The Industrial System: Not the End of History

Francis Fukuyama’s book “The End of History and the Last Man” identifies liberal democracy in combination with capitalism as the winning way to organize society. Fukuyama wrote in 1992 at a time when the data seemed to support that conclusion. The book also presents a historical framework based largely on Hegel to argue why this has to be so and why it represents an end state. All of this now looks like a premature victory march. For reasons that will become clearer in future posts, I will refer to the “industrial system” instead of using Fukuyama’s terms.

The industrial system has a bunch of interlocking (complementary) components. Financial markets that support the direction of capital to productive opportunities. Firms that put together the capital assets required for production. Employees who are earning wages and spending them on goods. Markets with competition and properly determined prices. Elected politicians who pass laws to enable a civil society. These laws are enforced by unbiased regulators, police and courts. Schools that educate people to participate in the labor market and the democratic process. This is certainly not meant to be an exhaustive list but it’s a good start.

This is a system has worked at some level miraculously well. I am typing this on a MacBook Air that is beautiful, powerful, connected to the rest of the planet. I have a high live expectancy. I don’t need to worry about marauders. And so on. I will have more to say about the measurement of progress which is a whole can of worms unto itself, but suffice it to say that I personally have been a big beneficiary of all the system has to offer and am happy to be alive today rather than at an earlier time period.

When I say these are complementary components I mean that having one makes the others more valuable (on the margin — this is captured mathematically by supermodularity). For instance, having competitive product markets means that the additional dollar of salary your earn goes a longer way as prices come down and product innovation gives you larger choice. Or having companies that gather up productive assets works better in the presence of well developed financial markets. Because of complementarities systems are hard to change and have a lot of inertia. You can’t just change one part as it won’t fit with the rest. And small cracks in a part will tend to get patched so as to preserve the system as whole.

Now, however, multiple components and their interactions are breaking down simultaneously and the patches we have applied are no longer good enough. Our financial markets have been allocating capital into vast asset bubbles instead of into productive investments. Firms themselves are hoarding capital and moving it around the globe. Earnings are highly concentrated among fewer employees with many others using debt to finance expenses (credit cards, student debt). Markets have fewer and larger companies that exert market power (sometimes in quite subtle forms such as planned obsolescence). Rich individuals and incumbent corporations exert undue influence on politics. Regulators are captured by their industries. Higher education is leaving students deeply in debt.

But there is more. At the same time that the system is slowly breaking down we are facing both threats and opportunities that it is not designed to address. The most prominent threat is environmental impact in general and climate change in particular. The existing system doesn’t address it because we are largely dealing with externalities that are unpriced, such as pollution of the air or overfishing of the oceans. The biggest opportunity comes from the increasing importance of non-rival digital goods. Wikipedia, Khan Academy, etc have the potential to help educate everyone on the planet at virtually no cost. The existing system underproduces such goods as it is more driven by profit than by consumer surplus.

Over the coming days I am planning to push deeper into all of these components — both how they fit together and how they are now falling apart. I am likely going to start with a bit more about the importance of complementarities both for understanding societies and history but also as a tool for thinking about strategy.

Posted: 3rd April 2014Comments
Tags:  industrial system capitalism history

What’s Ahead: The Information Age Transition

As promised (threatened?) I am going to use Continuations to think out loud about what I believe is the beginning of a transition away from an industrial age to an information age. I know those terms aren’t perfect but that will be part of the discussion itself. Why am I doing this?

First, I believe that this transition will be as important to humankind as the previous transitions that have taken place from the forager age to the agricultural age and from there to the industrial age. Those transitions were extremely violent in large part because we didn’t really understand what was happening. We now have a lot more history to learn from, so it would be tragic if we repeated the same mistakes.

Second, much of the current policy debates in education, finance, healthcare and so on are largely arguments about whether the deck chairs on the Titanic should be a bit more to port or to starboard. They are fierce debates about making relatively marginal changes to a system that is fundamentally breaking down. We need to stop wasting our energy on them and instead collectively invent the future.

Third, I can’t think of an intellectually more fascinating project. My interest in this goes back three decades to when I first got excited about computers. I can’t claim that I saw then what I see now but I had some kind of inkling, which is why I studied both economics and computer science as an undergraduate and as a PhD student. 

Fourth, this transition is highly relevant to what I do as a partner at Union Square Ventures. For instance, when I first learned about Etsy I had a very positive reaction because it fit with my thinking about what is happening to the economy and to society. The same goes for Shapeways and many other companies in our portfolio. So I expect that exploring the transition more will lead to new investments.

This is obviously a big topic and one of my weaknesses is that I am generally tempted to start with foundations and lay out all parts neatly step by step. But not only does that make for boring reading it also pre-supposes that one has it all figured out, which I definitely haven’t. In the end my goal is to have something coherent and hopefully even publish that as a book (yes, books themselves may seem kind of quaint but I love reading them so writing one seems like a good idea — I will need a great editor!).

Here are some of the pieces that I will be grappling with in the coming days and months

1. The massive cracks that are appearing in the existing system. In particular, the industrial system is built on people selling their labor and using the proceeds to buy goods (and services). But the price of labor is under tremendous pressure from machines and from globalization. Other cracks include the increasing importance of non-rival information goods and the missing prices for the environment.

2. The early signs of what a different system might look like. As I mentioned above, these include many of the USV portfolio companies. But they also include projects such as Polymath and not for profits such as the Freelancers Union and the growing cooperative movement.

3. The nature of mankind, which admittedly sounds awfully pretentious.  But our views about our own nature are at the heart of what systems we believe can work. For instance, if you conceive of people as fundamentally selfish and greedy and prone to violence then your outlook will be very different than if you believe in curiosity, altruism

4. History and systems. These may seem like an odd pairing but I have a good reason for it. Systems sustain themselves through complementarities between their components. We tend to be too obsessed with trying to pin change on a single force whether that’s technology or policy or individuals.

5. Ideas about what we can do as individuals and organizations to help shape the transition.

6. The relationship to existing philosophies and schools of thoughts. I have come to realize that both capitalism and Marxism are essentially rooted in industrial society. They are like the proverbial generals fighting the last war. We need to get past both of them.

Along the way I am looking forward to lots of poking at my thinking from readers and a gradual process of collaboration and contributions. I have not yet figured out what the best way for that is, so for now, please comment!

Posted: 2nd April 2014Comments
Tags:  information age

Kenya: Impressions (Cont’d)

Since our trip to Africa was a family vacation and I really didn’t want business to intrude I wound up not spending time with startups in Nairobi. But I did talk to a lot of people we encountered about their use of technology.

Mobile communication is almost everywhere. Only when we went into more remote Samburu territory did we not have a cell signal. Many people are still using feature phones but Android is making rapid headway. An iPhone is considered to be a real luxury item and very few people have one. I took a picture of downtown Nairobi that shows a big LG and an even more prominent Samsung ad (admittedly not a great picture so you have to search a bit).

M-Pesa, the mobile payment system, is used incredibly widely. It has had some very positive effects, such as being able to pay women who work directly as is done for example by the Leakey Collection who work with Maasai women. That in turn has had a dramatic impact in reducing domestic violence against women. Somewhat surprisingly though, the use of M-Pesa has not reduced corruption. In fact you can now bribe folks using electronic payment instead of cash and some people think that the added convenience has increased corruption. It seems that there is an important tradeoff between adoption and enforcement. If you started to track electronic transactions on M-Pesa as a way to crack down on corruption you might stunt growth of electronic payments (people would be a lot less likely to use EZ Pass if they got speeding tickets from it).

Another big surprise for me was how relatively underdeveloped solar energy is. In fact the official Kenya government policy we were told is to invest more in grid development and fossil fuels which if true is bizarre at best. Distributed solar generation has huge promise in Africa. Fortunately, there are now startups such as M-Kopa, that are focused on helping finance the acquisition of solar devices. We saw one solar lamp in particular that doubles as a mobile phone charger and is very affordable.

We also went to visit a school that is supported by the Lewa Conservancy. One of our kids had done a small fundraiser prior to our trip and bought school supplies. When I first looked at what he had bought — paper, pencils and other very basic supplies — I thought this couldn’t possibly be what they needed. But it turned out to be spot on. When we went to the school we found it had 640 students and 18 teachers. The classrooms had 30-40 students in them with a teacher and a whiteboard. Basic supplies where exactly what was most needed.

Kenya has apparently announced a one laptop per child initiative. Based on our school visit though it would seem that subsidizing smartphones would be a much better route. Many of the kids walk long distances to school and it seems unlikely that they could carry a laptop back and forth. A phone in fact would make that walk safer. Also phones could have direct cellular data connectivity obviating the need for maintaining a local network. The school could add solar panels for charging the phones.

Overall I came away with a sense of optimism about the potential for Kenya. One of the most interesting questions though is what kind of society a country such as Kenya should be aiming for. I will have more to say about that as I shift my writing on Continuations to focus on my thoughts about the Information Age. I believe there may be an opportunity to leapfrog the industrial model.

Posted: 1st April 2014Comments
Tags:  kenya technology

Kenya: Impressions

We just got back from nearly three weeks in Africa spent mostly in Kenya and a bit in Tanzania. I have tons of great photos of animals and nature which I may eventually post elsewhere but for Continuations I figured I would share some of my impressions.

William Gibson once wrote that “the future is already here — it is just not very evenly distributed.” That quote stuck in my mind as we experienced an enormous gradient between the bustling city of Nairobi (with 4 million or so inhabitants) and the traditional tribal villages of the Samburu little more than an hours flight north. Many Samburu still live as nomadic pasturalists moving every 6 months or so and consuming a diet of mostly milk.

Changes to these societies are a lot harder than they appear at a distance. For instance, helping them drill a well for access to clean drinking water turns out to be a bad idea in isolation. Why? Because they will then stay in one place which results in overgrazing, which in turn leads to soil erosion and makes them much more fragile with respect to droughts. I don’t know to what degree an organization such as Charity Water already takes that into consideration but it was an important new insight for me.

Something similar holds true for the conservation of elephants. At one point in an area called Buffalo Springs we were amidst close to 200 elephants which was an amazing experience. They move nearly silently and were happy to ignore us. But they are also devastating for trees between knocking them over while scratching them, eating their bark (which causes the tree to die) and devouring young saplings. The difference in vegetation between areas that have lots of elephants and those that don’t is striking. So in order to preserve elephants enough land is required so that trees have a chance also. Some areas such as Lewa which try to protect other animals have erected fences to keep elephants out.

All three of these are things one can probably read about as well but seeing them first had on the ground provides a powerful impression. I will continue tomorrow with some thoughts about technology, education and energy. 

Posted: 31st March 2014Comments
Tags:  africa kenya conservation

Tech Tuesday: Taking a Break

With last week’s P=NP? Tech Tuesday will take an indefinite break. First, we are heading to Africa for the rest of March (longest vacation in 20+ years). Second, when we come back I will be using Continuations to significantly elaborate on the ideas brought up first in my post on Entering the Information Age and then in my talk at DLD on The Big Questions about the Future. I am looking forward to this new phase of Continuations and promise to return with renewed energy.

Posted: 11th March 2014Comments
Tags:  tech tuesday break

Decentralizing Identity

If you ask someone who they are on the Internet, they will likely give you an email address or point to their profile on Twitter, Facebook, Google, or LinkedIn. Some people might instead reference a profile on a more industry specific network such as Behance for creatives or Doximity for doctors. Others use a personal home page provider like about.me and an even smaller fraction have their own domain. This is a pretty unsatisfactory state of the world from both an individual and a service creator perspective.

As an individual, you are never really in control of your identity. In every case other than your own domain a centralized service provider decides what can and cannot be on your profile and can also revoke your profile at any time (most terms of service give the provider nearly complete control). Even with your own domain there is a risk that it could be seized and your identity wiped out.

As a service creator, you can either let users authenticate with one of the big centralized providers or revert to signing in with username/email and a password (where email for most people is right back at large service provider). How much information you then receive about the person and the format for that information is controlled by the authentication provider.

Starting a new centralized identity provider not only doesn’t solve these problems but also faces a classic chicken and egg problem between user and service adoption. Therefore people have been looking for a decentralized solution for quite some time that would put individuals truly in control and allow for permissionless innovation. At first this ran into a problem known as Zooko’s triangle, which was the conjecture that you couldn’t have system was secure, decentralized and allowed for memorable all at once. As it turns out though this is exactly the kind of problem that can be solved using the Bitcoin protocol.

Namecoin is a decentralized key/value store for registering, updating and transfering information based on Bitcoin. Namecoin allows the creation of globally unified namespaces that can be used for all sorts of applications, including a decentralized domain system and personal identity. Namecoin itself only provides the consistency mechanism. It does not define a format for what should be contained in an identity entry. 

There are at least a couple of proposals for doing that. One is Namecoin ID and the other is a new project called OneName, which provides both a JSON specification and an initial implementation of a profile viewer. You can use the viewer to see my profile (here are FredNick and Brad). Both for Namecoin ID and OneName the underlying identity information is contained in the Namecoin blockchain.

What about squatting and impersonation? It is true that someone could register your name and even add links to your various accounts. But only you can also broadcast on those channels and confirm your data by linking back to it, eg by Tweeting out a link or adding one to your github account. None of this will add up to certainty and systems going forward will always have to deal with a probabilistic notion of identity.

The squatting issue is potentially more serious but also intriguing. Centralized systems have resolution mechanisms for squatting with various levels of transparency and inconsistent national legal frameworks. Given the fully decentralized nature of Namecoin there is no authority to appeal to. That really only leaves a voluntary market based mechanism for resolution. By building on top of a distributed currency the payments and transfer mechanism are all built in from the beginning.

For now OneName is as an alternative to something like about.me with the big distinction that you control your data. You can access your OneName profile directly by using any Namecoin client if you so want. Much like Bitcoin though if you don’t want to operate anything directly there can be third party registrants that handle everything for you. Anyone can set one of these up, there are no licensing requirements of any kind and no barriers to entry. This means that a competitive market can emerge where registrants can compete on price, on convenience, on trust and safety, or some combination of these and other forms of differentiation.

How does all of this solve the identity problem? Because Namecoin is completely decentralized it is ideal for permissionless innovation as the OneName example shows (the spec and implementation were developed independently of the Namecoin project). OneName aims to provide single user value by offering a pretty representation from day one that one can link to. Others can then use this information for purposes such as secure messaging and payment. Since this was just launched it is too soon to tell whether that is enough to get a critical mass of users to adopt. 

Whether it is OneName or Namecoin ID or something yet to come, once enough users add information to a block chain mechanism in a standardized format it will make sense for services to let users sign in using such a decentralized identity. Here too we will see permissionless innovation at work. The exact mechanism for authentication does not need to be specified in advance and can emerge over time leveraging existing auth systems, including of Facebook, Google, Twitter, OpenID, etc and adding new ones.

It is still early days for all of this, but the potential for these emerging decentralized identity systems is to further push power to the people and away from central authorities.

Posted: 10th March 2014Comments
Tags:  identity decentralization

We Live in the Cyberpunk Future: More to Come

I still remember how much I loved reading cyberpunk. During yesterday’s Satoshi story development I was struck by how much of the future envisioned in these stories has become a reality. Having a mysterious creator of a system of global reach that provides an important breakthrough in distributed computing is as riveting as anything I read back then. What’s even better is that it feels to me like we are in the early chapters with much more yet to come!

So that got me thinking about what else from those stories we should be looking for. And here are two things that strike me as increasingly plausible. First, truly distributed computing with code execution anywhere in the world. Public cloud computing is still dominated by Amazon, but Google is investing heavily, Rackspace is in the mix, IBM has acquired Softlayer and A16Z just invested heavily in DigitalOcean. The prices for access to compute power will continue to drop. But more importantly with something like Bitcoin we will have a system for paying for code execution anywhere (I will elaborate on this idea in a future separate blog post).

Second, the creation of an actual cyber space as a virtual world (built on top of truly distributed computing). When the web first came out people tried to build this on top of the web but browsers and connections were slow and more importantly VR headsets were heavy and super expensive. Now with the Oculus Rift and others in the works we will be getting fast, cheap VR. All we need then is a protocol that lets us connect virtual spaces together the way we do web pages and we will be off to endless worlds.

All of this has me massively excited about the future. In the meantime, if you do want to read something sensible on Satoshi, I highly recommend Felix Salmon's piece “The Satoshi Paradox.”

Posted: 7th March 2014Comments
Tags:  future

Linking Charges Against Barrett Brown Dropped

Brief post today with an update on an important case that I wrote about last year: the federal prosecution of Barrett Brown. As I wrote back then, linking is the essential building block of the web. Criminally prosecuting someone for linking threatens this foundation. I am therefore relieved that yesterday the prosecution decided to drop these charges. While this is great news it is important to point out that Barrett Brown has been imprisoned since the fall of 2012 — that is not a typo.

The two remaining charges are threatening an FBI agent and possession of credit card numbers with intent to defraud. I can’t speak to the first one at all. On the second one I don’t know what the evidence is, but possession of credit card numbers (even including the names, expiration dates and CVVs) should not count as intent. Why? Because by following a link on the web you might wind up with such a file on your computer! Furthermore, anyone who has ever held your card in their hands (like every restaurant you have been to) has this information. Nobody should be able to transact with just that information without a second factor of authentication.

I hope the remainder of Barrett Brown’s case comes to a rapid and just conclusion and takes into consideration his year and a half in custody.

Posted: 6th March 2014Comments
Tags:  barrett brown linking

Homeschool Wednesday: Permission-less Innovation

This will be the last Homeschool Wednesday post for quite some time. Not just because we will be going away on a trip to Africa but when we come back I will switch Continuations around a bit. I will use it (almost) exclusively to expand the ideas from my “Are We The Horse?" talk. Now I can make that change without asking anyone for permission because I am my own publisher. That is an example of "permission-less innovation" and is one of the key messages we are trying to convey to our children as part of homeschooling.

How are we doing that? By encouraging the kids to blog, create their own media, publish a portfolio of their projects, attend New York Tech Meetup, and so on. It helps too that they are seeing Susan start Ziggeo (she and Oliver presented the launch of Ziggeo’s API at yesterday’s NYTM and we were all there). In addition, the homeschool process in and of itself helps tremendously. There is a lot more free time which gives kids the opportunity to explore ideas and projects without asking for our or a teacher’s permission.

All of this matters because we are moving from a world of hierarchies where you have to ask your boss for permission to a world of networks where you are an independent actor.  If you haven’t done so already, I highly recommend that you read Alexis Ohanian’s excellent book “Without Their Permission" and leave a copy around the house for the kids to discover.

Posted: 5th March 2014Comments
Tags:  homeschooling innovation permission

Tech Tuesday: P = NP?

Last Tech Tuesday, we looked at complexity classes which group problems by their intrinsic difficult. There we encountered one of the great unsolved questions of Computer Science. Is P = NP? The class P is easy to define. It is the set of all problems that can be solved by a Turing machine in polynomial time, i.e O(n^k) for some k. So you might think that NP stands for non-polynomial time but you’d be wrong. Instead the class NP has the  same definition as P except for a non-deterministic Turing machine.

You may recall from the posts on Turing machines that for each state of the machine and symbol on the tape there is exactly one action to be taken (which results in a new state and possibly a symbol written to the tape and/or movement of the tape head). In a non-deterministic Turing machine there are multiple possible actions and the machine is assumed to be taking each of them simultaneously!

Now it is easy to see why such a machine could be very fast. Take the example that we used to motivate the study of complexity: guessing a string drawn from the letters A, G, C, T. We saw that at length 40 this would take 400,000 years for my MacBook. But a non-deterministic Turing machine could do it very quickly because it can essentially guess A, G, C, T simultaneously for each position. The running time for this machine would be O(n) for n being the number of letters in the string.

But wait, when I had introduced Turing machines I had made the claim that they are the most powerful model of computation. This non-deterministic Turing machine sure sounds more powerful. Yet, there is nothing that a non-deterministic Turing machine can compute that cannot also be computed by a normal one. How do we know that? Because we have a proof that shows that a non-deterministic Turing machine can always be simulated by a (normal) Turing machine.

Now my description of using a non-deterministic Turing machine already contained the seed for a different definition of the class NP. It is also happens to be the class of problems where we can verify a positive result in polynomial time. Consider the following problem. Given a set of integers, e.g. {-17, 2, 3, 12, -5, 21} is there a subset that adds up to 0? To answer this question an algorithm might proceed as follows: while there are subsets left, pick a subset and test if that subset adds up to zero and if it does report “yes” — if we exhaust all subsets report “no”. Now for a set with n integers in it, there happen to be 2^n subsets, so our loop might run for a very long time as n gets large.

If we focus on just the verification bit for a moment though, it is trivial. To verify if a subset adds up to zero, all we need to do is add up the numbers in that subset. The biggest possible subset has n elements (the set itself) and we clearly see that the verification step is linear in n, i.e. O(n). We call a subset that adds up to 0 a proof or witness because it shows that the answer to the question is yes. We see here a fundamental asymmetry. In order to answer yes, all I need to do is supply a single witness. To answer no, I need to show that no such witness exists!

We also see how this maps nicely to our distinction between normal and non-deterministic Turing machines. The normal one needs to crank through our code as outlined above. The non-deterministic one gets to work on all the subsets simultaneously. A great many problems have this structure. For instance, if give you an integer n and a second smaller integer f you can easily verify if f is a factor of n. But if n is large there a many candidate numbers. On DuckDuckGo you can see a long list of such problems.

So now back to our original question. Is P = NP? Based on everything we have just discussed it would intuitively appear that NP should contain at least some harder problems that are not in P. That is how the complexity class diagram from last week is drawn. But we don’t know that with certainty. To date there is no proof and some people doubt there will ever be one. In the absence of a proof there is some possibility that for every problem in NP we eventually find an algorithm that executes in polynomial time on a normal Turing machine.

This turns out to be a question of potentially great practical implications, especially in the area of cryptography. Public key cryptography relies on the asymmetry in which it is easy to verify that a message was encrypted (or signed) using someone’s private key when you have their public key. But all of that would be meaningless if you can easily derive someone’s private key from their public one (this happens to be related to the factor problem I mentioned above). Ditto for bitcoin. Finding a number to complete a block is hard. Verifying (by hashing) that the number does complete the block is easy. Again, it is hard to overstate just how many problems fall into this category.

Posted: 4th March 2014Comments
Tags:  tech tuesday theory complexity p vs np

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