Category: Institutions and Revolutions

How the Number of Publicly Listed Companies Decreases

In this otherwise illuminating post ‘Fixing Capitalism’s Oligopoly: A Response To Ray Dalio And John Mauldin‘ I noticed a particular aspect, which is the strong decrease of the number of publicly listed companies in favor of private capital.

This trend is very noticeable since the end of the 1990’s. “The phenomenon is under-researched, but the papers that have been done look at issues like 1) impact of Sarbanes-Oxley (SOX), 2) growth of private equity capital, 3) the growth of M&A activity on Wall St and its need to keep the pipeline growing, and 4) a number of structural issues (like SOX) hurting small company formation“. The author believes that it is mostly the growth of private capital that explains this trend, which in turns tends to explain the much higher share of income captured by the wealthy (company owners). Another aspect is the increasing industry concentration with very large players that attain quasi monopolistic status.

This trend is at the same time interesting and problematic. It shows that probably a greater share of value creation is not directly accessible by the public through public shares. This, in turn, generates a number of interesting questions about the structure of our economy. Its agility is in question, and thus its future adaptability. Not quite the trend that would be expected in an increasingly unpredictable world.

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How the Former Sedentary Elite Reacts Against the New Nomadic Elite

Following up on our post ‘How the Notion of Country Is Becoming Progressively Obsolete‘, we can observe increasingly how the Industrial Age sedentary elite is reacting against an increasingly powerful nomadic elite.

My observation of the Fourth Revolution is that the revolution in communication capabilities places back the global nomad at the top of social and value hierarchy, after it had been displaced during the Agricultural and Industrial Age which depended a lot on huge local investments. The opposition and struggle between sedentary and nomads is age-old and it just took a new turn.

Many social movements such as the ‘Gilets Jaune’ in France, and more generally the crisis of local communities, can be connected to this major change. In addition to local territories, local elites feel displaced as more value is now captured by global nomads. This leads to strong reactions and struggles, one clear path being protectionism as an illusory protection against this trend. But that obviously can’t be effective if one also wants to benefit from modern connectivity at the same time.

This readjustment of the value chain benefiting nomads will be a major social trend in the next decades and an interesting way to understand what is happening globally. Still I believe the trend can’t be resisted and the future Collaborative Age elite will definitely be global nomads.

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How the American Dream of Social Mobility actually Disappears

In this excellent must-read article ‘The Economist Who Would Fix the American Dream‘, the work of economist Raj Chetty is described. His recent works focuses on equal opportunity. And shows that since a few decades, the possibility of social mobility has dramatically diminished in the US. But not only is he a scholar providing insights from Big Data, he is also taking action.

Raj Chetty’s family story itself is an example of social mobility: his parents had a humble and poor origin in India and they rose in society through academic excellence, then emigrated to the US where Raj was educated. Excelling in academics, he became quickly part of the elite of economists in the USA.

“He has pioneered an approach that uses newly available sources of government data to show how American families fare across generations, revealing striking patterns of upward mobility and stagnation. In one early study, he showed that children born in 1940 had a 90 percent chance of earning more than their parents, but for children born four decades later, that chance had fallen to 50 percent, a toss of a coin” And he has shown that to a “surprising degree, people’s financial prospects depend on where they happen to grow up“.

Some of his most interesting research about a town in the US that had a dramatic positive growth showed that “All the data-scientist and business-development-analyst jobs in the thriving banking sector are a boon for out-of-towners and the progeny of the well-to-do, but to grow up poor in Charlotte is largely to remain poor.”: nomads and well-to-do benefit from opportunities, not the local poor.

And he went on further to show that social limits in place many years ago at the time of slavery and segregation continue to influence heavily the level of opportunity for children.

It is probable that the same issue of a harder social mobility is at play in most developed countries, and this also explains the disarray of a new generation that does not believe it will have better opportunities than their parents. At the same time, the work of people like Raj Chetty shows ways to understand and fix those issues.

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How the Notion of Country Is Becoming Progressively Obsolete

As reminded in this excellent post by Gapingvoid, the notion of country is quite recent (the formalization of the concept of nation dating back to the Peace of Westphalia (1648)). It is now under siege, and actions are being taken in real life that show its limits: “The Kingdom of Denmark has just appointed a new Ambassador… not to a country, but to Silicon Valley“.

There is thus an increased recognition that large corporations of the Collaborative Age may have a larger influence on our lives than smaller countries. At the same time the notion of nationalism shows its limits in an open, more connected world (even if there is a temporary reaction against international trade, it remains and will remain a major economic factor).

There is at the same time a pull-back towards one own’s community (smaller entity than the nation-state) and the feeling of belonging to a wider, more international community through our social networks and through supra-state entities such as the European Union. Power is hoarded by large global corporations. At the same time, the emergence of a nomadic elite is substantially changing the perspective of the society influencers towards a more global perspective. The central level of nation-state is progressively being voided, or at least becomes less important.

The nation-state was probably a temporary useful concept suitable to the Industrial Age. It is probably not adapted to the Collaborative Age and new governance levels will have to be implemented – probably a multi-layered governance with a much stronger global level.

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How People Are Increasingly Shunning Traditional Information Media

In this important post ‘News Rejection is Mostly Media’s Fault‘, Frederic Filloux investigates the possible reasons why the public’s confidence in traditional media has dramatically eroded in the past years. This effect is observed in all democratic countries, in a more or less dramatic manner.

It is a reality that more people are avoiding traditional media outlet and prefer to refer to social networks, which is a root cause for misinformation. It even facilitates active campaigns of dis-information or even manipulation with the objective to destabilize democracies.

Frederic Filloux’s view is that it is mainly the own fault of the media outlets that are presenting news, according to him, in a much too dramatic and negative manner, and in an over-simplistic manner. He also identifies a growing disconnect between people’s preoccupations and the topics covered in media.

There has always been a lack of trust between part of the population and institutions (mass media being viewed as an institution, traditionally possibly manipulated by tycoons and/or the political power). It is the extent of that lack of trust which is problematic, how it evolves, and how the trend is being exploited by destabilization efforts.

Mass media is still looking for its Collaborative Age business model, and how to check and disseminate information on new channels. There is a risk of a split between professional journalism and reliable news that would only be affordable to part of the population, hence creating a split in the worldview that would be difficult to bridge.

Yes, mass media needs to change its way of working, and soon, to adapt to the new world. A new model needs to be found that combines economic sustainability with proper recognition by an ever-more expecting population. Many experiments are ongoing, let’s hope the right model will be found soon!

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How People Have Changed Their Discretionary Entertainment Expenditure Towards Streaming Platforms

In this interesting post by Frederic Filloux ‘The Consumer Trends That Destroyed Media’s Business Model‘, some interesting trends are exposed about our consumption habits in the area of entertainment (thus, discretionary expenditure). Of course those expenditures only represent a small share of our total budgets, but they have great influence on our understanding of the world.

The curves and statistics show that most expenditures are taken by subscriptions to internet and mobile services, followed closely by a fast growing video-on-demand trend, led by Netflix. This leaves only limited space in the budgets for other expenditures such as events and tickets, literature, or press subscriptions. This translates to more and more time spent on those services to the detriment of written books or media, or even live shows or visiting museums.

At the same time that there is an increasing development of somewhat addictive series instead of feature films, this trend is at the same time not too surprising but also concerning.

It definitely shows a substantial shift as many of those expenditures did not exist 20 years ago, therefore, they have necessarily replaced other activities and expenditures and those (including cable TV, the press, cinemas or generally live shows) are thus suffering. The trends give all of us much more choices in what we are watching while giving us potentially less opportunity to discover new things.

Anyway, it is quite illuminating to observe how our expenditure habits have dramatically changed in the last years, giving us more opportunity to choose our entertainment, with a large domination of online and video entertainment. This is certainly a trend that will continue.

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How the Number of Taxis and Hire Cars Drivers Have Tripled

According to this Quartz post ‘More Americans are Driving Taxis Thanks to Uber and Lyft‘, the number of drivers for taxis and other hire cars has apparently tripled in the past few years in the US. This is consistent with the increase in cars in city centers (see previous post ‘How Changes from New Technology Will Lead to Unexpected Results‘)

This shows certainly that there was an un-served demand with the traditional taxi system for point-to-point ground transportation. At the same time it does ask questions as to the actual revenue of all those drivers (some are of course now part-time with the likes of Uber and Lyft); and about what they will become if autonomous driving becomes successful, which it will effectively some day.

This example is excellent because it definitely shows how internet can disrupt the traditional economy (taxi plates’ value has dropped off significantly); create abundance where there was an artificial constraint; give opportunities for revenue to more people including additional side revenue, and more generally promote self-entrepreneurship. At the same time it also draws attention to the social consequences that ensue in terms of limited social protection for the drivers. A tripling of numbers make private hire car drivers a substantial percentage of workers and there are long-winded consequences to be expected.

The Fourth Revolution tangibly changes our world, our careers and opportunities. And not marginally!

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How We Should Not Separate the Person from the Problem in Negotiation

The ‘Harvard’ way of negotiating advises to separate the person from the problem. It appears it is possibly not the most effective way of negotiating and that negotiating on an emotional basis may be more effective. I really recommend reading the book ‘Never split the difference: negotiating as if your life depended on it‘ by Chris Voss, which is extremely enlightening. Chris Voss is a top FBI negotiator with international exposure who has become something of an authority in the field of negotiation.

His basic observation is that emotional work is more important than rational approach in negotiation. However, “Until recently , most academics and researchers completely ignored the role of emotion in negotiation . Emotions were just an obstacle to a good outcome , they said . “ Separate the people from the problem ” was the common refrain“. Since the early 2000s this view is shifting, albeit quite slowly.

Good negotiators create emotion, are excellent active listeners, and label emotions to move forward to resolution. Again, this shows how in our modern world rational approaches find their limits in the real world (see previous post ‘How We Need to Consider Heartset as well as Mindset‘).

In negotiations as in other aspects, emotional work is the key to success. Let’s never forget the personal connection and emotional work is needed in all situations even in the most tense like a touch negotiation.

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How Dismantling Facebook Is an Increasingly Strong Idea

In the past months the pressure on dismantling the Facebook empire has increased dramatically: from the NY times pledge by a former co-founder Chris Hughes ‘It’s Time to Break Up Facebook‘, calls to revitalize the old anti-trust laws (such as in ‘Steering with the Windshield Wipers‘ by Cory Doctorow). And all of this under increasing evidence that more or less voluntarily social networks such as Facebook have strongly influenced elections (listen to the TED talk about ‘Facebook role in Brexit and the threat to democracy‘).

One particular aspect that appears to be concerning and specific to Facebook is the unrestricted power of its founder Mark Zuckerberg (owning 60% of the voting shares) and thus the associated governance issues (things are a bit different in other internet companies). This is a particular strong point made by Chris Hughes in his column, and is quite noticeable.

Another strong aspect coming out of all this literature is the fact that certain free market ideology developing since the 1970s have made acting against monopolies less straightforward than before, and that it would be legally harder today to apply those principles.

I truly believe that sooner or later, some action will be taken against internet behemoths in the field of anti-monopoly. They might defend themselves and hire superb lawyers, one day will come where their dominance must be kept in check. Let’s hope it is not too far away.

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How to Overcome the Science Reproducibility Crisis

Following up on our previous post on “How Fake Science is Strongly on the Rise and Endangers Us“, the issue or reproducibility in science is also coming up strongly: even paper and findings recognized as legitimate for a long time are put in question by the inability to reproduce results, and more specifically in human sciences. This post ‘Why Your Company Needs Reproducible Research‘ provides a good summary of the issues at stake.

Recent efforts are reproducing psychology results lead to “Only about 40% of the findings could be successfully replicated, while the rest were either inconclusive or definitively not replicated.” Similar proportions are obtained in business-related research.

While this may be due to very human bias like the need to show some results from research, and the inherent complexity of the environment around some experiments, there is definitely a need for more thorough replication requirements prior to confirming results. This puts more challenge on researchers but is probably a need in a world that sees increasingly fake science.

Science will always progress by invalidating previous results or restraining the boundaries of validity of previous results. This is a normal process, still we need to be wary to ensure reproducibility of results before they are spread as invariant truths.

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How Fake Science is Strongly on the Rise and Endangers Us

In this excellent paper ‘The Rise of Junk Science‘ the issue of increasing number of improperly reviewed publications is described. They now substantially dominate in number more professional scientific publications. Some even believe that there is a “global “epidemic” of scams by academic journals that was corrupting research and, in effect, endangering the public“.

With much easier access to publishing, there is an increasing number of scam scientific journals that are easily accessible, do not practice rigorous peer reviews. There are also an increasing number of fake conferences, that even name recognized scientists that don’t even attend in an attempt to attract other reputable scientists.

While this issue is probably not new – it was always possible to do vanity publishing – it spreads to an unprecedented level, and in a context where it is increasingly difficult to distinguish between legitimate and fake science. “for the first time in history, scientists and scholars worldwide are publishing more fraudulent and flawed studies than legitimate research—maybe ten times more. Approximately 10,000 bogus journals run rackets around the world, with thousands more under investigation, according to Cabell’s International, a publishing-services company. “We’re publishing mainly noise now,” Franco laments. “It’s nearly impossible to hear real signals, to discover real findings.”

Luckily there seem to be an increasing awareness of the issue and modern technology also allows to develop powerful tools to distinguish between junk science and legitimate science. Still we need to be careful that something looking like a scientific paper might also be fake or junk!

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How the Relative Increase of Cost for Education or Health Care Can be Explained

In a very interesting series, Alex Tabarrok explores the ‘Baumol effect‘ – the rise of salaries in jobs that have experienced no or low increase of labor productivity, in response to rising salaries in other jobs that have experienced higher labor productivity growth. Read for example ‘Why Are the Prices So D*MN High?‘ or ‘The Baumol Effect‘.

This effect explains in particular the relative rise in the cost of education and health care, and may also explain the relative rise of the cost of housing among other factors. Sectors with the most productivity increase will drive an increase in the cost of sectors will little increase of productivity. Alex Tabarrok’s post ‘The Baumol Effect‘ gives a deep insight and excellent examples of the reasons behind this effect.

Thus as we enter a new age where the relative cost of certain services will decrease substantially, we will observe the value of other services to increase relatively, changing substantially the balance of our personal budgets. It has already occurred during the industrial revolution: the relative cost of foodstuff and the share in our budgets has decreased substantially. It will now happen similarly for other aspects. Just because we can’t quite improve the productivity of certain activities.

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