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How some Japan Companies Just Stops Using Floppy Disks

This astonishing piece of news ‘Tokyo says long goodbye to beloved floppy disks‘ reminds us that certain people or institutions stick to old and reliable technology much longer than one would believe.

“Meguro Ward plans to put all work involving floppies and other physical storage media online in fiscal 2021, and Chiyoda Ward plans a similar transition within the next few years. Minato Ward moved its payment procedures from floppies to online systems in 2019.”. Reliability is mentioned as one of the reasons why this outdated media is still being used – but also probably convenience out of habit!

In general in Japan I have not been overly impressed by the modernity of IT systems, like in the US when it comes to mobile handphone networks. It is a general rule that the location where something gets invented invests a lot in the infrastructure to support the first generations of the technology and then lags when it comes to adopting newer versions of the technology, because of the sunk cost in the existing infrastructure. Whereas those territories that adopt a technology later can directly invest into the newer versions.

We constantly underestimate how older technology remains hidden at the core of our modern life. I would not be astonished that many telecommunications companies still run 20- to 30 years old equipment in some core functions, just because they are reliable and maintainable.

This reminds us that technology transition to a new generation technology is never as complete and comprehensive as what we generally think, and that innovators tend to maintain older technologies online longer.

How Various Meanings are Used for the ‘Fourth Revolution’ concept

This excellent post by Quartz ‘We’re thinking about the fourth industrial revolution all wrong‘ gives some perspective on terminology. It compares what is now generally understood as the “Fourth Industrial Revolution” (1st: steam engine; 2nd: oil & electricity; 3rd: internet; 4rd: digital) and what we name here in this blog the Fourth Revolution (1st: language; 2nd: writing; 3rd: broadcasting (printing etc); 4th: cheap 2-way communication).

I like very much this article of course because it exposes that we should not be myopic and that the real change is akin to what we expose in this blog since the beginning. What is usually meant by the “Fourth Industrial Revolution” is in fact just a way to name a trend into the digital, but the real change is really very cheap, global, 2-way communication. In this article, it is mentioned as “the period of industrialized intelligence, rising with the mental-energy-saving inventions of the mid-20th century and continuing through today. Much as the industrial revolution dehumanized biological strength with machines, the displacement of biological intelligence with computers represents the dehumanization of intellectual labour. Projecting current techniques a few years forward suggests that autonomous systems will eventually be capable of outcompeting humans in every area where intelligence is the key component of production.”

To avoid falling in the trap of overestimating the importance of present trends, it is always worth taking a deep historical perspective. In any case, the current transformation is really a revolution, and probably much deeper than the concept of “Fourth Industrial Revolution” would imply: we are now beyond the Industrial Age!

How Complexity and Chaos Extend the Concepts of Quantum Mechanics

Complex and chaotic systems can be described by mathematical equations that are in fact an extension and generalization of Quantum Mechanics equation. That’s what Ilya Prigogine (Nobel-price winner in 1977) explains in his excellent book “the laws of chaos” (apparently not available in English unfortunately).

We have argued numerous times that one of the precursors of the Fourth Revolution is the emergence of Quantum Mechanics, or at least the limits found to Newtonian Mechanics which founded the Industrial Age. The science of complexity and chaos is even newer. By finding that an extension and generalization of the maths of Quantum Mechanics is needed to describe it, we are indeed confirmed in our observation that it constitutes a further step towards the underlying paradigm of the Collaborative Age.

Complexity is still vastly misunderstood because it creates a rupture with the comfortable deterministic view of the world which we entertained during centuries. Its probabilistic nature, the fact that mere observation changes the observed world (like in Quantum Mechanics) makes it even more fascinating.

Welcome to the world beyond Quantum Mechanics and the Uncertainty Principle.

How the Soviet Union failed at developing Internet

It appears that the Soviet Union considered a full computer network to be deployed and even decided to go for it in 1970, a year later than the Arpanet. That’s what a new book ‘How not to network a nation‘ states (here is a link to excerpts).

“The Politburo convened that day to hear Glushkov’s proposal and decide whether to build a massive nationwide computer network for citizen use — or what Glushkov called the All-State Automated System (OGAS, obshche-gosudarstvennyi avtomatizirovannaya system), the most ambitious computer network project of its kind in the world at the time. OGAS was to connect tens of thousands of computer centers and to manage and optimize in real time the communications between hundreds of thousands of workers, factory managers, and regional and national administrators. The purpose of the OGAS Project was simple to state and grandiose to imagine: Glushkov sought to network and automatically manage the nation’s struggling command economy“.

And that’s was the end of it: conceived as a way for a central power to plan and decide on the fate of the country, it missed the factor that ultimately made the success of internet: allowing two-way communication and the flourishing of local initiative.

The failure at developing internet is not due to technology. It is due to the centralized, autocratic political system. Internet is the product of democracy, local initiative and free speech.

How Value Shifted from Tangible to Intangible in 30 Years

One of the most visible effects of the Fourth Revolution is the shift of value from tangible to intangible. It can be measured, and it is tremendous. Organization’s value today is 80% intangible, while before 1970 it was the reverse.

In the Industrial Age the value of organizations was machines, and other tangible assets. It is actually what is measured by traditional accounting in balance sheets. Nowadays, most of the value is intangible assets – people, knowledge, brands, ways of working. The shift has been measured and this revolution is quite impressive. It is a real indicator of the Fourth Revolution in action.

The fact that traditional accounting has not adapted to this shift (people are still a cost and not an asset..) is a major issue that will necessarily lead to problems of valuation very soon. Accounting maintains an illusion that can’t reflect the actual value of an organization. The market does somehow, but does not account for intangible benefits either (such as, allowing connections between people in the world).

The shift from tangible to intangible is a tremendous change and its aftershocks will still be felt for the decades to come in many areas.

How We Are Becoming Much More Intelligent With Each Generation

I discovered recently the Flynn Effect, the fact that our average intelligence (as measured by the IQ test) has increased dramatically in the last decades in developed countries.

The IQ test is periodically calibrated to have an average of 100 and a standard deviation of 15 points. In many developed countries, the average IQ has increased by 20-30 points over the 20th century: measured as of today, our ancestors one century ago would have been considered mentally retarded (and so possibly also our grandparents).

There are many reasons proposed for this change, the most convincing being better formal education. Also, we now know that IQ only measures one kind of intelligence, and there are other forms which are as important for predicting success and social abilities.

Some recent observations would tend to show rather a stagnation of even a diminution of the average IQ in the last decade, still to be confirmed, and still to be linked with the kind of questions that are asked in the IQ test which only measure a partial side of intelligence. Still, 20th century schooling has shown a dramatic ability to improve the capability it intended to improve!

Anyway, what I find very interesting here is that it appears that our modern habits of mind and education seem to have made us much more adapted to dealing with certain kind of problems that require abstract thinking. What is amazing is the magnitude of the change over 2 generations!

For more information, watch the TED talk by James Flynn on YouTube

Facebook today is the internet of 2004

Do you believe things change quickly? Facebook, today, represents the same size than the entire internet network in 2004.

And remember that Facebook service was launched in… February 2004!

The internet itself has bloated dozens of times.

17 years ago, when I graduated, email was still a rare thing reserved to companies and universities.

Let’s just put that in perspective: in less than 20 years our way of communicating has changed dramatically. In less than 7 years internet has become social. Many people could not think about communicating without Facebook and Twitter.

The tools are here. The social and political consequences might take some more time. Still, they are inevitable. The Fourth Revolution is here.

Don’t miss it.

The Great Convergence of the world economy is happening NOW

The economical convergence of the world has started. This graph is extracted from an article by Robert Branche (in French): “Facing the convergence of the world economy”.

OCDE vs emerging countries: GDP per capita 1972-2010 — OCDE vs emerging countries: GDP per capita over time

It shows the evolution over time of the ratio of the GDP per capita of a choice of emerging countries (Brazil, China and India) over the OECD average. There is no doubt in this graph that a convergence starts around 1994 – around the time the Fourth Revolution started, at least for India and China. This happens at the same time than the significant shift in the value creation chain in the 1990’s (see the post “Visualizing the demise of manufacturing“).

This convergence will continue. Ultimately the GDP per capita of China and India will be close (on average) to the OECD countries.

What will be the final outcome? For Robert Branche the outcome will be necessarily, a decrease of the standard of living in the OECD countries by about 50% until 2050. The reason stated is that the standard of living in the OECD is artificially high thanks to low-cost importations from China and India – which will become more expensive. Is that so problematic? It would mean that the standard of living would be back to say, the one the OECD had in the 1980’s. Is that a big issue?

While the worldwide economic convergence will probably accelerate thanks to the Fourth Revolution, the outcome, in terms of standard of living in developed countries, is more debatable. Developed countries will see significant changes in their economy; whether they lean into them or resist them will decide on their ultimate fate. Countries can go down in terms of standard of living very quickly (as in Argentina in the 1970 to 1990’s for example). On the other hand, if developed countries adopt the Fourth Revolution early enough, there is no reason why the standard of living, and the quality of life, should be significantly lowered.

In any case the world will see more shifts of wealth and standards of living in the next 50 years than in the 20th century.

Listen to the warning: let’s lean into the Fourth Revolution. That is the only way developed countries can preserve their future.

How the current financial turmoil is a positive indicator of the Fourth Revolution

The financial world is going through a storm. The balance of economy is shifting. What was not a problem before (sovereign debt) is a problem now. Developed economies are in turmoil. Manufacturing and utility companies suffer. Stock markets undergo shock after shock. Still, the companies that embody the Fourth Revolution, those companies of the internet, do not seem to suffer. They continue to grow.

What happens?

An interesting similar situation happened in the 19th century when the development of railroad redefined the economy and value chain for many products. Many startups were created, that contributed to a fantastic development of the railroad network.

And the stock market suffered shock after shock as the economy adjusted to the new, tremendous value brought by speedy transportation. There were regular crisis, there were regular financial panics, in all developed countries like the US, UK or France. New and old companies collapsed.

Still the railroad networks continued to develop through the successive crisis and the economy really took all the benefit of the economies of scale brought by the Industrial Age.

The fact that the stock market suffers crisis is not just the result of speculation. It is a sure sign that the economy is trying to adjust to a significant shift of the value chain creation.

financial panic in the 19th century over railroad stocks

Like it happened in the 19th century, it happens again today. The pictures of the financial crisis of the 19th century remind us of those pictures of today.

The world struggles to adjust to a new balance of value creation, the value brought by the Fourth Revolution. It removes borders; it accelerates exchange of goods and ideas; it changes significantly the value chain by diminishing the relative value of extractive and manufacturing industries.

The current economic crisis is another precursor of the Fourth Revolution. We can help minimize its impact by recognizing that it is an effect of the Fourth Revolution. By leaning into it instead of adopting defensive positions.

Are you ready to shift to the Fourth Revolution value production and diffusion system?

Stop misinterpreting the curves showing a relative decrease in salaries!

It does not happen too often to me, but right now I am upset that statistics are being misinterpreted.

In these times of crisis, of 99 percent movement, of demonstrations against the financial and corporate world, numerous charts are disseminated that show how the proportion of wages in percent of GDP is declining (and how the proportion of corporate profits is increasing). Here is an example from a recent post on the Daily Beast titled “the era of corporate profit”:

wages percentage of GDP historical curve — typical historical curves for wages and corporate profit

Now, what does that really show? Obviously, it shows that the proportion in the GDP of the wages and salary income of people employed traditionally by corporations is decreasing. Does it show that the average worker earns less? That’s quite a stretched interpretation even if most commentators just mean it!

As an avid reader of the Fourth Revolution blog, the fact that the share of salaries in the overall income should not surprise you: salaried employment by large corporations is a model of the Industrial Age, which is declining – BECAUSE THERE ARE LESS PEOPLE THAT ARE SALARIED (and not, because each of them gets less money!!). In fact, the diminution of the share of conventional salaries in the GDP is another precursor of the Fourth Revolution!

The US Bureau of Economic Analysis provides historical tables on the revenues in the USA. Here is a curve anyone can obtain with a little bit of patience:

income per category, pct of GDP — why wages and salaries are only a small part of people's income

So what? Yes, wages and salaries have a tendency to decrease, but the income from non corporate business, sole proprietorships, and non-profits organizations increase dramatically. These are organizations which certainly create value for only a few individuals (to obtain the curve we have reclassified their profits as income for the owners)! These are the organizations of the K.E.E.Ns…

Stop the fallacy of showing decreasing salary curves as an indication of the impoverishment of the average citizen. The future lies in other forms of organizations, and their importance increases dramatically.

Welcome to the Fourth Revolution. The future and the Value is elsewhere than salaried employment. When do you jump to other forms of organization?

Visualizing the demise of manufacturing

While many still believe that Manufacturing (or Industry) is key to value creation, it is very obvious that since the 1980’s, Services have gained preeminence in the economic world.

Some interesting graphs in this post: Charting The Incredible Shift From Manufacturing To Services In America, show how the employment market has deeply shifted.

Moreover, more and more people do not appear in these statistics now, because they are ‘self-employed’! Which is definitely a global trend nowadays.

Even more striking is this graph from the Fourth Revolution book: it shows the composition of the top 100 companies in the US over time. What do we observe? Suddenly from 1985 onwards, Service companies have become the vast majority of the biggest companies.

How Services have taken over from Manufacturing in 20 years

This is identified in the book as one of the precursors of the Fourth Revolution. Value has shifted dramatically. Manufacturing will become like Agriculture: necessary, but a small part of the economical value creation.

That might be hard to understand if you’re borne before 1970-75. Change your mindset. Value is not any more in manufacturing nowadays. And Apple recently overtook Exxon as the largest stock valuation in the world.

The Fourth Revolution is here. Today, value is created overwhelmingly elsewhere than in Manufacturing.

Why are we blind to the Fourth Revolution?

Most of us are blind the Fourth Revolution. We see the changes in the world but fail to appreciate that our mindset and understanding of how the world goes needs to change dramatically.

blind man looking for the Fourth Revolution — looking for the Fourth Revolution

Daniel Kahneman, the first noneconomist to win a Nobel Prize in economics, for his work on ways in which humans aren’t rational economic actors, calls this effect “theory-induced blindness”: adherence to a belief about how the world works that prevents you from seeing how the world really works.

Look at the blind man on the left. That is exactly how we are. We are trying to touch things around us, we have a cane to avoid falling if possible, and we listen intently. Still we are blinded by our Industrial Age mindset. By good ol’ TV. By multiple distractions.

Silence…

The change in the world is so loud and so silent at the same time. Precursors are there. Numerous. And most of us still can’t see it.

Probably because we are afraid to see it. To lose our usual marks.

The Fourth Revolution is there. The world has changed forever. Don’t be afraid, take your dark glasses of, and enjoy the sweet warm light!

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