The Internet of things

We need to talk

Today’s post is written by Rudolf Van der Berg of the OECD’s Science, Technology and Industry Directorate

Look around you for a second and count the number of electronic devices, machines and gadgets. All of them – light bulbs, cars, TVs, digital cameras, refrigerators, stereos, cranes, beds – will be connected to the Internet over the next 15 years, if they aren’t already.

This is the potential of the “Internet of Things”: billions and billions of devices and their components connected to one another via the Internet. 50 billion devices by 2020, according to companies like Ericsson. The Internet of Things will radically alter our world through “smart” connectivity, save time and resources, and provide opportunities for innovation and economic growth.

The trends are already visible: Internet-connected TVs are now widespread; eBook readers must have a Wi-Fi or 3G connection; smart electricity meters have already become standard in many countries.

The Internet of Things is the subject of a new OECD report, Machine-to-Machine Communication: Connecting Billions of Devices that examines new technology (the drivers behind connecting devices to the Internet); new markets (user and business demands); new policies (what governments can do  to promote this new source of growth).

The basic building block of the Internet of Things is machine-to-machine communication (M2M), devices equipped to communicate without the intervention of humans. Different networking technologies can be used to connect M2M devices, depending on the amount of mobility needed and dispersion over an area. Mobile wireless is often an ideal technology for most applications. However, countries may run out of phone numbers in their current numbering plans as a result of M2M, because 2G and 3G equipped M2M devices require a telephone number to work, unlike 4G where M2M can work with just an IP-address.

M2M creates a new player in the mobile market: the “million device” user. These new large scale M2M users will potentially manage hundreds of thousands of smart meters, cars, and consumer electronics, possibly in higher numbers than some countries have citizens.

Large scale M2M users may offer their services dozens of countries, selling the same devices globally. Their customers may buy the devices abroad and travel with them. The telecommunication industry, however, is still largely organised and regulated on a per country basis. Large M2M users will thus place new demands on telecom companies, and regulation and business models will have to adapt.

Companies creating innovative M2M-based services are currently locked into 10-30 year mobile data contracts and high roaming fees; this dependency hinders the roll-out of new services and innovation.

Governments can set large-scale M2M users free by giving them access to wholesale markets. by changing the rules so that large M2M users can have access to numbers and SIM-cards, just like telecom companies. This will open up the market, break lock-ins, make large M2M users responsible for their own innovation and create a competitive market for roaming for M2M services.

Liberalisation will be a major paradigm shift, and might lead to billions in savings and new services.

Privacy and security need to be designed into products from the start. M2M could allow a detailed view of people’s lives, and parliaments have already curbed or changed some projects as a consequence. For example, cars are increasingly using onboard M2M services and the European Union is now mandating their own service (eCall) to be built into every car from 2014. Since EU legislation requires telephone companies to record a person’s location at the start of each mobile communication, and since turning a M2M car on will itself start a communication, these companies will be inadvertently tracking the start and end of any trip, so even if the automobile company does not register the location, the telecommunication company has to by law.

Governments have tried to make spectrum policy more flexible in recent years, allowing companies to change networking technologies when new technology becomes available. M2M may rigidify spectrum policy, however, because anytime M2M uses a particular networking technology, it expects the spectrum to be there for the lifetime of the device, which is 10 to 30 years. Consumer-oriented wireless technology works on a timescale of a maximum 10 years.

Combining data generated by M2M devices may offer insights to improve society. Cars could notify local governments of icy roads or bottlenecks in infrastructures. This may not always be seen as positive, however, as shown by a case in The Netherlands where anonymous and aggregated data from GPS-systems was used by the police to identify prime locations for speed cameras, which led to a public outcry.

What is certain from the report is that governments will have to change regulations in the telecommunications market, will have to be vigilant to apply privacy and security regulation and stay innovative to make use of the many possibilities it offers. Doing so promises to transform the economy, promote growth in the telecommunications sector, and produce growth and efficiency savings in government and society.

Useful links

OECD work on information and communications policy

OECD work on smart sensors

OECD work on smart grids

OECD statistics on broadband

OECD policy guidance on Radio Frequency Identification (RFID)

OECD shows how to fight inequality and boost growth at the same time

Join the dots and get a fright

If your sovereign debt was soaring and you were locked into a costly war, what would you do if, for various reasons, default and surrender had to be excluded from the policy package? Raise taxes and cut public services? But imagine there are practically no public services anyway and you’ve got as much as you can expect from taxes. Well, you could invent a temporary tax to be applied until things get better.

That’s what British prime minister William Pitt did in 1798 when he announced certain “duties on income” to be gathered starting in 1799 to finance the war against Napoleon, inspired perhaps by the eisphora, a temporary tax on capital to finance wars used by Athens and other Greek cities from around 430 BCE on.

Income tax, as it came to be known, was abolished briefly during a lull in the fighting, and again following Napoleon’s final defeat at Waterloo, when Parliament decided that all documents connected with it should be collected, cut into pieces and pulped, although duplicates had already been sent to the King’s Remembrancer. (By the way, I got these details from what must be one of the most unlikely celebration sites on the web: Her Majesty’s Revenue & Customs Bicentenary of Income Tax  page.)

The tax was soon back, joining the excise duties and other taxes that still form the basis of government income. What should this money be used for? The day to day running of the country obviously, but new OECD research as part of the Going for Growth programme argues that “countries should fight rising inequality with policies that simultaneously curb the income gap between rich and poor while boosting economic growth.” 

The World Economic Forum is worried about inequality too. Its annual survey of global risks warns about economic imbalances and social inequality, with respondents afraid that “further economic shocks and social upheaval could roll back the progress globalization has brought”.

The OECD policy mix focuses on tax, labour markets and education. The reduction or elimination of “welfare for the well-off” – tax breaks that primarily benefit the rich would create space for growth-friendly reductions in taxes for all taxpayers.

Reducing the gap in employment protection between temporary workers and those on permanent contracts would reduce the average 25% wage differential between these two types of employees while boosting employment and growth. Provision of more affordable child care would similarly improve labour force participation rates and incomes for women.

Improving educational outcomes, particularly for immigrants and socio-economically disadvantaged populations, would have long-term impacts on their employment opportunities, incomes and inequality.

The OECD report also points out that some reforms imply tradeoffs, for instance shifting taxes from labour to consumption might improve incentives to work, save and invest, but would raise inequality.

Useful links

OECD work on new sources of growth

Going for Growth will be released in March. In the meantime, you can download these:

Under shock: How to spread macroeconomic risks more fairly

Risk sharing

Reducing income inequality while boosting economic growth

Less income inequality and more growth – Are they compatible?

The government inspectors

You'll pay sooner or later

Around a third of global assets are held offshore beyond the reach of effective taxation according to the Tax Justice Network. The TJN also estimates that private individuals hide $11.5 trillion in tax havens, depriving the rest of us of $250 billion a year in tax revenues.

You could do a lot with an extra quarter of a trillion a year – finance the UN’s Millennium Development goals or transform the world’s energy system to combat climate change for instance. But in the meantime, the response to the crisis and sovereign debt is increased taxes and reduced public services.

So how can we get the tax cheats to pay up? In Buenos Aires this week, tax commissioners from 45 countries plus representatives of big business and other organisations met to discuss “compliance” at the OECD Forum on Tax Administration. The Forum, created in 2002, brings together the people responsible for taxes at national level to “identify, discuss and influence relevant global trends and develop new ideas to enhance tax administration around the world”.

What have they done so far? Data from 20 countries that publish such information show that an extra $14 billion in taxes has been collected in the past two years. It’s a good start, but obviously a lot more has to be done. They’re dealing with highly mobile money that can be switched from place to place as havens become less safe and at the same time, tax administrations themselves are facing the same resource constraints as other parts of government, constraints the people they’re targeting don’t have to worry about.

The solution according to the FTA is to “work smarter” to optimise international cooperation, administration, compliance, legislation and service delivery. For an outsider like me, one of the most intriguing aspects of this is to be found in a list of publications with titles like “Guidance on Test Procedures for Tax Audit Assurance” and “Tax Reference Model – Application Software Solutions to Support Revenue Administration”. I discovered that the FTA is studying the use of social media by tax authorities.

In the US for example, the IRS has launched IRS2Go, a mobile app that lets users track the status of a refund, subscribe to e-mail updates, follow them on Twitter, and click to call a help line. Apart from providing services to the individual taxpayer, social media could also become important in another main aspect of FTA work – publicizing successes in getting tax avoiders to pay up or tax havens to close down so that those who once felt safe hiding their money feel more and more exposed to public scrutiny and public anger.

And imagine the kudos of having the tax inspector as your friend on Facebook.

Useful links

OECD Centre for Tax Policy and Administration

Tweeting on your taxes The OECD Observer looks at the social media aspect

OECD work on restoring public finances

The year from AAA to ZZZ: It’s the Insights quiz!

cow pictures are popular for some reason
This was our most popular photo in 2011 and in 2010

We’re glad you read the Insights blog, but if you’re a true follower you learn it off by heart, so this is your chance to win a blogtastic prize in our 2011 annual quiz(1)

1st prize: A year’s supply of punctuation marks. Imagine how much more interesting your prose will be!!!  Want to add a note of incredulity to your questions???  Or prepare your reader to die… laughing???!!!

2nd prize: Paid internship(2)


 Here goes!!! Good… luck!!!

A is for A. Triple A is to debt what the triple Axel is to ice-skating. Who was worried about the euro area falling on it’s A (Add your own Anatomical Allegory) due to sovereign default?

A. China’s finance minister.

B. Former Lehman’s boss Richard S. Fuld.

C. The OECD’s Chief Economist.

D. European Central Bank President Mario Draghi.

B is for Bullets. Magic ones or silver ones, we’re obsessed by them at the OECD and are afraid people think they really exist. This can give a plaintively murderous tone to our teachings, for instance, when we say there’s no magic bullet to solve unemployment, it sounds like we wish governments would shoot the jobless. But we’re not the only ones in denial. Who else says there’s no magic (or silver) bullet?

A. The Lone Ranger

B. The Economist

C. The IMF

D. The National Rifle Association

C is for conflict. No conflict-affected fragile state has achieved any of the UN’s Millennium Development goals, nor is any of them likely to do so by the 2015 target date. What should their priorities be instead according to the g7+ group of developing countries and their partners?

A. Roadbuilding and telecommunications.

B. Trade and foreign investment.

C. Peacebuilding and statebuilding.

D. Fair elections and a free press.

D is for Diarrhoea. Outbreaks are usually due to various well-known causes, but certain practices can make the problem worse, including:

A. Skinning snakes.

B. Killing leopards

C. Riding elephants.

D. Photographing monkeys.

E is for Epistemology. Knowledge is power, as Francis Bacon never actually said, although Thomas Hobbes did. Whoever said it, becoming an epistemic influence is obviously a smart move, but who managed this recently?

A. The KGB.

B. The BBC.

C. The OECD.

D. Wikipedia.

F is for Forecasts. “With the underlying conditions sound, we believe that the recession in general business will be checked shortly and that improvement will set in during the spring.” This forecast in the Harvard Economic Society’s January 18 weekly letter was referring to:

A. The 1930s Depression.

B. The subprime crisis.

C. The 1997 Asian financial crisis

D. The end of the boom.

G is for Twenty. The OECD is closely involved in shaping the G20 agenda and in carrying out its work. One of our lesser-known proposals to tackle a global challenge (as we call problems) is AMIS, or to give it its full name:

A. Agreement on Multilateral Investment Statistics.

B. Agricultural Market Information System.

C. Analogue Mobile Information Sequencing.

D. Ammunition Mainly Including Silver.

H is for Happiness. Some people claim that childhood was the happiest time of their life, making you wonder what the rest of it was like if potty training and going to school was as good as it got. The happiest time is happier in some places than others though, and a report on 21 developed countries suggested that the most miserable kids are to be found in:

A. Japan.

B. France.

C. The UK.

D. The US.

I is for Investment. It’s also for indoors and inefficient. Indoor air pollution from inefficient biofuel-burning stoves will soon cause more premature deaths in developing countries than HIV/AIDS, tuberculosis or malaria. What percentage of global energy investments would eradicate the problem?

A. 9%

B. 1%

C. 3%

D. 13%

J is for Joybubbles. Joe Engressia, who later changed his name to Joybubbles for obvious reasons, was the world’s first:

A. Blind photographer.

B. Hacker.

C. Radar operator.

D. Professional baseball umpire.

K is for kissing. Most of us have tried it, and many people enjoy it, but according to one best-selling guide, unless it can’t be avoided, you should never kiss:

A. Your boss.

B. Your cat.

C. Your children.

D. Yourself.

L is for Luddites. The machine-wrecking Luddites were not the ignorant technophobes the name has come to be associated with, and they even aroused the sympathy of one the 19th century’s best-known authors. Who? (Bonus point for giving the name of the book)

A. Emile Zola.

B. Herman Melville.

C. Charlotte Brontë.

D. Charles Dickens.

M is for Melancholy. According to our data, one in five workers in OECD countries suffers from depression or another mental illness, possibly linked to work-related stress. According to an earlier study, which of these does not provoke melancholy?

A. Exercise.

B. Study.

C. Poverty.

D. Cabbage.

N is for Nobel. Did you know that Winston Churchill got the Nobel Prize for literature and that they gave the 2011 prize for medicine to a dead man? OK smartypants, what did economist Elinor Ostrom get it for?

A. Her work on resources management.

B. Her work on financial market volatility.

C. Her work on game theory.

D. Her work on asymmetric information.

O is for the OECD. Of course. We are famous for many things (aren’t we?) but some of our greatest contributions to human progress are unknown to the general public. Which of these do we set standards for?  

A. Tax treaties.

B. Cucumbers.

C. Nuclear safety.

D. Testing cosmetics.

P is for Protection. Alexander Graham Bell’s telephone wasn’t protected by a Swedish patent, so Ericsson reverse engineered it and started the phone business we know today. Philips did something similar with the incandescent light bulb in the Netherlands before going on to invent and invest in cassette tapes and CDs. Examples like this fuel the debate about much intellectual property protection there should be, but quality is just as important as quantity when it comes to patents. Over the past 20 years, patent quality has:  

A. Declined by 20%.

B. Increased by 20%.

C. Remained stable.

D. Stopped being measured.

Q is for Quality. The OECD has developed a Better Life Index to allow citizens to create their own definition of quality of life. It combines a number of different topics, but does not include:  

A. Safety.

B. Mobility.

C. Health.

D Housing.

R is for Ricardo. The 19th century economist David Ricardo was responsible for developing the theory of comparative advantage. This has been described as a concept that is:

A. Calculable and counterintuitive.

B. True and non-trivial.

C. False but practical.

D. Objective though indefinable.

S is for Sex. We share our 50th anniversary with Lady Chatterley’s Lover. The jury in the court case for obscenity against the book decided that it was, all things considered:

A. A fair representation of social relations at the time of writing.

B. A useful if unorthodox introduction to gardening.

C. Suitable reading for your wife and servants.

D. Written by a man with a soul so black he would obscure even the darkness of hell.

T is for Titles. Thanks to sophisticated spying software we got cheap when the News of the World closed, we can track how you actually use this site and adjust content to meet your (pleasingly low) expectations. That’s why we’re thinking of just writing titles next year. Do you know which of these ones we didn’t use in 2011?

A. Rats rejoice as India goes mad.

B. More power to your grannies.

C. Dracula, Prince of shopping.

D. Bugs, drugs and death.

U is for Unfair. The drive for alternative energies is accelerating, but not everybody is pleased. A prominent economist publicised the case of one group complaining about unfair competition from solar energy. Which group?

A. Candlemakers.

B. Shale gas operators.

C. Windfarmers.

D. Biofuel crop growers.

V is for Violence. Over 100 million people died in wars during the 20th century. In the 21st century, even more could be killed by something else according to the WHO. What is it?

A. Famine.

B. Road traffic.


D. Antibiotic resistance.

W is for the Weekend. According to scientists (as they say in the papers) analysis of 500 million tweets shows that people are happier at the weekend. The study also claims that people:

A. Tend to get up later at the weekend.

B. Often stay out late on Friday night.

C. Go shopping more at the weekend.

D. Wish the weekend was longer.

X is for the Higgs boson field, better known by its nickname, h(x). Makes a change from the xylophone, doesn’t it? But that’s not the question. The question is: the photo of a simulated Higgs event that illustrates the article about the Higgs boson has a caption quoting James Joyce’s Finnegans Wake because:

A. Joyce invented the word “quark”.

B. The Finnegan-Joyce manifold describes the topology of the Higgs boson.

C. We didn’t know it was Joyce and just liked the sound of it.

D. Joyce’s literary executor worked at the OECD.

Y is for Youth. Globally, things are getting better for children across a whole range of indicators according to Unicef but once they get a bit older, the benefits may be wiped out. In Brazil for instance, various programmes saved the lives of 26,000 babies aged 1 year or less. Over the same period, 81,000 15-19 year-olds:

A. Died of drug overdoses.

B. Were murdered.

C. Were kidnapped.

D. Suffered fatal injuries at work.

Z is for ZZZ. We’re trying to avoid zebras as well as xylophones, so this one’s about sleep. Or sleep-deprivation to be more exact. Who complains about this, as well as being “isolated” and “troubled”? 

A. European central bankers.

B. Chinese exchange students.

C. African peacekeepers.

D. American truckers.

Tiebreaker In case more than one person enters the competition we may need a tiebreaker, so here it is: Which of the above questions does not refer to a post published in 2011?

A. A

B. B

C. C.

D. D

E. Etc

Click here to see the answers and to calculate your score

(1) You love phone contracts, don’t you?

(2) You pay.