Club of Amsterdam Journal, May 2012, Issue 148

Welcome to the  Club of Amsterdam Journal.

Tax has many associations. It has long been viewed with fatal resignation, likened to a natural but inevitable force. It has also underpinned our civilisation’s history. Whether we embrace positive or negative views of tax it has a deeply embedded role within society.

Homme Heida:
– Would it make sense to create a different tax structure reflecting the allocation of taxes to specific purposes?
– Why doesn’t everyone revolt, when accumilative taxes (direct and indirect) on income are about 80%?
– What will happen if tax evasion becomes a national sport and when digital media facilitate tax evasion?
– Will lower taxes in surrounding countries lead to a massive outflux of tax payers?
– To which extent can taxes be used to influence purchasing behaviour of people and companies?

Join us at the future of Taxes – Thursday, 31 May!

…. interested in knowing more and sharing thoughts and ideas …. email us!

Felix Bopp, editor-in-chief

Debt does not matter. Spending and taxes do

by Antonio Fatás, Portuguese Council Chaired Professor of European Studies and Professor of Economics at INSEAD

Paul Krugman makes the point that government debt matters less than most people think because in some cases we simply owe money to ourselves. He is right and what he has in mind is the notion that government debt is (in many countries) mostly held domestically. Japan is an extreme case where more than 90% of the government debt is held by its nationals but even in the US the majority of government debt is held by US citizens or institutions. For some it is debt but for others it is an asset, they cancel out from a national point of view.

We can think of an extreme case where government bonds are held by all taxpayers in proportion to their income – in a way that mimics tax rates. In that case, government debt is not imposing a future burden on anyone, it simply cancels out with the assets that all investors/taxpayers have.

How do future generations enter into this analysis? What if we try to pass the bill to future generations? Let’s start with the case of a closed economy/system. In a closed system (the world, no international trade or capital flows) the debt that the current generation has will end up in the hands of the future generation in one of two ways: either it gets simply passed to the next generation as a bequest or, alternatively, the current generation could try to sell their assets and spend all their wealth if they do not want to leave a bequest to their children. But the debt must be bought by someone. And given that this is a closed economy, it can only be bought by the future generations. In both cases the bond holders are also the taxpayers.

If we bring other countries into the picture then the analysis is different. The government debt that other countries hold is a claim on our current and future income and as such it is a financial burden that either the current generation or the future one will have to pay for. But Krugman’s point, which is correct, is that many make the mistake of assuming that government debt is equivalent to external debt and they overestimate the burden that it imposes on a country.

Let’s go back to the case of a closed economy: is it really true that debt does not matter? Not quite, because there are distributional issues of two types: first there is no perfect match between bond holders and taxpayers so it is not quite true that we owe money to ourselves. Some citizens owe money to others. The second distributional issue is about generations and here we need to go back to the example above to understand how difficult the analysis can get. The best way to understand the argument is to stop talking about debt and talk about spending and taxes, which is what really matters. A government spends some income today (builds a road, provides health services to the population). It decides not to tax anyone but instead it issues debt bought by the current generation. The government decides that it will only pay back the debt in the future when it raise taxes on the next generation, not the current one. Are we passing a burden to the next generation? It all depends on what the current generation does. If they decide to spend all their income and leave no bequests for their children then the answer is a clear yes. The current generation enjoyed services that they did not pay for themselves and did not compensate the next generation in any way for the future taxes they will have to pay. Just to be clear, the future generation will be holding the debt that the previous generation sold to them when they were spending their inheritance, but this is not a transfer of resources, the asset was sold at market price. So the fact that in the future bondholders are also the taxpayers does not mean that we are not passing a burden to the next generation.

There is a second scenario where there is no burden passed to the next generation. It can be that the current generation is responsible, understands that the government is asking future generations to pay for the goods and services that they enjoyed and they decide to leave a larger-than-planned bequest to their children so that they have resources to pay for all the taxes (you can think about the bequest being the government debt itself). In this case no burden is passed to the next generation.

This simple example (*) makes it clear that answering the question of what distributional impact government debt has across generations requires an understanding of the patterns of spending, taxes and saving of different generations. What matters is not debt but who enjoys the spending that the government does and who pays for it. Debt is just a vehicle that can be used to transfer resources across different individuals or generations. Debt is not a problem, the problem, from a generational point of view, is the potential mismatch between spending and taxes (even if future taxpayers are also the holders of government bonds when they are paid back).

(*) The example ignores many issues: the type of goods government buy, the possibility of default, the possibility of crowding out (government bonds displacing other forms of saving),…

Next Event

the future of Taxes
May 2012
Location: Info.nl – Sint Antoniesbreestraat 16, 1011 HB Amsterdam [Next to Nieuwmarkt]
This event is supported by Info.nl

The conference language is English.


The speakers and topics are:

Frank Herreveld, Partner Tax Controversy and Litigation, Deloitte Belastingadviseurs B.V., Chairman Tax Controversy Management Group

Iskander Smit, strategy director, Info.nl and head of info.nl/labs
The Internet of Things as enabler of a new organization of responsibility

Annegien Blokpoel, CEO, PerspeXo
Taxes, making the world a better or worse place?

and our moderator is Homme Heida

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ETT: Skyrocketing speed trains and cars

A revolution in transport is about to take place with the project ETT, literally Evacuated Tube Transport Technologies. Still at the prototype stage, this project is set to install fast, clean, cheap and safe travel on earth needing only a 50th of the energy of the transportation mean used whether it be train or car. Invented and directed by Daryl Oyster, an American scientist who graduated in mechanical engineering and worked on aeronautical and marine design and certifications, the evacuated tube transport system consists of using for travel tubes eliminating all possible frictions due to speed thus permitting the mean of transportation to travel faster and safer once it is set in motion. These tubes, made of various possible materials such as fiberglass, sealed concrete and plastics, will enable capsules containing 4 to 6 persons to travel at a speed up to 6.400 kilometers per hour.

ETT sounds surreal when we hear its inventor assuring that we will be able to link Washington DC and Beijing in two hours. Many questions have already aroused on the feasibility of the project and our adaptation to such a revolutionary mode of transportation. Is the human body able to stand such speed? Is this mode of transportation really safe? Will it be owned and operated by public entities or private corporations? Will it be accessible to all or reserved to high-incomes because of its cost? Apparently, the answer to all of these questions is yes. The human body can stand the forces of such high speed for it can stand 8g of acceleration while it will only have to stand 1g of acceleration even at the speed of 6.400 kilometers per hour. This mode of transportation does appear to be safe; and let us not forget how scared we have been at each stage of the transportation evolution timeline. We thought the human body would never be able to stand the speed of a train when this mean of transportation first appeared and today it is a part of our daily lives. Let us not be scared of change. Moreover, to reassure all skeptics, setting in place much smaller tubes for the transportation of mail could be a perfect start to ensure the efficiency and security of such an innovation. Concerning the ownership and management entities of the project worldwide it appears more realistic for it to be split between the governments, public entities such as cities and private companies and corporations who will all have invested in ETT. As for any major infrastructure transportation project, the cost of ETT will be lowered with the number of investors interested and its expansion in as many countries as possible.

Any company interested in the project is encouraged to buy a license to speed up the development of ET3 and enable the construction of a prototype. Once proven its efficiency, the construction worldwide of these tubes should take place at a high rate, linking major cities and countries to form a global transportation network.

Club of Amsterdam blog

Club of Amsterdam blog
http://clubofamsterdam.blogspot.com

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The ultimate freedom: beyond time
Limits to Knowing
Socratic Innovation

News about the Future

Serval – escaping phone operator’s control

The Serval Project could soon revolutionize the mobile phone market and the state’s control over our mobile phones. Its principle is one of meshing, that is creating multiple and temporary networks for communication between close-by rooted phones which are phones having had their operator security locks deactivated. In that way, the phones can function without SIM cards or antenna or satellite intermediary. If the two phones are more than a few hundred meters apart, the phones which will have also downloaded Serval will serve as intermediaries for transmission of the communication without their owners noticing it or needed to do anything. Invented by an Australian scientist, Paul Gardner-Stephen, in collaboration with students from a famous engineering school, the INSA Lyon, Serval appears to be a return to the beginning of the mobile phone industry where already in the 1980’s engineers had started to set in place some similar meshing systems quite simple and cheap. They were prevented of developing these systems by states and companies wanting to reproduce the controlled-by-the-top pyramidal structure already in place for the phone market

Developing solar organic photovoltaic panels

Heliatek, a German company funded by BOSCH and others based in the city of Dresden, has managed to develop a new and innovative type of solar panel, more flexible, lighter and just as efficient as conventional solar panels in cloudy or hot weather. Consisting of organic molecules on polyester films, the technology of these new solar panels is close to the one already used for certain phone and TV screens. Heliatek’s innovative solar panels thus appear more practical and useable because of their lightness and flexibility while generating as much electricity as “traditional” solar panels already on market. Heliatek is the global leader in organic photovoltaic technology

Platform strategy shaping the future of Automotive OEMs

Flexibility to drive growth

By Evalueserve

Automotive: A Key Industry in Germany
Since the first practical petrol engine was built by Karl Benz in 1885, Automotive has been a key industry in Germany. In 2011, the German Automotive industry employed more than 719,000 people. This figure in combination with large CAPEX investments (2011: EUR 13.3 billion) and an internal R&D spend of the OEMs amounting to about EUR 15.8 billion underpins the importance of the industry for the German economy.

This key industry is now undergoing significant change. German car producers are increasingly active in seeking growth in emerging markets – especially in the BRIC countries. To be successful here, product adaptation to the local market as well as economies of scale are required. One way of balancing these – on the face of it – contradicting requirements is the development of automobile platforms that can be shared across models and brands. This paper investigates this trend and shares insights about the future in platform sharing.

Automobile Platform Sharing: An Overview

Estimate: 45-47% passenger cars will use one of top 20 platforms by 2015

Reasons behind Automobile Platform Sharing

All passenger cars are built on platforms or architectures that define the core engineering of a vehicle. Traditionally, automotive OEMs have shared this engineering across products. For example, under the hood, Skoda Fabia and Volkswagen Polo use the same engineering structure. As platform development costs account for nearly half of the product development costs of Original Equipment Manufacturers (OEMs), this strategy of using common engineering across vehicle models allows them to save money as well as time.

As the global automotive industry strives to achieve economies of scale and efficient product launches, major OEMs will increasingly focus on manufacturing a larger volume of passenger cars on select global platforms (core platforms). These core platforms will be used to design and produce vehicles across segments (by size and price range) and brands on a global scale.

Evalueserve estimates that by 2020, the 10 major OEMs (General Motors, Volkswagen, Toyota, Ford, Nissan, PSA Peugeot Citroen, Honda, Renault, Fiat, and Daimler) will reduce their platforms by about a third from over 175 platforms in 2010, and will concentrate mass production across a few key core platforms. For instance, GM recently announced that it plans to almost halve its vehicle platforms from 30 in 2010 to 14 in 2018. The company is expected to save an estimated USD 1 billion per year, primarily contributed by product development projects.

Consequences of Platform Sharing

According to Evalueserve’s analysis, the top 20 passenger car platforms accounted for approximately 40% of the global production volume in 2010. The use of a set of select global platforms by most manufacturers will mean that almost half the passenger cars manufactured in the latter half of this decade will use one of the top 20 global platforms. A realistic projection suggests that by 2015, such a development will lead to the top 20 platforms accounting for 45-47% of passenger cars launched globally.

The major contribution will come from the domination of global platforms, such as Renault-Nissan’s B platform (recently renamed as V platform) producing models such as Clio, Micra, and Dacia; Volkswagen Group’s MQB platform, which will produce a range of models for VW, Scoda, and Audi; and Toyota’s MC platform producing models such as Corolla and Auris. The subcompact and compact vehicle segments (B, C, and D segments) will leverage this consolidation the most by harnessing manufacturing, innovation, procurement, and market adaption synergies.

Increased sharing will also hasten the consolidation of core platforms. OEMs have started collaborating with each other (more than ever) to co-develop and share their core platforms. The collaborative framework of each company depends on its organizational setup, markets, goals, and product portfolio. Renault and Nissan, for instance, co-develop and share platforms as two distinct groups. PSA Peugeot Citroen, on the other hand, has collaborative agreements to share platforms with several partners, including Fiat, Mitsubishi, and Toyota.

Emerging economies such as China and South Asia, and South America will continue to strongly influence car manufacturer’s strategies in the near future, affecting product development, marketing, and manufacturing strategies. OEMs will increasingly adapt their existing platforms and develop new ones for these markets. The Honda Brio five-door hatchback subcompact, produced in India and Thailand, is an example of this emerging trend. Evalueserve’s research on the emerging economies suggest that these markets will account for more than half of the global light vehicle production by 2015, given a strong CAGR of 8-9% over the next five years.

What is Required for Efficient Platform Consolidation?

Strong intra-platform component commonality and global production flexibility will be critical for platform consolidation. Volkswagen is one of the forerunners in implementing a modular strategy for platforms and uses common platforms for multiple brands as well as vehicles. For instance, Volkswagen and Porsche share a platform for the Volkswagen Touareg and the Porsche Cayenne Sports Utility Vehicles (SUVs).

Partnerships among various manufacturers are crucial as modularity can be achieved only till a certain limit, beyond which inter-OEM synergies have to be harnessed (and will keep increasing in magnitude as well as number over the next few years). The Renault-Nissan-Daimler alliance will serve as an example for OEMs looking to harness platform and procurement synergies without undergoing full operational integration. Evalueserve believes that platform synergies will be the key to any further consolidation of the global auto industry.

However, platform consolidation will be a double-edged sword for component suppliers. Increased production per platform will mean significantly higher volumes for suppliers, but reduced core platforms will mean very selective business development opportunities. Further, regional suppliers with limited capabilities may come under pressure as global delivery, supply chain, and efficient manufacturing capabilities will be the key to efficient platform consolidation.

Challenges to Platform Consolidation and Sharing

Although platform consolidation is gaining popularity throughout the automotive landscape by virtue of being a simple and effective strategy, several factors still prevent its instant adoption. We have discussed some of these below:

• Low returns and higher risks: A large number of similar vehicles based on the same platform can result in lower “sales per model”. Platform sharing also magnifies the risk of increased product recalls for vehicles based on the same platform by different manufacturers. For example, the Toyota Matrix and Corolla as well as the GM Pontiac Vibe, which were built on the same platform, had to be recalled from the market.
• Need for product adaption: Homologation norms differ significantly from country to country and thus disallow the use of universal platforms across all markets. Although most vehicles can be sold without major modifications within a region (such as the European Union, which follows a more or less uniform set of norms with regard to platforms), a large number of vehicles have to be adapted to meet the different homologation norms. GM, for instance, had to lengthen the front portion of Saturn Astra to meet the more stringent crash standards in the US.
• Consumer behavior: On the demand side, consumer behavior and brand consciousness are the biggest deterrents. While the North American market is dominated by relatively larger vehicles such as sedans and SUVs, the emerging markets such as India are primarily dominated by small cars. Buyers are apprehensive about buying expensive cars based on the same platform that underpins a relatively more affordable vehicle with low differentiation on features. An interesting example can be the recent launch of Renault Pulse in India, which shares engineering with Nissan Micra and showcases low differentiation. However, the success of this market launch will largely depend on Renault’s pricing strategy.

These obstacles in the path of platform consolidation can be overcome gradually and are likely to wither away against the forces driving platform consolidation. However, to accelerate the pace of platform consolidation, extensive regulatory support, R&D, consumer-driven innovation to increase local acceptance of vehicles developed on global platforms, and segment-driven marketing (personal car, family car, executive car, etc) initiatives are required over the next few years.

An effective approach may be to retrace the path of container standardization in international logistics in the second half of the 20th century. Realizing the potential advantages of a universal regime of standard containers, several regulatory as well as corporate initiatives were taken to promote container standardization. Finally, when standard containers replaced the traditional break bulk method of handling dry goods, it revolutionized the transportation of goods worldwide.

Evalueserve believes that if platform standardization is executed well, it could lead to the next wave of revolution for the automotive industry.

[…]

You can download the full White Paper. Click here

Recommended Book

Liquid Robotics

Liquid Robotics, Inc. is an ocean data services provider and developer of the Wave Glider marine robot that functions as a persistent and versatile platform for scientific and industrial payloads. Based in Silicon Valley, Houston and Hawai’i, the company’s Wave Glider is enabling dozens of applications and missions never before attainable.



Initial customer deliveries of the Wave Glider unmanned maritime vehicle (UMV) took place in 2008. To date, Wave Gliders have logged well over 100,000 miles of operations.

By continuously harvesting energy from the environment, Wave Gliders are able to travel long distances, hold station, and monitor vast areas without ever needing to refuel. A unique two-part architecture and wing system directly converts wave motion into thrust, and solar panels provide electricity for sensor payloads. This means that Wave Gliders can travel to a distant area, collect data, and return for maintenance without ever requiring a ship to leave port.

The Wave Glider is a configurable platform designed to support a wide variety of sensor payloads. It can keep station or travel from point to point. Data is transmitted to shore via satellite, and the continuous surface presence means that data can be delivered as it is collected. Payloads can be installed by customers or integrated by Liquid Robotics..

Ed Lu – Oceans of Robots

Futurist Portrait:  Markku Wilenius

Markku Wilenius, former PhD graduate of the University of Helsinki in social sciences, has become in the last decade a well-known and independent futurist, valued in his field within Finland and around internationally. Being today one of the very few professor of futures studies worldwide Wilenius stands out from the crowd of futurists and experts because of the academic dominance of his CV and expertise. Professor of Futures studies at the University of Turku and professor and director of the Finland Futures Research Centre (1999-2001, 2003-2007), Wilenius has managed for years now to combine his academic profile with high-level consultancy and advising activities for governmental bodies and multinational companies such as Allianz SE. His long-term aim has been to bring and develop strategic thinking inside class rooms, governmental bodies and companies to “futurise” these organizations. Developing a new vision of leadership, management, usual activities according to a far-reaching vision, his work has been focused on adapting companies and the concerned actors, including students who will become leaders and actors within companies, to the Future. Markku Wilenius differentiates himself of other experts in the fields of future studies and futurism by offering critical and innovative thinking. Stating the importance of culture as an asset for companies as much as for society, promoting the necessity of “responsible communication” and trying to open more paths towards a creative economy, better adapted, responsible and efficient, Wilenius is currently at the forefront of future studies.

Adding to his academic, consultancy and advising activities, Wilenius is currently president of the Woima foundation, an organization aiming at helping “Finland to find new sources of wealth and well-being”, and senior president at Fibertus a promising start-up company aiming at developing and commercializing a sustainable product to eventually replace oil-based products for various uses (construction, packaging, insulation, etc). Member of the Club of Rome, one of the major think tanks on future-oriented issues worldwide, since 2002, Markku Wilenius is also a praised author having published a number of valuable works in the last decade such as Creative Economy (2004) and Mediators (2008). Delivering lectures in his home university and around the world, Wilenius is an futures expert to watch

Agenda

Season Events 2011/2012
NEXT Event

May 31, 2012
 the future of Taxes
Location: Info.nl, Sint Antoniesbreestraat 16. 1011 HB, Amsterdam
Supported by Info.nl

June 28, 2012
the future of Urban Energy
Option: Guided Tour 17:00
Location: Van Eesterenmuseum, Burgemeester De Vlugtlaan 125, 1063 BJ Amsterdam
Supported by the Van Eesterenmuseum

Credentials

Felix Bopp, Editor-in-Chief
Raphaelle Beguinel, Assistant Editor