Monatsarchiv: Juli 2008

Got it?

So easy! Worlde vizualization of blogs via Dan Hirschman and Understanding Society.

Why the U.S. economic recession will bite Germany, too

Do you feel the pain already? No? Get a loan, buy that car you always dreamed of, get some jewelry for your wife, go for an extended vacation overseas and enjoy a two star molecular dinner and better go for it now because it might b the last time for a while. My hunch is that the current crisis on the U.S. housing market and the credit crunch will bite the German economy. Not now. Later. CNN Business editor Todd Benjamin has been predicting recession and rising oil prices for a while, and Jack Cafferty has asked CNN viewers “What’s the difference between a “mental” recession and a real one?” A brief look into the media raises fears that the U.S. economy has more gloomy days ahead, e.g. NYT1, NYT2, IHT1, Atlantic, Business Week, FT1, FT2, IHT2, Le Monde, NZZ, FAZ, SPIEGEL, Handelsblatt.

Socioblogger Dan Hirschman has already layed the foundations [some thoughts on the mortgage crisis; a follow-up on the mortgage crisis], so why follow the U.S credit monster any further? Why disturb the happiness since German business leaders, politicians and financial analysts prefer to discuss the crisis only in very moderate tones? Like Dan, I am not an economist, so I also draw on a different toolbox. My focus is on the structural and cultural change in companies – especially the public banking sector – in Deutschland AG (Germany Inc) and the consequences in the face of this development.

Going West – from Germany Inc to the Global Financial Market

For more than 40 years, German companies have profited from a very specific strategy vis-à-vis an emerging global economy: a strong technological orientation, high quality orientation with regard to products and processes and incremental innovation of making small changes in products and processes rather than radical innovation of seeking opportunity in fundamentally new technologies, business sectors or world markets. German companies would spread risks broadly by engaging in various activities simultaneously and not limit their activities to few profitable activities. Thus they were able to maintain their niche by exporting products characterized by strong technological specialization. The business environment where this strategy worked out fine for decades was “Deutschland AG” – a network of financial relations and interlocking directorates among Germanys large industry companies, banks and insurance companies. Deutschland AG emerged as a strong coherent organizational field with two companies at the core: Deutsche Bank AG and Allianz AG. Since the mid 1990s, though, we witness the dissolution of Deutschland AG. That is, the number and intensity of interrelations of mutual shares and interlocking directorates is declining and German companies show a stronger orientation toward the global financial markets rather than seeking shelter in the established network relations of Deutschland AG.

Referring to the various writings of Wolfgang Streeck, Martin Höpner and Jürgen Beyer and to my dissertation it is safe  enough to say that core companies of former Deutschland AG such as Deutsche Bank, Allianz and subsequently many other players in the German finance sector saw greater business opportunities in a strategy shift – to withdraw from the boards of the various companies, to enter the global investment sector and to benefit from the dynamics in the organizational field of global capital markets because a flourishing global financial market opens the door to much more capital. Investment money from diverse sources on global capital markets comes at the prize of a small size of German companies as compared to the largest players on global organizational fields, e.g. finance, chemistry, pharmaceuticals etc.

As these graphs by Lothar Krempel at MPIfG show, Deutschland AG has been declining since the mid 1990s to the present day based on the data from the Monopolkommission (German anti trust commission).  Whereas graphs in blue show the decline in financial relations, the graph in gray shows the network of interlocking directorates in Deutschland AG for the year 2006 [MPIfG document here].

State-owned banks traditionally play a special institutional role in German corporate capitalism. They were established to provide economic development with the recources necessary and contribute to a sound business development with long term orientation. One of the few remaining nodes is Kreditanstalt für Wiederaufbau. KfW, originally established on the basis of the Marshall plan in 1948, is a state-owned development bank designed to assist the German economy and developing countries. The bank lends to small and midsized German businesses and buys securitized small and midsized business loan portfolios from German banks in order to keep that area of lending robust. KfW also provides funds for housing, infrastructure, environmental protection and preservation, and venture capital. KfW has adopted a global stategy in recent years.

Deutsche Industriebank (IKB), located in Düsseldorf, was founded 1973, is also specialized in lending to small and medium sized companies to foster German economic development. In August of 2007, IKB became the first victim of the U.S. credit crunch in the housing business since a 100 percent IKB owned company named Rineland Funding Capital Corporation (RFCC) as a result of extensive speculation on the US subprime mortgage market. The essence is that IKB was refinanced by state-owned KfW: While it is expectable and legitimate that German banks engage in the U.S. mortgage market and will be held accountable for their expected writedows, IKB was rescued by German tax payers payers money after Rineland Funding Capital Corporation (RFCC) had extensively lost on US. subprime mortgages. The future of IKB still remains uncertain [FAZ2; FAZ3; PR inside].

Weiterlesen

“Thieves in the temple” or nails to the coffin?

Haltet den Dieb!” by Marcus Rohwetter in “DIE ZEIT” (10.07.08, German) is just another illustrative example of the warmth in the relationship between the established commercial print and broadcasting in Germany and Web 2.0. Rohwedder argues that YouTube is nothing more than a combination of a garbage can for private junk video and a violation of copyrighted video material. He seems convinced that YouTube stands for a decline of media culture. Watch teenagers eat pizza or that guy named Expanda touch his belly after drinking four liters of Coca-Cola. Find copyrighted materials stolen from publishers, music lables nd broadcasters and feel encouraged to upload new unauthorized material to the Platform, e.g. from high quality German public broadcasting stations. Thereby Rohwedder does not even mention alternative legal constructions vis-à-vis the traditional “all rights reserved” copyright such as creative commons and GNU licence used in Wikipedia. Rohwetter interprets increasingly widespread collaborative practice of producing, distributing and organizing knowledge online that is known as produsage as deviant behavior or even crime. Interestingly, the author ignores that “DIE ZEIT” where his article was published, offers RSS feeds and invites readers to bookmark and tag the articles as do many German newspapers. Rohwetter seems unaware that content, code and metadata can be produced, criticized, improved, combined and re-combined in creative processes by every ordinary person, that a critique, improvement, organization of content by bookmarking and tagging or creative re-combination of content, code and meta-data is a ‘value added’ to a global public good. Jan Schmidt and I have worked out this argument in our essay in Herbert Willems (2008). “Weltweite Welten” (German). None of these potentials are recognized in Rohwetter’s contribution in “DIE ZEIT”. He writes about Web 2.0 as what it seems to from his perspective: another nail to the coffin of a media business model in decline.

“Thieves in the temple” or nails to the coffin? Technology edition

Just in case Rohwetter is already troubled by nightmares, here is another reading recommendation:  “Das Internet und die Transformation der Musikindustrie. Rekonstruktion und Erklärung eines unkontrollierten sektoralen Wandels” by Ulrich Dolata at MPIfG (pdf, German).

While in the mid 1990s, the music industry was a flourishing well structured and flourishing industry economic sector, living well on LPs, Singles, tapes and even profiting from the CD an music television and dominated by five large companies: Universal/Polygram, Sony Music Entertainment, EMI, Warner Music Group and Bertelsmann Music Group. Since the late 1990s the music industry has been in a state of crisis. Sells have declined from US $ 40,5 billion in 1999 to US $ 31,8 billion in 2006 worldwide, from US $ 14,3 billion in 2000 to US $ 10,4 billion in 2007 in the United States and from € 2,63 billion in 2000 to € 1,65 billion in 2007. A new set of technologies  – digitization, data compression and the internet – have been successfully combined in such a way that they jeopardize the business model of the music industry and have forced significant changes. The impulses for restructuring the music industry came both from the fringes of the music industry itself and from actors outside the music industry. First, the CD had no copy protection and the MP3 as an open music format was invented. Subsequently, the music industry was challenged by non-commercial platforms for the exchange of music such as Napster, Freenet, Kazaa and Gnutella originating in the hacker scene starting about 1999 and and powerful new actors with commercial interests invading the music market starting about 2003. So far, iTunes has been the most successful example for establishing a music market introduced by a powerful invader to the music industry – Apple [of course, the user can also choose social music discovery services, e.g. ilike, last.fm]. Established companies within the music industry hesitated to live up to the technological challenges. Instead of seeking their opportunities in the process of change, they chose blockading and containment strategies and only strategically repositioned themselves when change was no longer avoidable.

Dolata identifies four factors contributing to the incabability and unwillingness of the music industry to anticipate and adapt to the technological challenges, the music industry is in the doldrums. First, the music industry had difficulties antiticipating the full impact of the new technological opportunities even though CEOs were well aware that the internet would create challenges. Music labels lived in a state of uncertainty and ambiguity. Change would have meant to integrate well established powerful actors within the music insdustry; so the music industry was reluctant to technological change.  A second obtacle was the music industry’s structural inertia with regard to the complex and time consuming process of implmenting a new techno-institutional match (can be but need not necessarily be a market) combined with the unwillingness to let go the established rules, roles and procedures that were the basis of previous successes: markets, company structures, legal frameworks, licence models etc. Third, the music industry is characterized by a strong structural and technological conservatism. The music industry tends stick with the established technologies. The music tape and the CD were implemented years after they were originally invented. This tendency holds true for data compression and for the use of the internet, as well. The music industry lacked interest for the new technology. The music industry has never been a first mover to new technology but always been a second exploiter. Its dominant orientation is that to the slowest consumer, well established technology and dominant tastes and styles. Finally, an oligopolistic market structure combined with a structural hierarchy between the companies at the core contributed to the unwillingness and incapability of  to undergo fundamental change with regard to the power and dynamics that the global interactive internet unfolds, today. Since change has always originated in the periphery – never at the core – it is no wonder that the music industry has failed to anticipate the impact the internet would have and to implement innovation beyond a minimum of protectionalist designs. Moreover the music labels considered themselves more powerful and more important than they proved to by with regard to the challenges coming from the internet.

“Thieves in the temple” or nails to the coffin? Educational edition

But this whole argument can also take an knowledge and educational spin. Mike Wesch and his students at Kansas State University have explored the potential of Web 2.0 for higher education in their project “Digital ethnography” and developed a pretty cool answer to the garbage can model of teaching and learning in tertiary education. In tertiary education of almost any subject, the internet confonts teaching models based on a garbage can model of dumping knowledge into atomized students with severe problems and questions its legitimity: (1) the students are put in the position of thieves in the temple when materials they need to learn are not distributed to them and too expensive on the regular market (e.g. expensive books or text materials), (2) they are put into the awkward position of thieves in the temple when teaching models and testing procedures encourage cheating (e.g. in multiple choice testing procedures when they can have the answer to every question displayed on their mobile).

Instead, students lack a learning environment encouraging discovery, knowledge sharing, critical thinking and collaborative knowledge organization. The technology is at our fingertips, we can do something creative with it. The video of a lecture by Mike Wesch from a guest lecture at the University of Manitoba on media literacy is pathbreaking in how Wesch explores potential of the internet to create a learning environment clearly superior to the established university system confining academic teachers and students to a specific institution and location. The video is also instructive in how the internet can be used for the specific purposes of social sciences and humanities in the broadest sense since almost anything that is found online is genuinely social in character. So watch Mike Wesch’s experiences with an integrated online participatory learning environment (Wiki) in his video “A Portal to Media Literacy” (ca. 67 minutes).

Saskia Sassen on knowlege and global cities

Understandingsociety has this rare video footage of Saskia Sassen, a sociologist at the London School of Economics (LSE) and Columbia University. In her essay “Embeddedness of global markets” (2005) in Knorr-Cetina/Brügger “The sociology of Financial Markets”, Sassen argues the topography of global electronic capital markets is embedded in a global cities interconnected through a global technological infrastructure. There is no fully virtualized market, firm or economic sector. Even finance, the most digitalized, dematerialized and globalized of all economic sectors has a topography that interconnects real and digital space and creates a backbone for global financial trading activities. Even though one might expect new information and communication technologies to eliminate the advantages of agglomeration in physical space, global electronic financial trade is dependent on a mix of resources and talents that is concentrated in a network of interconnected urban financial centers. Moreover, the global financial market, no matter how financialized and electronic, requires specific political regulatory conditions and thus depends on national states to produce an  institutional framework that reflects the global market for capital and the various fundamentals it is based upon. The formation of a global financial market is thus hard to imagine without a backbone in offline society and physical space.

In the videos below, we see Saskia Sassen give a lecture on cities as “urban knowledge capital” at the Urban Age India Conference in Mumbai /India in 2007, and her lecture be transferred straight to YouTube, Google and related platforms. Understandingsociety interprets the almost real time online availability of Sassen’s lecture as a

a dramatic illustration of the potential for diffusion and infusion of knowledge that the internet presents to the global world …

… and my guess is we will expect this type of knowledge transfer from social and physical space at an academic conference to the intenet and multiple mobile devices as a regular pattern of information diffusion, and the use of Social Media such as blogging, microblogging, bookmarking and tagging as common practice and universal standard procedures to interconnect invididual and collective bodies of knowledge. It will contribute to the visibility of scientists and their achievements and enable scientists to access academic and professional information on the day it gets published. Yet, I suspect German academia is not the driving force of this development.

Urban Age India: Saskia Sassen, Part 1

Urban Age India: Saskia Sassen, Part 2

Urban Age India: Saskia Sassen, Part 3

A beef on crude and rising food prices

While heads of government of the G8 plus 5 countries are meeting in Japan, I get a beef on rising prices of crude contributing to inflation and ever higher costs for mobility, energy and heating – Gas prices are beyond € 1,60 a liter [a gallon is almost 4 liters], and the prices for foodstuffs are up well beyond inflation. But annoying as I might find my way to the gas station and the grocery store, inflation in foodstuffs for the products relevant for poorest and most vulnerable people on the planet is quite a bit more dramatic. Yet German media seem to take little note of rising food prices on a global scale. They have released a few articles back in April, and recently, they seem to be more concerned with the Sommerloch (“summer hole”) than with the widespread and deepening economic crisis and potential long term consequences for economic development.

In a study as old as 1999, International Food Policy Research Institute (IFPRI, Washington D.C., USA) has projected an average rise of world population by 74 million people per year well beyond 2020, thus a continuous rise in need for basic foodstuffs worldwide. The research institute explains the current current food crisis with rising demand for food and feed, biofuels, high oil prices, climate change, and stagnant agricultural productivity growth.

At the end of June 2008, an internal World bank study leaked to the British Guardian, which was immediately taken up by Spiegel International. It presents a blow to the plant energy drive and fundamentally questions the Policy introduced by the European commission as to foster biofuels (see Nouvel Observateur). The World bank study holds that biofuels have forced up food prices up 75 Percent (more information over at Global Sociology).

IFPRI identifies a malfunctioning of world grain markets as an additional driver of the world food crisis. Given the thinness of major markets for cereals, the restrictions on grain exports imposed by dozens of countries have resulted in price increases. Several countries have adopted retail price controls, creating perverse incentives for producers. Speculative bubbles have built up, and the gap between cash and futures prices has risen. It stimulates overregulation in some countries and causes some commodity exchanges in Africa and Asia to halt grain futures trading. Some food aid donors have defaulted on food aid contracts. The World Food Programme (WFP) has even had a hard time getting quick access to grain for its humanitarian operations. Developing countries are urgently rebuilding their national stocks and re-examining the “merits” of self-sufficiency policies for food security despite high costs. (IFPRI, “Physical and Virtual Global Food Reserves to Protect the Poor and Prevent Market Failure” June 2008). A traditional approach to coping with the market failures would involve building up a physical, public, globally managed grain reserve. These reserves could be released to cope with excessive price increases. This reserve has the disadvantages of high storage costs and slow transactions. Instead, IFPRI suggests a different institutional arrangement for the exchange of commodities: (1) a minimum physical grain reserve for humanitarian assistance, and (2) a virtual reserve and intervention mechanism to calm markets in situations of increased speculative activity, backed up by a financial fund.

Hopefully, the G8 will consider IFPRI director Joachim von Braun (video below) and the various other warning voices and resolve this man-made crisis and the European Union will take responsibility for its failed environmental policy. Cereals are needed to feed the poorest and most vulnerable people on the planet, they do not belong in the tank of your car.

Joachim von Braun – U.S- Senate Testimony

Oh happy day

After six short trips to Franconia, I am in a summer break mood sitting in a nice Wifi café in Bamberg (Cafe “New York”, Austraße) , enjoying the sunshine and waiting to attend a meeting of our alumni organization ABS at the university of Bamberg. I have finished my 3 courses on economic and organizational sociology at the universities of Bamberg and Würzburg, and the participants still have quite a bit of work ahead unless their text materials are ready to be turned in. We have discussed quite a bit of literature including passages of Jens Becker’ts “Beyond Markets”, Neil Fligstein’s “Architecture of markets”, Kieran Healy’s “Blood and organs”, Mike Powers “Organized Uncertainty”, Guido Möllering’s “Trust: Reason, Routine, Reflexivity” in economic sociology, and we have discussed about the complicated relationship between organizations and professionalism in the course of organizational sociology. A conclusion on the results of the three courses at the two schools could be drawn only after the grading procedure late fall, but the discussions have been constructive and fruitful. Meanwhile – have a nice summer, everybody!