(Originally published at FastCompany.com on August 30, 2011.)

Letting them eat cake has always been a surefire way to spark a revolution, but did a spike in food prices, as opposed to a thirst for liberty, ignite the Arab Spring? And is that just the first of a series of much worse conflagrations? That’s the conclusion of a scientific paper submitted for publication earlier this month by researchers at the New England Complex Systems Institute, which found a causal relationship between critically high food prices and social unrest.

Using the United Nations Food and Agriculture Organization’s Food Price Index as a benchmark, the paper’s authors argued that past a certain price point for food—which was crossed shortly before the global food riots in 2008 and again in late 2010 on the cusp of the Arab Spring—citizens begin to look at their rulers differently. To borrow the lingo of complexity science, the relationship between food prices and the consent of the governed is “non-linear,” i.e. “widespread unrest does not arise from long-standing political failings of the system,” the authors wrote, “but rather from its sudden perceived failure to provide essential security to the population.” All’s quiet, in other words, until a certain threshold is crossed, when all hell breaks loose. And now the bad news: If current trends continue, the authors note, prices will permanently cross that barrier as early as next July. Prepare for a lot of angry people.

What’s causing this run-up in prices, even as global cereals production is at an all-time high? The stock answer is increasing prosperity; an emerging middle class wants an American middle class diet. This dietary shift is non-linear, too—people don’t simply eat more grain, but switch to eating pork, which requires six times as much grain to raise it. (That’s why China has a strategic pork reserve and why Brazil has plowed under the Cerrado to feed it.) As Oxford economist Paul Collier notes in his book The Plundered Planet, the relationship between income elasticity and the price (in-)elasticity of food means that “quite modest increases in global income will drive food prices up alarmingly unless matched by increases in supply.”

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TBWA’s Maria Popova (a.k.a. @Brainpicker) included Aerotropolis on her recent list of seven must-read books about cities, joining such classics as Jacobs’ Death and Life and Mumford’s The City in History along with more recent excellent books such as Makeshift Metropolis and Triumph of the City. The entire list is here.

Last Tuesday, I appeared on New Hampshire Public Radio’s “Word of Mouth” to talk about my recent Fast Company column about China, outsourcing, and America’s industrial decline. You can listen to the entire segment here.

(Originally published at FastCompany.com on August 16, 2011.)

Resolved: “This house believes that an economy cannot succeed without a big manufacturing base.” This was the statement in question at an online debate between economist Ha-Joon Chang and Jagdish Bhagwati, hosted by The Economist last month. Chang, a student of industrial policy, defended the motion, while Bhagwati, an arch free trader, countered with dismissals of what he called the “manufacturing fetish.” Where does a nation’s prosperity come from, Chang asked rhetorically. “It has ultimately to come from productivity growth, which is faster in manufacturing, so a weaker manufacturing base means slower growth.” The debate wasn’t close—Chang carried the day with three-quarters of anxious readers’ votes. And the readers may have been right. As America has stopped manufacturing goods, it’s also sacrificed more than just simple, low-wage jobs. It’s sacrificed the know-how to think of new ways of manufacturing goods.

Whether causality or merely correlation, history proves Chang right. American manufacturing employment was indeed stagnant throughout much of what the economist Tyler Cowen calls “the Great Stagnation,” the current period from 1973 onward, in which productivity did not rise quickly (in some sectors, it even fell). During the same period, America’s median household income grew less than 25 percent after doubling in the era following World War II. And then, right around the peak of the dotcom boom, the U.S. began to shed a third of its manufacturing jobs—which The Atlantic’s Don Peck sees as a contributing factor in the culling of the American middle class. We know where those jobs went, right? China.

Not quite. In a much-discussed report last week, San Francisco Federal Reserve economists Galina Hale and Bart Hobijn pointed out that goods labeled “Made in China” make up only 2.7 percent of U.S. consumption. And less than half of the money spent on those products reflected the costs of the actual goods (the rest went to Americans for marketing and logistics). By and large, Americans already buy American. In fact, two-thirds of our consumer spending is on services rather than goods, which are 96 percent made in the U.S. Hale and Hobjin created the chart to make a point about inflation—pay no attention to rising Chinese wages, as they’ll have little or no effect on the prices of American goods—but the stats in it raise the question of whether America already has all of the manufacturing jobs it can support. America is still #2 in manufacturing output (behind China), and #3 in agriculture—though that industry employs only 2 percent of Americans. “American manufacturing looks to be heading down the same path,” Peck concludes.

But Chang’s point about manufacturing driving productivity growth isn’t about output or employment, it’s that it makes everything else—services included—possible. Apple’s lofty perch as the world’s second-richest company is direct consequence of this. Say what you want about the brilliance of its stores or its brand or the design of its products, but “in services like engineering and design, insights gained from the production process are crucial,” Chang argued. “Given this, a weakening manufacturing base will eventually lead to a decline in the quality, and exportability, of these services.” Just ask Apple’s lagging competitors in the tablet race. Not one designs its own products in-house, having long-ago outsourced even that task to Taiwanese OEMs. The reason Apple has a media, retail, and service industry empire and they don’t is because it could design an MP3 player, smartphone, and tablet when it needed to—and they couldn’t.

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(Originally published at FastCompany.com on August 25, 2011.)

With the Libyan Civil War winding down the question on the rebels’ NATO allies minds now becomes: “When can we bring the oil fields back online?” It wasn’t until the Arab Spring arrived in Libya that worldwide oil prices really began to fluctuate, as the country’s output of light sweet crude quickly dwindled from 1.3 million barrels a day to a mere 60,000, a loss equivalent to 5% of Europe’s total supply, or more than 15% of Italy’s, France’s, Switzerland’s and Austria’s.

Unfortunately, the answer is: not any time soon. OPEC officials, oil analysts, and Libya’s former oil minister Shokri Ganem (who defected three months ago) all agree that restoring production to its previous levels will take years—until 2013 or 2014 at the earliest. With sufficient repairs, the country could produce 400,000 barrels a day in a few months, Ghanem told Platts, an oil industry publication, but that still leaves a global shortfall of almost a million barrels a day.

But the oil markets no longer seem to care. Even with continued fighting in Tripoli this week, oil futures are well off their April peaks. The problem is no longer supply, but demand. The combination of American austerity budgets, the slow-motion collapse of the Eurozone, and sluggish Chinese manufacturing growth all suggest a double-dip recession is in the offing. That, plus the Saudis running the pumps flat-out and the release of emergency barrels from the U.S.‘s strategic reserve have conspired to drive prices down (for now). “Lower energy input costs are well and good, but not if they are achieved at the cost of another economic crisis,” the IEA said in its August market report. Which raises a more interesting question. Did the high prices that accompanied the tumultuous start of the Arab Spring trigger the looming double-dip?

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(Originally published at FastCompany.com on August 16, 2011.)

The drought in Somalia has gone from bad to worse. At least 29,000 children have died in the worst famine in 60 years. If that weren’t enough, the provisional authority governing Somalia has virtually no control outside Mogadishu (where a cholera outbreak is spreading), while Al-Shabbab insurgents controlling the southern arm of the country are both blocking aid groups from entering and preventing refugees from leaving. Twelve million people across the Horn of Africa are in need of food, the U.N. says. Those who can flee, are. More than a million refugees have already crossed into Ethiopia and especially Kenya, where the camps at Dadaab have quickly become the world’s largest. Are camps still the best ways to deal with refugees? As western countries accept fewer and fewer asylum seekers, it may require a rethinking of what to do during the next crisis.

In the case of Somalia, neighboring Kenya doesn’t want the refugees. “Personally, I’ve done what I could,” Kenya’s immigration minister Gerald Otieno Kajwang told The New York Times in July, before the U.N. had even officially declared a famine. “But the numbers coming in are too large that they threaten our security.”

He has a right to be worried. Somalia was one of the world’s largest sources of refugees last year, according to the U.N. High Commissioner for Refugees. It is a given that many Somalis in Kenya will never return home, but where will they go? The number of formal asylum seekers in industrialized countries has fallen in half over the past decade, most likely because of tightening policies. Even as the number of refugees grows, wealthy nations are trying to deny them access. Arrival City author Doug Saunders describes the conflict between sovereignty and human rights as “the central paradox of asylum”:

What right does a non-citizen have to enter a foreign country without permission, especially when the very act of entering a country without papers means that person is ostensibly guilty of a crime? On the other hand, what is the genuine refugee to do: if your government is attempting to kill you or make your life unlivable, you are effectively a citizen of nowhere, and you have no human rights.

Meanwhile, European and American citizens are convinced their countries are being overrun by refugees. A recent study in the United Kingdom asked voters how many refugees they believe Britain adopts each year. The average guess was 100,000; the actual number, 4,700. How do you convince paranoid nations to take in refugees (at least the ones who have made it that far)?

One answer is to spread the responsibility around. In his new book Frontier Justice Canadian journalist and ethicist Andrew Lamey proposes a system in which refugees are spared detention and promised speedy due process, but with the caveat that refugees could ultimately be settled anywhere, not just the country they came to; a promise and a threat to keep their claims honest. It’s a sound plan that’s been considered before. In 2003 the EU agreed on British prime minister Tony Blair’s plan to create “external asylum processing centres” to weigh cases and assign refugees around Europe. But it never went anywhere, Saunders writes, because “some countries, like Sweden, considered it unworkably inhumane.”

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(Originally published on FastCompany.com on August 23, 2011.)

What a difference a century makes. One of the greatest engineering feats of all time when it opened in 1914, today the Panama Canal is one of the biggest bottlenecks in worldwide trade. Even as the canal’s share of container traffic bound from Asia for the East Coast quadrupled over the last decade, more than a third of the world’s container ships have simply outgrown the canal. Facing growing threats from West Coast and Canadian ports, alternate routes through the Suez and Arctic, and even planned rail lines across Central America, Panamanian voters approved the canal’s $5.25 billion expansion in 2006. When the new locks come online in 2014 or so, essentially tripling the canal’s capacity, the world’s trade routes may never be the same.

Because of its lock system (as well as simple questions of the width of the canal and depth of the water) only ships of a certain size can pass through the canal. These ships are called Panamax ships. But cargo shippers were not content with their capacity. “Post-Panamax” vessels such as the Emma Maersk are capable of carrying 12,000 or more 20-foot equivalent units (TEU), compared to 4,500 on a current Panamax.

In shipping, bigger is almost always better. The annual operating costs of a Post-Panamax vessel per container are more than 50% less than a Panamax ship, which has been a significant advantage for West Coast ports, where containers that travel straight across the Pacific from Asia are loaded onto rail and sent to the rest of America, no canal necessary. A larger canal means passing along those lower costs to the East Coast—which is why the Port of Charleston is spending $1.3 billion to enlarge its capacity—as well as providing a hedge against higher oil prices. In a report about the canal expansion published last year, logistics expert and Hofstra University associate professor Jean-Paul Rodrigue noted that “maritime shipping has less fuel price sensitivity than trucking and rail,” meaning that increased shipping could help offset $100-per-barrel or higher prices. A minor consequence could be that, instead of dropping cargo off for shipment by rail, “New Panamax” vessels would permanently circumnavigate the world via the Panama and Suez canals, offloading cargo at transshipment hubs like Singapore and Kingston, Jamaica, onto smaller ships for final delivery. (Somali pirates, take note.)

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(Originally published at FastCompany.com on August 11, 2011.)

Last week, Blizzard Entertainment announced that the forthcoming Diablo III (the sword-and-sorcery role-playing game’s first sequel in a decade) would include in-game auctions for converting virtual loot into actual cash, although denominated in dollars, not gold. Unlike Zynga’s monopolistic role in selling accessories to players of FarmVille and CityVille, Blizzard promised to let players set the market for enchanted weapons and ready-made characters while collecting just a flat listing fee on each transaction. Considering the Diablo franchise has sold 20 million copies to date and Blizzard also runs the enormously popular World of Warcraft and StarCraft massively multiplayer online role-playing game (MMORPG) franchises, the company had single-handedly legitimized virtual currencies in one fell swoop, an act which promises to transform gold farming into a growth industry for the bottom billion and inspire virtual heists rivaling anything in the real world.

Gold farming—a term covering the gray market sale of in-game gold, items or services for real currency—most likely started in South Korea a decade ago with the original incarnation of Lineage, only spreading beyond PC bangs when Asian players began migrating to American MMORPGs en masse. In 2007, the journalist and Play Money author Julian Dibbell estimated that China harbored 100,000 gold farmers alone, producing a black market GDP the size of Bolivia’s or Albania’s.

In April, a report by the World Bank pegged the revenues of “third-party gaming services” at approximately $3 billion in 2009. What’s more, gold farmed in China tends to stay in China—unlike, say, the profits from the global coffee trade, which is worth $70 billion worldwide and critical to many developing countries, although only $5.5 billion went to the countries actually growing beans. “This suggests that the virtual economy can have a significant impact on local economies despite its modest size,” the report noted approvingly. “It can also support the organic development of local ICT infrastructure by providing revenue models that maintain existing deployments and justify new private investments.” After weighing the pros and cons (mostly cons) of gold farming as a development tool, the report’s authors concluded that “one clearly positive thing about the gaming services industry is that it has activated thousands of young people from very modest backgrounds to create employment for themselves as digital entrepreneurs.”

Last week, five such “entrepreneurs”—four South Koreans and a Chinese-Korean—were arrested by Seoul police and charged with organizing a gang of 30 North Korean hackers to essentially print counterfeit virtual money. The gang, which was allegedly recruited from North Korea’s top engineering universities, breached the servers of Lineage and another popular MMORPG, Dungeon & Fighter, earning $6 million in less than two years via round-the-clock gold farming by bots, the gaming equivalent of printing presses. Some of that money was funneled to the hard currency slush fund North Korea’s Kim Jong-il uses to fund everything from his nuclear weapons program to his wine cellars.

Seoul police noted to The New York Times that Kim’s regime must be hard up for cash if they’re turning to gold farming, but as actual gold prices soar above $1,750 an ounce and the Swiss franc crushes both the U.S. dollar and Euro, are Diablo’s gold pieces are any less of a safe haven?

Read more Butterfly Effect

[Image: Flickr user chanchan222]

(Originally published at Fast Company.com on August 9, 2011.)

In the late 1960s, a Japan Airlines cargo executive named Akira Okazaki needed a practical solution to Japan’s trade imbalance with the United States. Planes bearing cameras and electronics to New York were returning empty. Searching for something suitably expensive, Okazaki settled on bluefin tuna, which was fast becoming a delicacy at the time. Today, the extinction of that fish is a very real possibility. Bluefin appeared
doomed until an earthquake and tsunami intervened—and will still be doomed unless we can learn to successfully farm the wildest fish of all.

Intially, Okazaki’s success seemed modest enough. On August 14, 1972—the “Day of the Flying Fish”—the first tuna airlifted from Nova Scotia were sold at Tokyo’s Tsukiji fish market for a respectable (and profitable) $4 per pound at auction. But the price would rise 10,000 percent over the next 20 years as the promise of a worldwide supply of fatty toro raised sushi from Japanese street food to a global phenomenon. Today, 30 million Americans regularly eat sushi (to be joined momentarily by as many as 50 million middle-class Chinese), and it’s no coincidence that bluefin are headed toward commercial extinction.

Bluefin, the pinnacle of the tuna world, remains a particularly Japanese obsession, however. The Asian nation still imports 80 percent of the world’s catch. Last March, at a meeting of Convention on International Trade in Endangered Species (CITES), Japan orchestrated the veto of a measure to give bluefin stronger protections in order to protect its habit. Japanese officials did say they would abide by lower quotes set by International Commission for the Conservation of Atlantic Tunas (ICCAT), which in 2007 ignored the recommendations of its own scientists to set the limit at 15,000 metric tons, recommending 29,500 tons instead. The actual catch that year, and each year since, was 61,000 tons—half of that illegal—leading ICAAT to be branded the “International Conspiracy to Catch All Tunas.”

In 2006, an independent fisheries consultant named Roberto Mielgo alleged to the producers of the documentary The End of the Line that Mitsubishi—the conglomerate which handles nearly half of all bluefin tuna imports—had stepped up its purchases in a Goldfinger-like attempt to corner the market. His evidence was purely mathematical: Mitsubishi was purchasing thousands of tons in excess of market demand, then freezing them at -60ËšC (at which point cellular degradation all but stops). “I saw no other explanation to that particular fact that this Fort Knox of frozen bluefin served two purposes,” he said last week from Malta, where he is currently taking inventory of bluefin stocks. “One: cartel-ize the market. And two: if the bluefin were to go extinct and you were sitting on that mountain of frozen gold, you name the price.”

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(Originally published at FastCompany.com on August 8, 2011)

Can the complexity of cities really be reduced to a single set of equations, as the physicist Geoffrey West claims, or even 3,000 of them? Is it really true, as West’s numbers would indicate, that Corvallis, Oregon—a city of 55,000 two hours’ drive south of Portland—is the most innovative city in America? Perhaps there’s something in the water, or it may have more to do with the fact that West’s model loves patents and Hewlett Packard’s Advanced Products Division is based there, along with its patent portfolio, one developed by thousands of researchers worldwide.

West’s conclusions are only as good as the data and the models (patents equal innovation) he has to work with. This problem—if you can’t measure it, you can’t manage it—combined with the impulse to improve cities by models, is driving both IBM’s “smarter city” strategy and the nascent “urban systems” movement, which seek to apply complexity science to cities. IBM sponsored the first Urban Systems Symposium in May (where West co-starred in a show-stopping discussion with Paul Romer and Stewart Brand) and today announced the latest plank in its smarter city platform: an “app” containing 3,000 equations which collectively seek to model cities’ emergent behavior. IBM also revealed its first customer, the City of Portland, Oregon.

Systems Dynamics for Smarter Cities, as the app is called, tries to quantify the cause-and-effect relationships between seemingly uncorrelated urban phenomena. What’s the connection, for example, between public transit fares and high school graduation rates? Or obesity rates and carbon emissions? To find out, simply round up experts to hash out the linkages, translate them into algorithms, and upload enough historical data to populate the model. Then turn the knobs to see what happens when you nudge the city in one direction.

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