Karan Chadda

Global digital marketing and communications leader

Business

The age of muscular regulation

At $4.5bn BP’s fine for the Deepwater Horizon disaster is huge but unsurprising; the company had set aside a larger sum for this liability. The fine’s magnitude may, however, shift our focus from some recent developments that show the increasing boldness of regulators across all industries.

I’ve written before about the more muscular approach taken by regulators since the crash of 2007 and that trend has continued. Recent examples include the fines and continued investigations around Libor manipulation, this week’s launch of probes into alleged rigging of the UK gas market, and JP Morgan’s six-month ban from trading electricity in the US.

The change in regulation hasn’t just been seen in the actions of regulators. There is a new boldness in the comments they are willing to make to, and about, the industries they regulate. Last month, Andrew Haldane, an executive director at the Bank of England, spoke of morality and of “deep and rising inequality” when he addressed a gathering of the Occupy movement in London. Such comments would be almost unthinkable for a central banker only a few years ago. Similarly, this week, in a move that closely reflects the current political and public zeitgeist, the Financial Services Authority (FSA) told banks that it expects them to show bonus restraint this year.

This newfound boldness among regulators is not manifesting itself solely in the form of pressuring, pounding and punishing industry. The FSA, which on the one hand is warning banks about bonuses, investigating alleged market fixing and cracking the whip over PPI, is also easing capital and liquidity rules for the UK’s largest banks in an effort to boost lending. This move falls under the banner of macroprudential regulation, which is the current big thing among global regulators. The idea is appealing: regulators adjust how they manage an industry with the aim of providing benefits for the wider economy.

All these examples point to the dawn of a new age of muscular regulation, where industries find themselves increasingly challenged and guided by regulators. This is a big change from the light-touch regulation of previous years. Although the impact of this new era is hard to predict, there is a danger that as regulators become emboldened in using their powers, they may find themselves under pressure to respond to political and public opinion. It is a pressure regulators must resist if they are to strike the right balance between intervening to ensure a market is working efficiently without manipulating it for short-term, populist reasons.

This article originally appeared here on the Huffington Post.

Can gas ever be green?

A lot has been made of George Osborne’s support for shale gas and his opposition to renewables. Central to the narrative is the idea that he is stopping the development of low-carbon energy because he doesn’t want to burden consumers and businesses with higher energy prices. However, there is an argument that gas is central in the UK’s transition to a low-carbon economy.

Coal-fired power stations emit twice as much CO2 than gas fired ones. Simply put, coal is far more polluting than gas. If all coal-fired energy was switched to gas tomorrow, there would be a notable and instant reduction in the UK’s CO2 emissions. So, if we’re talking strictly in terms of CO2, and we accept that in the short-term we are unable to switchover to, and rely upon, renewables and nuclear, then gas is essential to taking carbon out of our energy production.

Shale gas does,  however, come with its own environmental issues. The process of drilling into the ground and using fluids to drive gas deposits out of rocks will never be as environmentally benign as harvesting electricity from the wind or sun. Reasonable fears include the creation of minor earthquakes and the pollution of the water table with all the environmental destruction that goes with it. Proponents of fracking say that the UK has much higher regulatory standards than the US, where many were shocked by the revelations of flaming taps and poisoned water shown in the film Gasland.

To its credit, Cuadrilla, presently the only fracking company in the UK, has been transparent and worked closely with regulators and civil servants in its endeavours. It stopped work immediately after some earthquakes were felt in Lancashire, cooperated fully with authorities and openly funded independent research to understand the issue fully.

The alternatives to shale gas are not environmentally neutral. Nuclear energy brings with it inherent risks and, although those risks are very low, when failures have occurred they have had harrowing outcomes. Moreover, nuclear is very costly and, in the wake of Fukushima, its costs are increasing.

Renewable energy, generated from the wind, sun and water, also has a complicated environmental impact. Hydropower stations typically require the building of dams which always affect local ecosystems. Newer barrage systems require less reshaping of the landscape, but may also affect local marine habitats. Wind farms, whether onshore or offshore, also have local effects although the extent and nature of these is heavily disputed. Solar panels are probably the most benign source of renewable energy in terms of local impact, however, production of the panels is now heavily China-centric so a lot of carbon is emitted to bring them over to the UK.

Despite strong growth and the subsidies it has received over recent years renewable energy is not, and will not in the short term, in any shape to become a main contributor to the UK’s energy needs. A similar problem exists with nuclear power – creation of the next generation of nuclear power plants in the UK has all but stalled.

The opportunity for gas, sourced from shale rock, is timely. It will not eliminate carbon emissions but can meaningfully reduce them. It won’t require a consumer levy to fund subsidies and it can be sourced in the near term. The harsh reality is that, even when you factor in the environmental risks, fracking could be the best short-term solution for the UK’s energy needs.

We have stalled for too long on nuclear and have not given sufficient support to the development of renewables. Time has been wasted and the impacts of past decisions cannot be changed. The only pragmatic solution to our energy needs is to endorse fracking in the short-term, while simultaneously removing the obstacles and uncertainty that hinder renewables and nuclear. Natural gas may not provide the green energy of the future, but it can provide the green energy of today.This article originally appeared here on the Huffington Post.

This article originally appeared here on the Huffington Post.

Technology will drive growth

When Martin Wolf, the FT’s venerable economics commentator, endorses a concept, it’s usually sensible to give it hearing. Today, he’s backing the idea that we’re a post-growth society. That the growth generated by the industrial revolution and advances of the 20th century simply cannot be matched by the changes being wrought by the current technological revolution.

The argument that jet engines, running water and electricity are all inventions and innovations that rapidly drove up productivity and that current technological innovations pale in comparison will appeal to many. It will receive a warm welcome from those who hark back to a time when we built things, who think the service sector part of the economy is illusory. However, it is wrong.

At first glance a lot of the benefits of technological innovation are incremental, but they enable productivity improvements far beyond those we have so far reaped. Capital is already global, yet despite the massive growth of cities, labour lags behind – people move around the world a fraction of the amount and the speed that resources do.

Technology mitigates this need for travel. It connects people in a way never before possible. It frees up time and forges closer bonds over greater bonds over greater distances. Very few companies have been able to capitalise on this yet but those who have, have found that international, collaborative working has driven innovation. GE is a prime example. Back in 2010, it created a private network to connect its 5,000 global marketers. It enabled people working in different divisions to share problems and create solutions that weren’t previously possible.

Collaborative workplace tools have the potential to change business structures and productivity in the same way the specialisation and rolling assembly lines did during previous periods of high innovation and growth.

A recent McKinsey Global Institute report stated that collaborative workplace tools could generate productivity gains of up to $1.3 tn in the consumer packaged goods, retail financial services, advanced manufacturing, and professional services sectors. There are hard numbers that support this prediction: Microsoft paid $1.2bn for Yammer, the social networking tool for businesses.

Collaborative tools are just one element of the changes that the internet and related technologies are enabling. Yet they alone have the potential to boost innovation and growth in key service sectors. The technological revolution is increasing not only our ability to innovate but the speed at which we can do so.

This article originally appeared here on the Huffington Post.

Mobile wallets: who’s after your money?

Mobile money and wallets (paying for things with your phone) have been all over the news recently. Many companies see a valuable income stream flowing from such payments and they’re all setting up systems in the hope that theirs will become dominant in the market.

Many of the companies behind mobile money come from different sectors, and the sectors they come from indicate their motivation. So let’s take a look at who’s after your money.

Payment Companies
Perhaps the most obvious sector, is the one who’s dependent on making money from your cash: payment companies like Visa and Mastercard. Both have invested in mobile payments systems. They believe that payments will, over time, move from credit and debit cards to smartphones. They already have the systems in place to process payments – Visa processes $4tn worth of payments annually – and they make a small sum for every transaction. For payments companies, mobile payments are the future of their industry, so they’re making sure they’re part of it.

Telecoms Companies
Mobile network operators, including recently rebranded EE, Vodafone and O2, are facing a fork in the road. One path leads to them becoming providers of wireless data. This path essentially makes them utilities like energy suppliers or water companies. This low-growth, generic product path is one they’re absolutely petrified of. The other route they can take is the horribly jargon-ised “move further up the value chain”. The idea is to provide services to customers that add value beyond data and phone calls. The operators hope that one of these additional services will be payments. The beauty of mobile payments is that they offer strong growth potential and that payment processing fees to do not fall directly on the consumer. So exciting are the potential revenue streams, that EE, Vodafone and O2 have worked together to build a common standard for mobile payments.

Retailers
Loyalty schemes have been one of the great innovations in retail history. Such schemes have enabled retailers to move from marketing their wares to segments of society, to marketing to individuals. Mobile wallets would enable them to capture more data by ensuring they record online purchasing data as well the offline purchases at the tills. It means they’ll never miss a transaction.

Internet and Technology Firms
Google already have a wallet, Apple have taken tentative steps with the creation their Passbook and start ups like Square and iZettle are bridging the gap by providing card reader attachments for attachments for smartphones. The Googles in this space are driving innovation partly because they’re in an industry that is changing rapidly and those who don’t innovate fail, and partly because, like retailers, they seek to add to their vast stores of consumer data. The Squares and their ilk are in the market because they seek to disrupt the payments industry – either by usurping Visa and Mastercard or by adding a whole new group of consumers and small businesses to the electronic payments industry.

So who’s going to win?

In the short term, no one is. Cash and cards remain at the centre of the payments ecosystem. That’s not going to change in the short term. However, systems like Square, which incorporate card readers but also go beyond those to visual recognition and automated payments, will be common in the not-too-distant future. A lot of money is at stake and a lot of companies are fighting for a piece of it.

When winners do appear, there won’t be many of them. Much like the smartphone ecosystem battle, retailers and consumers will gravitate to one or two systems. So the race is on to find out who’s able to get your money from your phone.

This article originally appeared here on the Huffington Post.

Is unlimited growth a thing of the past?

The venerable Martin Wolf, the FT’s hugely respected chief economics commentator, has written a very thought-provoking article looking at a study by Robert Gordon of  Northwestern University. One of the central arguments is that the technology revolution will not drive growth in the way previous industrial revolutions have. It is an argument that many in the technology and public policy circles will disagree with, but the article is sensible, thoughtful and a must-read.

Is unlimited growth a thing of the past?