Month: October 2013

How The Future Might Look

favela luxuryOver the past few months I’ve been forming a thesis about where the world is heading. Much of my thinking comes from seven important books. Two of the most important authors who have influenced my thinking are Nassim Nicholas Taleb and Jaron Lanier. Many of the ideas that follow are theirs. And when Taleb’s and Lanier’s ideas intersect, you get very interesting hypotheses.

I’ll be expanding on my thinking over the next few blog posts, but I’ll start with some of the important ideas  that I think are at the core of where the world is heading. Understanding these ideas will be very important  if you want to succeed in the world going forward, or if you want to try to influence or change our future.

The Taleb Distribution – 99/1 instead of 80/20

The Pareto Distribution, better known as the 80/20 rule, states that 80% of the effects come from 20% of the causes. For example, in most businesses 20% of clients will generate 80% of the income, 20% of clients will generate the most customer service requests and so on. Taleb argues that we’re moving to a 99/1 distribution, away from 80/20. This shift has profound implications for our economy and society.

Little to No Skin in the Game

Entities are using big data and big computers to create businesses that introduce risk into the system, but don’t actually take on any of the risk. Instead they radiate it out to everyone else, taking all the benefits and leaving others with the downside. Think big banks, healthcare marketplaces, Facebook, outsourcing firms.

Siren Servers

Lanier coined this term to describe companies that use strong computers to suck up data and make money solely on information asymmetry, that have no skin in the game, radiating out new risk into the system. This new business model breaks with old entrepreneurial traditions: now the winners win solely because they have the strongest, fastest and most powerful computers, not because of innovation or value add. It’s arbitrage.

Strongest servers used for control

Whether its from governments like the US and the NSA or strong, overbearing policing, or large companies like wall street or web giants, the strongest servers will use their power to exert control.

Much of this control isn’t really done by algorithms, but people believe in technology, rather than humanism. For example, online dating sites claim they have an algorithm that matches people based on compatibility. In reality the algorithm “works” because it throws lots of people who want to get married together. Marriages are bound to happen. But people believe its the computer and give up control.

De Facto Monopolies

As power and money concentrate around the most powerful computer and radiate risk away from themselves, they create de facto monopolies. For example, Amazon automatically lowers its prices if there is a lower price anywhere it can find, then raises it if there isn’t a lower price anymore. They do this because they have the best data and the most powerful servers. They are willing to take a low or no margin on an item until you go out of business.

Amazon is not stopping you from starting a competitor. But you cannot compete on price. What used to be a monopoly is now just good business and competition. It’s moving toward a de facto monopoly. I expect this to happen in other industries.

Meritocracy used to excuse pretty much anything

As things go to 99/1 and de facto monopolies arise that radiate away risk from people who have little to no skin in the game, the winners will use merit and hard work to justify their outsized rewards. Since these companies are not using traditional, overt anticompetitive practices, the winners will justify their gains by meritocracy: anyone could have done it. It will be used to justify the commoditazation of work and the elimination of traditional levees.

Non Monetary Compensation

Facebook with 0 users is worth $0. Facebook with 1.1b users is worth $122b. It needs our free data to function. Yet its controlled by one guy and only a tiny percentage actually involved get monetary compensation. The rest get the equivalent of candy. The new bread and circus.

Taken one step further, in ten years robots are doing most basic surgeries. All benefits accrue to the software company that created the software. How’d they program this software? By watching real doctors perform hundreds of thousands of surgeries. But do these doctors get any compensation from the new data driven robots that needed their data to create the program? No. This will repeat across most industries.

Shrinking Markets

In a 99/1 world, where information is free and people aren’t paid for their data inputs, and as technology, powerful servers and de facto monopolies begin to emerge, markets will begin to shrink. These technologies cut out the middle men and people needed to do work. Sounds great and it is short term, but at scale, only the powerful handful have any monetary compensation and the rest have candy and no money to live, let alone purchase the winner’s goods.

Massive Inequality

The world will look more like South America, with massive physical, emotional, economic divisions between haves and have nots. In South America the top few percent almost never come in contact with the rest of the population, besides in service jobs. They don’t have the same culture. They don’t eat the same food. Follow the same sports. Watch the same tv shows. See the same movies. It might as well be two different worlds. Without a common experience, the haves lose empathy for their fellow man.

The metafication of everything

Everything we do is now broken down into tiny data pieces, mixed up and then put in a schema. Barriers go down, but we lose context. Do we lose truth with the lost context?

I understand this post sounds bleak and is very incomplete, but I don’t think all is lost. I’ll continue expanding on these ideas over the next few weeks in additional blog posts, including some ideas on how we can get off this track, and if we can’t get off the track, what some of the best strategies might be to survive in this type of a world.

Please add to the discussion.

Three News Articles

I was featured in three different news articles this week for three different ideas and I thought I’d share.

Dealing with digital Afterlife – Financial Times

Emma Thomas interviewed me for an article about people with interesting jobs, focusing on the digital death space. My favorite part where I talk about the impact that working with digital death had on my outlook on working and living. It makes no sense to me to be working on things that don’t really matter, like an iphone app for fart noises or other fairly useless ideas. If you have the ability and drive to do a startup, do something that matters.

The Most Interesting Entrepreneurs in Chile

An article talking about different people in the Chilean entrepreneurial ecosystem. There are clearly better homegrown Chilean entrepreneurs than me, but it’s fun to be on the list.

La Condonería: Condones y educación sexual a un click de distancia

This article in PulsoSocial (spanish) talks about one of my new projects, an ecommerce site that allows people to buy condoms online in Chile. I’m really enjoying this project mostly because of the blog and chat we have. Most people didn’t have a well developed sex education course in high school or college, so we answer basic questions that we get via our chat in blog post form. It’s been one of our biggest successes so far and makes selling a product much more interesting and rewarding.

Seven Important Books

Over the past nine months or so I stepped back from writing and threw myself into reading. I took a trip into the classics, reading Wealth of Nations, Crime and Punishment, Brothers Karamozov, 1984, Brave New World, The Autobiography of Benjamin Franklin, some light fiction and fun non fiction, but what I’ve really been interested in lately is the intersection between technology, our economy and how it’s changing our culture, both for the better and for worse.

I’ve started to formulate a thesis. And I don’t really like the conclusions that I’ve been reaching. Over the next few weeks, I’m going to be writing about what I think might be going on, why its happening and how it may affect our present and our future. These are the key books that I’ve read that have shaped my thinking.

World

Antifragile – Nassim Nicholas Taleb

Taleb’s follow up to best selling and paradigm breaking The Black Swan, Antifragile, is probably the most important book in the past decade, if not longer. I found myself smiling and nodding in agreement throughout the book. And I’ve found that if someone’s read this book and enjoyed it, I’ll likely be their friend and share a similar world view.

Taleb creates a new word: antifragile – things that grow stronger from stressors. Humans get stronger from mild stressors. A glass vase does not. The restaurant industry does. Wall Street does not. Taleb shows that lack of skin in the game, the agency problem, micromanaging and a lack of understanding of real risk is causing our world to be more fragile when we should be orientating toward antifragile approaches.

Shorter: My Rules for Life in The Guardian.

You Are Not a Gadget – Jaron Lanier

Lanier invented the term Virtual Reality and has been involved in Silicon Valley since the very beginning. And he thinks technologist have gotten it all wrong. We’ve built technology that serves technology, not technology that serves humans. Our iPhones control us, not the other way around. And it’s wrecking our culture and economic future.

If you can’t read the book, read his oped in the Wall Street Journal, World Wide Mush.

Who Owns The Future – Jaron Lanier

In Lanier’s follow up, he talks about how technology is accruing massive returns for those who have the biggest, most powerful servers, not those who have the best ideas or give humans the most benefit. This techification eliminates the middle class and pushes economic returns up to a small group and gives the rest candy. Facebook without any users is worth $0. So why do so few people as a percentage earn money using Facebook?

If you can’t read the book, read his NY Times piece Fixing the Digital Economy.

Coming Apart – Charles Murry

Murry shows how the US has developed extreme income inequality that’s led to a small, super rich upper class that’s both physically and culturally separate from the rest of the population, similar to Latin American and other oligarchical countries. His description of how the US looks today is spot on and some of the consequences of income inequality, but I don’t buy his social root causes. I believe a similar pattern is taking place globally.

If you can’t read the book, read his Wall Street Journal piece The New American Divide and then Ross Douthat’s What Charles Murry Gets Right from the NY Times.

US Specific

Rise of the Warrior Cop – Radley Balko

Balko traces the militarization of US police forces from the US’s birth to present day and shows how the drug war and now terrorism fears have turned a police from traditional beat cops who knew everyone in their neighborhoods into body armored, automatic weapon toting, tank driving para military forces that have eviscerated the 1st and 4th amendments, wreaked havoc on families, killed innocents and brought terror the american households, all without even doing anything to lower crime.

Shorter: Why Did You Shoot Me? I was just reading a book! from Salon.

Three Felonies a Day – Harvey Silvergate & Alan Dershowitz

The US federal law system is now so vague that we all commit at least three felonies per day and the only reason we don’t get prosecuted is that we haven’t run afoul of a politician, a bureaucrat, or a prosecutor or even just gotten unlucky. Rise of the Warrior Cop interplays very well with this book. While I don’t recommend reading this book for pleasure reading, as its clearly intended for technical attorneys, the thesis is spot on.

These two books together paint the picture of why I’m very worried about NSA spying. Between a militarized police force, a government that collects all of our data and a criminal justice system that can indict you with lifetime jail time for living a normal life, we’re well on our way toward a police state.

Shorter: You Commit Three Felonies A Day from The Wall Street Journal.

Fiction

Super Sad True Love Story – Gary Shteyngart

A dystopian, but extremely readable look at what the future might look like where everyone’s always connected to the internet, we’re constantly alone together, the government monitors everything, the US is a banana republic and everyone is rated on everything via metadata. Read it.

Photo Credit: hobvias sudoneighm