Editor’s Note: This issue is based on the transcript of an interview of Mark Anderson, CEO of SNS, by Art Kleiner, editor-in-chief of strategy+business, which took place at the SNS Future in Review conference at the Terranea Resort in Palos Verdes, California, on May 13, 2010.

Restructured by strategy+business for publication as a front-page “Thought Leaders” column (www.strategy-business.com/article/00040; 7.26.10), this special edition is published with permission, with minimal edits and redesign for the SNS membership. Comments in brackets are by s+b unless otherwise noted.

We would like to thank strategy+business, and Art Kleiner, for permissions as well as for their appreciation of, and attention to, this work. – sla.

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» The Finer Points of Global Economics:

A Return, Not to Normal, But to Reality

– A Conversation with Mark Anderson

Mark Anderson, the high-tech industry’s most accurate prognosticator, foresees an economic landscape still under the stress of too much liquidity – and decision makers still in denial.

Interview and Edits by Art Kleiner

In trying to make sense of economic uncertainty, it pays to look beyond conventional wisdom for an explanatory theory of the hidden fundamentals that can drive or hinder growth. Hence this interview.

Mark Anderson is the publisher and chief correspondent of the Strategic News Service newsletter, one of the most incisive publications in its field. Ostensibly about the future of the computer and communications industries, it covers a broad range of factors that affect and are affected by those businesses: everything from technological advances to capital flows to government policies to educational innovations to advances in physics.

Anderson argues that the root cause of the crisis of 2008–09 was excess liquidity: too much money seeking rapid returns, subsidizing too much production for too few customers. That bubble burst, no subsequent engine of economic growth has proved sustainable, and the excess liquidity remains, driving some prices up and others down, and splitting the world even more dramatically into economic haves and have-nots. Three critical measures, in Anderson’s view, need to be put into place before serious recovery can get under way. The first is better protection of intellectual property. The second is the specific type of financial reform that would prevent “jackals” (short-sellers) and “vampires” (sophisticated investors who take profits without contributing either market balance or information) from dominating the market as they do today. The third is a rebuilding of the manufacturing base of the industrialized world, including an accelerated transition to green energy and technologies.

This interview is adapted with permission from a conversation conducted on May 13, 2010, before the audience at Anderson’s annual Future in Review conference. Anderson, a former venture capitalist and founder of two software companies and a hedge fund, is known for his knowledgeable readers (who often contribute to the newsletter) and his prescience: He tracks his published predictions and claims a 90 percent success rate. In this interview, he goes out on a limb. He believes that human beings, flawed though their decisions may be, have the will and the ability to avoid further crisis – or at least to bounce back from crisis in the long run.

» The Lesson of Liquidity

Art Kleiner: How do you interpret the divergent points of view about where the global economy is going – the view that we’re heading for deflation and depression and need more government stimulus versus the view that our greatest dangers are inflation and deficit spending?

Mark Anderson: The largest problem facing our economy in 2010 was going to be hyperinflation. All the central bankers and policymakers understood this. But a funny thing happened: the damage was so great from the meltdown this time that the time frame changed. The threat of hyperinflation is real, but it’s a long-term threat. It may come in five or 10 years; no sooner than five.

In the meantime, we are all still dealing with the consequences of the meltdown. For example, in a very strange way, the low interest rates that still exist because of the meltdown are assisting in the economic return of some parts of the economy. The economic stimulus from 2009 could never have been enacted except for the knowledge that there would be no hyperinflation in the short term.

Keep in mind – and there are still very few people who get this – that the crisis did not start because of American banking practices or subprime loans. It started because of the doubling of global liquidity over a five-year period in the 2000s. The world’s annual investment capital – the amount of money seeking rapid returns – went from US$36 trillion in 2002 to $72 trillion in 2007, just five years later. That’s what led to all the inflation we saw in real estate prices, all around the world.

If you saw that pattern early enough – and I saw it in 2007 – then watching the financial system was like being inside a warehouse where someone has poured gasoline all over the floor, and there’s a guy smoking at the far end. You know something’s going to happen. It’s just a matter of when. There were 50 different problems that could have triggered the crisis.

The key to the crisis wasn’t in the balance sheets, which were lies. Even today, bank balance sheets are lies. Nor was it the usual GDP numbers, which are made up. It was in the fund flows. The big lesson is that for the future, we’d all better start watching fund flows.

Kleiner: What are the fund flows telling us now?

Anderson: I don’t know. The worst part of this story is that people don’t measure them. They’re very hard to track, and no one’s in charge of measuring them. The numbers I just cited for 2002 and 2007 came out a year after the collapse. Even in 2007, I didn’t have them. I saw symptoms of this money flow through the price rises in petroleum markets, and through the “carry trade,” where speculators borrow in one currency to invest in another. There were trillions of dollars of “hot money”: money seeking quick returns. Where would that get invested? In stocks, bonds, commodities? A lot of it went into real estate.

Kleiner: These billions in hot money were funding lots of efforts to provide quick returns…

Anderson: Yes.

Kleiner: …which were producing many goods and services that no one wanted or needed…

Anderson: Or that were bogus.

Kleiner: …and creating a kind of bubble of asset bubbles through the 2000s, in stocks, real estate, financial instruments?

Anderson: Absolutely. That’s right.

Kleiner: And did all of those bubbles fully burst, or is there more to come?

Anderson: Oh, no. All those asset bubbles burst. Real estate, stock, different countries, different markets: they all burst.

But the hot money is still with us. Today, instead of only one country – Japan – providing the near-zero interest rates that enable a carry trade, we have almost every nation except Australia competing for the interest-rate bottom. This has produced huge flows of hot money into the global liquidity pool. Although I haven’t seen any figures published, the amount of available capital, despite a slower economy, is likely to be equivalent to the totals of 2007. When the damaged parts of split economies begin to come back, this liquidity will likely create a whiplash effect, throwing countries into hyperinflation before they can respond effectively.

That is the fear of every central banker in the world, and the threat is more than plausible; it seems inevitable.

» Protecting Intellectual Property

Kleiner: What other important trends are shaping the economy right now?

Anderson: The first is the conversion of the world’s abject poor to consumers; that’s more important than the birthrate. Around the world, the next 1 billion consumers are coming online really fast – for the most part in India, China, and Southeast Asia, but also in South America. Even the poorest of these people will have cellphones and some access to technology. The “cloud” of cloud computing will be serving them, too.

Meanwhile, it’s becoming brutally clear that the economy is not going to be what it was. We’re going to return, not to normal, but to reality. There will be a war between two systems: that of the mercantilist countries, which seek to make money by obtaining foreign intellectual property [IP] and regulating trade for the sake of competitive advantage, and the free market, free trade countries – India, Australia, and those of North America, Europe, and most of South America. Most businesspeople in the West are not emotionally prepared for this war.

Kleiner: By “mercantilists,” do you mean only China?

Anderson: No. Japan was the original expert mercantilist, even before World War II. After World War II, the Japanese refined their model, the South Koreans refined it further, and the Chinese learned from both. Today, the Chinese model is probably more advanced than the other two. The Chinese didn’t want to wait 40 years. So whereas some Japanese and South Korean companies obtained IP in nefarious ways, only China made the acquisition of intellectual property a serious government program. It was required in the contracts of American companies doing business in China that they give away their patented designs, processes, and innovations as part of the right to trade.

The Chinese also allowed huge amounts of investment, even though they prevented outright ownership of companies by outsiders. This was clever. In effect, the Chinese said, “We will take your money and IP in exchange for access to our market – but it’s faux access. You’ll be able to sell cars and airplanes here until our companies are ready to compete, and then we’ll cut you off.” A lot of people got fooled into thinking that it was either an open or partially open market. In fact, it was just a very well-designed mercantilist program.

In the mercantilist model – which, by the way, is a very intelligent way to build a fast-growth economy – you bring together business and government leaders and set up a deliberate trade policy. You list the industries you’re most interested in and target them one by one. Cars are important because they use steel and involve a lot of employees. One test for the effectiveness of mercantilism is the number of outside products sold in that country; for example, only a handful of American cars are sold in South Korea and Japan.

The indicators so far are all in favor of the mercantilist countries winning over their free-market counterparts. And as the United States and Europe lose manufacturing and intellectual property, and as we find that the return on investment for IP starts to decline, how do technology companies fare in that environment? It’s tough to make a $2 billion investment in an operating system if it shows up on the street for a dollar 10 days later in Hong Kong. This is a big problem that hasn’t been fixed.

Kleiner: How will free-market countries try to fix it?

Anderson: There are only a couple of choices for the governments of the West. Choice A: Keep going as is. In that case, the value of IP will disappear. With limited returns, the whole world, essentially, will stop investing in innovation.

Choice B: The governments of the West focus on protecting IP – in trade agreements, other policies, and their public talk. There has to be almost a cultural shift, where people recognize that civilization – the discoveries, cures, drugs, chips, and advances that we’re most proud of – are all forms of intellectual property. We’ve already created geographical alliances for trade, such as the North American Free Trade Agreement. Having trade alliances based on intellectual property would make a lot more sense; countries should only trade with others that have similar protections in place. India saw this coming. After having a very loose environment for a long time, it passed one of the strictest sets of IP laws.

Kleiner: Could India’s approach become a model for other countries?

Anderson: I think it could. The idea of moving research and development to India looks better and better, to companies that have been burned a few times in other countries. India is now a healthy competitor. Its people are very smart. A lot of Indian Institute of Technology [IIT] graduates are brilliant programmers. The government leaders very much want to have their own industries. India will be a real player among global high-tech competitors.

» Jackals and Vampires

Kleiner: What kind of impact will financial regulation have?

Anderson: When you look at financial meltdowns, you have to consider the role played by financial jackals, as I call them: short-sellers, unrestrained by oversight of any kind, who pile on and make money when there’s a sign of impending shortages. That’s why Bear Stearns lost $33 billion in value in two days – over a weekend, mind you, when no one was even trading. George Soros did the same thing to Britain in 1992. This year, the breakdown in Greece is another form of the same story. The central bankers of Europe didn’t understand this in the same way that American financiers did, because the U.S. has more experience with jackals.

The shorts have such an effective technique and so much power that the truth, whatever it might be, about real economic value and prospects doesn’t matter. Maybe Greece only needed €25 billion [$34 billion] to avoid default, as was said in February, or €45 billion [$61 billion], as the European Union offered in April.

The amount is unimportant. What’s important is, Did you and I and 13 of our closest friends pile on and short this thing? If we did, it’s going down. Foreign exchange rates – the legitimate trading of currencies – is unimportant compared to the pressure brought by shorts.

We saw the great potential danger of this behavior in 1997 during the Asian financial crisis. Those collapses of currency didn’t occur because the countries had suddenly overreached. The jackals were simply picking off the weakest, one by one. We have to fix this problem somehow.

Kleiner: In other words, regulation of trading is more important than regulation of the banks.

Anderson: Yes. More precisely, regulation of traders would be a more effective way to regulate the big problems that exist right now in the markets. I hear Wall Street guys say with a straight face – and I think they mean it – that “shorts are a part of the natural order. There’s a long, and there’s a short. It’s that simple.” In other words, a short trade is just a deal where you buy an option on a falling price, and they should be allowed to continue.

But I don’t think that’s how the world works. In a short deal as it works in practice, you buy options against the share price, and then you call your friends, and they call all their friends, and then you call the press, and you tell everyone lies about how bad the company is. Then the stock goes down. And that’s not right. It’s an extremely damaging, destructive practice that has no real place in the economy.

The answer would be to either eliminate shorts altogether, which probably won’t happen, or to put back some serious restrictions, such as the uptick rule. [The uptick rule, established by the U.S. Securities and Exchange Commission in 1938, restricted the short selling of a stock when its price falls. This rule was removed in 2007.]

Kleiner: Realistically, though, how much regulation of short selling will happen? The SEC has been publicly considering a reinstatement of the uptick rule since April 2009.

Anderson: Sure: “Don’t push it. It takes time to do these things.” Seriously, it’s hard to believe that we’re having a debate about whether to regulate some forms of trading. After seeing the collapse of the global economy, and having come close to the edge of destruction of all that we know and hold dear, some legislators are still arguing with a straight face that we don’t need any fixes.

We do need fixes. I hope they bring back the uptick law and institute the Volcker Rule [a restatement of the Glass-Steagall Act barring commercial banks from proprietary speculation – Ed.]. Right now, the larger banks are lobbying against this. That’s one example of why we cannot rely on lobbyists to come up with the right policies, for either the health of the economy or the health of their own industries. I recently met someone who led the banking industry’s lobbying effort, during the Clinton administration, to have the Glass-Steagall Act revoked. They spent $1 billion in cash. They’ve spent easily that much fighting the current wave of proposals.

I don’t know if we will get regulatory assistance, but we definitely need it. There is a strong possibility that it won’t get passed, or that it won’t be tough enough, and then we would go right into another financial crisis, but 10 times worse and without any remedies for the government to provide this time. How much extra debt load can the U.S., the U.K., or the E.U. take on right now?

Kleiner: What prospects do you see for investors in the current financial system?

Anderson: I think that investors ought to be very careful. Stocks in this market can move in ways that most investors couldn’t possibly anticipate. A few companies, like Goldman Sachs, have become so good at what they do that the game they’re playing isn’t the same as the game an ordinary investor plays in the market.

A few months before the crash, I was watching Goldman, and I realized that these guys were doing something in that building that nobody else did. I’m not talking about anything illegal – it didn’t have to be. For example, Goldman locates its computer servers within a small distance from the trading servers because they need the extra microseconds of transmission time. I don’t play that kind of game; very few investors can. In May 2010, the Goldman Sachs quarterly reports came out, and said they had 35 days with profits over $100 million; 78 percent of their profits came from trading. And every day was better than the day before. That pattern of profitability had never happened before.

Kleiner: You’re saying that Goldman is the corporate equivalent of the mercantilist governments. They’re all such sophisticated financial players that they change the game for the rest of us.

Anderson: Yes. You can’t blame them, because they’re playing by the rules – I think, at least mostly. But the rules may have to change. If someone gets to be that good, then they become vampire investors: “I’m just going to take some blood, but I’m not going to give you anything back.” That kind of trading is destructive. It doesn’t help anybody; it doesn’t correct imbalances in the market. In fact, it ensures that markets won’t work.

An estimate by Vanguard Group founder John Bogle two years ago put the amount extracted at that time at about $600 billion per year, directly removed from the American economy. Well, what if it becomes $1.2 trillion? Or $5 trillion? At what point do we wake up? Or do we just lie there with the spigot in our veins and never wake up at all?

» Rebuilding the Manufacturing Base

Kleiner: What will happen in the general economy in the U.S. and Europe?

Anderson: Already, we’ve seen the economies of the U.S. and probably Western Europe split cleanly in half. Some people will be wealthy beyond their wildest dreams. They will be the people in global commerce of some kind, probably with most revenues coming from offshore.

At the same time, a lot of people will have lost their jobs forever. At the age of 35 or 45, they have lost jobs that they dreamed of retiring from, and they’re not going to get them back. For kids just out of school, the job market is so oversaturated that it could be 10 or 15 years before that gets fixed.

This kind of severe split between haves and have-nots has not happened any time before; not in the Great Depression, or in the crashes of 1987 and 2001. The time delay before a broad job market returns will be a big problem for the bottom half of the economy, and it will be difficult to see clearly because it will be clouded by averages in the statistics. The unemployment rate will be 10 percent overall, but that will mean 40 percent in some sectors and zero percent elsewhere.

Kleiner: Why would it take so long to fix this problem?

Anderson: It has two causes, and both took a long time to develop; they’ll take a long time to unravel. The first is the rise of offshoring over the past 40 years to cut costs – a strategy that is backfiring now. Companies in the West are bringing jobs back to their home countries, not for patriotic reasons but because they found out either that they needed their expertise in-house or that part of the offshoring machine didn’t work very well. Distinguishing what to offshore versus what to produce at home has become a major business question.

The second cause was the loss of the U.S. manufacturing base as companies elsewhere outperformed American companies. Automobiles are a pretty good example, and there are some great books written about this. See, for example, Eamonn Fingleton’s In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony [Thomas Dunne Books, 2008]. These manufacturing jobs went to Japan or South Korea, which occasionally then offshored them to China and Vietnam. The same happened with electronics. The U.S. has one DRAM [dynamic random access memory] semiconductor company left, but essentially all the others went away.

In the coming years, more Asian and Latin American companies will open plants in the U.S. and Europe, but mainly to avoid trade retribution. That, too, has been going on for 30 years. For instance, in the late 1980s, Japan was named an “unfair trading partner” under the “Super 301” U.S. tariff laws. This happened after Intel filed a complaint about semiconductor competitors from overseas, and Toyota’s top executives worried that cars would be the next product type in line. So they immediately put all their manufacturing plants for cars sold in America into the United States. It wasn’t because they loved America; it’s because they didn’t want Super 301 brought against them, too.

The U.S., in particular, is vulnerable to this problem. It should decide not to allow foreign nations to sell cars in its markets, if there is not equal access for U.S. cars overseas. The same ought to be true for steel, televisions, consumer electronics, and other categories that the U.S. has been frozen out of in trade with mercantilist nations. Why should my citizens be allowed to buy your cars, if you won’t let your citizens buy mine?

» Hope and Expectation

Kleiner: If you looked at these trends separately, none of them would strike you as a good thing. But given the way they fit together, where do you look for hope?

Anderson: There is some reason for hope here. Learning how to protect IP is our only path forward. Whether you’re making movies or chips, the sooner that happens, the better.

The emergence of all of the new consumers in the world is exciting. If we got some basic things right about trading, there would be lots of growth available for everybody: China, the U.S., Japan, India, and Europe could all grow. It would be a very exciting story.

Kleiner: How does the environmental imperative play into the growth? For example, we’re trying to boost economic growth, bring billions of people into the middle class, and stay within the carrying capacity of the planet at the same time.

Anderson: Like Larry Smarr [University of California computer science and engineering professor, and director of the Calit2 labs – Ed.], I call myself a long-term optimist. And I don’t see people as a threat. It seems to me that the largest businesses available – as the Chinese would tell you, and I think a lot of Americans understand – are in clean energy, alternative energy, and green technologies.

We need a big problem to solve right now. Climate change is like the next war – in fact, it could have all the economic impact of a war without being a war. It’s obvious what to do, the requirements are clear, and it couldn’t be more important. Let’s do it.

I miss Winston Churchill. I wish we had a Roosevelt. I would love it if Obama would stand up and make the kind of case those leaders might have made: “I’m very sorry, I’m going to hurt your feelings now. I’ve recognized the importance of this problem, and I’ve talked to [U.S. Energy Secretary] Steven Chu. As of today, we are not going to build another coal-fired plant ever again. All plans are on ice. Forget it. Moreover, for every existing coal plant, we’re going to put in either a natural gas or a nuclear plant. That’s a five-year program. In 2015, we’re turning off all the coal plants in America. Period.”

That would buy us 20 years of time in which to curb emissions more thoroughly. He might go on to say something like this: “Between now and 2030, we’re going to test all the other technologies: algae, solar, wind, whatever. Everybody gets a shot, and we’ll let the market figure it out. But we will invest and have tax policies that encourage this stuff to happen. At the end of that 20 years, we’re going to turn the switch again, and probably no more nukes. And guess what, by the way: Yucca Mountain is open for business [storing nuclear waste], and if the people of Nevada don’t like that, we’re going to send the troops down there and open it forcefully, because this isn’t an opt-out kind of situation. That’s the plan. And we’re not voting on it.”

That’s the kind of leadership we need right now in many countries. I think people would love it.

Kleiner: Your primary audience has been technologists. What do you say to them about doing well while doing good, in this environment?

Anderson: The generation that’s coming up right now is so cool. I recently heard David Gergen from Harvard’s Kennedy School of Government say, “The only way we can go wrong is to discourage these kids. They are set to go. They’re smart. They’re motivated. They understand the problems. They are engaged.”

I think that’s true. I believe the baby-boom generation has done a medium-to-poor job of recognizing the problems and dealing with them. But this generation is set. I’m totally encouraged about the idea of, “Here’s the baton, sorry about the mess, please do better,” and I think they will.

About Art Kleiner

Art Kleiner is the editor-in-chief of strategy+business, the quarterly management magazine published by Booz & Company. He is a writer, lecturer, and consultant with a background in business management, interactive media, corporate environmentalism, scenario planning, and organizational learning. He is the author of The Age of Heretics: A History of the Radical Thinkers Who Reinvented Corporate Management (2008, Jossey-Bass) and Who Really Matters: The Core Group Theory of Power, Privilege, and Success (2003, Doubleday/Currency).

Art is also a faculty member of New York University’s Interactive Telecommunications Program, where he teaches a course on scenario planning and the future of the infrastructure. As editorial director of the Fifth Discipline Fieldbook series (developed with Peter Senge), he has been a co-author of three bestsellers published by Doubleday: The Fifth Discipline Fieldbook (1994), The Dance of Change (1999), and Schools That Learn (2000). At the Center for Organizational Learning at Massachusetts Institute of Technology, he co-created (with George Roth) a pioneering form of organizational story-telling, the “Learning History.” Currently he lives with his family outside New York City. For more information about Art Kleiner, see the strategy+business website.

Watch the original interview session from FiRe 2010

[Windows Media Stream]

FiRe 2010 Staff at the annual Apres Feu party. From left Andrea Doakes, Gabriel Frank, Merix Cunningham, Berit Anderson, Shane Elben, Mary Clark, Mark Anderson, Sharon Anderson-Morris, Scott Schramke, Kelly Webb, Sally Anderson, James Fazio, Evan Anderson, Donald Murray. Photo courtesy of David Morris

Each year, on the night FiRe ends, FiRe staff and assorted remaining guests gather for our annual “Apres Feu” fete to celebrate a week full of groundbreaking thinkers and envelope-pushing conversations among the extended FiRe family. This year was no different. Wonderful people, stimulating conversation, delicious fare in a breathtaking location. Thanks to the Rodel Foundation for its continued sponsorship of this event in our new location.

Image Source: KQED QUEST - Some rights reserved.

The Challenge:

Driving the limit of global warming to less than 2% growth.

Reducing carbon emissions to 14 gigatons of emissions by 2050, rather than the 62 that are predicted today.

Reducing carbon emissions by 30% by 2020, 50% by 2030.

Our panel of CTOs worked far into the wee hours of the night, burning the candle at both ends, with input from our community of world leaders in technology and economics to solve this problem. The result is a comprehensive national plan for scaling alternative energy, that unites Americans around constructive, inclusive energy policies and practices and mandates collaboration of technologies and best practices. The full plan is below.

Summary: Mobilize our companies to innovate and produce the technologies to get us there

• Give American industry and incentive to achieve these goals
• Government needs to guarantee the price of fossil fuel will increase at a predictable rate to stimulate alternative energy investments
• Executive directives to promote significant alternative fuel breakthroughs (jet fuel, solar storage,)
• Nation-wide property assessed clean energy program to drive scalable residential and business energy efficiencies
• Take capital gains tax off alternative energy until US achieves independence from fossil fuels

New Ways of Thinking

1. Solar in public right-of-ways
2. Designation of solar parks (solar zones), ie landfills, rehabilitated superfund sites, abandoned heavy industry areas
3. Symbiosis: moving water and solar power (20%); covering aqueducts with solar

• may need to increase supply buffers
• stage refill water caches during the day with solar
• time-shifting workloads to peak solar
• consume/store excess power

4.  Legacy systems waste energy: systems designed when energy was “free” are no longer applicable.

Additional Ideas

Ban any new coal plant that does not have carbon capture and offset capabilities

Create incentives to upgrade parking garages to have electric/plug-in parking and cover garages with solar panels

Putting solar power on top of buses for powering air conditioning. or other auxiliary issues

Mandate governments to adopt strict energy efficiency improvements, ie building codes, street lighting (LED), convert gov’t vehicle fleets to 50% renewables

Drive dramatic increases in energy efficiency through incentives and education

Public policy matters (strict emission standards for transportation: stairstep model, increasing annually

Energy storage management: movement from “the grid” to “the mesh” ; we need to manage it, understand how it works. Distributing the energy from solar using the least amount of transmission energy as possible.

Drive innovation program– “X-prize on steroids; increase solar efficiency, high efficiency storage, multiple models, develop clean coal, optimized transmission

Develop an alliance of innovation players: differentiation in implementation, not research

Use university campuses as models

Share technology w. sister cities, use modeling to get info out

Increasing Supply

Drive solar adoption “When you have an oil spill, you have a major problem. When you have a solar spill, perhaps not so much,” Michael Pfeffer on Solar.

Develop new housing units and technologies in developing countries– middle class homes that are energy efficiient

Make new railroads, move nuclear plants forward

Green training programs to create green jobs

Mandatory adoption of government ecosystems around the world to drive green jobs: transitioning military employees to green job workers.

Solar Options

Solar roofing, solar tanks to capture and pump the water at night.

Refocus and Reallocate Societal Resources

- Review existing programs and subsidies going in the wrong direction

- Retool financial outcomes to guarantee the market for purchasing this tech

- Transnational alliance of businesses

Phase 1
Model Existing Cities

Target 600 Alternate Energy Ecosystems w. federal financing guaratees that comply with best practices and approved designs

Create an ongoing CTO advisory board

We Must Enroll the Energy Companies

- non-participation would be punished by non-renewing government contracts for offshore drilling, etc

- Developing energy storage

“It was remarkable to sit in the room and watch the true passion for this subject.” Jerry Woodall.

“If we are going to achieve this goal, then we need to mobilize now.” Monica Harrington

“One of the main problems is that we can’t afford to do this here and now, and we certainly can’t afford to do this if China doesn’t step into the equation,” Nate Lewis

What’s next?

Pooling resources, allying CTOs around clean energy, sponsoring prizes, league of CTOs, draw in the government as a trusted partner

Congratulations from the entire FiRE 2010 team!

NeuroRepair Inc.

NeuroRepair Inc., in cooperation with researchers at the University of California-Irvine School of Medicine, has developed what is likely the world’s most advanced technology for repair of neurological damage, an endeavor heretofore generally thought hopeless. NeuroRepair has a highly effective, non-invasive procedure that stimulates a massive proliferation, migration, and differentiation of new neural cells that can replace those lost to stroke, injury, or disease. NeuroRepair is the sole owner of this intellectual property and has several pending patent applications. The company has no outside shareholders or investors and no debt. Its research has been privately funded by the founder.

Participating at FiRe:
Matthew Klipstein, Founder and CEO (Speaker)
James Fallon, Chief Science Officer (Speaker)
Karoly Nikolich, Science Advisory Board Member

Website: www.neurorepair.com

The problem of nonlocality: Einstein didn’t like quantum mechanics; thought there was something wrong with it.

If you collapse the probability wave on one side, it causes the probability wave on the other side to

Could quantum non-locality be used for faster-than-the-speed of light communication?

Most say no.

The University of Washington is currently conducting an experiment to determine whether or not non-locality could

It would be possible to transfer information to a time 50 microseconds before the present.

If you have a quantum computer you can do quantum mechanical calculations, quickly and easily, which will have implications for our understanding of quantum mechanics.

Most Recently

Built 2 robotic explorers, Spirit and Opportunity, w. remote sensing instruments, an arm with instruments. Went to Martian lake, but rocks were igneous. Sediment was buried in volcanic material.

Robots were initially unsuccessful in finding life, but luckily they’ve lasted longer than anticipated. “Today is day 2191 of our 90 day mission. ”

Discovered a hydrated amorphous silicate, forms in hot spring environment. Which indicates this area of Mars was once habitable.

The surface of Mars in one location is covered in little round things (suspect they were made of hemotite); it turns out they were concretions– form in precipitated water, layer upon layer, making a little hard nodule. This proves the surface of Mars was once covered in water.

Patterns in rock indicate water soaked the ground; although PH levels indicate the water was probably more like “sulfuric acid”.

Today, the robots are on their way to Endeavour Crater

Whats in the future?

Finding out if nutrients, the building blocks of life, were there.

The next rover is the size of a mini cooper with a budget to match. It will be released in space, descend via parachute, lowers rover by cable.

The guts: SAM– detects organic molecules at the PPB level to test sediment for the bulding blocks of life.

There is a concentration of methane on Mars, which is exciting because its life is short.

“Cows make methane. It’s probably not cows”

Mars is either a geologically active or volcanically active planet or both. In 2016, they will send a methane sniffing instrument to determine where it originates.

The next rover will be able to sample sediment on Mars, stuff it into a coconut sized spaceship, send it into the atmosphere, where it will be picked up by another space ship and returned to earth in a parachute.

Is there life on Mars?

Squyres: “I don’t know and I try very hard not to develop an opinion.”

How will future space exploration be divided between humans and robots?

“It’s going to be increasingly collaborative between humans and robots from here on out.”

Photo courtesy of Flickr user One Thousand Words

“Building the First (Remote) Underwater City”: An interview with John Delaney, Professor of Oceanography and Jerome M. Paros Endowed Chair in Sensor Networks, and Director, Regional Scale Nodes Program, University of Washington; on the construction of the world’s first undersea broadband and power-supplied permanent remote sensing network; hosted by Michael Pfeffer, Managing Partner, Kolohala Ventures

John Delaney on Oceans: “It is the flywheel of climatic stability. It is the captain of the spaceship Earth.”

Oceanic rhythms are directly tied to plant (food) growth on earth, yet we don’t understand the oceans very well.

Technology is on the verge of providing us with a new ability to see the oceans. Complicated predictive models are essential to understanding the oceans.

The National Science Foundation’s Ocean Initiatives project will provide $700 million in the next years for an underwater city.

What will this look like?

Underwater mooring with elevator.

Seafloor colony (no people) of instruments connected to the internet, beaming measurements and info throught the internet in real time at 1.5 gigabit ps stream bandwidth.

Optical fiber, nanotechnology, telepresence, cloud computing, digital technology, ecogenomic sensors, and more will be brought together and allow us to dramatically accelerate our understanding of the ocean and connectivity with one another.

What are the implications for this system?

We will be able to witness events occurring on the seafloor in real time.

Autonomous underwater vehicles, parked in seafloor garages will be able to take samples of microbes in seafloor events like volcanos, transfer the sample to the surface, bring in an unmanned aircraft and transfer the sample to the lab.

Real time interaction with the ocean from anywhere on earth through telepresence.

We can develop games using system of real-time broadband. Science games for kids rather than grand theft auto.

The first is on the sea floor off the West coast. Over the next 20 years, there will be 20 or 30 of these kinds of systems on ocean floors across the world– all linked.

Transformed classes substantially outperform non-transformed classes.

1:1 classrooms substantially outperform 2:1 or 3:1 dependent upon principal training, sufficient bandwidth, etc.

1:1 classrooms have higher graduation rates.

Students at a New York school have created geospatial maps of the Bronx Zoo using mobile phones.

Schools that really get it right with 1:1 are those that flow from instruction equality, drive kids to think deeply, model 21^st century skills.

Many students across America do not have access to broadband at home: we must create a system of broadband access to every child in America so that they can engage in real-time, when they have ideas, not only during school hours.

Bring adults onboard by bringing digital instruction to the classroom; kids teaching adults in the classroom.

How do we innovate to drive broadband access?

In a small Arkansas town of 26,000 people, provided blanket broadband wireless access to 26,000 people for only $25000.

Leadership and technology innovations must mix in order to A Failure of Nerve by Edwin

The average kids in school only have 8 milibits ps.

Getting 4G services to schools is really important, but leadership and funding mechanisms are severely lacking.

It would cost less than $7000/kid per year to transform schools to 1:1, including learning materials, wimax, etc.

David Engle: “Get off the textbook treadmill.” Textbooks are inefficient, un-engaging.

If you drew a triangle and placed Cisco, Microsoft and VMware, respectively, at each corner you would have a good idea of where the center of power is regarding the future direction of the IT industry and the emergence of cloud computing.  And plenty of well-heeled tech companies would love to keep this status quo intact for as long as possible, simply because they’ve run out of steam and are counting on complexity and lock-in to postpone the revolution.

Outside each point, of course, you could list competitors who are potential partners or disrupters, including HP, F5 Networks, Citrix, Juniper Networks, Amazon, Google and IBM. They are missing a few critical components to reach into the enterprise and disrupt the triumvirate, but they have the incentives to insert themselves and their own powerful spheres of influence, from technology to business model.

Outside those spheres of influence you could list category players who have survived or who threaten because of their best of breed status.  They are there because they can transform a particular category (like security, management, Ethernet switching or WAN acceleration, etc.) but not the whole game itself.  Think Silver Peak in WAN; Palo Alto Networks in security; and Arista Networks, etc. in switching.

Yet if you were to draw a circle inside the triangle you would identify a “no vendor’s land” or a kind of meat space of manual processes, configurations, scripts, spreadsheets, committees, checklists, etc. pretty much centered around the increasingly complex and growing network.  It is in this area where most of the cost, risk, and inflexibility that we associate with pre-80s era business practices are still the norm today.

This is IT’s land of opportunity, driven by the need for enterprises to continue growth and vendor’s need to grow their markets as management costs for each of their wares increase. This is where the next disruption may occur.  We can look to recent history for similar examples.

In effect, VMware’s grand entrance into the data center market came at the expense of an old guard of server and software players who couldn’t wean themselves off of the “escalating management and complexity” bandwagon fast enough.  VMware established a $20 billion market cap by disrupting empires of complexity and manual labor and automating server management tasks.

That is why this is where IT automation will go next, in the core of the network infrastructure.  IT automation requires network automation.  Without it you’re stuck with increasingly complex and inflexible VLANS.  Yet network automation, the next frontier for IT automation, will require network infrastructure automation.

As I said at last year’s Future in Review panel on infrastructure 2.0: “Today’s networks are run like yesterday’s businesses”.  Wednesday I plan to address these issues again with senior executives from Cisco, VMware, Microsoft, etc during this year’s follow-on Future in Review 2010 panel on i2.0.

We’ve seen this all before, except at a different layer in the OSI stack.

The Application Front End Boom

Five years ago we watched the application delivery space boom as the result of the new demands on IT, especially the network.  Enterprises spread their IT assets into smaller regional and branch offices and networks evolved to support the transport of applications initially designed for LANs (local area networks).

Initially network teams invested huge amounts of time simply managing a host of new problems when enterprise apps slogged their way through unprepared networks.  That time, expense and delivery pressure justified billions in new market caps and acquisitions.

Today we’re in the midst of yet another cycle of capital creation, and this one might dwarf the (OSI) layer 4-7 application delivery boom.  I think the next boom will take place at layers 2 and 3, in the “meat space” of manual processes where a great portion of IT costs, delays and risks remain.

The layer 2-3 drivers (around physical and logical addressing, connectivity, path determination) are all under increasing pressures due to the rapid increase in network-connected devices and increasing change, due to the nature of those devices including virtual machines.  I wrote about the three horsemen in February 2009: 1) notebook computers; 2) virtualization and 3) cloud computing.

Yet the problem is even bigger than the success of netbook computers, and extends into manufacturing and medical devices, ATMs and even SCADA devices never connected to the network.  The case for connectivity is so strong that the network teams will continue to face increasing pressure over the foreseeable future.

Cisco’s CTO recently predicted 1 trillion devices connected to the network by 2013.

Years ago the phone companies ultimately automated their equivalent of layer 2-3 pros (called telephone operators) because networks became so large and complex that they couldn’t throw enough bodies at the problem.  Today large enterprises are starting to feel the pressure, in terms of rising operating expenses, inflexibility and outages.

Two recent blogs caught my attention, both centered around the need for networks and IT to evolve from the “dumb network” idea.  Rick Kagan (from my employer Infoblox) recently blogged about his Interop panel on network evolution, and it wasn’t pretty:

The network is behind, way behind, when it comes to delivering the strategic benefits of cloud computing in terms of dynamic, flexible movement of workloads among computing centers.  And from what I saw at Interop, it’s about to get worse – potentially, much worse.

• • Richard Kagan, GM, Infoblox Orchestration BU
    

Many of the vendors in the “Why Networking Must Fundamentally Change” felt like they wanted to hearken back to the glory days of mainframe computing:

Yes, that’s right:  At current course and speed, you’ll be able to get all of the cloud bursting and DR and resilience that you want, as long as you buy everything from one networking vendor and/or use cloud providers that also use the same networking vendor as you do.  It was other-wordly to be hearing this at, of all places, Interop.  There should have been a riot, but there wasn’t.  In fact, during the 1-1/2 hour discussion, not ONE of the networking vendors even uttered the word “cloud” – and no one seemed to care.

Richard Kagan, GM, Infoblox

Also on Richard’s panel was Doug Gourlay from Arista Networks.  His recent blog relayed essentially the same message, citing the breakdown in scale for the enterprise data center:

Again, most network switching equipment was designed for campus e-mail distribution.  As such laptops come and go, and so do desktops.  Nobody wants to keep rigid control over what port a laptop plugs into so the LAN was designed to be as ‘plug and play’ as possible.  MAC address auto-learning and flooding, DHCP, speed and duplex auto-negotiation- these all combined to make it so I can plug my laptop in just about anywhere, get an address, and do my job.

In the data center, especially for the largest data centers in the world, this may not be the case anymore.  These features that made life simple, simply do not scale economically any more- as they force the network into a hierarchy that means significantly sub-linear price/performance.  In fact it is often cheaper on a per server basis to run a small network than a larger one: something no operator wants.

Doug Gourlay, VP Arista Networks

The lack of automation and rising unit management costs in larger IT environments takes us back to the case made by VMware years ago regarding rising server management costs as data centers grew.  Now networks are in the same opex quicksand: the more hardware you throw at a problem, the more expensive each element is to manually manage.

The key question is whether or not the power players of today will be able to force hegemony by “dumbing down” the network; or will there be another boom, this time at layers 2 and 3 in the OSI stack.

That is why I think the Infoblox (my employer) acquisition of network change and configuration management player Netcordia is particularly interesting.  Note: Both EMA and IDC have recently published their takes on the acquisition, and a Gartner report is also likely.

This acquisition will catch many in the industry by surprise. Most of the NCCM sector consolidation has happened at the hands of large management platform/suite vendors, such as IBM, BMC, EMC and HP.  But it would be a mistake to underestimate the potential of this combination merely on those grounds.  There is a degree of common purpose and synergy here which far surpasses what in some cases has been little more than a land grab to cover and control network management budgets.

EMA Impact Brief, 2010

Infoblox IP address management (or DDI) integrated with former Netcordia’s NetMRI is likely the first set of network solutions with the potential for closed loop automation between the address space and the network. That connectivity intelligence creates at least the promise of intelligent bindings between devices, policies and networks, and sets the stage for the automation of that expensive, error-prone meat space at the center of IT’s power triangle, in between Cisco, Microsoft and VMware.

Surround that network infrastructure automation engine with the connectivity power of IF-MAP and you now have the capacity to spark a revolution in the networking industry and set up a new capital investment refresh cycle that has more to do with the stresses of connectivity than the speeds and feeds of switches and routers.

That may explain why the upcoming Virtual Interop (May 20) is on Infrastructure 2.0.  If the networking industry doesn’t solve the rising management cost issue, someone like VMware might create another $20 billion market cap, this time from the mainframe-era fantasies of visionless networking players.

You can read more at the infrastructure 2.0 blog or follow my rants in real-time at www.twitter.com/archimedius.

Greg Ness

With more than 20 years of experience in marketing roles, mostly in the networking industry, Greg Ness has been with Infoblox since July 2008. He previously held positions at Blue Lane Technologies (acquired by VMware), Redline Networks (acquired by Juniper Networks), IntruVert Networks (acquired by McAfee), ShoreTel (IPO), Visa International, and Verizon.

Greg has a bachelor’s degree from Reed College and a master’s degree from the University of Texas at Austin.