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How Technology Transforms

2013 March 10
Nassim Taleb

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

6 Responses leave one →
  1. Ajoy Vakil permalink
    March 10, 2013

    Wonderful post, as usual Greg! Sometimes one wonders if so many technological “must-haves” are just fads. Product Life Cycles are getting shorter – and so is the consumer’s interest cycle. While the world, as you put it, has changed and we need to evolve accordingly, we might as well surf this wave of change and enjoy the journey!

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  2. March 11, 2013

    One point–that the core function of a corporation is to focus passion and purpose–fails to resonate with my experience of corporations. The large ones are merely versions of the old feudal states. They provide the peasants with a measure of safety and security but do not inspire “passion” or “purpose.” Most people lack the temperament (a flammable mixture of imagination, raw adventurism, cunning, and restlessness) to work for themselves, which even the successful self-employed will confess is downright terrifying for the first few years.
    Today’s corporations are still wasteful and inefficient. Computerization has merely allowed employees to waste time on Facebook or reading online blogs (look at your traffic by hour and day of week…bet you see peaks during working hours) instead of gossiping around the water cooler. It is the nature of feudal organizations that each minor satrap manager will siphon off a share of corporate resources to advance his own glory and growth while nominally following his CEO majesty’s commands.
    I have never worked for Google, so I allow that they may have achieved a better corporate model, but the bulk of the business world is made up of AT&T, Coca-Cola or Walmart style organizations where the original good idea has long since become little more than feudal banners and ceremonies.

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    Greg Reply:

    You make a very valid point Patrick. Many, if not most jobs, are pretty lousy and many, if not most, companies do not put much energy into the passion and purpose of their employees. However, I would make two points:

    1. Google, the company you mentioned, isn’t just arguably the most vibrant company of the last decade, but also #1 on Fortune’s list of 100 Best Companies To Work For. As a whole, the list outperforms the S&P 500. As Richard Florida pointed out in The Rise Of The Creative Class
    , the concept also applies for regions. Places like Silicon Valley, Austin, Raleigh-Durham, etc. prosper by catering to people’s passions.

    2. Having spent the bulk of my adult life in the post-communist countries of Eastern Europe, I can attest that the more successful places, even in emerging markets, were also the most progressive.

    So I think that, while it is true that it is true that not all companies and organizations have gotten the memo, the most successful ones get that way by harnessing the passions of their people. Cracking the whip doesn’t design better products or produce more elegant algorithms. Efficiency, increasingly, comes from automation, which means that design trumps regimentation.

    – Greg

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  3. Kuldip Singh permalink
    March 13, 2013

    Thanks to modern technology,I have been able to share the following with numerous people.

    Desiderata

    Go placidly amid the noise and haste,
    and remember what peace there may be in silence.

    As far as possible, without surrender, be on good terms with all persons.
    Speak your truth quietly and clearly; and listen to others,
    even to the dull and ignorant; they too have their story.

    Avoid loud and aggressive persons; they are vexations to the spirit.
    If you compare yourself with others, you may become vain and bitter,
    for always there will be greater and lesser persons than yourself.

    Enjoy your achievements as well as your plans.
    Keep interested in your own career, however humble;
    it is a real possession in the changing fortunes of time.
    Exercise caution in your business affairs,
    for the world is full of trickery.
    But let this not blind you to what virtue there is;
    many persons strive for high ideals,
    and everywhere life is full of heroism.

    Be yourself. Especially do not feign affection.
    Neither be cynical about love;
    for in the face of all aridity and disenchantment
    it is as perennial as the grass.

    Take kindly the counsel of the years,
    gracefully surrendering the things of youth.
    Nurture strength of spirit to shield you in sudden misfortune.
    But do not distress yourself with dark imaginings.
    Many fears are born of fatigue and loneliness.

    Beyond a wholesome discipline, be gentle with yourself.
    You are a child of the universe no less than the trees and the stars;
    you have a right to be here. And whether or not it is clear to you,
    no doubt the universe is unfolding as it should.

    Therefore be at peace with God, whatever you conceive Him to be.
    And whatever your labors and aspirations,
    in the noisy confusion of life, keep peace with your soul.
    With all its sham, drudgery and broken dreams,
    it is still a beautiful world.
    Be cheerful. Strive to be happy.
    (c) Max Ehrman 1926

    Desiderata – Wikipedia, the free encyclopedia
    http://en.wikipedia.org/wiki/Desiderata

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  4. curtis permalink
    March 17, 2013

    i always enjoy your posts greg. there is a level of depth not often found. this one, as usual, provides great perspective. thanks!

    [Reply]

    Greg Reply:

    Thx Curtis. Have a great week!

    – Greg

    [Reply]

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