IBM's Power7 pitch deconstructed

Big Blue polishes UNIX crown
By Timothy Prickett Morgan Posted in Servers, 8th March 2010 05:02 GMT

Some of IBM's Power7 machines have been shipping for several weeks, and the high-end Power 770 and 780 boxes start shipping this coming week. Now, the sales pitching and smooth talking by IBM and its local business partners will begin. What, exactly, will that sales pitch be?


That all depends on what gear you have installed, how old it is, who made it, and what applications it runs. One thing is for sure: IBM is trying to get out in front of a whole lot of upcoming server iron to show some good numbers.

Business partners make their own pitches to their customers, of course, but they take their cues from IBM. And as you well know since even before the Power Systems division was created from the merger of the formerly independent System i and System p divisions, IBM is keen on dividing and conquering the server market and bringing as many workloads as it can to the Power7 lineup.

This chart, culled from a presentation IBM gave to partners a few days ahead of the launch of the Power7 machines, succinctly sums up how Big Blue wants to push its Power7 boxes this year:

First and foremost, IBM wants to remind everyone that it has dominant Unix market share (in terms of revenues) and that compared to its $5bn in sales, Hewlett-Packard and Oracle (now that it has assumed control of Sun Microsystems) have a combined $8bn in sales, split about evenly between the two. IBM was able to make $600m in sales (presumably including software and services as well as hardware) last year on HP and Sun takeouts, and it wants to accelerate these. If a Power Systems migration is not in the cards, IBM is perfectly happy to bolster its share of the $30bn X64 server space by moving HP-UX and Solaris workloads to Linux on X64 iron.

While the chart doesn't say this, there is also some migration to Windows going on here and there. IBM also wants to go into HP, Dell, and Fujitsu shops using X64 iron and consolidate multiple workloads onto Power-based servers. This is a familiar plan, and one that IBM's AS/400 faithful have seen since PC-based server cards were first slapped into AS/400s back in the early 1990s and that was augmented as logical partitioning debuted back in the late 1990s on the AS/400. (And yes, well ahead of LPAR support for AIX that was worth a damn. But don't expect the Unix-centric Power Systems people to mention that).

As you can see, IBM wants to "minimize leakage" from Power Systems to X64 boxes, and it doesn't have any arrows that would show Power or X64 workloads moving to HP or Oracle Unix iron. Like that never happens. Of course it happens, and there are hundreds of millions of dollars in consolidation at stake there too. Interestingly, there is nothing in this chart that mentions i/OS specifically and that says there is a goal to accelerate migrations from X64 iron to Power-i/OS combinations or to minimize leakage of i/OS workloads to X64 iron. But there should be, and hopefully, there is even though the presenters briefing business partners did not get into the i/OS strategy.

AMD and Intel on the way

There are a whole lot of new chips coming down the pike from Intel and Advanced Micro Devices, and if IBM had waited until May for the initial Power7 launch, it would not be able to get business partners psyched up with a chart like this:

This chart compares the performance of various servers on SAP's two-tier Sales & Distribution (SD) ERP benchmark test. A four-socket Opteron 8400 box using the latest six-core chips does about the same amount of work as an Oracle/Sun T5440 server (also four sockets) using the eight-core Sparc T2+ processors. With 15,600 SD users supported, the four-socket, 32-core Power 750 server was able to do more than three times the work. (That machine is configured with AIX 6.1 and DB2 9.7 and uses the 3.55 GHz Power7 cores with all the threads turned on).

Both AMD and Oracle/Sun are on track to more or less double the performance of these machines by the middle of this year, and interestingly, AMD is not planning on offering an eight-socket version of the future 12-core "Magny-Cours" Opteron 6000 systems, and Sun will not push beyond four cores with the Sparc T3s later this year, either. So the Power 750 will likely have a sustainable advantage here in terms of performance.

It is unclear how HP Integrity machines (what IBM still calls Superdomes in its presentations) using the new quad-core Itanium 9300s (formerly known as "Tukwila") will perform on the SAP SD benchmark, but HP did test what I presume was an I/O and memory constrained BL860c Itanium 9140M blade (with two 1.66 GHz cores in each of its two sockets) and was able to support 1,165 SD users on the same test running HP-UX 11i v3 and Oracle 10g, but this machine had average response times of just under two seconds (the norm back then) instead of sub-second (which is the norm now).

A 32-processor, 64-core Fujitsu PrimeQuest 580A server tested in April 2008 was able to handle 10,400 SD users, but with a nearly two-second response time. The Tukwila processors and their new memory architecture, based on the QuickPath Interconnect, are going to have to do a whole lot better to compete. And if they cannot compete on performance, they are going to have to make it up with price/performance. Ditto for the Sparc T3s and any servers from Oracle or Fujitsu supporting Solaris on quad-core Sparc64-VII chips.

Claims to fame

As all vendors accentuate the positive, IBM is throwing around a lot of claims. For instance, business partners are being told that a single Power 740 with four sockets can replace 92 Sparc T2000 servers, cutting back the number of cores by 95 per cent, the square footage of floor space by 97 per cent, and the energy used by 95 per cent. IBM also has another slide that uses the SPECint_rate2006 benchmark to "prove" a Power 750 with four-sockets (32 cores) can do 29 per cent more work than an Integrity Superdome with 64 1.6 GHz cores, but it burns only 1,950 watts instead of 11,586.

If you read the fine print, these are not the wattages of the systems as they are running the test, but the maximum power usage for data center site planning, which as far as I am concerned is playing it a bit loose. But the SPEC tests don't all track power consumption, and if you were trying to get a feeling for performance per watt, you would have to do exactly what IBM did.

The Power 750 apparently smokes four-socket Sparc, X64, and Itanium systems in terms of performance and performance per watt on the SPECint_rate2006 test. With a SPECint_rate2006 of 1,060, that smoked a Sparc M4000 server with 2.52 GHz Sparc64-VII chips (152 rating with 2,350 watts), a Sparc T5440 with 1.6 GHz Sparc T2+ chips (360 rating with 2,700 watts), an HP rx6600 with Itanium2 chips (102 rating with 1,600 watts), and an HP ProLiant DL580 G5 using older six-core Xeon 7400 chips (291 rating with 1,412 watts).

A two-socket Xeon 5500 box can do almost as much work (254 rating using the 2.93 GHz Xeon X5570, and a Westmere-EP kicker will probably be on the order of a 380 rating on the test). HP has four-socket Opteron boxes rated at nearly 400 on the SPECint_rate2006 test, but IBM didn't bring this up. And HP will be pushing up to around 800 or so with the Magny-Cours later this quarter. That Magny-Cours box will have 48 cores and no threading compared to the Power 750 with 32 cores. IBM will still be able to show more oomph per core on this test, but AMD and its partners are going to cram more cores into the box.

The other thing we noticed in the sales pitch is that IBM is assuming that a replaced machine has lower utilization (but is running at maximum electrical consumption) and that when you consolidate onto a Power7 box, you can run it at higher utilization and thereby save big bucks. Obviously, many i/OS, AIX, HP-UX, and Solaris shops are running at high utilization, so the savings IBM shows may not materialize. But just to show you one example so you can be careful of this.

In one presentation, IBM says that a Power 780 can consolidate nine 64-core Integrity (well, it said Superdome) boxes into a single Power 780 and save 91 per cent on floor space and cut the number of cores by 88 per cent. Those nine HP Integrity boxes have 576 cores running at 1.6 GHz, but IBM's comparison assumes that they are only running at 25 per cent utilization (you gotta read the fine print), while the single Power 780 with its 64 cores running at 3.8 GHz (a full rack, taking up only 7.6 square feet of floor space) hum along at 75 per cent utilization.

While IBM is offering three times the performance per core compared to the dual-core Itanium 9000/9100 series, the utilization levels it set in the comparison account for another factor of three in compression. If you assume the machines are running at the same utilization (which they would be on a test like 
SPECint_rate2006), then IBM has only a factor of three compression, and if you go with the full-out 128-core HP Integrity box, then the Power 780 has only a 54 per cent performance advantage if you look at the actual SPEC tests. And by the way, a Sparc Enterprise M9000, rated at 2,586 on this SPEC test, beats the 780, although by IBM's reading of the Oracle/Sun manuals it burns seven times the juice at maximum loading.

Here's another comparison IBM cooked up, which kills the ProLiant and Integrity birds with one comparison stone:

These comparisons above are based on the SPECint_rate2006 test as well, which seems to be IBM's favorite with the Power7 launch. And the CPU utilization on the unvirtualized ProLiant boxes is assumed to be low (19 per cent according to the fine print at the back of the presentation) and is at 60 per cent on the Power 750.

Ultimately, what customers need to look at to do comparisons is raw data on the systems themselves, then they need to examine benchmarks and other performance data, gather up pricing information, and finally try to weave together a picture that has more depth and breadth than the IBM sales pitch. ®

Spreading happiness through thoughtful words and actions

 I am, by nature, a happy person. And I am glad that scientists have now confirmed I am on the upward trend and will not become a grumpy old man as predicted.

German and American scientists, analysing a long-term British survey of more than 21,000 men and women, have come to the conclusion that happiness starts to dip in the teenage years and continues on a downward spiral until the age of 40.

It then levels off until about 46, before rising to a peak more than 30 years later.

The age when one is most content is 74. According to the study, as reported in The Daily Mail, a combination of fewer responsibilities and financial worries, and having more time to yourself, produces a contentment unknown earlier in life.

I wonder if the majority of those above 46, who are salaried workers, will agree with the findings.
Those of us in this age group, including yours truly, are probably at middle or senior management levels at this point of our career.

In return for a higher remuneration, with a company car and other benefits thrown in perhaps, we find that our responsibilities are also on an upward trend.

We are confronted with new challenges that test our patience and this is compounded by the fact that the home front is just as challenging around this time.

At times, you wonder if it might be better if you had been bypassed for the promotion.

So, how do we stay happy? I believe if we treat happiness as a state of emotion, that would be impossible. But the joy that comes from within is something that we can all aspire to attain. The secret is not to be a rat in the rat race.

I have seen people in the workplace who are able to deal with the ever-changing circumstances simply by adopting the right attitude.

They are not necessarily those who believe they should not rock the boat at all, but are the ones wise enough to choose the right battles to fight.

Often, they understand that people matter more than things, and are thus able to be a catalyst for change that will be embraced by all.

Then there are the people who are stuck in a routine each day, but always ready to greet others with a smile each morning.

How often we take for granted the cleaners who keep our office and our toilets spick and span. Or the guards who keep us safe and escort us to the basement parking lots in the middle of the night. If you look closer, you will find that they are a happy and contented lot.

So, if you are starting your working week by reading Monday Starters, tell yourself that you can choose to be happy, simply by thoughtful words and actions, and let that happiness rub off on your colleagues. Not that tough, right?

By Soo Ewe Jin, Deputy executive editor believes in the serenity prayer: “God grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.”

Chips are down for US casinos

WASHINGTON: US casinos have run into a string of bad luck as the recession and other factors cut into gambling revenues, even as more states move to get a piece of the action.

Gaming revenues in the 12 US states authorising casinos fell 5.7% in 2009 to US$30.7bil, according to a preliminary estimate by the American Gaming Association, a trade group.

This followed a 4.6% drop in 2008 gross gaming receipts, the figures showed.

Gaming industry analysts say the recession has hit gambling along with all other consumer and leisure activities. But some say other factors are hurting casinos, including new entertainment offerings such as Internet gambling, which is illegal in the United States but according to some surveys is still widely practised.

A study by market research firm Mintel showed that 30% of adults visited a casino in the past year, down from 35% in 2001 – a 14% decline.

“This shift has been gradual, which suggests that this is not a result of the recession,” said Billy Hulkower, a Mintel senior analyst.

A file photo of the entrance to Bill’s Gamblin’ Hall & Saloon in Las Vegas. Gaming revenues in the 12 US states authorising casinos fell 5.7% in 2009, according to a preliminary estimate by the American Gaming Association. — AFP

 

Hulkower said the trend suggests little or no growth in casino attendance over the past decade, a period that included two recessions and an economic upturn. This meant economics was not the only factor, he said. — AFP

Enter the smartphone war

THE war of the smartphones has definitely begun! 
However analysts don't expect a major price war.

History has proven that dominance cannot be enjoyed by one party for too long. So indeed, while Maxis had enjoyed monopolistic dominance on iPhone over the last one year, this will soon come to an end with DiGi.Com Bhd also tying up with Apple Inc for the rights to distribute the world’s most exciting phone.

DiGi expects to start selling iPhone 3G and 3GS in the “coming months”, chief executive officer Johan Dennelind said in a Bloomberg News report. Reports have also indicated that Celcom Axiata Bhd may consider doing the same.

A HTC smartphone (left) and an Apple iPhone seen at a mobile phone shop.The iPhone phenomenon has revolutionised the global mobile phone industry.

 

The iPhone will be sold by DiGi before mid-year which may spark a price war on services and packages in the smartphone market.

On its website, DiGi said that those already with an iPhone could switch to any of DiGi’s existing postpaid and prepaid rate plans.

Celcom chief executive officer Datuk Seri Shazalli Ramly said the company’s infrastructure can support the device but a big hurdle to securing the iPhone deal is the commercial terms that both parties cannot agree on.

In Malaysia, market research company IDC claims that Maxis last year sold 91,000 units since the launch in March 2009 and the shipments included both the iPhone 3G and iPhone 3GS.

The iPhone phenomenon has revolutionised the global mobile phone industry, with operators in matured markets such as Britain and the United States benefiting from increased usage of data services. Based on the packages signed up by Maxis iPhone users, average revenue per users is significantly higher.

“I spend a lot more money on my monthly phone bills and use a lot more of the services connected to the device. I now use close to 25Mb per month from almost zero previously,” says an analyst who is an iPhone user.

Huge brand penetration

For DiGi, the iPhone deal could help boost its non-voice revenue, which now makes up less than 20% of group revenue. This segment contributes over 30% to Celcom and Maxis.

For the last two years, mobile operators have increased their focus to sell more wireless broadband services, including unlimited data packages for smart phones and lap tops.

In Maxis’ and DiGi’s bid to outwit each other in the war of the iPhones, analysts don’t expect to see major price reductions.

“I don’t expect there to be a major price war happening anytime soon. Telco operators rarely benefit from waging a price war that would entail further value destruction. In the case of the iPhone, the differentiating factor could be the ‘perceived value’ of the plans that will be offered which could potentially be bundled with voice and data” says OSK telecommunications analyst Jeffrey Tan.

He feels that DiGi will reposition its plans and leverage on its value propositions to offer more attractive packages, to cater to the youth market for instance.

“There is pentup demand for iPhones, especially in countries where there is a large addressable youth segment which are technology receptive and technically savvy. In Malaysia, the steep price points of the handset and plans are key deterrents. Hence, I don’t see DiGi’s entry into the iPhone market colliding with Maxis head-on,” says Tan.

In fact, he feels that DiGi may open a whole new market segment for the iPhones.

A telco analyst from a local house feels that end consumers will be the main beneficiaries.

“Operators still need to incur huge capital expenditures for their respective networks, so I doubt anyone of them will embark on fierce price ways,” says a telco analyst from a local house.

An analyst from a bank-backed research says that the iPhone will help DiGi compete with other players. However, its efforts may be hampered if it does not improve its 3G coverage.

“DiGi still needs to address its issues of providing a better and faster network as well as better customer service,” he says.

“For instance, an iPhone user who stays in Kota Damansara will continue using Maxis services because in that area, DiGi does not have 3G coverage,” he says.

He adds that while there will initially be some competition, eventually data plans in terms of pricing and packages will almost be similar.

“I don’t believe the iPhone will change the market share position of the players too much. As it is, cracked iPhones in the last one year have already been operating on DiGi’s and Celcom’s network,” he says.

Nonetheless, this analyst believes that the iPhone will be able to improve DiGi’s as well as Maxis’ average revenue per user.

The Android

The iPhone, too, won’t enjoy single dominance for long. Another Smartphone is coming to town. Google’s Android phone is set to make its debut in the second half of this year.

While many feel that Apple’s iPhone first-mover advantage will still render it the most popular phone in Malaysia, it’s possible for the Android to steal a sizeable amount of market share from the iPhone.

For one thing, Apple has a closed system, which is exclusive only to the iPhone. The Android, however, operates on an open-source operating system which means it can be used by a wider array of phones.

Companies that make phones that run on this system include Taiwan-based HTC, which also makes phones for AT&T (T), Sprint (S), T-Mobile, Verizon (VZ) and US Cellular.

“Apple does have a headstart. It now has close to 140,000 applications and is growing everyday. Over the longer run, however, Apple’s closed system may make them more as a niche player while the open Android system may become more mainstream. But the Android will eventually catch up,” says one telco analyst.

Another analyst agrees.

“Its biggest weakness (which is also its biggest strength) is that there is only one iPhone. It’s a cool branding and has hype surrounding it. The Android will very likely run on hundreds of devices, in every market in the world, and is the only platform other than the iPhone that has a proper applications market. So, yes, it will give the iPhone a run for its money,” he says.

He admits though, that Google will need time and investments to roll out its applications.

He also points out that Apple’s strategy has never been to appeal to the mass market. Right from the start, it was targeting the high price markets with higher margins. It was never the plan to go after the lower mass priced market.

“Unlike the iPhone, the Android will most likely have the highest chance of ‘casual buyers’ – people who just browse into a store with no idea of what phone to buy,” says the analyst.

Right now, the iPhone is sold in 85 countries and has about 140,000 applications that can be downloaded.
A recent report released by Gartner said Apple iPhone’s sales had doubled in 2009, with 24.9 million units sold in 2009 against 11.4 million units in 2008.

By Tee Lin Say

Up Close and Personal with Richard D. Brynteson

NEARLY every morning, a tall caucasian makes his way to the neighbourhood Hailam Kopitiam, located somewhere off Old Klang Road, Kuala Lumpur. The cafe has become the haunt of the Concordia University’s professor from the College of Business and Organisational Leadership Richard D Brynteson over the past month.

On mornings that he does not turn up, it gets the Myanmar staff wondering about his absence.

Brynteson goes there to write and reflect. It is a time of renewal and assessment as he savours the scene before him and compares life here with another back home; where eight lakes are just a five-minute drive from home and he can just throw his kayak atop the car to get some fun.

So while his body is in that kopitiam, his mind and spirit is far away in another world, in another time.
Brynteson is from Minnesota, USA but he’s lived in different parts of the world doing different things other than teaching.

Occasionally, he engages in conversation with the staff from Myanmar. Divided by a deep chasm, he is a professor and they, waiters from another foreign land, they have somehow come together, drawn to each other because of their comradeship as foreigners in a country not their own, learning about life in a strange land.

“Coming here has taken me out of my comfort zone. People here do things differently. It jars me and makes me look at life and things differently,” he says.

Brynteson is here on a six-month sabbatical. While he is here, he aspires to do a number of things. He is writing a book on innovation; he has published two on other subjects and has a series of published works.
Brynteson is a man of many talents and interests. Maybe that is why he feels so pulled in different directions. There are many things he would like to do – being a war correspondent is one of them – but like most of us, he is limited by human frailties.

Before coming here, there were several options he had considered. One of them was to save the children in Haiti immediately after the earthquake. His brother-in-law is there, helping out.

“I told myself, they need people who are doctors. I have no practical skills but paint with water colours and make Christmas cards. I don’t have a skill to help out. I can’t build orphanages or houses, although I have washed dishes in four continents.”

He pauses a few seconds. “I’d like to be a war correspondent, but I don’t think that is going to happen.”
There are so many things he would like to do, yet he is cautious, to the point of being self-deprecatory despite his many achievements.

“I am not a risk-taker,” he says simply. That is ironic because as one goes through his resume, he seems to have taken a great many risks in his 54 years – his published works, workshops, seminars and presentations run into several pages, likewise the training he has had and the consultancy work he has done.

Although Brynteson’s background is in marketing, he has moved on to various subjects. He taught advertising, human relations, management, and organisational behaviour.

He is now lecturing on creativity and innovation. How he goes about doing that is baffling but while he is here in Kuala Lumpur, a consultancy has lined him up to do an interactive one-day workshop on Innovation for Managers and Team Leaders: The Manager’s Innovation Toolkit.

“You teach creativity and innovation by asking questions.”

There were times when he told his students to list down 25 questions about a pram, or an orchid. They are not going to leave the classroom until they do. The objective: to sharpen their creativity and questioning mind.
Brynteson does not seem to be aware of it but in many ways, he is more than a teacher. He is a leader and a motivator.

Yet, from the same man, came this statement: “The most important quality is self-awareness – how well do you know what you are good at, and what you are not.” And that is the single most ironic thing about this man. He is a leader in his own right and yet does not seem aware of it.

Loving life and people

Brynteson loves life and people. And it is this single factor that has taken him out of his comfort zone, time and again, to different parts of the world to work on different things. He’s worked on a kibbutz (a farming community where people live and work, sharing profits and decisions) in Israel.
He has been at one time an assistant manager in a coffee plantation in Guatemala, Latin America.
He has also worked with Wycliffe Bible Translators in Ecuador, South America and studied art history in Florence, Italy.

In short, he has done a myriad of things not connected to teaching, marketing or innovation. But all these experiences and encounters have made him a better teacher, leader and friend. And his enthusiasm for people and living comes across.

“I love teaching and working with students. I want to open up their minds to different possibilities. I cannot believe that at the end of the evening, from 5.30pm to 9.30pm, I am paid to do something I like.” Therein lies the enthusiasm and hope for his students and the people he encounters.

Brynteson holds a strong connection with his students. Until today, he is still in contact with students he taught high school history in 1980.

“I enjoy my students. Many of them love a challenge. They see a problem and ask themselves how they can solve it. They are tenacious and will not let go (of hope) of their goals.

“I like people who have a heart and mind and who cares more than just about how to make more money. I like people who grow and who are challenged. All of us go through different stages of life. At 40, we are different when we were 30. When they are in my classroom, I am there to take them part of the way.”

Brynteson says one of his students went from a secretary to become an executive vice-president; she is now retired and runs a quilt shop. Another went from a bank teller to vice-president of marketing.

“It gives me tremendous pleasure to see them grow and come up to their full potential.” While some of his students have risen up the corporate ladder, others made decisions which positively touched the lives of others because they believe in doing the right thing.

“One of them told me, ‘yes, Richard, I may have lost US$7mil, but I’m glad I did the right thing. I have built a community for senior citizens, where they can go to the doctors, the coffee shop, and the lawyers, all within a community.’ Another has built an office where you can jump from the second to the first floor to de-stress.

“All of us work very hard and there are times when we need to de-stress and have some fun. There is a minor league team in Minnesota. Their tickets are sold out game after game. There’s a pig that runs around the place. People enjoy going to the games. It’s not about winning or losing. People don’t care about that but they are there to have a great time. It is about entertainment.”

Creativity and Innovation

Brynteson’s interest in creativity and innovation came about as a result of the comments of people around him. He is pretty much a thinker, analysing situations and problems in order to find a solution. There was a time when he was in the chemistry industry and had to develop non-toxic oven cleaners.

From products, he went on to marketing and developing strategies for marketing. But at the root of all that interest him is the mind and the thinking process.

He takes the ordinary and mundane, and considers how the actions of today is going to impact the future.
In his book Once Upon A Complex Time, he writes: “System thinking is thinking with wide-angle lens, not telephoto lens. (It) is seeing the connections between parts, not just the parts themselves. (It) is seeing the patterns and structures underneath events, not just the events themselves, (It) is examining the time and distance between cause and effect. Systems thinking is circular, not linear, thinking. (It) is an excellent problem-solving tool.”

Let’s take systems thinking and consider how it has affected Brynteson himself. Because he’s been told often enough about his creative ideas, he went into lecturing the subject. He has learned from those around him that he is good in this.


“People keep telling me that I am creative. I kept coming up with new ideas for this and that. That was how I got into this creativity and innovation lectures. Creativity is being able to look at things and situations differently and innovation is applied creativity. Innovation is taking something and making it useful.

“We need to think innovatively. Most innovations are not coming from people who are brilliant but from collaboration between government agencies, corporations, think tanks, universities and foundations. It is not something that comes overnight but it is a process of working together for the common good,” he says.

By Thean Lee Cheng

Icelanders reject deal to repay British and Dutch

(Reuters) - Icelandic voters vented their fury on Saturday at the bankers and politicians who ruined their economy, overwhelmingly rejecting a $5 billion deal to repay debts to Britain and the Netherlands, early results showed.

Crisis in Credit

The outcome of the referendum had not been in doubt since Iceland had recently been offered better repayment terms than those contained in the deal on which residents were voting.

Partial referendum results from around a third of the cast votes showed 93 percent opposed the deal and less than 2 percent supported it. The rest cast invalid votes.

But the rejection will still have major repercussions, keeping financial aid on hold and threatening to undermine the center-left government of Prime Minister Johanna Sigurdardottir.

"This has no impact on the life of the government. We need to keep going and finish the (Icesave) debate. We have to get an agreement," Sigurdardottir told public television.

The referendum, Iceland's first since independence from Denmark in 1944, was forced by the refusal of Iceland's president to sign a law in January on repayment terms negotiated by the government and approved by parliament.

He cited public anger at the time. Since then, the anger of the people on this recession-hit island has only grown.

While polls show Icelandic people believe the debts should be repaid, residents bitterly resent being stuck with a bill for the mistakes of a handful of bankers under the watch of foreign governments. The Icesave debts come to more than $15,000 for each one of the 320,000 people on the island.

The debts arose after Iceland's top banks all collapsed within days of each other in 2008, brought down when credit dried up in the global financial crunch.

Around 400,000 savers in Britain and the Netherlands had deposits with one of the banks in so-called Icesave online deposit accounts. The two countries compensated the savers and since then have demanded their money back.

What makes the impasse all the more problematic is that the International Monetary Fund is waiting for the affair to be resolved before resuming financial aid, money which is crucial if Reykjavik is to rebuild a shattered economy.

Iceland, Britain and the Netherlands have been in on-and-off talks for weeks to try to reach a new deal. They started talks once it became clear which way Icelandic people would vote.

But a deal has proved elusive. Britain and the Netherlands softened terms, offering a variable interest rate instead of the relatively high fixed rate contained in the old Icesave deal.

Reykjavik held out. The issue has become so emotive that the government is under pressure to come up with a deal that will clearly be acceptable.

Turnout was high despite freezing rain and howling wind -- not uncommon for March in a country near the Arctic Circle.

A group of several hundred protesters gathered, saying that Iceland should focus on helping its own citizens get through the crisis before repaying foreign obligations.

"No Icesave. No traitors in power. The nation is innocent." read one banner. "Save our homes instead," read another in a loud protest reminiscent of the "Pots and pans revolution" which helped bring down the previous Icelandic government a year ago.

"We want to pay our debts, but we want to do it without going bankrupt," said Steinunn Ragnarsdottir, a pianist who voted in Reykjavik City Hall with her two-year-old daughter.

No political parties are backing the "Icesave" accord agreed in late 2009, not even Sigurdardottir who brokered the deal. She has vowed to stay on after the referendum and said she would not cast a vote in the ballot.

INTEREST RATES

Ultimately, most of the money is likely to be raised eventually by the sale of assets of Landsbanki, which operated Icesave accounts before folding in October 2008.

The focus of the negotiations is therefore the interest on the loan, which Icelandic officials say could knock about $1 billion off their costs.

The Netherlands appears to have hardened its position by linking Icesave with Iceland's hopes to join the European Union.

Brussels invited Reykjavik to accession talks last month.

"The situation has changed," Foreign Minister Maxime Verhagen was quoted as saying by ANP news agency on Saturday.

"Iceland has launched a referendum and the negotiations went wrong. I see that accession negotiations are an additional tool to enforce the agreement with Iceland," Verhagen added.

Iceland's central bank already expects the economy to contract more than 3 percent more this year after a steep fall in 2009. Failure to reach an Icesave deal could make the economic pain much worse, with no aid coming in and foreign companies delaying or scrapping projects.

The Icesave row with the two European Union countries has also rekindled anti-EU sentiment. Support for membership has been falling and is now opposed by more than half of Icelanders.

(Additional reporting by Daniel Zdolsek in Reykjavik and Ben Berkowitz in Amsterdam, editing by Charles Dick)

Rise of the market state

WHEN the Berlin Wall fell in 1989, free market fundamentalists crowed that it was the end of central planning and the triumphalism of their philosophy. Twenty years later, with excesses of fiscal spending and having to bail out the banking system, the Western economies all have very large state involvement in the economy and fiscal deficits are historical huge by any standards.

No country today can claim with an honest face that their banking systems are totally private owned. Many are still being kept on life support by huge deposit guarantees and cheap funding by central banks, including large state ownership. In order to generate employment, governments are spending unprecedented amounts.

How big is the size of the state in the total economy? The more advanced economies tend to have very large governments. France has government expenditure around 50% of GDP and the US at 40% of GDP. By comparison, China and Indonesian government expenditure are only 20% of GDP. According to historical data, for most of Chinese history, government revenue never exceeded 10% of GDP.

Government has grown in size due to growing demand for government services. The minimum government services are defense, security, health, law, infrastructure and education. Government was not always financed by taxation. Throughout history, government has been financed sometimes by monopoly over certain activities, such as sales of salt, tobacco or alcohol. Thus, including state-owned enterprises into the sphere of government activity would increase the size of the public sector.

As Asia grew faster than the West, there has been considerable unease that Asian governments have been much more intrusive and mercantilist than the advanced economies. When Japan became the first Asian economy to join the ranks of industrial countries, the Japanese government was quite keen to push the Japanese model of development, especially the positive role of the public sector. In the 1980s, the Japanese government financed a World Bank Study on the Asian Miracle.

The World Bank economists, who were imbued by free market philosophy, were initially unwilling to accept the fact that governments have a major positive role in economic development. But as they dug into East Asian growth, they realised the strong role government played in fostering sound markets. Indeed, without an active role of Asian governments in building up the infrastructure, devoting resources to education and health and providing political stability and protection of property rights, Asian markets could not have grown so fast. The World Bank economists admitted that Asian state-market cooperation succeeded because the state “mimicked” the market.

Even though the free market World Bank economists hated the idea of governments “picking the winners”, they had to admit that Asian technocrats somehow did select the key industries to develop, but with crucial input from the market. They did not pick winners from thin air, but worked with the market and had good feedback on when to advance and when to retreat.

With the failure of central planning, free market philosophy gained dominance. Throughout the advanced economies, the philosophy was to reduce the role of the state and roll back government intervention. For the developing economies, the advice was to privatize, whereas for the advanced economies, former government activities became joint-ventures through what is known as Private-Public Partnerships. When the governments could not afford to undertake any infrastructure investment, the private sector was invited to invest through Build-Operate and Transfer contracts.

In many countries, this strategy worked and efficiency did increase. But in other countries, privatisation became “piratisation”, in which politically connected elites enjoyed the perfect game – private profit at public expense. Indeed, while economists argued for free markets, the democratic movement was arguing for exactly the opposite, more and more government intervention to deal with social justice, protecting the environment and better social infrastructure.

The global financial crisis has laid bare the free market dogma. The market cannot solve all problems and may create excesses that need to be curbed. If regulation is too market friendly, the system may be captured so that “too large to fail” institutions can hold whole countries to ransom. Indeed, global banks have become larger than national governments who were forced to bail them out with public debt. In less than five years, the US public debt has doubled to 100% of GDP. Governments have been forced to be more intrusive in markets because of the high cost of moral hazard.

Actually, where Asian government has succeeded is not whether the government led the way, but where the balance between government and the market was delicately calibrated. Economies work well where governments knew how to let the market work where it functioned best and the government concentrated on what it did best. The idea of Hong Kong being the freest market in the world is a bit of a myth, considering that half of Hong Kong citizens live in government owned low-cost housing and the government provided superb social welfare. Positive non-intervention did not mean no intervention.

It meant that the government provided the environment for the private sector to thrive, without competing directly with the private sector. How far the pendulum has swing is demonstrated in the recent report that US regulators have begun to ask hedge funds not to destroy trading records on euro bets, as Europe and the US step up scrutiny of the funds’ role in the Greek debt crisis. I still remember when Asian governments asked the developed markets to investigate the role of hedge funds, the advanced market regulators were so skeptical of market manipulation that they set up task forces to prove that the hedge funds were not responsible for the market turmoils in Asia.

By contrast, China recently approved the use of short selling, whereas in 2008 the leading Western banks were the first to complain to their regulators to ban naked short-selling on their stocks to prevent their meltdown.

Regulators investigating the role of hedge funds speculating on the euro would be wise to start measuring the proprietary trading position of their large banks and prime brokers first to find out whether these positions are larger than those of the hedge funds. During the Asian crisis, I learnt that it was not always your enemies who are acting against your interests. If you have friends like these, who needs enemies?

● Datuk Seri Panglima Andrew Sheng is adjunct professor at Universiti Malaya and Tsinghua University, Beijing. He has served in key positions at Bank Negara, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission, and is currently a member of Malaysia’s National Economic Advisory Council. He is the author of the book “From Asian to Global Financial Crisis

Dirty Air in California Causes Millions Worth of Medical Care Each Year, Study Finds

ScienceDaily (Mar. 5, 2010) — California's dirty air caused more than $193 million in hospital-based medical care from 2005 to 2007 as people sought help for problems such as asthma and pneumonia that are triggered by elevated pollution levels, according to a new RAND Corporation study.

Researchers estimate that exposure to excessive levels of ozone and particulate pollution caused nearly 30,000 emergency room visits and hospital admissions over the study period. Public insurance programs were responsible for most of the costs, with Medicare and Medi-Cal covering more than two-thirds of the expenses, according to the report.

"California's failure to meet air pollution standards causes a large amount of expensive hospital care," said John Romley, lead author of the study and an economist at RAND, a nonprofit research organization. "The result is that insurance programs -- both those run by the government and private payers -- face higher costs because of California's dirty air."

While much work has been done previously to catalog the economic impact of air pollution across California, the RAND study is the first to quantify the cost of hospital-based medical care to various payers caused by the failure to meet federal clean air standards across the state. More people in California live in areas that do not meet federal clean air standards than in any other state.

Romley said the findings show that private insurers, employers and public insurance programs all have a financial stake in improving California's air quality.

"These costs may not be the largest problem caused by dirty air, but our study provides more evidence about the impact that air pollution has on the state's economy," Romley said.

Researchers used records from air pollution agencies and hospitals to estimate how failing to meet federal and state standards for particulate matter and ozone would affect private and public insurer spending for hospital admissions for respiratory and cardiovascular causes, and emergency room visits for asthma throughout California from 2005-2007.

Researchers say the most common hospital-based medical care triggered by elevated air pollution levels are emergency room visits for asthma among children aged 17 and under, with more than 12,000 visits over the three-year study period.

The most costly conditions examined by researchers were hospital admissions triggered by air pollution for acute bronchitis, pneumonia and chronic obstructive pulmonary disease. Those conditions accounted for nearly one-third of the $193 million in health care spending documented over the study period.

Nearly three-quarters of the health events identified by researchers were triggered by high levels of fine particulate pollution -- tiny pieces of soot that can lodge deep in lungs. The health events examined in the study were concentrated in the San Joaquin Valley and the four-county South Coast Air Basin.

The cost of treating health events caused by air pollution is equal to the expense of providing flu vaccines to 85 percent of California children under age 15, according to the report.

Researchers say their study provides a conservative estimate about the costs of medical care triggered by air pollution because it does not include outpatient care provided in clinics or medical offices. Details about that type of medical care are not routinely reported to state agencies and thus could not be analyzed.

The study also includes case studies of individual hospitals in Fresno, Lynwood, Palo Alto, Riverside and Sacramento. That analysis demonstrates that costs and types of illness reported vary by region.

To conduct the study, researchers used epidemiological studies that link elevated pollution levels to respiratory and cardiovascular illnesses, and compared that information to pollution levels measured across the state from 2005 to 2007 by various public agencies. Researchers also reviewed detailed records hospitals report to the state about the patients they treat, the illnesses diagnosed and who pays for that care.

The study, "The Impact of Air Quality on Hospital Spending," is available at www.rand.org. Support for the study was provided by the William and Flora Hewlett Foundation. Other authors of the study are Andrew Hackbarth of the Pardee RAND Graduate School and Dana Goldman of RAND and USC.