretary of State.  

Now, as President Trump is packing his bags for a four year trip to Washington, speculations has begun about our government’s next Power Couple. Yet, few see Melania as a woman with strong political beliefs. During her time as Trump’s wife, she has had little exposure in the press. While Melania speaks five languages, there is not a lot that is known about her ambitions and beliefs. We all know that she used to be a model, that she is Trump’s wife, and she is the mother of Barron (Donald Trump’s son).    

Alternatively, we know a lot about Ivanka. She is clearly the most trusted (and loved?) of his adult children. She was the most seen advisor, who gave the most introductions as her father led rally after rally during the election. Ivanka is the second oldest, but best known of Trump’s children, although Barron (the youngest) may give her some competition once Trump is President. The press clearly sees Ivanka as the most successful, and most articulate of the Trump children.   

As Trump gets closer to the day when he must separate his business interests from the work of the Presidency, what role will Ivanka fill? In earlier discussions Trump has hinted that Ivanka will run his business, she has sat beside her father in meetings and calls with the President of Turkey, the Prime Minister of Japan and the President of Argentina. Undoubtedly, more world leaders will follow!

The latest tidbit is that Al Gore was looking for an opportunity to speak with Ivanka about global warming. When Gore arrived at Trump Towers he was surprised to see Ivanka with her father. In Washington, as Gore was the outsider, with the losing party, wanting to speak on an issue that Trump publicly dismissed as a hoax. Normally, Gore wouldn’t get an opportunity to gain credibility by speaking with the President. Is trump more flexible or is Ivanka more influential?

Ivanka has signaled that she is very interested in the environment and wants to make it her issue. However, for the environmentalists who are hoping that this means Ivanka will save the environment. Well.. That may be a bridge too far. Being interested and agreeing with environmentalists are two different things. If this is where Ivanka will make her stand, the process of learning about the environment may shift her opinions, and in turn, slowly move her father’s opinions. She could just as easily turn out to be a brilliant spokesperson for consuming nature at a faster pace to build a prosperous nation. Too, too early to tell!

The record-breaking part of Ivanka story is that she may be the first, First Daughter to overshadow the First Lady. This has taken a remarkable series of “accidents”. If Trump wasn’t 70, he wouldn’t have children that are old enough to be considered for senior roles. If Donald’s wife, Melania, had stronger political ambitions, there would not be as prominent a vacancy for Ivanka to fill.  Add to that Ivanka “costarring” role with her father on reality TV, her performing substantive roles in Donald’s Trump’s empire, and her prominent position in the election. Ivanka is known to as many of the rich and powerful as her Dad, and he experience in managing the Trump Tower deal in Turkey (a role she played long before her father ran for President), clearly demonstrates that he has credible executive experience.

None of us know, including Ivanka, what her role will be, but it seems to be naturally shaping up that she  will have some role, either in the government or as an unofficial “spokesperson” for a serious issue like the environment, just as Lady Diana championed animal rights and the outlawing of anti-personnel mines. Will the First, First Daughter be an effective leader and role model for women around the world? Maybe she should ask for tips from her BFF Chelsea Clinton!

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What will be the most important drivers of change in the global sourcing arena over the next decade, and why?


future

(Previously published in Outsourcing Magazine, on August 16, 2016)

For the last few decades outsourcing has been on a journey… literally! Outsourcing once meant having another company do your work, perhaps on your property. Later, outsourcing meant moving work to the suburbs. When work went digital, it moved to another town, in another state and soon to another country. China and India once looked like the ends of the Earth, but we kept moving… to Bangladesh, Vietnam and beyond. Where will outsourcing go when we have truly reached the ends of the Earth?

20 years ago I managed a New York investment bank’s support services. We needed to add staff, but our headquarters was full. We had space a few blocks away, but breaking up the staff created major inefficiencies, because workers were trained to work side-by-side, in one big room. When we learned to work “remotely”, efficiency improved everywhere, including our headquarters. If moving blocks away worked, nothing was stopping us from moving work halfway around the world!

In a few months, we had a successful pilot program in India. In a couple of years, every Fortune 500 company had pilots in India or China. The “ends of the Earth” were getting crowded, and it was obvious that costs would soon rise. Purchasing departments were also evolving, becoming procurement departments, and demanding ongoing year-over-year cost reductions.

An experienced outsourcer knows that lower-cost wages offshore initially deliver big financial benefits, but in a few years those benefits are lost to inflation when the program does not incorporate continuous improvement. Offshore locations often have twice the rate of inflation of onshore programs. If you launched a pilot years ago, locked in low rent and other costs, developed performance standards and incorporated continuous improvement, your program will deliver financial benefits for years to come. But the lure of lower wages at a new location has kept outsourcing on the move.

The tension between wages and productivity is highly visible in China. In the past decade, China has experienced thousands of labor protests every year, usually in remote rural areas with little press coverage. Workers have complained about mandatory overtime and unpaid hours. Yet, outsourcing contracts with Western corporations require fair treatment of workers. When Foxconn, China’s largest employer and the firm that assembles most of Apple’s “iProducts”, had very public labor disruptions, change came rapidly.

In 2013, Western media started to report on Foxconn workers. Workers challenged their managers’ orders and demanded better pay and improved work conditions. The strange thing, the historic thing, was that the workers won. Western outsourcing clients, led by Apple, supported workers and demanded that Foxconn follows their contracts and provide agreed to wages and work conditions. The result? Higher wages, reduced overtime, and government support for (some) public protests. Workers were so successful that wages in China outpaced neighboring countries. In Vietnam, wages are half those of China. Cambodia’s wages are even lower. These countries are now the newest “ends of the Earth”.

The government of China has been focused on full employment in manufacturing, not high productivity. If China’s factories offered the best automation and highest productivity, outsourcing revenues would be spent on foreign-built equipment rather than domestic wages. Work in China often takes more workers to perform than it did pre-outsourcing. Low wages offset these productivity issues, or they used to. Winning all of those labor disputes raised Chinese wages, but didn’t impact productivity. This growing gap in wages makes China’s neighbors increasingly compelling locations for outsourcing.

Time to move to the next “ends of the Earth”? Maybe not! China and India have a combined population of 2.6 billion. We once thought that they would provide all the staff and resource we would need for the next century of outsourcing. The search for the next low-cost location could end. The only problem is that these neighboring countries are relatively tiny. Cambodia’s population is only 15 million. Vietnam and the Philippines are each under 100 million. Before a fraction of the work could be moved, competition will heat up and wages will skyrocket.

China and India were game-changers. For years outsourcers talked about “the India price” or the cost of China, shorthand for a dramatically lower price to perform work. But now, even Chinese factories outsource work to other countries. It’s still early days, but a growing number of outsourcing firms in China must move work to other countries to keep contracts profitable.

Outsourcing can no longer depend on moving to the next country with the lowest wages. The next stage for outsourcing requires a different model, a model that values productivity over wages. That model started in the 1970’s when Japan began outsourcing to South Korean firms Goldstar (now LG), Samsung and Hyundai. Just like China, South Korea began outsourcing with simple work and grew in complexity over time. They survived their period of labor unrest and developed a standard of living comparable with Europe. While South Korea had a slight head start, both South Korea and China have been centers of outsourcing for decades. Yet, today, it is wealthy South Korea that outsources billions of dollars of work to inexpensive China.

In the 1980s, China, Thailand, India, the Philippines, and Vietnam paid similar wages. Each country has dramatically raised pay over these decades, largely due to outsourcing. China has the highest monthly wages ($656), followed by Thailand ($489), India ($302), the Philippines ($279), and Vietnam ($209). China’s single-minded dedication to outsourcing is one reason why China has outpaced the wages of their neighbors. Monthly wages in South Korea ($2,903), though, are in another tier altogether, just behind the UK ($3,065). This is the result of South Korea’s focus on productivity. One of the most visible signs of productivity? Robots! Lots and lots of robots!

South Korea has the highest robot-to-worker ratio in the world. According to MIT, South Korea has 478 robots for every 10,000 human workers, versus a mere 36 in China. Depending on the type, a single robot can replace just a few workers or hundreds. Conservatively, one replaces at least 10-20 workers. Let’s just say 15. Let’s see how this works.

If a factory with 10,000 workers bought 478 robots, it would need just 2,800 workers. That’s a massive boost in productivity. China’s government has set a goal to match South Korea’s robot ratio by 2020. If achieved, China would regain price competitiveness with Vietnam and Cambodia.
With over 100 million industrial workers in outsourcing and domestic manufacturing, China would need 4.8 million robots to meet their automation goals. Unfortunately, global robot production is just 250,000, and China already buys 25% of global production. Even if China bought every robot in the world… it’s not enough. The only option for China is to build its own robots.

Expert estimates vary, but a low estimate is that China’s 100 robot companies (plus another 100 robot support firms) currently build 50,000 robots annually. Last year, Foxconn alone produced another 50,000 robots for internal use, and Foxconn is not a listed robot manufacturer. That gives us 100,000 Chinese robots that are excluded from global sales numbers. Why are these robots excluded? Partially because they are only sold in China, and partially because major manufacturers see China’s robots as inferior and/or obsolete. That may be true, today, but China is pouring money into fixing their robot gap.

The regional government of Guangdong has earmarked $140 billion to replace human labor with robots by 2018. Zhejiang has guaranteed another $120 billion to automate 36,000 factories, within five years. That’s a much bigger investment in robotics than the entire global revenue of the robotic industry ($32 billion in 2014).

The International Federation of Robotics (IFR) reported sales of 250,000 robots in 2014, 30% more than 2013. If we add robots from China, global production rises to 350,000. To reach 4.8 million robots by 2020, China’s $260 billion stimulus must increase annual production to at least 60% to 70% through 2020. Production must rise even higher if global robot demand increases, which it will. South Korea’s robot ratio will not stand still. As China’s massive outsourcing industry improves its productivity, other major outsourcing locations must respond in kind, or leave the market.

By 2020 annual robot production will rise from 250,000 to over 2 million, making China the world’s largest robot buyer and manufacturer. Moore’s law dictates that computers (and robots) double in capability every 1-2 years. That means that two million robots in 2020 will do the work of 10 million of today’s robots. If one “2016 robot” = 15 humans, then 2 million 2020 robots could replace 100 to 150 million human workers. That’s nearly the size of the entire US or European workforce. Lower cost, more capable robots, produced in vast numbers. This will utterly transform global manufacturing, and outsourcing.

The shift from wages to productivity means that “the last place on Earth” will no longer be the country with the lowest wages. Instead, robot ratios will determine outsourcing locations. Manufacturing will move to factories with the best robot ratios. As labor costs decline in importance, shipping costs and global risks will make offshore manufacturing less appealing. Outsourcers need to take a hard look at the locations they use. In just three to five years, many contracts will be up for renewal. If offshore centers cannot rapidly improve productivity, many programs will be “re-shored” to domestic locations.

Meanwhile, artificial intelligence (AI), Natural Programming Languages (NPL) and deep learning systems will arrive in corporate America. In the early 21st century, outsourcing firms learned to replicate and outsource rules-based work: secretaries, administrators, presentation centers, corporate libraries. Now, AI allows outsourcing to move up the value chain and take on knowledge work, where the worker makes decisions rather than just following rules.

Automation drove 20th-century outsourcing, but accurately documenting work rules took a lot of time, was costly, and the final product was often fragile. New technologies are dramatically more efficient and more robust. Expensive traditional programming is replaced with inexpensive machine learning. AIs now learn from doing work – producing reports, writing memos, approving requests, sorting documents and making business decisions – while receiving feedback from subject matter experts.

AIs will easily replace junior positions, and then continue to learn how to perform ever more complex functions, eventually replacing senior knowledge workers. This opens up a vast new market for outsourcing, but it also creates opportunities for new types of outsourcing firms, especially if they can sell “trained” AIs as a service.

Outsourcing will reach into new markets, including transportation. Trucking firms cannot hire the drivers they need today, and as young drivers continue to reject long-haul trucking careers, the driver gap will grow. Transportation firms may buy their own fleets of self-driving vehicles, or like Uber, they may focus on innovating logistics, and outsource everything else.

Ivy League business schools and Fortune 500 firms have been partners for decades, but business school graduates have already begun to compete with AI-based financial analysts in new digital banks. As AIs arrive, will corporations “teach” proprietary knowledge to AI systems, turning them into productive knowledge workers? Alternatively, will Moody’s or Standard & Poors sell fully-trained but customizable AIs to corporate America? Or will financial firms simply hand over analytic functions to outsourcers, and let them deal with the mix of people and robots.

In just a few years, humans will work side by side with millions of AIs and robots. Outsourcing will create new services and transform the way that corporations train and retain staff (and their intellectual property). More work functions will be outsourced, more jobs will be outsourced, and outsourcing will move forward faster than ever. Outsourcing itself will be transformed as offshored work is automated and moved back onshore. Outsourcing, the great driver of change, is about to make everything change…. One more time!

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