Category: Collaborative Age value production system

How Superstar Firms Are the Result of the Collaborative Age

In this interesting post ‘Superstar firms and market concentration‘ the economist Tyler Cowen quotes a paper that rebuts the notion that market concentration is rising because of inadequate antitrust concentration. The thesis is that super companies arise because of the collaborative age: global market availability, communication capabilities.

“If globalization or technological changes push sales towards the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms, which have high markups and a low labor share of value-added.”

The authors then make a number of predictions including that the pattern should be visible internationally, and that superstar concentrated firms will be where productivity increases most.

Still, the Fourth Revolution has created a concentration that needs to be regulated somehow. But we may underestimate the value of the possible scaling effect brought by modern communication capabilities.

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How the Paperclip-Maximiser Syndrome Has Become a Meme of AI

Have you heard about the paperclip-maximiser syndrome? It is a viral game and is used as a meme for negative consequences of a too powerful Artificial Intelligence. If this AI’s only objective is to improve paperclip production it may finally exploit all of Earth’s resources and beyond doing just that – destroying everything else in its path. This Wired Column explains the idea: ‘The Way the World Ends: Not with a Bang But a Paperclip‘. (an alternative AI meme seems to be the strawberry-picking AI transforming the Earth in a single strawberry plantation)

In this interesting speech ‘Dude, you broke the future!‘, Charlie Stross a known Science Fiction author refers to the Elon Musk feared singularity exactly as the “paper syndrome”… and then points wisely that “Musk isn’t paying enough attention. Consider his own companies. Tesla is a battery maximizer—an electric car is a battery with wheels and seats. SpaceX is an orbital payload maximizer, driving down the cost of space launches in order to encourage more sales for the service it provides. Solar City is a photovoltaic panel maximizer. And so on. All three of Musk’s very own slow AIs are based on an architecture that is designed to maximize return on shareholder investment, even if by doing so they cook the planet the shareholders have to live on. (But if you’re Elon Musk, that’s okay: you plan to retire on Mars.)” So it seems that Elon Musk is exactly doing what he fears AI would do.

This all serves to remind us that any “intelligence” should not pursue a single goal but a balanced set of goals, because maximizing a single indicator is always at the detriment of the overall balance. This is true in management, and could possibly take unexpected proportions when AI gets involved.

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How to Address the Challenge of Weak Signal Detection

As mentioned in our previous post ‘How to Explain Covid-19 Blindness‘, the Covid-19 situation illustrates the more general challenge in complex systems to identify weak signals early and specifically, those that can, with some probability, develop into a crisis of significant consequences.

It is a challenge many organisations are regularly facing. For example in my professional field, project management in complex projects, the challenge to detect weak signals early and act on them is addressed by advanced project control approaches.

Nevertheless, it remains a difficult issue. This monitoring is prone to generate many false alarms; and some actions taken early will also avoid some of those weak signals develop into a situation or a crisis. Therefore, there is a risk that responsible bodies become fed up by too many weak signals and lose their vigilance. Still, maintaining this detection capability remains obviously essential.

In the Covid-19 situation as in some other challenges of humanity, the weak signal was identified and clearly delineated at least in some pockets of medical specialists, and even in some strategic analysis by the military. What was not anticipated was the consequential impact on the economy. This was probably because of a lack of pluri-discipline linkage and scenario planning. In addition there has been a lack of anticipation as soon as the first signs of a possible looming scenario appeared.

As a learning point, it is probably worth as in all complex system issues to setup a multi-disciplinary weak signal challenge team to review on a regular basis those signals and recommend actions.

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How to Explain Covid-19 Blindness

In this post “COVID-19’s General Blindness is Also a Journalistic Failure“, Frederic Filloux explains the reasons for a lack of anticipation of journalism on the epidemics.

The observation is that while the possibilities of a pandemics were exposed in many scientific publications and widely available, journalists have not raised the alarm early. Of course this blindness is not limited to journalists, but they could have played a significant role.

According to Frederic Filloux this can be explained by loss of in-house expertise due to newsroom shrinking in the current economic situation of the press. When there is a situation, external experts are asked to help, but the very possibility of detecting a situation is lost.

According to him “Newsrooms harboring experts — in house, or more realistically, on retainers — would have been more likely to read low-noise signals or even connect the dots of apparently unrelated facts, to put together a true picture of what is unfolding.“

It is well known that it is always difficult to detect low-noise signals and raise the awareness of a wider group. But in that case, the low noise signal was apparently not even identified, which is a concern.

What could be the solution? Frederic Filloux is currently supporting the development of an AI-based content editor, and is quite confident that such solutions could help. In my mind, in an ever-accelerating world, keeping more emphasis on memory and long term approaches is also important: countries that had been exposed to SARS 15 years ago did remember what had to be done.

Lack of memory and general loss of expertise in groups that could relay the issues we are facing are certainly important culprits.

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How We Get Always Surprised by Exponential Growth – But We Shouldn’t

The fact that exponential growth is not intuitive has already been discussed several time in this blog (e.g. ‘Why the Fourth Revolution is the Era of the Exponential, and How this Changes Everything‘, or ‘The Exponential and the Black Swan: The Counter-Intuitive World of the Fourth Revolution‘). And this lack of intuitiveness explains much of the hesitations and poor response in the face of the Covid-19 pandemics – by individual as well as politicians.

While news focused on absolute numbers, what was important was the rate of growth per day and whether it abated with confinement measures. The rash absolute rate of increase surprised everyone, just because it is so difficult to apprehend the power of exponential growth.

But that should have been so easy to compute and model. Maybe more difficult to explain to the general public, but how could decision makers get surprised? At some stage the evolution of the pandemic became quite predictable for each region.

The new Collaborative Age is indeed the age of the exponential. Exponential growth of companies and economies, and exponential growth of pandemics and catastrophic events.

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How Heresy May be the Symptom of Innovation

Paul Graham‘s post on ‘Novelty and Heresy‘ is worth reading. as it reminds us that “If you discover something new, there’s a significant chance you’ll be accused of some form of heresy“.

“One common way for a good idea to be non-obvious is for it to be hidden in the shadow of some mistaken assumption that people are very attached to“. This leads to being treated as an heretic.

The point may be to figure out what is that assumption that people are very much attached to. I also tend to believe that this kind of discovery, while it is a risk, is also an opportunity as it opens an understanding of the world that won’t be shared by many people until it will become mainstream – and thus may become a competitive advantage.

Paul Graham suggests to look for heresies to identify truly new ideas. Taboos are possible sources of great innovation or at least a starting point to put in question commonly held assumptions.

And since truths have a half-life, what’s true today may not be true in a few decades therefore heresy today may be mainstream in a few decades too!

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How Scientific Truths Need a Generation of Researchers to Pass Away to Be Overturned

Following on our previous post ‘How Facts and Truths Have a (Short) Half-Life‘ and some insights from the book ‘The Half-Life of Facts: Why Everything We Know Has an Expiration Date‘ by Samuel Arbesman, one interesting aspect is to observe how much a usual half-life for scientific ‘truth’. It turns out often to be one generation, or approximately 50 years.

The reason is simple: it takes the mandarins and opinion- and career-making professors to disappear naturally for new ideas to take ground.

“Two Australian surgeons found that half of the facts in that field also become false every forty – five years . As the French scientists noted , all of these results verify the first half of a well – known medical aphorism by John Hughlings Jackson , a British neurologist in the nineteenth and early twentieth centuries : “ It takes 50 years to get a wrong idea out of medicine , and 100 years a right one into medicine . ” This means that despite the ever – expanding growth of scientific knowledge , the publication of new articles , refutations of existing theories , the bifurcations of new fields into multiple subfields , and the messy processes of grant – writing and – funding in academia , there are measurable ways in which facts are overturned and our knowledge is ever renewed . I’m not simply extrapolating from this half – life of medicine to argue that all of science is like this . Other studies have been performed about the half – lives of different types of scientific knowledge as well“

So if you are in a field where you uncover a new ‘truth’ but this cannot be heard by whoever is the old guy in charge of your career, either you conform, or you have to go outside the institution and use it for yourself.

With a quicker developing world, this limit of 50 years half-life for scientific truth may become quite a problem! Maybe some age limit on researchers may be a good idea?

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How Venture Capitalists Don’t Really Play the Role We Believe

In this must-read Harvard Business Review article ‘Six Myths About Venture Capitalists‘, Diane Mulcahy shows that Venture Capitalists (VC) don’t really play the role that conventional knowledge would expect.

Diane Mulcahy is also famous for being a Venture Capitalist herself and having written a well-known report (‘We Have Met the Ennemy… and He is Us’ accessible here in pdf)showing that Venture Capitalist’s return on investment is quite abysmal.

So what are those 6 myths?

  • Venture Capital Is the Primary Source of Start-Up Funding
  • VCs Take a Big Risk When They Invest in Your Start-Up
  • Most VCs Offer Great Advice and Mentoring
  • VCs Generate Spectacular Returns
  • In VC, Bigger Is Better
  • VCs Are Innovators

Basically it appears that VCs encounter the paradox of being institutions that deal with something very fluid and unstable, startup companies. And obviously their constraints as institutions do not really allow them to provide the kind of support and value that startup would need. And VC does not scale well: it works best as a “cottage industry” – personally I can that ‘craftsmanship’.

The most interesting part is how little VCs actually contribute to the funding of young companies overall – less than 1% apparently. Still they seem to make the US startup scene quite dynamic, but behind the hype, the situations isn’t so rosy.

Venture Capital is only one solution for funding a fast-growing company, and it may not be the best or most adapted. And there’s too much hype and money to make it work as good as it should.

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How to visualize global commerce

This site by Harvard University – Atlas of Economic Complexity – provides a unique data visualization portal for international commerce. It is possible to visualize trade between countries and dig into the data in an incredibly interactive manner.

It not only provides a view of the current export / import of each country, but also provides a view over time which allows to see how the weight of each product type changes with time.

I encourage you to spend some time going through those numbers. Once can realize up to what level international trade is developed and every country trades with every other country. The world is open and international exchanges are the lifeblood of the economy. We are not any more in the 19th century where each country was more or less self-standing even if already at that time, international trade was the source of wealth for multiple industries!

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How Fake Reviews Are Another Bane of E-shops

I discovered in this paper ‘Her Amazon Purchases Are Real. The Reviews Are Fake‘ how there is an industry setup to generate fake reviews on Amazon. This must be an issue for all e-commerce websites and creates another challenge for those sites to regulate and banish.

The setup is actually quite clever: a consumer really purchases the items, comments positively on them one week or so later, so that the review seems legitimate. Only that she gets reimbursed on her purchases separately and whatever she writes it is a 5-star review. This in turn, pops the item up the search results on the site, resulting in more sales – and thanks to Amazon reach, an added profit that is probably many times the investment in the fake purchase of the item in the first place: “a high ranking in a search can be worth tens of thousands of dollars in monthly revenue“!

Having some family and friends write gleaming reviews on Amazon is an old trick to promote one’s stuff, or at least try to make it visible. But in that case it seems that the practice has taken industrial proportions. Up to the point where I wonder what truthfulness should be given to those reviews on e-commerce sites!

Amazon and other e-commerce sites will soon need to do something. This may not be as damaging as fake political ads, but on the long time this has the potential to severely erode people’s confidence in those sites.

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Indications of Monopoly Behavior by the GAFA

Following on the previous post ‘How Increased Monopolies Could Explain Low Interest Rates‘, this post by Seth Godin about Google ‘The Google tax‘ provides another interesting perspective.

Seth Godin notes that usage of Google creates a double whammy taxation for people and companies that try to sell through this portal (that is, anyone who tries to have an internet presence). First, companies will have to pay for adds to be more visible than actual search results, increasing their visibility. Second, and much less visible, search results are prioritized according to a certain algorithm that constantly changes. Staying on top of SEO (Search Engine Optimisation) costs a lot of money, having to go through specialists to permanently update one’s website to keep it visible to the world.

The point Seth Godin makes is that on the internet there is so much difference between being listed first and listed second that it is worth paying the money to remain first. And Google – and more generally all those portals that live off advertising like Facebook or Twitter – are geared to get a lot of that investment. This in effect amounts to a tax on the economy that is conveniently captured by those service providers which are in monopolistic positions thanks to the same rule: the number one gets most of the value and traffic!

Contrary to monopolies in the industrial age, which were backed by large assets, it won’t be easy to dismantle those. However it is worth doing in the long term – at some stage, this global tax will not be accepted anymore by the world.

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How Increased Monopolies Could Explain Low Interest Rates

In this interesting post ‘How Monopolies Broke the Federal Reserve‘ the author expresses the opinion that the current world of low interest rates is a direct consequence of the emergence of large monopolies in the current global economy (after having however qualified this view by the fact that economists are good to explain the past and terrible to explain the present!).

The point that is made is that interest rates are low because people don’t know what to do with all their liquidity: “Thanks to ever-increasing wealth concentration and meager growth across the developed world, you have some people sitting on incredible piles of cash and a shortage of people with robust opportunities to borrow and use that cash.” It’s a savings glut!

However beyond this explanation what is offered in the post is that it is not that there is nothing worth inventing anymore, but that any worthwhile innovation is captured – and the value is kept – by a few giant concerns. “The economy has become a giant kill zone. In venture capital circles, the term “kill zone” has become quite popular to describe the phenomenon of having no places to profitably invest“.

There are signs that the GAFA of this world are eating, devouring the value of startup companies and not really allow them to grow and prosper. Could the increasing power of monopolies be limiting innovation and creating a situation where new upstarts can develop? And is the consequence low interest rates?

While I am not entirely convinced, it is still a view useful to ponder!

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