Category: Institutions and Revolutions

How the Carlota Perez Framework Explains Major Technological Disruptions and Related Financial Crashes

Carlota Perez is a well known economics scholar and her framework to explain major technological disruptions is well quoted. Basically she distinguishes an initial installation phase, followed by a deployment phase. But more importantly, her framework predicts a major crisis between both phases, generally in the form of a financial or stock market crash.

This approach is quite interesting historically and tends to explain some major crashes like the internet-induced crash of 2000, and previous crashes linked to the disruption of certain technologies (from railways to gasoline engines, see the summary of her book ‘Technological Revolutions and Financial Capital’ on Wikipedia). The point is “nothing important happens without crashes“.

Hence, destructive creation due to innovation also means financial crashes. They can’t be avoided because this is the crisis period where the previous technology becomes obsolete and leaves the way open to the new, disruptive technology. There is necessarily a switch in capital allocation and this happens through a financial crisis.

The argument is interesting, and one can wonder whether we may not take it the other way around: is each major financial crisis the reflection of an underlying disruptive technology taking hold, creating a deep transformation of the world?

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How Large Companies Have a Challenge in Personalizing Service

In this post ‘The Coronavirus Shows Why, if They are to Stay Healthy, Companies Need to Rethink Practices‘, Valeria Maltoni shares her experience with companies struggling to align their communication and practices in the midst of the Covid-19 crisis. She also shares an interesting little illustration which we reproduce here.

Beyond her particular experience, this post inspires me to consider how little companies have grown to develop personalized and responsive experiences, while technology would now allow this. The author gets an automated message from an airline about her oncoming trip while all flights have been cancelled. When events happen, industrial-age systems don’t bother and continue to plough away. They are not flexible and responsive to events. They don’t deliver personalized advice and information.

Large industrial organisations that will manage to develop this level of personalized services will take a lead as that is increasingly what customers expect. They get personalized advertisements and messages from internet platforms. Why do they continue to be treated as a uniform mass by service companies?

When technology changes exponentially and organizations change logarithmically, at some stage there will be a massive disruption. It is coming.

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How Modern Learning is On-Demand, Bite-Sized

In this post ‘The Upcoming Journalism School Overhaul‘, Frederic Filloux expands about modern education and learning in the specific context of journalism. One of the aspects he highlights is how differently people acquire skills today, thanks to inline bit-size tutorials.

Before, one had to master extensively and widely all techniques associated with its trade before being considered competent (hence, the master and companions approach). Now, “Today’s generation has a completely different approach when it comes to acquiring technical knowledge: they will call for it on a need-to basis, in response to a specific project requirement. They will go on YouTube, which is also an unfathomable resource for skill-learning, to understand how to do a specific kind of shooting or mastering a particular editing technique. This is the way things are done now.“

Modern learning is on-demand, bite sized, and leverages on shared platforms, possibly with collective knowledge sharing. Industrial-age learning models, based on classrooms and large institutions, will get upended up to a certain point. And this is a good thought to have when developing new learning offers. It is important to fit with the new expectations of on-demand, bite-sized learning experiences.

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How the World is Having a Savings Glut and This Will Accelerate

We are currently in a situation of excess savings in developed countries and therefore unprecedented availability of private funds for all sorts of new ventures including the most risky innovations and fundamental research projects (for example see our post ‘How Fundamental Scientific and Technological Programs are Now Run in a Competitive Manner by Private Companies‘). This excellent post ‘The Global Savings Glut, a Modern Policy Failure‘ gives a useful explanation of this situation which pervades our economic system and has accelerated since the 2008 crisis.

“We are operating in a world where there is a massive excess of capital vs. productive places to put it. Which is why valuations on high quality assets able to absorb this savings is so high.” And thus, when there is some start-up that looks like it could become high quality, it instantly attracts capital.

The analysis is that while China became the manufacturing center of the world, it did not let its currency appreciate, and started generate high levels of local positives as well. With goods becoming ever cheaper, savings capability increased in developed countries. “Globalization ended in 2011 and no one adjusted. Export based policy and high savings rates reinforced each other even as globalization forces weakened starting in 2011.” And of course, the constant policy of very low interest rates. With “the amount of savings in Asia and Europe far bigger than the size of their domestic asset markets“, the money pours into the US markets, killing in the process all sorts of possible US monetary policy.

It seems that with the pandemics the current trend will rather accelerate with ever cheaper money being poured to the economy. This can only increase the savings glut, make valuable assets more expensive, but also continue to foster private capital being poured into all sorts of fundamental initiatives that were previously performed by governments.

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How the Economy Becomes Increasingly Bi-Polar

This extremely interesting post ‘We’re living in two economies, and they are tearing us apart‘ aligns with many of our views in terms of the current revolutionary transformation from the Industrial Age into a new age which the author calls ‘Autonomous Age’, which is what we call the ‘Collaborative Age’. The interesting part is the analysis of what happens in the economy during this transformation, with an increased bi-polar economy between traditional (physical) and virtual economies.

The interesting part of the analysis is how the two economies are “pulling in opposite directions, and doing so, tearing the Old Order apart“. “In particular, the traditional economy is biased toward inflation. By comparison, the Autonomous Economy is biased toward deflation.” “The problem is non-monetizable productivity — unlike in the real world, the productivity gains in the Autonomous Economy don’t translate to increased incomes for average folks.”

We connect here with the Baumol effect that we described in the post ‘How the Relative Increase of Cost for Education or Health Care Can be Explained‘. Physical services struggle to improve in terms of productivity and become therefore relatively more expensive.

The author of the post however goes further and asks itself how we can avoid an upcoming wave of unemployment as the virtual economy productivity will require much less people to provide the same or a better level of service.

As I observe at the same time a strong trend to go local and develop human touch services, I am not too concerned on the long term although the transition may well be difficult as people lose their jobs and struggle to transform their occupation.

The bi-polar economy is there to stay and we need to be ready for the disruption. I remain optimistic on the longer term, but we need to brace for the short term.

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How Venture Funds Also Deploy Monopoly-Like Behaviors

My attention has been drawn by the behavior of Softbank, probably one of the venture capitalists, or as a minimum the largest investment funds into unicorn start-ups. This sprawling investor has stakes in many companies which are not known by their best ethical behavior( Uber, DoorDash, WeWork…), and does not seem much concerned by those aspects (read particularly recent news that looks like patent troll behavior in ‘A SoftBank-owned company used Theranos patents to sue over COVID-19 tests‘ or ‘SoftBank Owned Patent Troll, Using Monkey Selfie Law Firm, Sues To Block Covid-19 Testing, Using Theranos Patents‘)

The point which seems quite obvious is that while we start complaining about possible monopolistic behavior of companies like the GAFAM, this type of behavior also seems to exist with some major funds. Softbank is allied by the Saudi Arabian sovereign fund in the Vision Fund, the largest venture fund around. And its behavior seems to to try to build companies that could be one day in a sort of monopoly situation and then milk it. Unethical behaviors in the companies in their portfolios do not seem to faze this fund and its main contributors. It takes only public uproar for refraining some of those behaviors.

Therefore, if we manage collectively to do something to curb the monopolistic tendencies of the GAFAM and largest unicorns, we may as well do something about the monopolistic tendencies of some of the largest investors that are behind unicorns and the largest start-ups of the age.

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How Companies Manage Hundreds of Employees Remotely

The Covid-19 crisis has highlighted the practice of some modern virtual companies that can source and manage their employees globally. An interesting case study is developed in this post ‘Managing 185 people in 40 countries. How they do it‘.

In this case study the company Platform.sh is typical of those digital companies that have no office space and coordinate hundreds of employees globally. In this case, the company has been built that way since 2010 and seems to be quite successful on its market.

A few take-away points for me from this paper:

  • basically the money that would otherwise be spent on office amenities is spent in having meetings, including a long all-hands meeting every year for people to know each other and exchange in a physical space. Hence, those setups do not preempt the need to invest in building the relationships – and rely also on the ability to travel globally at least once a year!
  • a focus on the right mix of communication (synchronous / asynchronous) seeking the best effectiveness
  • Lots of writing and explicit behavior expectations to compensate for the missing informal expectations transmittal.

There is a strong benefit at being able to hire talent anywhere without any geographical constraint – and not be limited to some hot spots of coding talents. This in turn allows more diversity and apparently also less cost overall.

All in all, an excellent case study to meditate as we enter in a new era of much more frequent virtual remote work.

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How Some Startups Burn Cash Unsustainably To Gain Market Share

This ranting post “Doordash and Pizza Arbitrage” is gone somewhat viral. It describes in detail how many well-known startups are actually subsidizing users to consume their services in a desperate bid to capture market share and create new markets.

The post explains how a restaurant owner got enrolled without his consent on a food delivery application, only to find that the service was on purpose proposing his food products for delivery at a sharp discount compared to the selling prices (without even counting delivery fee) – and of course without his consent. This resulted in some funny experiments where the restaurant owner could order food for a lower price than the startup is paying for it, in reality getting subsidized by the startup!

In general many of the well known brands for new distributed physical services like car transportation (Uber…), food delivery etc, are using their investor’s money to subsidize the service, therefore necessarily skewing the market. This is of course unsustainable. If the vision is to become so market dominant that in the future prices can be imposed like in a monopoly, it is downright unethical. In any case I did not realize how many of the modern convenient physical services of the e-economy are currently in reality not priced as they should be.

In addition as in the case study of the post, poor logistics by the startup meant that the food was delivered cold, impacting the restaurant’s reputation.

“You have insanely large pools of capital creating an incredibly inefficient money-losing business model. It’s used to subsidize an untenable customer expectation. You leverage a broken workforce to minimize your genuine labor expenses. The companies unload their capital cannons on customer acquisition, while this week’s Uber-Grubhub news reminds us, the only viable endgame is a promise of monopoly concentration and increased prices. But is that even viable?“

There will necessarily be a wake-up call sometimes when those entrepreneurs will fail to show that their business model is unsustainable. And it will probably come sooner than expected. Welcome to the universe of unsustainable unicorns!

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How Power is Shifting to Social Network Connectors

In the book ‘The systems view of life‘, the topic of social networks and specifically how power exists and develops in social networks. We realize that the exercise of power, which was in the Industrial Age through hierarchies, is now becoming quite different.

“The socio-biologist Manuel Castells argues that the paramount form of power in the network society is the power to constitute networks – to connect individuals and institutions to these networks, or exclude them, and to inter-connect different networks.”

“Whereas power as domination is most effectively exercised through a hierarchy, the most effective social structure for power as empowerment is the network. In a social network, people are empowered by being connected to the network. In such a network the success of the whole community depends o the success of its individual members, while the success of each member depends on the success of the community as a whole.“

Power in social networks therefore resides in empowerment through connection. Super-connectors have thus the most power. This quite different perspective helps explain how power is shifting in the most advanced societies – and what makes powerful today.

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How We Need to Learn More Than Ever, but that’s Not The Same as Getting Formal Education

In this post ‘But what could you learn instead?’, Seth Godin reminds us that now is the time to accelerate our learning to face a disrupted world – but that at the same time, learning is not necessarily correlated with formal education.

“Learning takes effort, and it’s hard to find the effort when the world is in flux, when we’re feeling uncertain and when we’re being inundated with bad news. But that’s the moment when learning is more important than ever.”

But learning is quite different to formal education which was developed during the industrial age and is actually a way to ensure conformity and the capability to do hard work.

“This shift [from education to true learning] is difficult to commit to, because unlike education, learning demands change. Learning makes us incompetent just before it enables us to grasp mastery. Learning opens our eyes and changes the way we see, communicate and act.”

Let us remind us always that never have we faced more the need to learn, but that there are myriads of ways to learn and change which are not just formal education.

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How Company Ownership Can Be Extractive or Generative

In the very interesting (and recommended) book ‘The systems view of life‘, the work of Marjorie Kelly is mentioned about various ways of owning a company. She opposes extractive and generative ownership.

Her view of ownership design is that five essential patterns work together to achieve either an extractive or a generative design:

  • purpose,
  • membership,
  • governance,
  • capital
  • and networks.

Extractive ownership has a mainly a financial purpose: maximizing profits. It is actually the classical business organisation that emerges from the classical theory. Generative ownership, however, has a living purpose: creating the conditions for life. It is closer to non-profit organisations and is generally more characteristic of smaller, more human-size organisations.

I find this analysis quite interesting as it creates a distinct framework to analyse the economy and the economic actors. And it is quite true that many smaller organisations correspond more to the generative type, as they contribute to develop living networks without focusing exclusively on profit.

Generative vs extractive ownership is quite a useful distinction.

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How to Define Levels of Remote Working Organisational Proficiency

This Medium post ‘The Five Levels of Remote Work — and why you’re probably at Level 2‘ mentions how Matt Mullenweg, the founder of Automattic (managing amongst other products the WordPress platform) defines 5 levels of remote work.

Those 5 levels are (summarized with my interpretation):

  • level 1: majority office-based with some remote work
  • level 2: recreating the office online (fixed hours, large meetings, office-type rituals)
  • level 3: adapting to the remote working medium by changing rituals, minimizing meetings and maximizing asynchronous written information
  • level 4: fully asynchronous work, with no requirement for time coordination. This has also the benefit to avoid interruptions and allow longer focus times
  • level 5: nirvana. Not so clear for me. “Mullenweg equates this level with having more emphasis on ‘environment design’, insofar as the organisation’s culture, and the physical environment people work in is concerned“

The post mentions that “Companies that truly practice asynchronous communication have stepped out of the industrial revolution, and no longer conflate presence with productivity, or hours with output, as one might on the factory floor.” This is probably more like the Collaborative Age will look like.

Also it is worth mentioning that it is recommended to organise physical team bonding events on a periodic basis to support a majority of remote work time.

It is true that most of my corporate clients are stuck on level 2. What remote work level have you achieved so far?

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