Future Savvy: Quality in Foresight

One of the benefits of scenario-based future thinking is the ‘permission’ to think through alternative future outcomes without necessarily predicting them. ‘Predictors’ focus, by contrast, on isolating the highest probability future in order not to have to think through or plan for less likely outcomes.

Predictions of the dollar’s demise are as old as the greenback itself of course, but over recent weeks the specter of the dollar heading way way below its trading range — a dollar crunch — has entered the zone of the credible, or, in scenario terms, the ‘cone of plausible uncertainty.’ That means decision-makers with lots at stake are taking it seriously.

Like the British pound, the dollar has been under a cloud due to perceptions of economic fallout from the credit crunch and global recession, but particular questions about the US currency have recently surfaced, driven by reports [Robert Fisk's 'The Demise of the Dollar' story in The Independent (Oct 6)]  that “Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council” (Saudi Arabia, Abu Dhabi, Kuwait and Qatar).

The subtext is far from merely financial. Practically, it would mean that on any day, the real cost of oil to US consumers and businesses would go up or down depending on the strength of the currency. This is something America is not used to. But, more deeeply, dropping dollar-denomination of oil is a direct shot across the bows of Washington’s say over oil affairs, and the hegemony of the dollar as the dominant global reserve currency.

De-dollarizing oil would not in itself push the US currency below its 25-year range. But it is portentous of the clear trend to a genuinely multi-power world, for better or worse, in which the dollar will get no favors. That will push the dollar down, at least while the news and fallout make their way through the financial and real economic systems.

Rumors of de-dollarization have been hotly denied, as further reported here, but as the Independent points out, denials are to be expected, and are always issued in these situations. They mean nothing. Even cub reporters know that.

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Scenario thinking

What’s particularly interesting to me is that a ’scenario’ of dollar demise has become not only plausible in the mainstream view of the future, but scenario thinking is being used as a way to consider the nature of this outcome, and how best to respond without predicting the outcome either way. As recently as directly pre-credit crunch, the media question would have been: ‘what is the best prediction for the dollar (or the housing market, or credit default swaps?) and that, rather then scoping out the implications of the lesser-likelihood, would have dominated the discussion.

So, what struck me forcefully in the Business Week video interview above, where BW Chief Economist Mike Mandel interviews the news magazine’s Economics Editor Peter Coy (see Coy’s underlying story here), is how the less-likely, non-predicted, but very significant outcome is actively addressed:

Says Coy: “It’s so hard to know what the dollar is going to do. We don’t argue that we know… what we do is we say, ‘it could happen’ and let’s take that possibility seriously, in the same way we should have taken the possibility of falling housing prices seriously…”

This is not formal scenario-building of course. But it is, fundamentally an adoption of the framework, saying in the classic ’scenarios’ way: “we can’t predict if it will happen or it won’t, but if it does it will have significant impact. So let’s just ask: ‘what if ‘ it does and explore the outcomes and our responses. What will the word look like? What would be the implications, the knock-ons and spinoffs? If it comes to pass, what would be wish we had done today?”

Perhaps failing to predict the credit crunch has dented predictors’ halos enough to cause a mini-zeitgeist-shift towards the only real way to cope with important uncertainty: exploring all outcomes that pass the plausibility and significance test, whether or not we actually believe they will happen.

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Arsenal FC manager Arsène Wenger this week made a big prediction about the future of football in Europe. Now it’s hardly news when a sports coach predicts the future, but that’s because their forecasts are of the day-to-day variety and restricted to their own micro-climate: “Ronaldo has been going well in practice, I predict he’ll get on the scoresheet come Saturday.’ Or, ‘We’ll beat Chelsea in next months return leg,“ and so on.

Arsène Wenger

But this was different. Wenger (on the eve of the Arsenal vs Celtic Rangers Champions League match) predicted a “European League” in 10 years featuring the continent’s top clubs – that is, he offered foresight into potential structural, industry-wide change in multi-billion-dollar UK and European soccer industry.

Currently clubs play in their national domestic leagues. And all Europe-wide competitions are cup (pool stage + knockout) competitions.

Although not fleshed out, the form is not hard to see: the top four-or-so clubs from each major country (fewer from smaller countries) in one annual league competition. This means that Manchester United, Liverpool, AC Milan, Porto, Juventus, Real Madrid, Barcelona, Roma and so on would all be playing each other on a weekly basis throughout the year (and, presumably, playing in no other league competitions).

Drivers of Change

The point of Future Savvy is that one can judge the validity of predictions like this before time. In this case, part of the way to assess Mr Wenger’s future view would be to gauge the strength of driving vs blocking forces behind his outcome.

There is evidence of strong drivers in favor of a European Super League. These are:

1. The rise of “super-teams.” In the UK and across Europe the same few teams dominate their domestic league year after year. The reason is a simple reinforcing feedback loop where winning teams get more money (from TV rights, from gates, from merchandising, etc.) which means they can buy better players, which means they win more. Over the last decade the English Football Premier League has become, effectively, a competition between Manchester United, Chelsea, Liverpool, and Arsenal. (In the US the “draft–pick” system mitigates against any franchise getting too strong in this way, but no such system-balancer exists in European football.)

2. The growing ease and ubiquity of continental travel. Whether fans will follow their teams across Europe is a key issue, but indicators from cup competitions is that fans can and will travel.

3. The growing role of, and technological sophistication of television, particularly Sky Sports. Despite the many who travel, most people these days follow games at home or in sports bars. Television’s coverage and choices (the remote control options “red button”) have exploded, and screens themselves have got bigger and better. And genuine personalization of camera feed and other forms of interactively is emerging. In this, football, and professional sports as a whole, is becoming more about the screen as the stadium, accelerating a long-term trend. The reality is it makes little difference to most fans if the game is being played 50 miles away or 500.

4. The move to high-level, star-packed, events. There’s a clear trend across sports in general for events featuring the best players playing each other in all-star environments, not as a special “all-star” game but as an everyday occurrence. In cricket, for example, the Indian IPL has ridden this trend, offering franchised matches of, effectively, one mixed team of global superstars versus another. The fans love it.

There is also the financial do-or-die logic that soccer clubs face. The money feedback loop means they must continually drive up their revenues. It’s not possible to stand still. A European Football Super League would compel participation from the top teams for this reason alone.

vs Blockers

Adequately assessing the likelihood of the Wenger view of the future further requires investigation of blockers – factors which will prevent the outcome. In this case these may be overwhelming logistics of moving teams around to this extent week in and week out; limits on fans’ travel energy and budget; extent of fans’ loyalty to the relatively minor (non-super) domestic teams; and domestic league administrators’ determination and ability to keep domestic leagues from loosing their cash cows and following their own downward spiral into television obscurity.

These blockers on the European football league forecast are real. The question is whether they stop the future or how long they delay it. I’d judge the blockers as considerably weaker than the drivers and so I’d go with Wenger in predicting a European Super League (even richer and more “glamorous” than anything soccer has seen before) in about 10 years from now.

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A basic tool of foresight work is horizon scanning, that is, scanning for signals of change, early portent of trends, straws in the wind of change. Futurists do it habitually, and if not habitually then – the wisdom is – do it routinely by consciously scanning sources of information you don’t normally. Buying an agricultural weekly or teen idol rag at the airport, rather than your standard dose of the Economist.

It was in this spirit that I picked up the UK launch issue (aka May 2009) of Wired. Actually it’s not the first launch. Wired was in the UK ten years ago, but Condé Nast withdrew it in the dot.com crash. In the US at the time, I remember when Wired, the poster child of the Silicon Valley / Nasdaq bonanza, was almost as thick as a phone book each month. But those days were soon over.

Anyway, who could resist an offering that was about to tell me about my “Life in the future. “Fake Meat, Robots and Electro-Sex: the World is About to Change.” On the cover are, I kid you not, flying cars!

Now, I wouldn’t take this stuff seriously for a moment, if everyone else promised not to. But they don’t. So here we go. In the “What’s Next?” cover story 46 experts make 99 predictions about the next 40 years, and none of them will happen, or not in the time frame expressed.

Oh, moon settlement?

I shrink from sharing the list. Meal replacement patches, check. Moon settlement, check. The male pill, check. Every techno-fantasy of the jockish sci-fi world, check. Well, let’s stop on the male pill for a moment. Can we not do it? Sure we can do it – today. What’s stopping it is not technology. It is attitudes (machismo, essentially). So Wired experts are telling us that this will go away in a decade. Puh-leez.

I hardly need mention there’s no method given behind any of these expert forecasts.

Don’t you think Wired should be asking themselves why, in 2009, they are producing 186 pages of dead tree and carting it around the country in carbon-emitting trucks? Technology-vision may lead you to a view of the future. But it’s unreliable. The future is determined by what consumers are ready for. Well, that’s one of the 20-or-so key forecast filtering principles of Future Savvy.

Perhaps we should look at the cover story for what it is really about – which is selling magazines. Because, there’s no doubt that tech is changing, and many new capabilities are coming on stream, and this is very, very fascinating to imagine uses for. And this fascination is what Wired packages and sells. Don’t bet any money on the predictions though, certainly not their timeline.

But sturdy in some areas

Aside from the predicting lark, it’s a good magazine of its kind. The features are well-conceived, well-written, for example, one about how the BBC iPlayer business was built; a feature on sea salvage; a profile of PayPal founder Elon Musk; the David X Li formula and how it mis-calculated risk, and so on. Great stuff. Actually quite a sturdy business-oriented-view of techno-change, if you can get past the boys-with-toys riff of the magazine as a whole.

So, actually, much to like. Just, please, don’t think a lad’s mag is going to tell you anything coherent about the future.

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The International Herald Tribune (New York Times Global Edition / Reuters Business) last week ran an interesting foresight story headlined ‘Crisis complicates forecasting by luxury brands,’ reporting from the International Herald Tribune’s eighth conference on luxury in New Delhi. The gist was that although most of the famous brands continue to do well despite the recession, luxury sector executives are very uncertain about the future.

Christian Blanckaert, Executive Vice President at Hermès International was quoted as saying: “We have absolutely no visibility into 2009!”

On the one hand, fair enough. This economic downturn is steeper than previous down cycles, and the basic viability of the financial sector has been tested. Access to credit is normally easier in a recession, but in this one it is not. All of which makes luxury spending harder to predict.

No doubt the most unlikely prediction of all would have been that Hermès, Burberry, LVMH, Moët Hennessy, Louis Vuitton, and PPR (Gucci , Yves Saint Laurent) have all recently reported better-than-expected results.

Nevertheless luxury industry leaders have declined to provide investors and analysts with any official outlook. What’s curious, from an industry foresight point of view, is how executives such as Blanckaert thought they really had more “visibility” into any previous year, or that they will somehow gain it again when the financial crisis is over. They will not. The world will continue to surprise them and us. What they will gain, certainly, is a greater likelihood that the standard business-as-usual future assumptions they make will not be upset by reality.

Meanwhile, judging by the conference, the luxury goods industry has a very decent grip on current social and moral trends, and clear insight into the bigger picture of change in its industry over the next five to ten years. As they know from before, what happens in a recession is that luxury goes out of fashion. Conspicuous consumption wanes, or retreats further behind secluded walls. This is a basic pendulum swing that tracks the economy (witness how the early 1990s recession stimulated a return to “values” era after the “me, me, me” 1980s.)

Sustainable luxury

So we are again in a swing to modesty. But we also know that each swing of the pendulum also carries with it the specific issues of its time. Current key issues for consumers in this segment are sustainability, global warming, business ethics, and globalization (or fear thereof).

Therefore the luxury brands will be looking for ways of making, transporting, and displaying goods in an energy-efficient and socially conscious way, including a renewed emphasis on local artisans and traditional craftsmanship that speaks sustainability in both natural and human resources. This will be the basis of the “sustainable luxury,” positioning that the famous houses will define and compete in. Fabulous and renewable  – now there’s something you can charge top dollar for.

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Prediction markets have been in the news a lot for their forecasting potential. These markets – where participants buy and sell bets as to whether future events happen or not – mimic “real” securities markets, so it stands to reason that real markets are predictive too, and they are.

My question, as the Dow Jones Industrial Average (DJIA), and the FTSE100, the DAX, the Hang Seng and so on have hit a decade lows is, what is this predicting, if anything? What is the long-term value of this prediction, and could it be used to make better decisions in the real world?
We know that the value of a common stock – a share in a company – is based ultimately on the returns (dividends) it will bring. Buyers and sellers therefore derive a daily market price based on their views of the share’s expected, that is, predicted future payback. The greater the expectation, the greater the price. A high price vis a vis earnings (P/E ratio) suggests confidence in future earnings, and vice versa.
Therefore the current steep fall in share prices is an expectation of (crowd prediction of) lower future payouts. Of course the complexity in human-prediction situations is that this basic level is also overlayed with a meta-level: people are not only trying to figure out what will happen, they are trying to figure out what others think will happen. So falling PE ratios are an expectation of what others will do (predicting they will continue to sell.)

Madness or not?
One of the perplexing things about the markets is they very often seem to react opposite to what is expected; to what would be common sense. They often fall on good news, rise on bad news, close unchanged on big news, and so on. Although there is – famously much irrational behavior and herd instinct in the market – you don’t get hundreds of thousands of decision-makers wagering significant money not using common sense.
What is going on, of course, is that the market has often already risen or fallen in prediction of the news. When a new condition – an interest rate move, for example – is imminent, the market will move to “price in” the expectation. If market participants as a whole have called the future correctly the market will not move much on announcement.

Pricing-in the future
Because of this predictive component to group decision-making in market situations, the stock market as a whole is a classic leading indicator of the real economy. When prices move they may be taken as the crowd “pricing-in” a future prediction. So markets will fall ahead of real economic problems (they may continue to fall, as now, during steep economic declines.) But they will also turn up well before any real, measurable upturn.

By the way, there is little doubt it will overshoot in this time, as it always does. This is because, as in prediction markets, the wisdom of crowds can predict the trend but not the turn. Trend extrapolation will never show you the key shifts, and this is why predicting the bottom or top of a market is so hard.

The point, for market speculators, is that long before the real gloom is over the markets will be zooming upwards. The point for the rest of us is that recession times will be with us even after the markets move up. In the long term the market will go up. Like death and taxes, it’s the surest thing there is.

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A fascinating 1981 two-minute KRON news story about home computers and the future of newspapers appeared on BoingBoing a few days ago. The clip is here:

The story covers the pilot project of two San Francisco newspapers seeking to create an online edition. The presenter starts: “Imagine if you will sitting down with your morning coffee and turning to your computer to read the day’s newspaper. Well it’s not as far fetched as it seems…”

28 years later it’s exactly what we do. But it seemed far-fetched then, and this was not a misjudgment: it has taken us until now, the full 28 years in most developed countries, to get to the point where mass online newspapers rival mass print editions in the market. What might that tell us about what seems far-fetched now, whether it will happen or not, and how long it will take? How does it improve our foresight?

$10 plays 20c, but not for long
The news clip features early 1980s computers – the text-only green screens – and achingly slow phone-set modems. A newspaper takes two hours to download (with no picture, ads, or comics). So there are technology limitations.

Then there are economic barriers: the local-call hourly charge is $5 (=$10 for the paper) while the print copy costs 20c.

And there are system-wide market-adoption issues: there are only “two to three thousand” home computers in the Bay Area at the time. Home computer penetration is obviously related to utility (usefulness/cost) of the machine.

But in 1981 home computers were about to get a whole lot better for a whole lot less – and with this programmers would be drawn into turning the technology into something we actually need, and ultimately can’t do without – all driving towards the utility jump that signals mainstream adoption. But at the time home computers were an unimaginably small niche of the total media market.

Fast forward to 2037 and what might we be able to say about it? First, that the pilot projects of important new mainstream markets already exist today (along with great business opportunities). The technologies involved are, now, incredibly clunky and expensive, meaning consumer utility is laughably low. But this will steadily unravel to the point where the technology is fantastic and affordable, and voila! We will have fundamental transition and entirely new mainstream markets.

But the most important lesson of all is this: it will take a generation. The future never cuts corners. All fundamental changes in social and market patterns take at least a generation, if not more. There’s a well-known truism in foresight work, which is this: we tend to overestimate the pace of change, but underestimate how all-encompassing it will be, once it comes.

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Microsoft - Computer Electronics Show 2009

Product prototype communication is a close cousin of scenario building. Typically the company creates their product or service in action, in the future, being used by happy customers, their “preferred future” scenario. Prototype communication doesn’t typically build in alternative scenarios, the litmus test of strategy-based scenario work. It’s more a kite-flying exercise, designed to put out a future-oriented message to stakeholders and the public, garner broad feedback, and (if you’re powerful like Microsoft) put up “this-is-the-future-of-the-industry” markers.

Nevertheless, with the caveat that they are one among many plausible outcomes, product showcase scenarios can be an eye-opening guide to what’s actually possible and what the future will be like.

A newly released Microsoft “Future of Computing” video, showcased at CES 2009 in Las Vegas in the past few days, is an example. The 10-minute piece, presented by Janet Galore, Program Manger: Strategic Prototyping, takes us through a scenario of interactive education in the future (when, exactly, is not said but the implication is it’s not too far off) showing how participants would find, use, and share information across devices and across platforms.

What we see is a tablet PC that can communicate seamlessly with other electronics and interact with Web info on the fly. Okay nothing new there. What’s interesting is how it’s all held together by surface computing, a smart desk with a screen, which allows information to be viewed in the process of collaboration, sharing, and filing.  In some futurist fantasies it is thought that communication is ideally invisible (my phone e-handshakes your phone without me doing anything, etc.) But actually humans mostly seem to prefer to see what’s happening, and to have the choice to interact with what is happening while it’s happening – not least so they know what machines have done and don’t have to pull their hair out before they find their precious work buried four subdirectories into the Temp folder… sheesh. But I digress.

The scenario focuses on organizing and sharing multiple inputs, therein making a pretty clear statement about the future: what will be really valuable is not access to information anywhere, anytime (an assumed, table-stakes factor), but a way to share and collaborate with the information in an productive way. It refreshingly assumes that whiz-bang graphics – they are there too – are the easy stuff, but that collaboration and teamwork are the hard things to get right, and the truly valuable service given the chaos of billions of voices and trillions of data objects that pertain in any human-work future.

The other real strength of the prototype and related scenario is its close attention to natural (or, at least, strongly socialized, conventional, classic) human ways of doing things, which are slow to change, and therefore will change slowly. The smart desk is something one can really see oneself sitting around, because this is what we already do. Also this future of computing envisages no stylus, no mouse, no magic wand to master. Rather, we move digital stuff around the desk with our hands. We point to it and we shift it. That is, digital capability accommodates and interlaces with Stone Age human and organizational patterns. That’s why this view of the future is persuasive.

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Happy New Year! Well, this time of year traditionally brings out the “January 1 quarterbacks,” poking fun at the wrong predictions for the year just past, awarding dunce caps, particularly (deliciously) to famous people.

This punditry is widely read, and sometimes published in respectable places. Some of it is just year-end fun, and nothing wrong with that. But there is also a failed-forecast “nyah-nyah” that is corrosive to the foresight field in general, which demands answers. So at the risk of giving the 20/20 hindsight artists undue oxygen of attention, here are a few thoughts:

Consider Foreign Policy’s “10 Worst Predictions for 2008.” (Dec, 2008). Highlights include:

“If [Hillary Clinton] gets a race against John Edwards and Barack Obama, she’s going to be the nominee. Gore is the only threat to her, then. … Barack Obama is not going to beat Hillary Clinton in a single Democratic primary. I’ll predict that right now.” —William Kristol, Fox News Sunday, Dec. 17, 2006

“Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?’ No! No! No! Bear Stearns is fine! Do not take your money out … —Jim Cramer, responding to a viewer’s e-mail on CNBC’s Mad Money, March 11, 2008 [Bear Stearns was sold to J.P. Morgan Chase at about a 90% discount to it market capitalization at the time of the forecast]

“The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.” —Arjun Murti, Goldman Sachs oil analyst, in a May 5, 2008, report [Oil was then around $130 a barrel. By late December it was below $40.]

Or this one from Business Week’s list of 10 (December 24, 2008)

“Existing-Home Sales to Trend Up in 2008″ —Headline of a National Association of Realtors press release, Dec. 9, 2007 [On Dec. 23, 2008, the group said November sales were running at an annual rate of 4.5 million—down 11% from a year earlier—in the worst housing slump since the Depression.]

The Future Savvy question is: how should we think about predictions like this? And how should we think about failed-forecast spotting?

1. Failed-forecast spotting is not remotely “scientific”
This should be obvious, but somehow never is. Purposefully extracting the failed forecasts from the total set of forecasts says nothing about the quality of the set in general. Many did predict Obama; did predict the downturn, etc.

2. Failed-forecast spotting raises a healthy skepticism, but runs to nihilism
Despite not passing any credible test of knowledge, at least failed-forecast spotting stokes apprehension about forecasts and the wisdom of experts. At base this is healthy. Prediction is hard, and it is mostly done poorly. And experts often transgress the boundaries of their expertise. (Typically, in this instance, they know a lot about their field, but often don’t know more than the next Joe about the future of their field, often because their expertise is wedded to existing practices and assumptions.)
Prediction skepticism is fine. What happens, however, is that tempts a “nobody can predict anything” nihilism. This is its own failing because many predictions are in fact excellent, producing good foresight, which is a key strategic and competitive advantage.

3. Often the short term future is harder to see.
This is the trickiest insight of the lot. As everyone knows, it’s impossible to accurately predict the future (which is not the same as usefully predict the future, see arguments in other posts). The world is just too complex, too chaotic. But there’s a wrinkle. It should be that the further we look into the future the harder it is to see. The world will change more – there is more time for unpredictable things to happen. The short-term future (one year, say) is closer to us, it should be more like today and we should be able to anticipate it better.

In fact, short-term foresight is the most impossible task: a casino game. In the longer term (10-20 years, say) strong trends can be relied on to have had their impact. For example, the move away from fossil fuels, or effective nanotechnology engineering, or simple domestic robotics, can be reliably forecast. But while the sweep of these and other similar evolutions are reliable over time, the short-term picture will suffer lags or reversals that follow no pattern at all. (It’s no accident that is this is just like the stock market. In the long term the market will go up, in the short term it can go anywhere.) Also short-term predictive failure is compounded by the fact that the standard to which it is held is higher – we expect specifics: dates, places, numbers, players, winners – that are not demanded of a long-term view. In other words, near-term predictions are all about “point forecasts,” and there’s nothing more impossible than a point forecast unless you believe in tea leaves and crystal balls.

The take away: short-term point forecasts really are a mugs game and the skeptics are right. Medium-long forecasts, when well done, are worthy of our strategic and competitive attention.

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I finally got to look at Kevin Kelly’s TED presentation on “the next 5,000 days of the Web,” and bring it up here because it’s really worthy of comment from a foresight quality – Future Savvy – point of view.

Kelly needs no introduction. He’s the executive editor of Wired and a core who’s-who in the new media technology world. The first lesson he has to share is a key one: the Web is only about 5,000 days old – that’s about 13 years (the Internet, DARPA, etc., is older) – and all the stuff we have and now take for granted, from online investing to social networking to Wikipedia has happened in this short time.

The video is available here:

As Kelly says, and he’s undoubtedly right: “if I had predicted all this would be there (and free) nobody would have believed it. It’s impossible. The lesson is that very big changes do occur in fast-moving industries when considered over a decent-length (e.g. 10-15 year) timeframe. So let’s not kid ourselves: mere extrapolation of current trends doesn’t take us to the future. A leap – a paradigm shift – a willingness to anticipate fundamental shifts in technologies, institutions, and business models, is required.

So, against this, it is interesting that much of what Kelly predicts for the next 5,000 days of the Web is fairly conservative… but he does build in the idea of a new, fundamental shift.

The Web in 2020

What does he see coming in the next 5,000 days?

1. First thing is what Kelly calls “Embodiment” of the Web, by which he means that every device, every screen (laptop, phone, iPod, sat-nav, etc) becomes a “window into the machine” rather than a stand-alone device. There will be one Web, one machine, and everything will go through it. Part of this is that the Web will be embedded into the physical world – inanimate objects from cars to shoes to will have connectivity. Whether through RFID or other technologies, “there will be an Internet of things.”

Hello? We’ve heard this all before. Many times. In fact we were hearing it in the 90s. This doesn’t mean it’s wrong. In fact if we’ve been hearing it for so long, and the trend is still clearly in this direction, the forecast is probably right. What’s interesting is how non-radical it is.

2. Next he talks about “Restructuring” which is his term for the “Semantic Web” or what some call “Web 3.0” The idea is: first we linked computers (the Net), then we linked pages (the Web), and next we will link all the data or information or ideas anywhere on the Web to all relevant data /information/ ideas elsewhere on the Web. (This made possible by technologies such as XML, RSS, OWL, API, RDF)

One of the payoffs of this, says Kelly in an illuminating example, is that we won’t have to “re-friend” in each social networking platform. The technology will know we’re “friends” with Warren Buffet and Tom Peters and Malcolm Gladwell (…lol) as we move from Linked-In to Facebook to Technorati, and so on.

3. Kelly’s final point is that humans will be co-dependent with the Web. It will be always on, always there, ubiquitous, and the single fundamental tool we depend on to do everything.

Again, there’s nothing new in these points. It’s all been said before. In fact, as is often the case in good futures thinking, the value in Kelly’s forecast is that it is a carefully considered “cut” from what is usually forecast, leaving behind the wilder things that are said. Kelly on Web 2020 doesn’t say “expect digital human implants; ‘conscious’ devices; retina-as-screen,” and so on – the beam-me-up-Scotty kind of foresight that unfortunately often gets the headlines.

The next stage
Nevertheless, he is equally not saying the next 5,000 days will be “like the Web, only better.” The capabilities, the embodiment, the dependency, imply a new stage, he says. What that new stage will look like at the business and institutional level – what products/services/delivery will be possible via Web 3.0 – what the Yahoo or Google or Facebook or similar iconic institutions will there be, Kelly does not get into.

Fully thinking through the next 5,000 days of the Web involves going from the capabilities to what is built on them. But all in all this is a classy, integrated piece of future thinking (that easily fulfills the Questions to Ask of any Forecast checklist in Chapter 11 of “Future Savvy”) and is a solid foundation on which to consider future business and organizational implications.

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A recent forecast-and-critique exchange between economists is worthy of attention from a forecast assessment and evaluation point of view.

The forecast is the recently published academic research paper: Chinn & Frankel (2008), “The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency,” Faculty Research Working Paper RWP08-016 (Cambridge, MA: Harvard University, John F. Kennedy School of Government) available here. Frankel is a Professor of Economics at the Kennedy School.

The critique, “Forecasting the Euro’s Future,” by Benjamin Cohen, is here

The argument of the Chinn & Frankel paper, which is also summarized here is that the euro may surpass the dollar as the leading international reserve currency as early as 2025. The authors use econometrically-estimated determinants of the shares of major currencies in the reserve holdings of the world’s central banks. Significant factors include: size of the home country, rate of return, and liquidity in the relevant home financial center (as measured by the turnover in its foreign exchange market). The analysis predicts a narrowing in the gap between the dollar and euro over the period 1999-2007, and forecasts this trend to continue.

Cohen has technical issues with the forecasts, saying, “the analysis addresses just one specific function of the two rival monies – their use in central bank reserves – ignoring all the many other roles that international currencies play. But the essence of his critique is deeper. He says, “By concentrating purely on economic factors, (the forecast) ignores the politics involved, which in practice could prove to be far more decisive… key considerations include both the quality of governance in a currency’s home economy and the nature of relationships between countries. Is the issuer of a currency capable of assuring effective political stability at home? Can it project power abroad? Does it enjoy strong inter-governmental ties – perhaps a traditional patron-client linkage or a formal military alliance? Though it is by no means easy to operationalise many of these factors for purposes of empirical analysis, it is hard to deny their importance (for an accurate forecast.)”

Cohen’s agenda is not merely to tackle possible shortcomings of Chinn & Frankel’s study, but to critique economic forecasters far-and-wide that analyze the technical data, while ignoring political (or social) factors that are hugely influential on outcomes, yet harder or impossible to quantify, and which are therefore conveniently ignored.

Coming to grips with politics
Says Cohen: “Chinn and Frankel are not alone in this shortcoming, of course. Many economists, perhaps even most, have a hard time coming to grips with the intricacies of politics, which can seem so messy and indeterminate when compared with the pristine parsimony of formal economics. When it comes to the analysis of public policy, few even bother to try to address political factors systematically.

“The result, though, is sadly predictable. By ignoring the role of politics, economists often get it wrong. How many trade specialists were prepared for the recent breakdown of the Doha trade talks, despite the obvious gains to be had on all sides from a new round of liberalisation? How many can explain the unprecedented accumulation of reserves in China or other East Asian countries, the widespread distrust of multinational corporations or the failure of the international community to do a better job at combating global warming? Politics is clearly critical to all these questions, and more… (Yet) conveniently, Chinn and Frankel set all these considerations aside in order to build a parsimonious model that they can use for forecasting purposes. Only three independent variables are highlighted in their regressions: country size (relative income), foreign-exchange turnover (representing the depth of competing financial markets), and trend exchange-rate changes (representing the rate of return on currency balances).”

Cohen offers potential political and ideological blockers to the particular forecast: “Japan, for instance, has long relied on a formal security umbrella provided by the United States to protect it against external threats; and the same, less formally, is true for Saudi Arabia and other Gulf states as well. Can we really imagine any of these nations, all very large dollar holders, casually jeopardising their ties to Washington for the sake of a few basis points of return on their reserves?”

To be fair to Frankel, the nature of his analysis is consistently political – see his blog at http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/
One can’t imagine that Frankel or Chinn would dispute that politics will strongly influence the accuracy of their forecast. (What they clearly imply in their data-centered model is that the economic data is backed up by political shifts towards Europe, or at least there is nothing in the political realm that would counter their technical analysis.)

Yet the problem remains that these contextual factors are not built into the model. The technical stuff is quantifiable and gets forecasted quantitatively. The rest is a kind of political/social/ideology soup that we flounder in, and the best we can apparently say is “it’s going in the same direction” or “ceteris paribus”.

International Political Economy
Going with Cohen, one may well ask: what is the value of the forecast that ignores the context, or separates it in this way? Surely very little. As impressive as the economics or the modeling is, the results are are circumscribed by the larger questions that are not in the model, and that affect everything.

As an alternative, Cohen offers International Political Economy (IPE), which explicitly combines political analysis with economic theory, saying, “part of what IPE offers is a critique policy choices as ‘rational calculus by unitary actors responding to well-defined structural constraints and incentives – in effect, an approach akin to the analysis of atomistic firms in a setting of perfect competition.’” IPE suggests three levels of political analysis: the systemic level (macro-international politics); the domestic level, revealing competition of domestic interest groups and institutions; and the cognitive level, ideas that legitimate governmental policy making. If one is not thinking at all three levels of politics, any prediction will surely fail.

Whether IPE succeeds in mitigating the shortcomings of technical analysis or not, one can only say amen to the principle – and that, additionally, there’s surely even more to factor in. Beyond politics, there are issues of technology change, changes in culture, values, ideologies and perceptions that shape the future. Truth is, we don’t know how to quantify all this – and it’s certainly not tractable to quantitative measures for anything but the short term. Using the technical analysis to predict the euro’s status vs. the dollar in 2025 must return a result which (while even possibly correct) is one we cannot rely on.

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