How Technology Transforms

Nassim Taleb, doesn’t think much about the technology crowd.  In his new book Antifragile, he suggest that we’re suffering from a condition he calls “neomania, the love of the modern for it’s own sake.”

After all, he argues, we continue to wear shoes, eat with silverware, drink wine, beer and coffee and do many other things that have been around for thousands of years.  He also notes that, while old technology has been tested by time, new technology is prone to failure.

It’s hard to argue with Taleb, a man of impressive erudition and impeccable logic and after seeing enough technology cycles come and go, it’s easy to be skeptical of the latest “killer app.”  Still, skepticism is one thing, overt denial of the obvious is something else. The world has, in fact, profoundly changed and we need to change how we operate in it.

The Information Economy

While the information economy is a term that has been vastly overused, that doesn’t mean that something very real isn’t going on.  The fact is that the informational content of products and services is rising dramatically and that vastly increases their value while (amazingly) lowering costs at the same time.

For example, the economist Robert Jensen recently showed what happens when you give impoverished fisherman mobile phones.  Where before, they just had fish, now they have information too.  Once they make their catch, they can immediately find out where there is strong demand and high prices, which both increases their income and lowers the average price for fish.

It works much the same way when we buy a box of cereal at the local store.  We’re not just purchasing an assortment of grains surrounded by cardboard, but an enormous amount of investment in informational technology, including computers, RFID chips and specially designed software algorithms.

We do not pay any more for the addition of these technologies, in fact we pay less.  The cost is far outweighed by the savings in inventory, shrinkage and spoilage, which is why the simple everyday items that Taleb mentions are available to everybody today, not just aristocrats in the ancient times he so adores.

That’s the power of information.  It makes us all better off.

The Semantic Economy

In 1937, a young economist named Ronald Coase asked the question:  “Why do firms exist?”  It was not a simple question, because classical economic theory suggested that entrepreneurs would be better off hiring resouces when they needed them, rather than incurring the expense of equipment and employees on the books.

The result was his groundbreaking paper on The Nature of the Firm, which not only earned him a Nobel Prize, but influenced generations of management theorists.  In it, Coase points out that it makes sense to have resources on hand because there are costs associated with procuring them on short notice.

This brings us to another curious assertion of Nassim Taleb’s, that the tablet computer is, in a sense, a return to stone tablets.  Ergonomically, he has a point, but what he misses is that tablet computers are connected to every other tablet computer and can reproduce complex information flawlessly anywhere in the world in an instant.

This kind of connectivity is being injected into every facet of human activity, even manufacturing, creating a new semantic economy in which the transaction costs that Coase identified are becoming negligible.

The Passion Economy

The most conspicuous feature of Coasean firms was scale.  As long as savings from transaction costs exceeded the added organizational costs, a firm would get more efficient as it grew.  Men like Carnegie, Rockefeller and Ford built enormous enterprises through superior organization, which enabled them to achieve efficiencies that their rivals couldn’t match.

However, the semantic economy and the steep decline of transaction costs means that many of those scale efficiencies have disappeared.  Anybody with a good idea can get access to capital, production, marketing, even supercomputers in the cloud while sitting at their kitchen table.  What’s more, they’ll get competitive rates.

Curiously though, firms haven’t shrunk much.  Even technology firms like Google, Microsoft and IBM have 50,000, 100,000 and 400,000 respectively.  McKinsey consulting, whose employees could easily operate independently, has 17,000 employees. So what gives?

The new reality is that the core function of today’s enterprises is not to organize work, but to focus passion and purpose and the key attribute of successful 21st century firms is the ability to create meaning for employees, partners and consumers.

The Simulation Economy

While today’s top organizations are more geared toward creating value than creating efficiency, the fact is that efficiency is moving faster than ever.  So much so that accelerating returns is the new normal.  Everything from information technology to gene sequencing to solar power is not only getting better, but getting cheaper at an exponential pace.

How does this happen?  I think there’s an important clue in this famous quote by Thomas Edison:

If I find 10,000 ways something won’t work, I haven’t failed. I am not discouraged, because every wrong attempt discarded is another step forward.

If Edison lived today, he wouldn’t have to go to the trouble to physically test 10,000 things any more than a modern day fisherman needs to visit every port to find out where he can get the best price for his catch.  He would run computer simulations to test 10 million things, discard the obviously bad choices and then make a few cheap prototypes.

We have become, to a large extent, a simulation economy, where most of our failures are virtual, while our successes become very real.  As new methods of simulation, such as agent based models, continue to advance, efficiencies will continue to accelerate, further reinforcing the importance of passion and purpose.

The Hacker Economy

I imagine that Taleb’s fascination with thousand year-old technologies has something strong kinship with his aristocratic forebears (which he curiously likes to tout almost as much as his passion for street culture).  Many of the ancient things we enjoy today, such as tableware, books and other staples of culture used to be luxuries.

Today’s technology, on the other hand, is eminently democratic.  My smartphone has the same technology that the richest person on the planet would buy.  A Toyota is not functionally any different from a Bentley.  While even a century ago, your station in life determined much about it’s quality, today luxury is mostly a matter of degree, not of kind.

Further, we not only all use the same technology, we co-create it.  The functionality of my smartphone is not determined at the factory, but by what software I choose to download. That software, in turn, is just as likely to be made by a guy on his laptop as it is to be made by a major corporation.  That’s the essence of the hacker economy.

Moreover, this phenomenon is not only occurring within societies, but between societies. Some of the most impressive technologies these days are being developed in the poorest countries and then adopted to the richest ones, because in our connected world, a valuable innovation only has to happen once for it to gain traction and spread.

Joy’s Law

When I first moved overseas, the first thing I noticed was how much I recognized.  The fast food restaurants and the familiar brands on store shelves were comforting (especially after a few bouts of food poisoning, which was almost a monthly occurrence during my first year).  It seemed to me that globalization meant that everybody wanted the same things.

However, after I broke the language barrier and gained a more intimate knowledge of foreign cultures, I came to realize that people in different places thought vastly different things and it occurred to me that, as only 5% of the world’s people lived in the US, most of the good ideas must also reside outside of it.

As Bill Joy famously said, “No matter who you are, most of the smartest people work for someone else.”  The new reality is that hardly matters any more.  Organizations no longer determine our capability or potential.  We can connect, hack and co-create as much as our passion and purpose compel us to.

And that’s what Taleb is missing.  Once you get beyond the megapixels and gigabits, the apps and the devices, what we gain most from our technology is not flashy new gadgets, it is each other.

– Greg