The scientific method

The scientific method applies to climate science, too.

The main problem with Robert Manne's article Cheerleading for zealotry not in the public interest in The Weekend Australian of 25-26 April 2009, is that its misrepresents science as being inaccessible to the lay public and seems to dismiss scientific debate as a brand of politics.

Professor of politics Robert Mann may be but statistician he is not, parading the "tens of thousands of climate scientists" against "a few dozen scientists" he describes as "global warming pseudo sceptics" without a hint of irony. Notwithstanding unanswered questions about the integrity of the numbers, whether tens of thousands or merely hundreds of dissenters to the orthodox theory of global warming, is irrelevant.

Science is not a popularity contest. The assertions we make, our assumptions and methodology, must stand up to critical scrutiny in order to carry any weight. Anyone with an elementary education should be able to understand and bear witness to such an exposition if it is carried out clearly and free of unnecessary jargon. We can all understand and judge for ourselves the difference between good science and bad science.

According to the renowned physicist Richard Feynman, "a specific, extra type of integrity that is not lying, but bending over backwards to show how you are maybe wrong, that you ought to have when acting as a scientist. And this is our responsibility as scientists, certainly to other scientists, and I think to laymen.

Climate science is more than just atmospheric science and other fields have much to contribute to our understanding of the complex phenomena that drive the Earth's climate. Our understanding cannot be deferred to an elite cliche of trusted authorities. Feynman exhorts his students to distrust authorities and to think for themselves. With climate science and science in general we have a responsibility to ignore dogma.

Throughout his career, Feynman was concerned about the inability to teach science properly in schools and critically reviewed many inadequate text books purporting to teach the subject. I wonder what he would have had to say about the quality of the science and public debate about global warming and climate change.

There is a formal relationship between personal and professional ethics, intellectual integrity and the way in which responsible members of society address public debate. The wonderful, historic speech by William Clifford to the London Metaphysical Society in 1876 deals with this very issue.

The great divide between Popper and Kuhn on the philosophical basis of contemporary science applies with a twist. The debate about the nature of the development of scientific truth is usually understood to evolve from the scientific community engaging in Popper's critical rationalism in execution of their research.

Kuhn believes that scientists work in a series of paradigms rather than actually following, as espoused by Popper, a falsificationist methodology. It appears that the greenhouse debate falls squarely into this camp as being an accepted theory, a paradigm of scientists that matches the zeitgeist - the spirit of the times.

While nobody seriously denies that environmental action is needed in order to make the most of our limited natural resources and to preserve these resources, and indeed the livability of our planet for future generations, it is a stretch to assume that such a belief applies to all aspects of our human interaction with the planet.

A while back cold fusion was a similarly controversial issue, if less enduring in the media. In summary, most of the early studies into cold fusion are widely believed to be cases of scientific fraud or just poor science; there isn't any reliable evidence for cold fusion as a viable energy source; current physics cannot explain cold fusion but funded research continues nevertheless.

In these cases reputations have been tarnished or destroyed but the record has largely been set straight and it is equally certain that the climate debate will eventually return to normality. Some people will continue to believe there is some kind of global conspiracy to suppress their own favourite, nonscientific idea but in truth it is highly unlikely to be the case.

Conspiracy theories aside, we should examine our moral and ethical position stand on this kind of issue. Is it proper for someone to promote a theory they believe to be for the greater good when they know that theory to be flawed? How about if they hold a reasonable belief in the theory without proper justification?

In the former case, there is scientific fraud and a kind of personal conceit that beggars belief. In the latter case, we again have the same sort of intellectual laziness that William Clifford railed against. Public trust in the scientific establishment has always been one that ebbs and flows, increasing trust and respect as people become more educated and declining when seeming advances lead, in war for example, to widespread unhappiness and distress.

For example, the hockey stick graph - smoothing the Medieval Warm Period - that has so badly humiliated many right-minded members of the IPCC and damaged its standing features prominently in An Inconvenient Truth and even more so in the public consciousness. Such distortions and convenient mistruths to push one line of thinking are quite damaging to trust and serve to close down alternate lines of enquiry.

Manne states a basic truth that "those of us who are not trained scientists are in no position to make independent judgements on the fundamental scientific issues for ourselves" because we lack the training to assess the relevance of a specific theory in a narrow, scientific speciality. On the other hand, it is manifestly untrue to assert that we cannot be part of the scientific process. It in incumbent on scientists to communicate their work and on science writers, among others, to report on their findings.

Science is not concerned with rhetoric and philosophical debate but with the development of theories that are consistent with the observed facts, making predictions and conducting repeatable experiments based on the application of those theories. A theory that explains the observations may be consistent but it is insufficient unless it is falsifiable insofar as is can be used to make testable predictions.

There is no us-and-them in science, the stakes are not about winners and losers in public debate. Instead, scientific theory becomes generally accepted because it has been communicated widely and scientists grow in confidence in its application. When facts are discovered that are contrary to the predictions of the theory then either the theory is modified or it is discarded altogether and replaced with an alternative theory that does fit the facts.

Accepted theory is incontrovertible because one cannot deny observed facts and the consistency of the theory with these facts. At least, this is usually the case with science unless it becomes a circus or merely a parade of unsubstantiated ideas. The body of knowledge is not being added to nor our understanding abetted by the pronouncement of speculative new theories in an attempt to explain anomalies with the current theory.

The Ptolemaic system of perfect spheres, with the arbitrary addition of epicycles in order to explain the apparent retrograde motion of the planets, held sway for 1000 years because Ptolemy was held in such high regard as an authority. It was not until the Copernican heliocentric cosmology, with the later support of Galileo's observations of the phases of Venus, that the Earth was finally displaced from the centre of the universe.

This week I read in the media of the ozone hole over Antarctica negating the effect of ocean warming and leading to a counter-intuitive increase in ice volumes; other articles highlight anecdotal evidence for increases in ice mass and pack ice over a period of several decades. While the effect of the ozone layer on Antarctic ice mass is a plausible hypothesis it will only become a theory once it has been validated by modelling and when it is supported by empirical data.

Surely we can do better than this to stimulate and encourage public debate on this important subject and a range of other issues. The truth based on a rational, scientific approach is the minimum the public deserves on the issue of climate change.

ASWEC 2009

Due to other commitments, I attended only the final day of ASWEC 2009 on the Gold Coast having accepted an invitation to participate in a panel discussion on The Future of ASWEC. One highlight for me was catching up with old friends and making a few new ones.

Another was hearing Neville Holmes innervating keynote talk about The Prehistory and the Future of Agility, where he raised a number of issues and recommendations about elevating software engineering from its current state of practice to that similar to other professional engineering disciplines.

Neville Holmes has a long and distinguished record in the computer industry in Australia but I happen to know him from his remarkably lucid and insightful column written for Computer. I am grateful for the many clarifications and additional references that Neville has provided so I can improve this article. (Remaining errors are, of course, my own.) He started off by saying that he didn't know much about agile and found the Agile Manifesto of interest but "it was the Values that got me; they were the values we (IBM systems engineers) held back in the '50s and '60s."

Neville told several anecdotes (and had to restrain himself from telling several more) including about IBM Melbourne which had a service bureau of punch card machinery some years ago, all hardware programming by plug panels. There was a secret one in Defence Signals that being parallel and fast was used through the 70s. They later moved to Fitzroy Street, St Kilda when they got stored program computers that for the first time has separation between program and hardware reflected in a physical separation between programmers and operators.

Programming is a talent thing, some people can do it, some people can't. Ford Motor company ran courses to teach people to program and found that a program aptitude test was a very reliable indicator. They hired B-/A people, not A+ because they tend to disrupt. The A+ were reported to be poor team workers; I guess they'd be the best extreme programmers in today's terminology.

This was run by personnel "before management became inhuman." A chap from Personnel went around Ford setting the test. He sat the test himself and was one of the people selected. [My comment there was a jibe at the renaming of Personnel as Human Resources which seems to me to have authorised the treatment of people as resources rather than people.]

Management, "stupid idiots" put programmers and analysts in separate rooms; system analysts talk to users, programmers only to analysts. Much as mechanical engineers learn about bulldozers and other equipment, and when I did electrical engineering I experienced electrical and mechanical, eg. boilers, to gain enough awareness to be able to supervise technicians who carry out detailed design tasks.

We should put programmers in technical college and technical school. Salesmen dealt with management but the problem was managers didn't know what they wanted; managers didn't know what everyone else was doing. Using butcher paper and texta pens, carry out workshops with managers to work out what they do, over two days.

They work in isolated departments in hierarchical organisations where managers don't know what workers do. Wrote a program to produce a 6-12 month delivery schedule for ordering sheet metal, subassemblies and parts at Broadmeadows. The workers wanted to check the calculations! Instead they should have been interacting with suppliers.

Big projects don't work because they take a long time and may be out-of-date by the time they are delivered. The problem with projects is that they focus on software instead of data which is more important, "the data doughnut in the software hole," to enable adding components, interfaces to data.(*)

Embedded systems are "pretty damn hopeless, really" - for example, modern sewing machine has an "absolutely bloody shocking" user interface. The human machine interface, cognitive science and how people work, is more important than how machines work.

Professionals and the secondary profession; we have to understand data ("technician") from other professions, eg. medicine. Do combined/dual degrees in profession, and data or information engineering. Universities need to plan, probably easiest in the Melbourne model, because programmers "cannot hop around from field to field and expect to be successful" in each one.

The traditional staff, line and service model has been reincarnated as minders, grinders and finders. The "weird things that happen in government departments" because data processing departments became empires and centres of power. In Canberra, Malcolm Fraser split Treasury, who got the computing equipment, from Finance, who had the right to use it.

(*) Neville tells me (in private correspondence),

My reference was to an old popular song "As you go through life make this your goal: watch the donut and not the hole" (e.g. see www.skypilotclub.com/interview.html) from "Sometimes a Great Notion" (see en.wikipedia.org/wiki/Sometimes_a_Great_Notion_(novel)) and I guess I assumed that readers and the ASWEC audience would make the connection of the title of my original essay (see eprints.utas.edu.au/1130).

Neville taught the chap how to use spreadsheets to support his work arranging the Premiers Conference using a spreadsheet for planning on typewriter terminals (before spreadsheets were supposedly invented).

We used to have a saying in IBM: "If you solve problems you breed albatrosses" (referring to Coleridge's "The Rime of the Ancient Mariner").

Neville says he was "banned from three departments for trying to enable users" and they reduced the dispatching priority to below that of batch whereby the slow response time meant it could only be used on weekends or after hours. [The ban was not directly related to my work at the Department of Finance, and it was not an official ban; local IBM management was asked to take me off those accounts by the DP sections of those departments. - Neville]

The tragedy of the recent walk in Blue Mountains where information from David Iredale about his position was ignored and not passed onto rescuers and police because it didn't match the computer program and training. People aren't thinking and want the computers to do this for them.(**)

Small business machines from IBM System 32, 36 and finally the wonderful System 38 had RPG (Report Program Generator) that used template programming. A sheet for each file; input/output files and processing files, "much easier than Cobol. Cobol, as you might know, is not very good at all."

Macro systems were very good in the 60s, stealthy development in IBM to develop assembly code for testing before the hardware was ready. A macro system so user to "write programs" and professionals added macros and kept them up to date.

The presentation is written in HTML because "I can control it instead of it controlling me" (i.e. PowerPoint). Empower users, "to hell with management" because management is interested in strategies and this is tactical.

The challenge: using technicians "focus on this language (eg. Java)" course called Professional Computing, learn five different languages (interpreters, eg, python, SQL). For programming, go to technical college; for data engineering, work in partnership with other professions. Look to enable users, not to take it away from them.

(**) My main point at this stage was that computers are used to avoid responsibility (eprints.utas.edu.au/2765).

A question was asked about teaching web development, concurrency, etc; the answer was better frameworks. To a question about analysis, design and coding activities; the answer is looking for close teamwork between engineers and technicians, "love agile iterations." Question about enabling the users but not ceding too much control as to "bring down the system"; answer is teamwork, not to isolate the users in spite of "mad dogs and other kinds of weirdos."

Responsibilities of engineers in data not software; look at users, community, code of ethics. Raise the stakes for software engineering, "should be much higher." To a question about what to teach in university degree; answer was content is not that important so long as you get the right mindset, the first job does a lot more in determining career.

After a break, the panel members spoke about the future of ASWEC, questions were asked of the audience, discussion ensued and the consensus was that ASWEC is basically alright the way it is. Overall ASWEC has a very good structure, albeit there are aspects that I would change, and any change could have unintended consequences. However the landscape is changing so there may not be any other choice than to accommodate some change in order for ASWEC to prosper.

My preamble to discussion:

Rugby first - I am happy to be in Queensland and pleased to say the Western Force beat the Queensland Reds a fortnight ago; I am not happy the Hurricanes beat us a week later.

The greatest strength of ASWEC is the co-location of academics involved in research and teaching with industry practitioners. However, for an engineering discipline which relies upon industrial practice for its existence there is too little 'meeting of minds.'

Software engineering practice must be informed by strong scientific underpinnings, including computer science and mathematics. Dijkstra and Parnas among others provided the foundations of this discipline decades ago but industry practice is lax and even academic memories are short.

Our assessments of planned, formal and agile methods are a case in point. The agile approach is fine for programming in the small but large-scale engineering projects in defence, utilities and government, enterprises and resource industries cannot be served by a simplistic approach.

With cheerful conceit we collectively forget lessons learned and continue to reinvent the same 'innovations' - as David Parnas reminded us in his keynote address at ASWEC in Brisbane four years ago.

At ASWEC in Sydney three years, Julian Edwards of Object Consulting remarked in his keynote that after inadequate requirements, the absence of architecture is the biggest cause of project failure. However I see scant attention being paid to architectural frameworks.

I believe that with appropriate analysis, any complex set of requirements can be partitioned into systems and subsystems; the software components then can be developed in an agile fashion.

Julie Blake from Object Mentor, in her ASWEC industry award paper, 'Gathering the Right Requirements,' two years ago in Melbourne advised 'matching the process to the project.' Too many practitioners dismiss the reality that requirements engineering, architecture and test frameworks are vital to the success of non-trivial projects and complex systems.

The report Challenges of Complex IT Projects by the British Computer Society and The Royal Academy of Engineering goes straight to the point of the many problems that beset complex IT projects:

"There is a broad reluctance to accept that complex IT projects have many similarities with major engineering projects and would benefit from greater application of well established engineering and project management procedures. For example, the importance of risk management is poorly understood and the significance of systems architecture is not appreciated."

There are bundles of issues in industry that need to be resolved to enable the success of large-scale distributed and concurrent computing.

As Ian Sommerville pointed out in his keynote at last years ASWEC in Perth, construction by configuration and integration of third-party and legacy systems pose significant, open research questions. He suggested that Australia could take leadership in this area and why not?

Such a research program would by necessity be of a longer time frame than industry desires for project delivery. However, strategic IT initiatives include programs of work that span several years so a realignment of expectations may not be out of the question.

The greatest weakness of ASWEC is lack of strong engagement with a cross section of industry. Our challenge is to attract their sustained participation in future conferences by becoming more relevant to the problems they face.

The future of ASWEC will reflect the future of software engineering in this country. If we blur our focus towards programming then ASWEC will flounder without a clear audience. If stakeholders in ASWEC build a vision for software engineering then industry will benefit and the conference will flourish.

Comments from the panel members covered a range of opinions and perceptions about ASWEC in relation to their own priorities:

• How does Agile fit into the complex systems development life-cycle.
• Interdisciplinary teams, eg. safety and security; professionalisation, including conferences.
• Better value for DMO to have co-location.
• ASWEC is a serious research conference in SE - not only that, it's more.
• It's a broad conference, SE is a broad discipline, SWEBOK has broad knowledge areas.
• Academics and industry - must be serious research to bring academics out of "ivory tower."
• ASWEC is increasingly international.
• Lack of students - not selling benefits of SE adequately.
• Agile is good but please, please don't allow it/use it as an excuse for lack of discipline.
• ASWEC covers whole range of activities, the breadth of engineering.
• ERA (Excellence in Research Australia) - journals and conference ranked in international standing; ASWEC and other Australian conferences ranked B but unis only fund A or A+ ranking.
• "Love, passion and time" in terms of organisation.
• Caution changing and impact of changes.
• "ASWEC, it's better than nothing." Where would we be?
• Venue for Australasian scholars; nursery for new researchers.
• SE journals and funding? Engineering has difficulty in general with funding (eg. ARC) compared to science disciplines.
  

The DMO (Defence Materiel Organisation) which has a vision to "become the leading engineering and project management organisation," is sponsoring the formation of the Improving Software and Systems Engineering Conference (ISSEC) . The vision of ISSEC is a "commitment to the advancement of integrating and improving systems and software engineering best practice for the engineering profession and industry."

Gas water pipeline

It has been suggested to me that I should do the hard yards to research and write up a proposal for a combined gas-water pipeline from the Kimberley-Pilbara to the south west of Western Australia, to complement the existing Dampier to Bunbury natural gas pipeline and at the same time to realise the long-held dream of piping water from the Kimberley to Perth.

Some cursory research has demonstrated to me that the engineering aspects of such a venture are certainly surmountable because pipeline engineers have accumulated enormous experience in pumping solid-liquid slurry and multi-phase gas and fluids through pipelines over long distances.

Slurry pumps and pipelines are often used to transport minerals and other solids from a mine to a processing site. Flow assurance and flow optimisation in multiphase oil-gas-water tie lines and export pipelines are important issues in offshore oil and gas, especially subsea processing. In either case, technical issues to do with basic metallurgy, fabrication and corrosion protection are significant but not insurmountable.

Ongoing interest in a water pipeline and recently escalated interest in gas pipeline security stemming from the Apache gas explosion on Varanus Island support the development of a business case. This would lead to funding of a design study in order to establish the feasibility and cost of a combined gas-water pipeline as a solution to gas energy and water security in this state.

Fundamental priorities in a downturn

How prepared are you to meet the challenges ahead? This was the question posed at the AIM Professional Development Sundowner on Thur 26 Feb presented at the Leadership Centre by Mark Gibson and Melanie Grohovaz, both Associate Directors (Corporate Advisory & Restructuring) PricewaterhouseCoopers.

The essential message is to avoid thinking it's all gloom and doom and to avoid making quick, short-term decisions and strategies that may be detrimental in the long term. The goal is to visit strategies to ensure short-term survival and long-term prosperity. 10 fundamental priorities framework is not just a treasury issue - it's an all of business issue.

• Individual circumstances will apply.
• Take a closer look to understand your business and its key drivers (past and going forward).
• Competitive analysis - understand your market and customers.
• Knee-jerk reactions with short-term solutions can cost the business in the long term, eg. redundancies.
• Are you agile and confident? Act decisively, take tough decisions early.
• Operational agility and efficiency will allow business to adapt quickly.

Perhaps the biggest challenge for business leaders is to balance short-term survival with long-term success. Secure your financial sustainability:

• Cash management should be priority - "cash is king."
• No cash leads to inability to pay debts and insolvency.
• Go back to fundamentals of cash management.
• Consider other sources of cash such as disposal of surplus assets.

Focus on what really matters:

• Products and customers create value.
• Research and development.
• Customers must remain #1 priority.
• Focus on existing customers over new, short-term customers.
• Determine the most-valuable customers.
• Review investment projects that can be stopped or deferred.
  

Manage your cost base:

• Focus on enhancing operational performance and eliminating waste.
• Make targeted cost reductions. Knee-jerk cuts have negative impact on staff morale and customer sentiment. Streamline processes. Consider outsourcing and shared services options.

Analyse and act:

• Look at management information systems. Need timely and relevant information - financial and non-financial.
• Consider appropriate KPIs and reporting templates that add value to your business.
• Consider fewer, more-pertinent KPIs.
• Evaluate performance against targets.

Plan for success:

• Plan for different scenarios.
• Define success for your business.
• Forecasting is essential in the present economic climate, not a luxury.
• Be flexible and have foresight to enable you to be agile and act quickly.
• Model a variety of financial, operational and workforce scenarios that reflect the potential impact on your business. Include adverse scenarios.
• The best businesses continually forecast.

Retain the best people - reassure and value your people:

• Tell them they are values, monetary rewards and retention incentives.
• The organisation has a great future.
• Face-to-face, preferably one-to-one, with the best employees.
• Opportunities to secure new talent and refresh your talent pool.
• Great organisations are always on the lookout for the best talent.

Keep your stakeholders onside:

• Include shareholders, lenders, investors, key suppliers, customers, employees, &etc.
• Stakeholder management is crucial.
• Communication is key - should be open and regular.
• Ensure you know and understand stakeholder expectations. Avoid surprises; stakeholders like to be informed.

Look for opportunities:

• Take advantage of the opportunities.
• Look at what your competitors are doing. Strong businesses can capitalise on their positions in a downturn.
• Have an eye for the future - smart companies take opportunity not only to cut costs and headcount but also to 'think the unthinkable' - blank sheet of paper. How do you want to do business?
• Innovate and invest in new projects - effective and aligned with your strategies.
• Move from growth dynamic to sustainable profitability.

An ongoing problem is posed by managers promoted in boom times who become indecisive or cease to make decisions in a downturn. As I wrote way back in 2006 (People, People) :

Deming, best known for his association with post-war quality management and improvement in Japan, says that the worker is not the problem, rather it is management that is the problem. It is up to management to enable and empower his staff.

Presumably due to lack of confidence, competence - the absence of self-belief - and maybe some reticence to make any decision that might put them offside with their own manager. Wherein we approach the essence of leadership which is a topic for another day.

Subsea Technology Innovation for the Australian Oil and Gas Business

Betsy Donaghey, Senior Vice President, Browse Development, Woodside Energy Ltd, is an engaging speaker who scattered amusing anecdotes between the sober points she made in assessment of the trends and future needs of the oil and gas business in Australia.

[In my usual style, I mix first and third person, quoting and paraphrasing the speaker to preserve the speakers intent and to improve readability. Usually it is clear from the context who's words you are reading; if not, I put editorial remarks in square brackets.]

She graduated from Texas A&M with a Master in Operations Research followed by 25 years experience in the oil and gas industry - having entered the industry at 4 yo ["haha"]. Perth is ideal for the first [subsea technology] conference - to live and work in a place with a growing oil and gas industry, and raise your families live in Perth; if you want to shop on Sundays, go somewhere else [more laughter - inside joke where Perth outlaws Sunday trading, sigh].

We need more reliable equipment, cheaper equipment, greater ease of moving across vendors equipment, greater capacity in operating flexibility. Woodside has the goal to be one of the world's leading producers of LNG by 2015, primarily the NW Shelf. The goal is backed by delivering projects - oil and gas projects, of course Pluto LNG project (Sunrise and Browse).

Karratha Gas Plant, North West Shelf Venture, Western Australia (courtesy of Woodside Energy Ltd).

Lovely - I'm so proud of my company... what is the relevance to this conference? Subsea technology (Cossack Pioneer in 1995 has subsea wells) - 7 projects have offshore components, 6 have subsea components, 50% subsea production, Pluto entirely dependent on subsea wells for production.

Says something for confidence of company and skills and engineers, some at this conference:

• Multiphase pumps with fibre optic controls.
• Depths of more than 500m.
• Choose subsea - safety drivers - move people away from well heads.
• Lower cost, greater flexibility.

We expect to earn greater than $1 billion revenue from business unit entirely dependent on subsea technology. We are positive subsea technology, achievements will continue. Browse and future developments are highly likely to use subsea technology, but not necessarily so, and "dry well" remains an option.

Browse LNG first discovery in 1971 sign-posted development challenges for the field which is more than 400km offshore from Broome, largely in deep water 800m, some shallow (under coral reef), a world-class resource. Progress of technology and strong LNG markets gives a reasonably clear choice between:

1. "Dry tree unit" - reduced well workover and rework cost, use carbon steel pipeline, ease to use and fix.
2. "Subsea wells" - safety, flexibility, location, vertical and deviated wells.

It is possible we will go with dry tree, subsea wells or combination of both. The wider Australian industry required high availability and reliability - important for oil wells, essential for LNG. Need to reduce workover and intervention costs, and among others, improved flow lines and subsea processing. When you discuss improvements, saving - please remember, I want them now. ["hehe"]

Betsy's talk gives me confidence that we are on the right track with ACOSP to fill a gap between academic development and industry deployment. With systems that are currently available for deployment in the oil and gas industry, and even with product development programs, we are seeing retrograde outcomes that ignore standards, prevent interoperability and are contrary to goals of lower-cost, flexible deployments with higher reliability being sought by Betsy and her peers.

The goal of ACOSP is to facilitate and lead an industry technology development program that focuses on selected gaps in capability in order to stimulate industry cooperation and innovation, standards development and adherence, to foster an awareness of risk assessment and mitigation. Some of our local academic and industry players are about obscuring these wider benefits in favour of selfish outcomes but it is important to keep an eye on the wider economic benefits that will accrue to WA with the development of a viable, local subsea technology sector.

The status quo among some local operators, contractors and vendors is contrary to cooperation, the development of beneficial industry and technology clusters however a shift in mindset and approach is sorely needed for the industry to meet the ambitious targets described by Betsy.

Subsea Technical Conference 2009

There is much more to say later but for now, congratulations to everyone involved in the First Annual Subsea Technical Conference (2009) held at the Perth Convention Exhibition Centre (PCEC) from 17-19 February, concurrently with the hugely successful Australian Oil and Gas (AOG) Conference.

The Chair of the Perth branch of the SUT, Martyn Witton, welcomed everyone to First Annual SUT Conference, "Thanks for coming." In his introductory remarks, Martyn noted that subsea production will be the primary method with the percentage of income from subsea coming to 80% - requiring systems, long distance, subsea processing, pressure boosting - new and different technologies.

Reliability needs to be demonstrated; developing people and skills, and applying new technology. SUT spreads technology widely, economic benefit, applying technology, growing need for engineers, largest proportion in south east Asian and Indian subcontinent.

Outside the continental shelf and exclusive economic zones, 3500' depth, systems, local and global networks, specialist technologies, continue to support reliance on hydrocarbons as energy source until replacement comes along, also renewable energy. About being in Perth, generating subsea technology, talk and listen to people, research centres like ACOSP and CMST. Acknowledge the traditional custodians of the land, the elders, past present and future traditions that they hold. Thanks to the organising committee and sponsors.

The SUT is an international body actively promoting the development, dissemination and exchange of ideas, information and technology related to the underwater environment.

Thanks to David Brooks, President of SUT. Welcome to the Hon. Peter Collier, the Minister for Energy, Training for the Premier who is in Japan, and Helen Liddell, British High Commissioner to Australia. The Minister noted the NW Shelf and that more than luck is needed to establish ourselves as hub for the petroleum industry. The deep waters off the coast of WA, requiring subsea development technology to reduce production costs.

Woodside Browse, Chevron LNG, BHP and others are utilising subsea for 40% of Australian production rising to 80%. WA is base for Australian offshore oil and gas industry and will remain central - sometimes hope the east coast will remember that. Noting there are workshops on reliability, commercialisation of technology... officially open the Perth Subsea Technology Conference.

Over the course of the conference it became clear that while there is an incredible capability there are sometimes impenetrable barriers to cooperative development in the exploitation of new technologies that are sorely needed. The barriers are not only based on conservative business assumptions but also the tyranny of distance from another colony whereas some of the American companies operating in WA, for example, merely operate under instruction from afar - uninterested in local innovation.

The global housing bubble?

One paragraph in an article entitled World in Reaction in The Weekend Australian January 31-February 1 2009 by Michael Stutchbury contains a few of the wrong and self-contradictory ideas held about the causes of the global financial crisis in so few words that it presents a good opportunity for me to point them out and to suggest an alternative view.

The article makes rather odd reading because several of the quotes and ideas which are represented to the reader are worthy of fuller and properly-reasoned treatment, especially about the direction of the US in respect of the apparent strengthening of support for the spectre of protectionism. Aside from the dissonance forced upon the reader by the recitation of material, and blithely made claims including that "the old Davos consensus failed to recognise that financial markets are not always self correcting and are prone to bubbles," the words I am particularly troubled by are as follows:

This [the world economy] came undone because the excess Chinese savings pumped up the American housing bubble, facilitated by the new era of financial products. Financial engineering allowed the movement of Chinese peasants from the rice paddies to the city factories to finance home loans for poor Americans. The trouble came when the borrowers couldn't service the debt. The securitised mortgage products had hidden the dud loans. That broke trust in the banking system, an essential element of a market economy.

Let's analyse the fallacies of these statements in three parts:

1. "Chinese savings pumped up the American housing bubble" is obviously untrue. The nexus between the funding of expenditure on imports by Chinese purchased of American bonds and the price of housing is tenuous at best. The US economy is strong because it is a diversified and efficient economy that reaps the most financial benefits of globalisation, both exporting premium goods and services and importing low inflation. The American housing bubble is no different to that in the UK, Spain, Australia or Hong Kong who do not benefit from Chinese savings propping up their economies.
2. "Financial engineering allowed the movement of Chinese peasants from the rice paddies to the city factories to finance home loans for poor Americans" provides a second stanza of the same mantra with "home loans for the poor" in place of "housing bubble [for the rich]." Which is it, or is it somehow both? Low-income, owner-occupied housing is entirely distinct from aspirational middle income owner-occupiers climbing the "ladder of opportunity" and upper income earners purchasing investment properties.(*) I note that predatory lending is abhorrent and has an awful impact on those caught in its net so should be prosecuted vigorously by the authorities.
3. "The trouble came when the borrowers couldn't service the debt. The securitised mortgage products had hidden the dud loans. That broke trust in the banking system, an essential element of a market economy." Okay, I mostly agree with this point; but I'm really not sure about broken trust except for between the banks. I note that the banking system as a whole is secure in the US even as parts have fallen over (likewise in the UK and Europe), in contrast to the Australian banking system which is well-capitalised and profitable. The causes of the breakdown in inter-bank lending and resultant slowdown in commercial and general loans are at the root of the current underlying problems.

(*) Notably from the Australian perspective, the property market in the US bubbled along even in the absence of the financial benefits of negative gearing available to Australian tax payers, posing another conundrum for Australian policy makers seeking to decouple first-home ownership from rent-seekers and those seeking capital gains in the property market.

Credit tightening during the down slope in the economic cycle (i.e. recession) is normal and expected which gives a glimmer of silver lining to the billowing clouds of gloom. The positives are the repricing of asset values to realistic levels (as asset price speculation is dampened), the reduction in the cost of labour and resources (due to the relaxation of production capacity constraints), lower interest rates and disinflation (i.e. a decline in inflation - so long as deflation can be avoided), which together should soften the economic landing and give a platform for sustained growth during the ensuing upswing.

None of this offsets the personal dislocation of those workers, and their families, who have been displaced in the workplace whether by being made redundant, or being asked to reduce working hours or take a cut in income. The goal of targeted economic stimulus should be to minimise the effects and duration of the economic downturn so as to avoid stimulating cost and wage inflation during the return to economic growth. With a little courage, governments, enterprises and individuals can benefit from counter-cyclical investment in a slowing economy and at the same time help to pull up the economy in order to hasten a return to economic growth and full employment.

I am surprised there is so little commentary in the media about the Glass-Steagall Act being repealed (in 1999) and more importantly the repudiation of the reforms that were enshrined in these pieces of legislation in the aftermath of the Great Depression, the most relevant being the effective separation of commercial and investment banking. I do not know if this is a good or a bad thing overall but the erstwhile reason was to rebuild lost trust in a stable banking system.

Many commentators appear to have rediscovered the role of directors in managing financial and non-financial risks, eg. reputational risk, of the companies they manage, albeit largely by delegation of specific responsibilities to a chief executive officer and his nominees. The major part of the remaining, non-delegated role of directors is specifically to consider and approve strategy, as proposed by management, and to oversee risk primarily through the Audit and Risk Committee that is a subcommittee of the board of directors.

It is equally surprising that the Sarbanes-Oxley Act has got little airplay in the context of the current crisis; hastily enacted after the last crisis, it is no surprise that it has made no real difference to the risks prevalent then and now. There is something to be said for avoiding black-letter law for principle-based reporting standards as exemplified by International Financial Reporting Standards as adopted by Australia and on the way on the US. The right regulation is desirable instead of over-regulation in order not to dampen entrepreneurial risk taking and innovation which provide the most benefit to the economy in the long term.

A quick comment on the article as a whole is warranted because while many of the ideas in the article are sound, in my opinion the combination of quotations from respected sources together with 'editorial' remarks is misleading in an insidious way that conveys the selected quotations and the authors conclusions as reliable beyond their merit.

Reporting from Davos, the Russian Prime Minister Vladimir Putin is quoted as one bookend to the sentence, "The epicentre of this crisis is the US, the heart of global financial capitalism," cutely contrasting the pseudo-free society and markets of the main entity of the formerly socialist Soviet Union with their capitalist nemesis. The other bookend is this unattributed quote, "If there are no people in Wal-Mart to buy your product, what is your export strategy?" referring to export-led growth of developing nations as a result of globalisation.

This meandering is partially saved by the wonderful line that, "It's been the greatest poverty reduction program in human history," in reference to the "triumph of global capitalism in absorbing the population masses of China, India and Brazil." Kevin Rudd would do well to remember this in light of his recent disparaging remarks about the last 30 years of global development.

After posing as a fiscal conservative before the last Federal election, if he is not careful Rudd's current foray into fiscal adventurism could set Australia up for a period of prolonged stagnation and low growth instead of heralding another sustained period of growing economic prosperity.