Action and reaction

Behind The Headlines
Bunn Nagara

The continued rise of China takes several turns, with each one prompting revealing reactions abroad.

CHINA’S economic ascendancy is already old hat, stunning as the curve still is. But what is particularly compelling is its international fallout.

How do others react to China’s soaring trajectory? A glimpse was available during the week, when GDP figures for the second quarter surpassed Japan’s to make China the second-biggest economy in the world.

China’s number two status had been known for weeks already and previously its GDP had also overtaken Japan’s temporarily. However, as Japan continues to stagnate and China to grow, the gap between them is now expected to stay in China’s favour, making 2010 the year it becomes the world’s second-biggest economy after the United States.

Japan gave up its title as number two after 42 years in resigned acceptance.

 

Economic powerhouse: A child playing at a sculpture of a laptop computer merged with an abacus as its monitor in Shanghai on Friday. China has overtaken Japan to become the second-biggest economy in the world. — AP

 

Academically, this was a foregone conclusion, since both China’s growth and Japan’s stagnation – notwithstanding a brief respite in the first quarter this year – had been evident for years.

Popularly, a sense of lethargy seems pervasive, with little imagination or hope of how to turn things around.
Politically, attention is focused on managing consumption, subsidies and production incentives rather than challenging China.

Japanese businesses could hardly be more bullish on a booming China, particularly when they have been investing so much for so many years there.

Increasingly, Japanese industrialists are acutely aware of the potential of the world’s biggest production house and the most extensive market just next door.

The same sentiments are shared in Taiwan, if anything more so. Official notice of China eclipsing Japan economically came in the same week as approval in Taiwan’s legislature for a landmark Economic Co-operation Framework Agreement (ECFA) slashing tariffs across the Taiwan Straits.

This was a moment, enabled by a Kuomintang majority in the Legislative Yuan, that Taiwanese businesses had been waiting for.

Bilateral trade across the straits, already at US$110bil (RM346bil) annually, is set to multiply much more.
The opposition Democratic Progressive Party tried to block passage of the deal by warning that it would mean excessive dependence on the mainland, to no avail.

Their mistake was in seeing the ECFA as facilitating this dependence, when it is only a symptom of it.
The ECFA includes a host of features for mutual consultation, review and fine-tuning that will enhance and enrich cross-straits relations.

By encouraging Taiwanese businesses to explore and profit from dealings on the mainland, Taiwan’s business community as a whole would soon be convinced of improving bilateral ties all-round.

All of this might seem to prod the United States into self-doubt in the region.
Its decades-old bilateral relations with Japan as “the most important bilateral relationship across the Pacific” had just been eclipsed by its relationship with China.

Now that China’s rising economy has driven the point home by eclipsing Japan’s, what next?

Whither the 1951/60 US-Japan security treaty? And with cross-straits relations swirling into a new configuration, what would happen to the US “security understanding” with Taiwan enshrined in the 1979 Taiwan Relations Act and all its nuances?

A rising China is not doing anything significant to upstage US military dominance of East Asia but some militarists see its hulking economy to be making waves nonetheless.

But in being militarists, they have no proper response to developments in the economic realm.
The day after Taiwan’s legislature passed the ECFA convincingly, Adm Robert Willard, head of the US Pacific Command, said in Manila that the United States opposed the use of force in South China Sea disputes.

This followed comments by Secretary of State Hillary Clinton last month that the United States had a “national interest” in seeing the disputes resolved diplomatically, upsetting China.

The problem was not over disputes having to be resolved diplomatically but about the United States seeing itself as having a national interest in the region.

It could mean that US forces would intervene to defend those perceived interests whenever it deemed appropriate.
That came after officials in Beijing reportedly told a visiting US delegation in March that the South China Sea was a “core national interest” of China.

How far would the United States want to pit itself against China in the region and for how long would the United States want any such conflict to last?

Adm Willard’s talking points were neither new nor ever disputed by any country in the region. But why they were made at the time could bear some examination, particularly when he added that countries in South-East Asia were concerned with China’s military assertiveness.

This outlook contradicts many perceptions in the region, as have been communicated to the latest Pentagon survey.

Its current annual report to Congress, Military and Security Developments Involving the People’s Republic of China 2010, cites China’s military build-up continuing “unabated” but also acknowledges its ability to sustain military power at a distance “remains limited”.

At the same time, US military exercises in the region amount to overt posturing in playing to a Beijing audience.

The more hawkish media in the United States and East Asia then pick up on these events and spin them through their respective prisms.

More of the same can be expected when China’s PLA Navy begins work on its first aircraft carrier later this year.

Other countries in East Asia are unlike the United States not only in terms of size and strength but also in simply being here – which means they cannot end a regional conflict by simply withdrawing troops.

China’s rising economy need not provoke a military face-off with anyone but could instead foster closer ties as Japan and Taiwan have found.

Economic pre-eminence should not have to trigger a military response, least of all the kind of military intervention proven disastrous elsewhere.

Car loan takers top bankruptcy list

By LEE YUK PENG
yukpeng@thestar.com.my

PETALING JAYA: At least 500 people who take out hire-purchase loans for vehicles are declared bankrupt every month.

The majority, comprising 37% (950) of the 2,565 cases in the first five months of this year, were aged between 35 and 44 years. (See Table)

Insolvency Department director-general Datuk Abdul Karim Abdul Jalil told The Star the incidence of bankruptcy from unserviced car loans was extremely high in the first five months of the year, an average of 513 cases a month.

He said this was in contrast to the average of 330 cases a month last year, 227 in 2008 and 265 in 2007.

He added that becoming bankrupt because of one’s inability to service vehicle loans had also topped the list of bankruptcy cases in Malaysia, accounting for about 24% of the total 80,370 cases between 2005 and May this year.

“Personal loan borrowers and business loan borrowers accounted for 12% and 11% of the total number of bankruptcy cases respectively within the same period.”

Once a person is declared a bankrupt he will be restricted from, among others, travelling overseas, holding the post of company director, and will have to give up his assets, including property and cars.

He must contribute to the bankruptcy estate, and will only be discharged once the sum owed is settled.

Abdul Karim is concerned that the number of bankruptcy cases involving car loans among those aged below 25 had shot up to 156 last year, against 55 cases each in 2008 and 2007.

There were 27 such cases as at May this year.
Under the hire purchase agreement, the bank repossesses the car if the borrower defaults on the monthly instalments for three consecutive months.

It will sell off the car to recover the sum owed and if the amount still owed is more than RM30,000 the bank will file a bankruptcy petition in the High Court.

In cases where the sum owed is below RM30,000, the bank will wait until the amount, with accumulated interest, balloons to RM30,000 before filing the petition.

On the rising incidence of bankruptcy involving those taking car loans, Fomca claims there is a reason why banks prefer to repossess and sell the cars instead of negotiating with the borrowers to come up with a scheduled repayment that they could afford.

According to its secretary-general Mohd Sha’ani Abdullah, some bank officers receive kickbacks from car repossessors and auctioneers for giving them business.

He said Fomca had complained to Bank Negara on the zero downpayment for car loans as advertised by some car salesmen last year: “How can this be allowed when borrowers have to pay at least 10% of the price as downpayment?”

Appeasing the Bond Gods

From Paul Krugman’s latest column:

As I look at what passes for responsible economic policy these days, there’s an analogy that keeps passing through my mind.

I know it’s over the top, but here it is anyway: the policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.

Hey, I told you it was over the top. But bear with me for a minute.

Late last year the conventional wisdom on economic policy took a hard right turn. Even though the world’s major economies had barely begun to recover, even though unemployment remained disastrously high across much of America and Europe, creating jobs was no longer on the agenda. Instead, we were told, governments had to turn all their attention to reducing budget deficits.

Skeptics pointed out that slashing spending in a depressed economy does little to improve long-run budget prospects, and may actually make them worse by depressing economic growth. But the apostles of austerity — sometimes referred to as “austerians” — brushed aside all efforts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said.

The skeptics countered that Greece is a special case, trapped by its use of the euro, which condemns it to years of deflation and stagnation whatever it does. The interest rates paid by major nations with their own currencies — not just the United States, but also Britain and Japan — showed no sign that the bond vigilantes were about to attack, or even that they existed.

Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same.
This was a strange argument even a few months ago, when the U.S. government could borrow for 10 years at less than 4 percent interest. We were being told that it was necessary to give up on job creation, to inflict suffering on millions of workers, in order to satisfy demands that investors were not, in fact, actually making, but which austerians claimed they would make in the future.

But the argument has become even stranger recently, as it has become clear that investors aren’t worried about deficits; they’re worried about stagnation and deflation. And they’ve been signaling that concern by driving interest rates on the debt of major economies lower, not higher. On Thursday, the rate on 10-year U.S. bonds was only 2.58 percent.

So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.

You see, then, why I find myself thinking in terms of strange and savage cults, demanding human sacrifices to appease unseen forces.

And, yes, we are talking about sacrifices. Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programs in Greece and Ireland.

Maybe those countries had no choice in the matter — although it’s worth noting that all the suffering being imposed on their populations doesn’t seem to have done anything to improve investor confidence in their governments.

But, in America, we do have a choice. The markets aren’t demanding that we give up on job creation. On the contrary, they seem worried about the lack of action — about the fact that, as Bill Gross of the giant bond fund Pimco put it earlier this week, we’re “approaching a cul-de-sac of stimulus,” which he warns “will slow to a snail’s pace, incapable of providing sufficient job growth going forward.”

It seems almost superfluous, given all that, to mention the final insult: many of the most vocal austerians are, of course, hypocrites.

Notice, in particular, how suddenly Republicans lost interest in the budget deficit when they were challenged about the cost of retaining tax cuts for the wealthy. But that won’t stop them from continuing to pose as deficit hawks whenever anyone proposes doing something to help the unemployed.

So here’s the question I find myself asking: What will it take to break the hold of this cruel cult on the minds of the policy elite? When, if ever, will we get back to the job of rebuilding the economy?

Building high performance teams

Leadership lessons from the ‘Special One’

SCIENCE OF BUILDING LEADERS
By ROSHAN THIRAN

“Ferguson is right. Money does not guarantee success. I showed that last season when my Porto team beat Manchester United. It’s all about leadership.” – Jose Mourinho

DURING the recent World Cup, I studied the work of leadership guru cum hostage negotiator George Kohlrieser on high performance teams.

As the new football season kicked off, I started to think about high performance sports teams. And immediately, one name comes to mind – José Mário dos Santos Félix Mourinho.

Jose Mourinho has built three high performance teams in the past few years. The moment he takes over the team, they quickly gel, start to perform and win trophies. How does Mourinho do it?

When Mourinho was asked what the secret to his success was, he humbly responded: “I pray a lot. I believe in God. I try to be a good man so He can have a bit of time to give me a hand when I need it.”

Mourinho may pray a lot but so do other coaches. Mourinho is probably the only coach who has a PhD, earning it from Lisbon’s Technical University.

But praying or having a PhD does not explain how he seamlessly builds high performance teams?
Let’s explore this paradoxical man. Mourinho, with his trademark Armani suit, is called crazy by some and genius by others. Despot and kind. Godly and arrogant. Loved and hated.

Yet, regardless of which team one supports, everyone, including women, has high respect for “The Special One”.

 In fact, when Mourinho left his old club Chelsea, his archrivals Sir Alex Ferguson and Arsene Wenger moaned his departure.

Even British Prime Minister Gordon Brown was sad.
In a recent AOS survey, Mourinho topped a poll of celebrities that most office workers would want as their boss.

He won the poll convincingly beating Richard Branson, Barack Obama, Oprah Winfrey, Jamie Oliver and others.

For corporate employees, Mourinho is the “Chosen One”, someone they secretly wish would transform their workplace.

So how does Mourinho keep creating these high performance teams?
According to Kohlrieser in his book Hostage at the Table, there are eight key pillars to high performance leadership:

1) Leading from the mind’s eye – the power of focus;
2) Cycle of bonding – motivation, inspiration, resilience;
3) Leader as secure base – creating trust to drive change;
4) Conflict resolution – resolving differences;
5) Power of dialogue – building bridges with common understandings;
6) High impact negotiation – influencing and persuading;
7) Leveraging strengths – team self-awareness; and
8) Managing emotions – creating high energy.

Leading from the mind’s eye

Mourinho wanted to be a professional football player like his father Felix. But he was so untalented that it ended in embarrassing failure when he was not even allowed on the field.

Mourinho quit football and went to business school. But after just a day, he quit and enrolled in a sports science course, deciding to become the world’s greatest coach instead. And since that day he has kept his mind’s eye focused on being the best coach in the world.

At Porto, Chelsea, Inter Milan and now Real Madrid, Mourinho’s mind’s eye keeps him focused on winning. Even in defeat, he refuses to take the role of loser.

Every team he has managed quickly bounces back from losses because their leader has his mind’s eye fixated on nothing but success.

“It’s no fluke that after a defeat, Inter gets straight back on its feet. That’s all thanks to Mourinho,” claims Diego Milito, an Inter Milan star. In fact, winning is so engraved as Mourinho expresses: “I love players who love to win. They not only win in 90 minutes, but every day, every training session, in every moment of their lives”.

The entire team’s mind’s eye is focused on winning.

Cycle of bonding

Mourinho creates bonds with every single player in his team and personally knows each of them. Mourinho is known for his great “rapport” with his players.

He knows each player intimately and knows which button to press for each player. Some say Mourinho is avuncular and caring, while others say he is an intimidating tyrant.

Neither is true. He simply worked out how to use differing training methods for each player. “His training sessions are spectacular,” says Ronaldo. “They have great intensity but we don’t feel tired because we are extremely motivated.”

Every team Mourinho coaches, bonds like a family. Mourinho adds: “You must create a positive atmosphere and make everyone feel part of the group. In this club, if you go to the barrier, the man at the door feels part of the group and success. The people who work in the kitchen feel part of this family. And I’m one of them.”

Leaders as secure base

Research shows that teams perform best when their leader is a secure base. Mourinho was a coach, friend and secure base to all his players wherever he went. Even with personal issues, he was highly visible and accessible to all players.

The day Mourinho bid farewell to his Chelsea players, there was tears everywhere. He knew them all including their wives and kids and mentioned each one during his three hour farewell.

Inter’s Milito says: “There is no coach like him when it comes to sticking his neck out and defending everyone, that way reducing the tension within the team when things aren’t going well.”

Mourinho is the players’ secure base. Frank Lampard attests of Mourinho: “I love him as a man and as a manager.”

Conflict resolution

All high performance teams are faced with conflict. According to Kohlrieser, high performance teams “put the fish on the table”. By putting the “smelly fish”, or conflict on the table, there is opportunity for everyone to see these issues and work to its resolution.

Mourinho does similarly by constantly delivering feedback and performance assessments to each player. Some players may not like having the “fish on the table”. Joe Cole once received some stinging feedback but took it under his chin and started performing.

Power of dialogue and language

When Mourinho went to Italy, he said: “I studied Italian five hours a day for many months to ensure I could communicate with the players, media and fans.”

It is said that Mourinho speaks 17 languages. He uses the power of dialogue and language to build common understanding of the clear goals he has set for his team.

A self-confessed fan of Ferguson, Mourinho not only became Ferguson’s close friend but great rival. Their bond and dialogue enabled two strong-willed men to build a friendship in spite of their rivalry. Mourinho uses dialogue and language to ensure every single player on his team has similar friendships with him and clear understanding of the end goal.

High impact negotiation

In March 2007, Chelsea was being outclassed in the first half of a Champion League game losing 1-0. A few minutes before half-time, Mourinho angrily storms out.

Chelsea came out of the dressing room a completely new team, winning the game. This happened numerous times throughout Mourinho’s career. Why does his half-time talk always work? He does not yell, he does not scream but he negotiates and influences his players to change.

“I asked the players to enjoy the situation,” Mourinho said of one of his half-time talks. “We had 45 minutes to change things, and I asked them ‘are you scared of it or are you going to enjoy it?’ Psychologically, I just made the players think a little bit.”

According to sports psychologist Andy Barton: “Mourinho will always look to turn a negative into a positive. If a team is 3-0 down at half time and the manager starts screaming about all the mistakes made, it doesn’t help. Instead he’ll focus on things they are doing right, and then tell them how they can turn the game around.”

Mourinho is very specific about what is required to win and influences his players to build a mental image of what is needed.

He spends significant amount of time preparing each player differently for games. He influences and persuades big stars to train and conform to his team patterns.

He treats them all as equals.

Leveraging strengths

Mourinho is a man who knows his strengths and limitations. He once said: “If Roman Abramovich helped me out in training we would be bottom of the league and if I had to work in his world of big business, we would be bankrupt!”

Mourinho understood what he was good at and what each member of his team was capable off. He worked within the strengths of his team and gets the best of each individual. Jim Collins, in his book Good to Great, talks about how great leaders build great teams by “getting the right people on the bus.”

Mourinho has trusted lieutenants that he brings into every team he manages. One of them is fitness coach Rui Faria, who has been with him at every club.

When Faria was asked what Mourinho’s secret was, he responded: “Every other top coach says they work hard and they prepare better than anyone else, but they can’t make what Mourinho does. Everything he does is better. He works harder than anyone else. He knows everything about every player and every game.”

Mourinho knows every single player’s strengths and weaknesses. He knows how to leverage their strengths fully as a team and minimise their weaknesses. And every single player knows each other’s strengths and this team self-awareness is the difference between Mourinho and other top coaches.

Mourinho himself displays great personal self-awareness when he quit football to focus on coaching. This “quitting” is termed the hedgehog principle by Collins.

It is simply to be very clear about what drives you and what you can be genuinely great at, and then relentlessly focus on that.

How many of us persist with things we know deep down, are not going to lead us to success? How many organisations persist on doing things the same way?

Insanity is doing the same thing but expecting different results. Once, Mourinho was termed insane for making three substitutions in the first half of a game he was losing. Mourinho was just addressing the brutal reality of a situation.

Mourinho learnt quickly that there is no relationship whatsoever between functional expertise and managerial ability.

Managing emotions

“Players don’t win you trophies, teams win trophies, squads win trophies,” rants Mourinho daily. But Mourinho does much more than build teams. He builds leaders in each team he manages. At Chelsea, more than half his first team became captains of their national team.

To ensure you build high performance teams, you need to grow leaders. Leadership is needed in every part of your team. You cannot be a giant surrounded by midgets.

When Mourinho arrived at Chelsea there were no stars – he fashioned them. John Terry and Frank Lampard were good players he turned into world class.

He says: “You must work hard and work well. Many people work hard, but not well. You must create good leadership with the players, which is an accepted leadership, not leadership by power or status.”

If we look at back at our careers, most will admit that the period we developed the most was when a manager pushed us to our limit.

Mourinho, more than anyone else, believes in pushing a person to their limits, enabling his team to constantly move out of their comfort zone and into a courage zone.

Final thoughts

That is the lesson of Mourinho. We need special ones. We need leaders like Mourinho who have their mind’s eye focused. “The thing about Mourinho is that you don’t know what he’s going to do next but whatever it is, it will be because he thinks it is beneficial to the team,” says Barton.

Mourinho built numerous high performance teams being an authentic leader through the power of bonding. He worked hard and had thorough forensic preparation for each match but his unique relationship with his players, and his relentless focus made the difference. What are you doing to build high performance teams?

Roshan Thiran is CEO of Leaderonomics, a social enterprise passionate about creating a few Jose Mourinhos’ in Malaysia. For more information on how your organisation can build leaders, call +60123291968 or login to
www.leaderonomics.com.

It’s easier to get into debt than out of debt

THINK ASIAN
By ANDREW SHENG

THE G20 has agreed at the Toronto Summit in June that their government deficits would be halved by 2013 and that their total debt levels would stabilise by 2016.

The position between the G20 advanced and emerging members could not have been more telling. In terms of growth, the emerging countries are averaging more than 6% per annum, whilst advanced countries are lucky to achieve more than 2%.

In terms of deficits, advanced G20 countries are running deficits at just under 9% of GDP, whilst emerging markets are running under 4%.

In terms of debt overhang, advanced countries have debt over 100% of GDP, whereas the emerging markets have debt less than 40% of GDP. There are two major reasons why the deficits and debt have run out of control for the advanced countries.

The first is the huge amount the advanced countries spent on bailing out their banking systems.

The second is the rising level of health care as their population ages. The emerging markets did not have the large banking crisis costs and their health care costs are lower due to their younger population.

What should the advanced markets do to get out of the debt? The Japanese again demonstrate how difficult it is to get back to fiscal rectitude.

In 1996, the Nakasone Government decided to try and rein in the fiscal deficits and raised the Valued Added Tax.

This plunged the Japanese economy back into a recession and the first failures of Japanese banks were the precursors to the Asian financial crisis of July 1997.

So, it is so much easier to print money and get into fiscal deficits than it is to reduce the debt. I must take my hat off to the new UK government for being brave.

In one of the most drastic spending squeezes of any country in recent memory, the new Chancellor of the Exchequer (British Minister of Finance) cut spending up to 25% for most government departments by 2014-15. He increased the VAT to 20% and imposed a US$3bil levy on the banking system. The area he did not dare to touch was cuts in the health expenditure.

Of course, the new Chancellor could easily blame the large deficits on his predecessor and hope that the spending cuts would restore market confidence in the UK and sterling.

He knows that if the markets lose confidence and the yield on UK government bonds increase, the rise in debt servicing would make the recovery even more slow, with stagflation as the most likely outcome.

Sterling could also suffer more devaluation, which could hurt inflation and also investor confidence in London as the premier global financial centre.

With a bold approach, private sector would invest and the UK economic recovery would come sooner than the other (less brave) advanced economies.

Unlike the Euro-zone countries, the UK can devalue its way out of a recession, since sterling has already depreciated nearly 25% from its peak.

Of course, if the UK economy is much more dependent on fiscal spending than previously thought, then the £40bil cuts would cause the economy to slow further, causing rising unemployment and in turn worsen the government finances.

No one knows how tough it could be to turn around a slowing economy. The G20 Summit papered over major differences between the key countries.

There was no mention of any agreement on specific bank capital increases, other than the language that bank capital should be kept at a level sufficient without further government intervention.

Furthermore, the US, Germany, UK and France back levies on the banks to pay for the crisis, whereas Canada, Brazil and India which did not suffer from bank losses, did not support any levies.

US Treasury Secretary Tim Geithner was right in that he pushed for growth to lift everyone out of further slowdown, as there is some fear that a double dip was in play. Germany, for example, is keen on austerity since it knows that as a major surplus country, it will have to bear the brunt of any adjustments in Europe and globally.

With almost all advanced countries having to deal with austerity, the only countries that have room to grow are the emerging markets. The emerging markets happen to have a different expenditure pattern from the advanced markets.

In the next two decades, the emerging markets will struggle with improving their infrastructure, because this was an area of gross neglect that the aid money and World Bank financing were cut back since the 1990s.

For example, in the last two decades, the World Bank switched resources out of infrastructure lending towards more lending for macro-economic and social spending.

This meant that project engineers were reduced in favour of macro-economists. Just when the emerging markets needed good advice on the viability and feasibility of infrastructure projects, the bank does not have enough project experts to advise them.

The real issue facing almost all emerging markets is where to put the scarce fiscal expenditure.
How do we get “more bang for the buck?”

It is very easy to increase non-growth generating expenditure, such as government debt interest servicing, military expenditure and more on bureaucracies.

In a time of scarcity, it is vital that governments spend money that will generate growth and employment.
This is exactly when spending on the rural infrastructure and raising rural income can change the mix of production from exports to domestic consumption.

Hence, it is only right that the recent World Bank capital increase accommodates more equity share by the emerging markets.

Given that most governments would be wary of cutting back the fiscal debt too quickly to hurt the growth recovery, one can be sure that a large fiscal debt overhang will be with us for quite a while yet.

The real fear is not too much debt, but that rising inflation and higher interest rates make the fiscal debt unsustainable.

The risk of that is not that high, but it is also not zero. The financial markets today are exactly reflecting the nervousness about the future.

Tan Sri 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”.

It's Gamers vs. Game Companies

Companies struggle to balance copyright technologies with players' interests.

By Erica Naone

Computer game companies use increasingly complicated software to protect against piracy. But these efforts can frustrate gamers, who protest that the protections restrict legitimate game play. Last week, Ubisoft, a company accused of using a draconian and convoluted protection scheme, backed down by announcing that its new game RUSE would use a less restrictive scheme.

Credit: Technology Review

The change highlights the tension between gamers and game companies regarding copy protection schemes. And it shows how companies struggle to balance fears over copyright infringement and the demands of their customers.

Legitimate copies of games, like other pieces of software, usually come with a unique code that unlocks it. But game companies are concerned about rampant sharing of pirated games online and the speed with which hackers can break ordinary "digital rights management" (DRM) schemes.

Earlier this year, Ubisoft launched a game called Assassin's Creed 2 with a controversial new "always-on" DRM scheme. The game required a player to be online so that it could check in with the company's servers to verify that the gamer had a genuine copy. Some players grumbled about the scheme before it even launched, and worried that the game would be unplayable if the company's servers went down, or if players didn't have a network connection. There was more trouble once the game went live--Ubisoft's servers couldn't handle the load of players, which meant that many people who had bought the game couldn't play it.

Richard Esguerra, an activist with the Electronic Frontier Foundation (EFF), says tensions tend to erupt when a DRM scheme violates customers' sense of ownership. "Gamers have an idea that if you bought it, you own it, and that's what's being violated here," he says.

Esguerra says an "always-on" DRM scheme can unfairly affect those who live in rural areas and lack consistent connectivity. He adds that such DRM schemes can render a game worthless if the company behind it goes bust or decides to stop supporting that title. Some games, such as World of Warcraft, need a connection to provide integral features. But Esguerra thinks players are offended when the connection isn't essential to the game play.

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Russ Crupnick, vice president and senior industry analyst for NPD Group, says the intricacies of DRM technologies don't matter to most consumers unless the system gets in the way. The key for companies, he says, is to find a system that's unobtrusive.

Ferdinand Schober, a graduate student in computer science at Georgia Tech who previously worked at Microsoft on the popular games Gears of War and Halo, says some companies are pursuing ever more restrictive DRM. One possibility is "executable content"--forcing players to download new pieces of a game as they progress through it. He says that hints on forums and in game code have led him to believe that companies are experimenting with this technology.

Ultimately, Schober says, companies are moving toward a model where hackers wouldn't just have to break through protections on a game, they'd also have to crack company servers. The unfortunate consequence, he says, is that it's getting more difficult for legitimate gamers to use and keep the products they buy.

But there are alternatives to DRM in the works as well. The IEEE Standards Association, which develops industry standards for a variety of technologies, is working to define "digital personal property." The goal, says Paul Sweazey, who heads the organization's working group, is to restore some of the qualities of physical property--making it possible to lend or resell digital property.

Sweazey stresses that the group just started meeting, but he explains that the idea is to sell games and other pieces of software in two parts--an encrypted file and a "play key" that allows it to be used. The play key could be stored in an online bank run by any organization, and could be accessed through a URL. To share the product, the player would simply share the URL. Anyone with access to the URL could claim the play key for himself, Sweazey says, meaning that users would be unlikely to share the URL on the open Internet.

Game makers are exploring other ways to encourage players to buy legitimate copies of a game, or to make money without relying on selling legitimate copies. These include adding special features that can only be accessed through official versions, and providing downloadable content for legitimate copies that expands a game's story or adds additional side quests and characters. Some games, such as those that run through Facebook, like Zynga's Farmville, are free to play but earn revenue by selling virtual items within the game.

Some game companies use copy protection that experts agree protect content effectively without restricting players. Schober and Esguerra both point to the DRM used by Valve's Steam, a site that sells downloadable games and allows online play. Schober notes that Steam is designed to be simple to use--gamers can download files ahead of release, and when the game becomes available, they get the codes needed to unlock them. This avoids situations such as the pounding that Ubisoft's servers received at the release of Assassin's Creed.

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Back-To-School Tips: Embracing and Practising Diversity

Newswise — Successfully navigating in a diverse community and getting the most out of your education to prepare for the world of work should be students' primary goals, regardless of gender, race, ethnicity, sexual orientation or ability. Here's how students can accomplish this, according to Ryerson University experts.

1. Know yourself - conduct a SWOT analysis- Strengths, Weaknesses, Opportunities and Threats - on yourself. Be honest. What are you good at? What do you need to improve? Leverage your strengths and work on your weaknesses. Grasp opportunities and mitigate threats.

2. Respect other perspectives - it allows for a healthy exchange of ideas - new and better ideas. Celebrate the differences - start by exploring new communities, foods and customs. Walk a mile in the shoes of someone who is different from you.

3. Be inclusive - each of us is different and we contribute differently. By working together we complement each other’s strengths. Include people of different backgrounds in your group.

4. Network, network, network - make friends with many different people in class, in school, and in all your external activities. Extend a helping hand to others and don’t hesitate to ask for help when you need it.

5. Display excellence in everything you do - whether it’s course work or volunteering with student associations. Don’t be afraid to display your accomplishments. And give credit where credit is due.

6. Set specific but stretch goals - push yourself to reach higher. Do not let the fear of the unknown hold you back. If you find something new and don’t know much about it, start a discussion. You’ll be amazed at what information you can gather.

7. Get out of your comfort zone - progress, innovation, and creativity happen when you are willing to stretch. Make it work for you. Talk to several people and ask for their opinion. It will help you get an all round perspective.

8. Find a mentor, be a mentor - mentors help us navigate paths and help open doors.

9. Give back when you can - mentor someone. Help others and practice your leadership skills. It’s good to ask what you can do for others and not just what someone could do for you. You will find it very rewarding.

10. Speak up - when someone acts in a disrespectful manner towards you or towards others.

Source: Ryerson University
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Experts available for interviews:
Dr. Wendy Cukier, MA, MBA, PhD, DU (HC), LLD (HC), MSC

Associate Dean, Ted Rogers School of Management
Privacy and Cyber Crime Institute
Dr. Margaret Yap, MIR, PhD

Assistant Professor, Human Resources
Director, Diversity Institute

Long-term debt: The real problem

America's Debt Crisis

 
By Jeanne Sahadi, senior writerAugust 19, 2010: 7:51 AM ET

NEW YORK (CNNMoney.com) -- Starting next month, lawmakers will argue until they are hoarse over what to do about various spending bills and the Dec. 31 expiration of the Bush tax cuts.
But make no mistake: The fevered debates will take place in a vacuum.

That's because lawmakers have yet to seriously address how to rein in the country's long-term debt. And that broader debate will involve significant policy changes: A likely overhaul of the federal tax code and a reduction in spending across the board.

Policymakers have been mostly mum on the issue. By December, however, they will have a harder time ignoring the matter, since they will have in hand reports from the Bipartisan Policy Center's Debt Reduction Task Force and President Obama's fiscal reform commission.

Both panels will starkly lay out the magnitude of changes needed to correct for two unpleasant realities.

The first is a combination of habit and circumstance.

For years, the country was spending more than it was willing to pay in taxes, and then it was hit by a gob-smacking economic and financial crisis that spurred a lot more spending to stem the pain of the downturn.

The second reality, however, is more worrisome to budget experts. Even after the economy recovers, the gap between money out and money in will persist largely because of long-anticipated demographic changes such as the aging of the population. And borrowing to fill that gap could become much more expensive than it has been.

Deficit hawks: A dangerous trajectory

This year, U.S. debt held by the public, which does not include money owed to Social Security and other government trust funds, will top 60% of the country's economy as measured by gross domestic product. By 2022 it is projected to reach 100%. And by 2035, it's on track to approach 200%.

By comparison, the average debt held by the public between 1960 and 2000 was just 37%, according to information from the debt reduction task force.

The large leaps in indebtedness mean, among other things, that by the end of this decade, the vast majority of all federal tax revenue will be swallowed up by just four things: Interest payments on the country's debt, and the payment of Medicare, Medicaid and Social Security benefits.

By 2021, the cost of annual interest payments alone would top that of the defense budget and itself eat up more than half of all federal taxes, according to information from the debt reduction task force.

On tap: The call for sacrifice

Getting the federal ledger on a more stable track means that future legislative dogfights won't be about what breaks to offer voters so much as what sacrifices to ask of them.

0:00 /5:18Higher taxes loom for the rich

"If we have not asked Americans to sacrifice, we have failed," said former Sen. Pete Domenici, R-N.M., who co-chairs the debt reduction task force with Alice Rivlin, the former White House budget director under President Clinton.

"And if we have asked you to sacrifice and you choose not to do it, we've failed again because we haven't convinced you that this is one of the few ordeals facing America that is as bad as being in a war," added Domenici, who used to head the Senate Budget Committee.

The task force, and the president's commission, have said that the entire federal balance sheet is on the table. And they're both likely to recommend spending freezes, a serious curtailment of many tax breaks and various reforms to entitlement programs, to name just a few.

Still, neither Domenici nor Rivlin believes the effort to deal with the country's long-term debt will be all spinach and no sugar.

"In every major problem that a great country like ours has, there is a silver lining," Domenici said. His group, for instance, will propose ways to simplify the federal tax code, which both parties have wanted to do for a long time.

Whether Congress chooses to adopt either group's suggestions is impossible to say. Many deficit hawks believe it will take nothing short of a crisis for Congress to act. A crisis such as the fall of the dollar, loss of confidence in U.S. ability to pay what it owes, rampant inflation, or a sovereign rating downgrade.

Rivlin is more optimistic.

"My hope is that after the [mid-term] election, both parties will see the advantage of working together to get part of this problem behind them," she said. "I believe people are sensible enough to come to grips with this problem long before we're facing a downgrade of U.S. debt."

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