Invest in innovation, not exploitation

America is a supposedly country that rewards innovation. The trouble is, a lot of this innovation is really exploitation. I looked into this briefly a few posts back when I looked at Lyft and Uber’s “innovation”. The only really innovative part about these ride services is their app. They’re both cheaper and generally faster than taking a taxi. So much for the innovation part. The rest of it is pure exploitation, mostly of its drivers who get cash up front that doesn’t begin to pay a living wage, particularly if you consider the wear and tear on their cars.

These days much of what passes for innovation in our economy is finding newer and cleverer ways to exploit people, who are generally among the most vulnerable among us. Granted, this may be as American as apple pie. We bought Manhattan from the Indians for the price of some trinkets. These days, the exploitation is less overt. But even if you don’t use Lyft or Uber, you don’t have to look far to see examples.

At the macro level, large companies that pollute exploit us all. Their cost of business is discounted by using our air and rivers as a sewer, and we pay the price. Tens of thousands of Americans die from air pollution every year, and the Trump administration is doing its best to make sure more of us will die. Generally though it’s the poor and vulnerable that get exploited. This is our innovation economy at work.

Perhaps you saw John Oliver’s recent show on mobile home investing. This is exactly the sort of “innovation” that I wish we could outlaw. By definition, if you live in a mobile home you don’t make a whole lot of money. You might own your mobile home but in most cases these homes are not truly mobile. And if you wanted to pack up your mobile home and move it elsewhere, you probably can’t afford to do so. In most cases your mobile home sits on a lot that you rent. There are plenty of investor groups buying these properties and regularly jacking up rents, knowing they have a captive audience. Some say this is a great way to earn “passive income”. What you are really doing of course is exploiting the least among us. In many cases these people are skipping medications or food to pay these rent increases. Some abandon their property, which is repossessed and resold to the next exploited victim.

I’m not prone to anger but these sorts of schemes make me positively irate. They should be outlawed. There are all sorts of ways we pick the pockets of the poor among us: pay day loans with incredibly usurious interest rates, lotteries that take their money but rarely pay off, casinos with a similar idea, higher prices for substandard food because supermarkets won’t serve their communities and of course the traditional: substandard public schools that are grossly underfunded because wealthier school districts won’t share their wealth. If that’s not enough, we shame them for taking food stamps or trying to compete for the vanishingly small market of affordable housing.

Most of us though don’t distinguish between companies that make money via exploitation versus innovation. That’s because it requires research, thinking and our capitalist system sees nothing wrong with exploitation. Look at some of the recent IPOs. How many of these are really driving innovation? Lyft went IPO, but Uber was first to this market. Lyft’s app is not noticeably better than Uber’s. Both depend on exploiting drivers and frequently change their payment terms to drivers to increase their revenues at drivers’ expense. Both are working hard on autonomous car technology. They can’t wait to boot their drivers altogether because they’ve run the numbers and maintaining a fleet of autonomous cars is way cheaper than even exploiting their drivers.

Some companies are both exploitative and innovative. How should I feel about owning Amazon stock, which I probably do somewhere in a mutual fund or ETF in my portfolio? Most of Amazon’s model has been exploitative: they’ve undercut competitors by sustaining losses funded by investors until competitors are out of business. I can see the problem locally with so many vacant storefronts. These customers are using Amazon instead.

Amazon was shamed enough by Bernie Sanders so that they raised their wages to $15/hour, which is good, but it’s barely a floor for a survivable wage. Meanwhile, they are finding other ways to “innovate”, most recently by creating their own air fleet that innovates by screwing their pilots. But other parts of Amazon are truly innovative. Amazon Web Services was a completely new idea that Amazon figured out and which fundamentally changed computing, dramatically lowering computing costs, increasing uptime for connected systems and spurring all sorts of innovation in information technology. Its web services are now the most profitable part of Amazon’s business. It’s proven extremely profitable for Google and Microsoft too, who have pockets deep enough to compete in this market.

Ideally I would not own any stock in companies that are exploitative. But like most of you I suspect, I don’t own any stock directly. Instead, I own mutual funds, ETFs and bonds. Mutual funds and EFTs are collections of ownership in lots of stocks. I could own a commercial bond for a specific company, but even here most of these are amalgamations of lots of bonds funds. There’s no easy way to invest in pure innovation, and hard to avoid investing in exploitative companies.

It’s not entirely impossible, however. You can invest in “green” funds and there are some socially active funds that avoid investments in arguably “evil” countries, which include Israel, which is effectively an apartheid state. Kiplinger has some suggestions for this kind of investing. But it’s not easy and in some cases impossible.

For example, if your company does not allow you to invest your 401K in funds like these, you have no options and may pay a penalty for doing investing outside of your 401K, particularly if your employer makes matching contributions to your 401K.

Which is why in the end what you can do is limited, unless we had a progressive Congress that changed investment laws. At a minimum they could require companies offering 401Ks to provide options for employees who want to invest in funds that are innovative but not exploitative.

I am overdue for a talk about this with my financial adviser. Frankly, I wasn’t thinking much about this until my recent trip on Lyft. Much of our portfolio has moved with retirement from 401Ks to IRAs. These could be shifted toward funds that reward innovation and socially progressive. Fortunately, I have a call with him tomorrow.

The breech-loaded rifle and The Cloud

Clouds used to be cute puffy white things in the sky. These days when you talk about clouds, you are more often talking about Internet-based clouds. Even recently just a domain for geeks and techies, knowledge of Internet-based clouds is penetrating down to the rest of us. It may be that iCloud icon on your smartphone or iMac, or the convenience of a Gmail account that you access from a hotel business center. It’s starting to register with us that we are using clouds. We no longer store data in our own personal devices. We don’t know or care where it is stored, just as long as it is. Clouds are here to stay.

The cloud is just the latest manifestation of a trend that has been emerging for some time. With the cloud we no longer worry about whether data like our email or digital pictures are archived and backed up. We assume that if we have a connection to the Internet it is all available instantly. The promise is that at some point it will also somehow done transparently and with no hassle.

All of this is also something of an illusion because in reality this level of cloud computing is really, really hard. Google and Amazon are pioneers in the cloud computing business, but pretty much all the major IT providers are lining up to provide cloud services too, from the mighty Microsoft with its online Office cloud service to the lowly web host (who will probably use someone else’s cloud and make it look like their own). Google has had some infamous cloud outages over the years, most frequently affecting Gmail. More recently Amazon has experienced some embarrassing cloud failures too. It’s nice to know that your stuff is out there somewhere, but making it always instantly available is quite a trick. 99.999% uptime is pretty darn good and most of us would not notice minor outages. The same is not true for businesses that depend on continuous uptime, like United Airlines. Since they can’t take any chances, they are sticking with their own data centers, at least for now. In general, cloud computing tends to be a lot cheaper than doing your own hosting. You just don’t want to jump into the cloud computing arena unless you are really, really sure you can trust your cloud vendor.

The Department of Interior, where I work, is taking the plunge. It recently signed a contract with a company that resells Google’s infrastructure to provide the whole department’s email, calendaring, instant messaging and various other services. In doing so it will save heaps of money, unless the vendor’s claims don’t match actual experience. In that case, lots of highly paid people will be twiddling their thumbs until service is restored because the cloud will be like a light switch: it will either be on or off, and bad things will happen if it goes off even for a little while. At least right now when there are problems they will tend to be localized instead of enterprise-wide.

In any event, we are going into the cloud. To affect change you have to break a few eggs, and in this case a lot more than a few eggs are being broken. Every employee in the department has to be retrained. Microsoft Exchange and Lotus Domino servers are retiring to greener pastures (well, more likely landfills). Our comfy though somewhat weird email clients are being traded for doing email in a browser. Everyone has to adapt, including our director and Ken Salazar himself. I doubt that even the department will know where the heck their servers are. It’s someone else’s problem, specifically Onix’s, which got the contract. Email alone is mission critical for our department. It’s got to work and work reliably, and the transition has to be smooth. Everything ties into email in some fashion. About 80% of my work day is spent reading and responding to email. My team depends on instant messaging as well, as we are spread across four time zones. We run a mission critical system, but this new cloud-based system is even more mission critical. If we cannot communicate to fix our mission critical system, then it can go down. The nation’s motto is “In God we trust” but perhaps it should become “In Google we trust” here at the Department of the Interior.

There are so many wrinkles to this cloud computing stuff that I will be taking a course to understand most of it. For those of us managing information systems, one of the compelling features of the cloud is the promise that it can scale up automatically to meet higher demand. If true this is quite a feature. Automatic and transparent failover to redundant systems is also available. Obviously, vendors charge more if you need these features, but the promise is that overall it will be less expensive to use the cloud than it will be to have your own hosting center.

This may mean unemployment for many technicians now keeping servers running. Those who physically touch these machines are most in jeopardy. At least in the short term, those who configure these machines in the cloud to do unique stuff probably have secure jobs. With a few clicks you may be able to have your cloud provider install an operating system or a web server. (In reality these machines are already likely provisioned, and are just sitting idle.) If your needs are modest, then you may need fewer system administrators. Integrating a server and the applications that run on it are not necessarily simpler because they are in the cloud. It just becomes more abstract. In some ways, administering cloud servers applications may be more complicated, since the whole cloud architecture needs to be well understood, and things don’t work quite the way they used to.

I learned recently of a revolution that happened around 1820 in nearby Harpers Ferry, West Virginia. The town is known for many historical events, and some innovation. One of its innovations was the invention of a breech-loaded rifle. It was constructed from completely interchangeable parts. This revolutionary idea first perfected in a gun was extended to all sorts of items. It made possible the Model-T and many other inventions.

Cloud computing is the latest refinement of this idea born in Harpers Ferry by a man named John Hall. The management, storage and configuration of systems used to store data and information is becoming virtualized and commoditized as well. The interchangeable parts are not so much hardware but the software that runs on the hardware. They are becoming so excellent and interoperate so well with other standard software parts that reside on these servers that new levels of performance and cost savings can be achieved.

Cloud computing is the latest and if it works as advertised will arguably one of the most important revolutions in information technology. We out here in the business world will fuss over it for a while, and there will be more growing pains, but like the breech-loaded rifle cloud computing is a fundamental invention made up of lots of other clever inventions, many of them abstract and conceptual and modeled in software.  These will become savings in time and benefits of convenience that we will soon take for granted but which could be as fundamentally transformative to mankind as the Internet itself.