For the past several months, I’ve been immersed in nineteenth century history. Specifically, the history of interchangeability in technology between 1765, when the Système Gribeauval, the first modern technology doctrine based on the potential of interchangeable parts, was articulated, and 1919, when Frederick Taylor wrote The Principles of Scientific Management.

Here is the story represented as a Double Freytag diagram, which should be particularly useful for those of you who have read Tempo. For those of you who haven’t, think of the 1825 Hall Carbine peak as the “Aha!” moment when interchangeability was first figured out, and the 1919 peak as the conclusion of the technology part of the story, with the focus shifting to management innovation, thanks in part to Taylor.

The unsung and rather tragic hero of the story of interchangeability was John Harris Hall (1781 – 1841), inventor of the Hall carbine.  So I am naming my analog to Moore’s Law for the 19th century Hall’s Law in his honor.

The story of Hall’s Law is in a sense a prequel to the unfinished story of Moore’s Law. The two stories are almost eerily similar, even to believers in the “history repeats itself” maxim.

Why does the story matter? For me, it is enough that it is a fantastically interesting story. But if you must have a mercenary reason for reading this post, here it is: understanding it is your best guide to the Moore’s Law endgame.

So here is my telling of this tale. Settle in, it’s going to be another long one.

Onion Steel

In A Brief History of the Corporation, I argued that there were two distinct phases — an early mercantile-industrial phase that was primarily European in character, extending from about 1600 to 1800, and a later Schumpeterian-industrial phase, extending from about 1800-2000, that was primarily American and Russian in character.

Each phase was enabled by a distinct technological culture. In the early, British phase, a scientific sensibility was the exception rather than the rule. The default was the craftsman sensibility. In the later,  American-Russian phase, the scientific sensibility was the rule and the craftsman sensibility the exception (it is notable that the American-Russian phase was inspired by French thought rather than British; call it Napoleon’s revenge).

What was this (much romanticized today) craftsman sensibility?

Consider this passage about the state of steel-making in Sheffield, the leading early  nineteenth century technology center for the industry, before the rise of American steel. The quote is from Charles Morris’ excellent book The Tycoons, my primary reference for this post (it is nominally about the lives of Rockefeller, Carnegie, J. P. Morgan and Jay Gould, but is actually a much richer story about the broad sweep of 19th century technology history; I am not done with it yet, but it has been such a stimulating read that I had to stop and write this post):

Making a modest batch of steel could take a week or more, and traditional techniques were carefully passed down from father to son; one Sheffield recipe started by adding “the juice of four white onions.”

Morris attributes the onion story to Thomas Misa’s Nation of Steel, which is now on my reading list.

American steel displaced British steel not because it was based on the Bessemer and open hearth processes (Bessemer was English), but because the industry was built from the ground up along scientific lines, with no craftsman-baggage slowing it down.

The interesting thing about this recipe for onion steel is that it illustrates both the strengths and the weaknesses of the craftsman sensibility. You can only imagine the tedious sort of uninformed experimentation it took to consider adding onions to a steel recipe. There is something beautiful about the absence of preconceived notions in this sensibility. No modern metallurgist would even think to add onions to a metal recipe.

On the other hand, if a modern metallurgist were faced with data showing that onions improved the properties of steel, he or she would not rest until they’d either disproved the effect, or explained it in less bizarre terms. The recipe would certainly not get passed down from “father to son” (“mentor to mentee” today) unexplained.

What America brought to manufacturing was a wholesale shift from craftsman-and-merchant thinking about technology and business to engineer-and-manager thinking. The shift affected every important 19th century business sector: armaments, railroads, oil, steel, textile equipment. And it created a whole new sector: the consumer market.

But this was not the result of an abstract, ideological quest for scientific engineering and manufacturing, or a deliberate effort to replace high-skill/high-wage craftsmen with low-skill/low-wage/interchangeable machine operators.

It was a consequence of a relentless pursuit of interchangeability of parts, which in turn was a consequence of a pursuit of greater scale, profits and competition for market share (which drove greater complexity in offerings) on the vast geographic canvas that was America. Craft was merely a casualty along the way.

So why was interchangeability of parts a holy grail in this pursuit?

Interchangeability, Complexity and Scaling

The problem is that even the highest-quality craft does not scale. When something like a rifle is mass-produced using interchangeable parts, breakdowns can be fixed using parts cannibalized from other broken-down rifles (so two broken rifles can be mashed-up to make at least one that works) or with spare parts shipped from an warehouse. Manufacturing can be centralized or distributed in optimal ways, and constantly improved. Production schedules can be decoupled from demand schedules.

A craftsman-made rifle on the other hand, requires a custom-made/fitted replacement part. The problem is especially severe for an object like a rifle: small, widely-dispersed geographically, and liable to break down in the unfriendliest of conditions. Conditions where minimizing repair time is of the essence, and skilled craftsmen are rather thin on the ground. It is no surprise that the problem was first solved for guns.

Let’s do some pidgin math to get a sense of what a true mathematical model might look like.

Roughly speaking, scaling production for any mechanical widget involves three key dimensions: production volume V, structural complexity S (the number of  interconnections in an assembly is a good proxy measure for S, just like the number of transistors on a chip is a good proxy for its complexity) and operating tempo of the machine in use, T (since the speed of operation of a machine determines the stress and wear patterns, which in turn determines breakdown frequency; clock-rate is a similar measure for Moore’s Law).

For complex widgets, scaling production isn’t just (or even primarily) about making more new widgets; it is about keeping the widgets in existence in the field functioning for their design lifetime through post-sales repair and maintenance.  The greater the complexity and cost, the more the game shifts to post-sales.

You can combine the three variables to get a rough sense of manufacturing complexity and how it relates to scaling limits. Something like C=SxT provides a measure of the complexity of the artifact itself. Breakdown rate B is some function of complexity and production volumes, B=f(C, V). At some point, as you increase V, you get a corresponding increase in B that overwhelms your manufacturing capability. To complete this pidgin math model, you can think in terms of some B_max=f(C, V_max) above which V cannot increase without interchangeability.

Modern engineers use much more sophisticated measures (this crude model does not capture the tradeoff between part complexity and interconnection complexity for example, or the fact that different parts of a machine may experience different stress/wear patterns), but for our purposes, this is enough.

To scale production volume above V_max without introducing interchangeability, you have to either lower complexity and/or tempo or increase the number of skilled craftsmen. The first two are not options when you are trying to out-do the competition in an expanding market. That would be unilateral disarmament in a land-grab race. The last method is simply not feasible, since education in a craft-driven industrial landscape means long, slow and inefficient (in the sense that it teaches things like onion recipes) 1:1 apprenticeship relationships.

There is one additional method that does not involve interchangeability: moving towards disposability for the whole artifact, which finesses the parts-replacement problem entirely. But in practice, things get cheap enough for disposability to be a workable strategy only after mass production is achieved. Disposability is rarely a cost-effective strategy for craft-driven manufacturing, though I can think of a few examples.

These facts of life severely limited the scale of early nineteenth century technology. The more machines there are in existence, the greater the proportion of craftsmen whose time must be devoted to repair and maintenance rather than new production.  Since breakdowns are unpredictable and parts unique, there is no way to stockpile an inventory of spare parts cheaply. There is little room for cannibalization of parts in the field to temporarily mitigate parts shortages.

What was needed in the 19th century was a decoupling of scaling problems from manufacturing limitations.

Interchangeability and the Rise of Supply Chains

Interchangeability of parts breaks the coupling between scaling and manufacturing capacity by substituting supply-chain limits for manufacturing limits. For a rifle, you can build up a stockpile of spare parts in peace time, and deliver an uninterrupted supply of parts to match the breakdown rate. There is no need to predict which part might break down in order to meaningfully anticipate and prepare. You can also distribute production optimally (close to raw material sources or low-cost talent for instance), since there is no need to locate craftsmen near the point-of-use.

So when interchangeability was finally achieved and had diffused through the economy as standard practice (a process that took about 65 years), demand-management complexity moved to the supply chain, and most problems could be solved by distributing inventories appropriately.

These happy conditions lasted for nearly a century after widespread interchangeability was achieved, from about 1880 to 1980, when supply chains met their own nemesis, demand variability (that problem was partially solved using lean supply chains, which relied in turn on the idea of interchangeability applied to transportation logistics: container shipping. But I won’t get into that story here, since it is conceptually part of the unfinished Moore’s Law story).

The price that had to be paid for this solution was that the American economy had to lose the craftsmen and work with engineers, technicians and unskilled workers instead. This creates a very different technology culture, with different strengths and weaknesses. For example the scope of innovation is narrowed by such codification and scientific systematization of crafts (prima facie nutty ideas like onion steel are less likely to be tried), but within the narrower scope, specific patterns of innovation are greatly amplified (serendipitous discoveries like penicillin or x-rays are immediately leveraged to the hilt).

Why must craft be given up? Even the best craftsmen cannot produce interchangeable parts. In fact, the craft is practically defined by skill at dealing with unique parts through carefully fitted assemblies.  (“Interchangeability” is of course a loose notion that can range from functional replaceability to indistinguishability, but craft cannot achieve even the coarsest kind of interchangeability at any meaningful sort of scale).

Put another way, craft is about relative precision between unlike parts. Engineering based on interchangeability is about objective precision between like parts. One requires human judgment. The other requires refined metrology.

From Armory Practice to the American System

It was the sheer scale of America, the abundance of its natural resources (and the scarcity of its human resources), that provided the impetus for automation and the interchangeable parts approach to engineering.

As agriculture moved westward through New York, Pennsylvania and Michigan, the older settled regions began to turn to manufacturing for economic sustenance. The process began with the textile industry, born of stolen British designs around what is now Lowell, Massachusetts. But American engineering in the Connecticut river valley soon took on a distinct character.

Like the OSD/DARPA/NASA driven technology boom after World War II, the revolution was driven by the (at the time,  fledgling) American military, which had begun to acquire a mature and professional character after the war of 1812 (especially during the John Quincy Adams administration).

The epicenter of the action was the Springfield Armory, the PARC of its day, and outposts of the technology scene extended as far south as Harper’s Ferry, West Virginia.

John Hall was among the hundreds of pioneers who swarmed all over the Connecticut valley region, dreaming up mechanical innovations and chasing local venture capitalists, much like software engineers in Silicon Valley today.

There were plenty of other extraordinary people, including other mechanical engineering geniuses like Thomas Blanchard, inventor of the Blanchard gun-stock lathe (which was actually a general solution for turning any kind of irregular shape using what is known today as a pattern lathe). By the time he was done with gun stocks, a bottleneck part in gun-making, with all sorts of “subtle curves along multiple axes” he had created a system of 16 separate machines at the Springfield Armory that pretty much automated the whole process, squeezing out all craft of what had been the single most demanding component in gun-making.

British gun-making was like British steel-making before people like Blanchard and Hall blew up the scene. Here is Morris again:

The workings of the British gun industry were reasonably typical of the mid-nineteenth-century manufacturing. It was craft-based and included at least forty trades, each with its own apprenticeship system and organizations. The gun-lock, the key firing mechanism, was the most complicated, while the most skilled men were the lock-filers…[who]… spent years as apprentices learning to painstakingly hand-file the forty or so separate lock pieces to create a unified assembly… When the Americans breezily described machine-made stocks, and locks that required no hand fitting, they sounded as if there were smoking opium.

Among the opium-smoking geniuses, Blanchard at least enjoyed a good deal of success. Hall did not.

He put together almost the entire “American System” through his single-minded drive, in the technology-hostile Harper’s Ferry location far from the Connecticut Valley hub. When he was done, he had created an integrated manufacturing system of dozens of machines that produced interchangeable parts for every component of his carbine. Even parts from production runs from different years could be interchanged, a standard some manufacturing operations struggle to reach even today.

The achievement was based on relentless automation to eliminate human sources of error, increasingly specialized machines, and rigorous and precise measurements (there were three of every measurement instrument, one for production use, one for calibration, and a master instrument to measure wear on the other two).

It was a massive systems-engineering accomplishment. The Hall carbine was the starter pistol for the American industrial revolution.

Overtake, Pause, Overdrive

Hall did not reap much of the rewards. Thanks to unfortunate exploitative relationships (in particular with a shameless patent troll, William Thornton, a complete jerk by Morris’ account), he was banished to Harper’s Ferry rather than being allowed to work in Springfield. And his work, when completed, was acknowledged grudgingly, and with poor grace. The Hall carbine itself was obsolete by the time his system was mature, and others who applied it to newer products reaped the benefits.

Between 1825 and the 1910s, the methods pioneered by Hall spread through the region and beyond, and were refined and generalized. In the process, first America, and then the world, experienced a Moore’s Law type shock: rapidly increasing standards of living provided by an increasing variety of goods whose costs kept dropping.

Culturally, the period can be divided into three partially overlapping phases: an overtake phase (1851 – 1876)  when America clearly pulled ahead of Britain as the first nation in the technology world, a “pause” represented by the recession of the 1870s, and finally an over-drive phase beginning in the 1880s and continuing to the beginning of World War I, when the American model became the global model (and in particular, the Russian model, as Taylorism morphed into state doctrine).

Overtake: 1851 — 1876

The overtake phase has a pair of useful bookend events marking it. It began with the 1851 Crystal Palace Exhibition, the first of the great 19th century world fairs, when the world began to suspect that America was up to something (McCormick’s harvester and Colt’s revolver were among the items on display), and ended with the 1876 Centennial World Fair in Philadelphia, when all remaining doubt was erased and it became obvious that America had now comprehensively overtaken Britain in technology.

When Britain finally caught on and hastily began copying American practices following the Philadelphia fair, the result was a revitalization of British industry that produced, among other things, the legendary Enfield rifle (the rifle subplot in the story of interchangeability has an interesting coda that is shaping the world to this day, the Russian AK-47, as pure an example of the power of interchangeability-based mass manufacturing as has ever existed).

It wasn’t just guns. In every industry America began to show up Britain. Much of the credit went to showboating hustlers who claimed credit for interchangeability and the American System/Armory Practice, and made a lot of money without actually contributing very much to core technological developments. These included Eli Whitney of cotton gin fame, the McCormicks of the harvester, Samuel Colt (revolvers) and Isaac Singer (sewing machines). While they certainly contributed to the development of individual products, the invention of the American model itself was due to technologists like Blanchard and John Hall.

In the initial decades of the overtake, fueled in part by opportunity (and profiteering) associated with the Civil War and government subsidized building out of the railroad system, much of the impact was invisible. But by the 1890s, as the infrastructure phase was completed, the same methods were unleashed on everyday life, creating modern consumer culture and the middle class within the short space of a single generation.

The Pause: the 1870s

The Civil War looms large as the major political-economic event in this history (1861 – 1865), but the bulk of the impact was felt in the decade that followed, once the dust had settled and interrupted infrastructure projects were completed.

This impact took the form of the rather strange long recession of the 1870s, which was very culturally very similar to the one we are currently experiencing (increased economic uncertainty and fall in nominal incomes, hidden technology-driven increases in standard of living, foundational shifts in the nature of money — back then it was a greenbacks vs. gold thing).

One way to understand this process is that the infrastructure phase had created both tycoons and an extremely over-leveraged economy. It was the uncertain gap between “build it” and “they will come.”  It was a huge, collective pause, a national decade of breath-holding as people wondered whether the chaos unleashed by the new infrastructure would create a better social order or destroy everything without creating something new in its place.

Starting in the 1880s, the bet began paying off in spades. The recession ended and the over-drive boom began, as people figured out what to do with the newfound capabilities in their environment.

Overdrive: 1880s — 1913

A good early marker here is probably the first Montgomery Ward catalog in 1872, the first major sign that the new infrastructure allowed old businesses to be rethought, leading to the creation of the modern consumer economy.

The mail-order catalog was by itself a simple idea (the first catalog was just a single page), but the reason it disrupted old-school merchants was that it relied on all the infrastructure complexity that now existed.

Trains that ran on reliable schedules, to deliver mail, telegraph lines that brought instant price updates on western grain to the East Coast, steel to build everything, oil and electricity to light up (and later, fuel) everything, new financial systems to move money around, and of course, the application of interchangeability technology to everything in sight.

It took Sears, starting in 1888, to scale the idea and truly take down the merchant elites who had defined the old business culture, but by World War I, middle-class consumer culture had emerged and had come to define America. In another 50 years, it would come to define the world.

It was such a powerful boom that globally, it lasted a century, with two world wars and a Great Depression failing to arrest its momentum (as an aside, I wonder why people pay so much attention to the 1930s depression to make sense of the current recession; the 1870s recession makes for a far more appropriate comparison).

What ultimately killed it was its own success. Semiconductor manufacturing probably represents the crowning achievement of the Armory Practice/American System that began with a lonely John Hall pushing ahead against all odds at Harper’s Ferry.

Moore’s Law was born as the last and greatest achievement of the parent it ultimately devoured: Hall’s Law.

Hall’s Law

When you step back and ponder the developments between 1825 and 1919, it can be hard to make sense of all the action.

There is the pioneering work in manufacturing technology. There is the explosion of different product types as the American System diffused through the industrial landscape. There is the story of the rise of the first tycoons. There is the rise of consumerism and the gradual emergence of the middle class. There is the connectivity by steam and telegraph.

Then there is the increasingly confident and strident American presence on the global scene (especially through the World Fairs, two of which I already talked about). And of course, you have the Civil War, the California Gold Rush, the cowboy culture that existed briefly (and permanently reshaped the American identity) before Jay Gould killed it by finishing the railroad system.

There was the rise of factory farming and the meatpacking and refrigerator-car industries together killing the urban butcher trade and suddenly turning Americans into the greatest meat eaters in history. Paycheck economics took over as the tycoon economy killed the free agent.

In fact, there was a lot going on, to put it mildly. And that was just America. The rest of the world wasn’t exactly enjoying peace and stability either. Perry had kicked down the doors of Japan, Opium wars had ravaged China, the East India Company (the star of my History of Corporations post) had been quietly put out to pasture and the Mughal empire had collapsed. The Ottomans were    starting on a terminal decline. Continental Europe had begun its century-long post-Napoleon march towards World War I (the US Civil War served as a beta test for the post-Bismarck model of total war, just as the Spanish Civil war served as a beta test for World War II).

But just as Moore’s Law provides something of a satisfying explanatory framework for almost everything that has happened in the last 50 years, the drive towards the holy grail of interchangeability provides a satisfying explanatory framework for much of this action. Here’s my attempt at capturing what happened (someone enlighten me if something like this has already been proposed under a different name) :

Hall’s Law: the maximum complexity of artifacts that can be manufactured at scales limited only by resource availability doubles every 10 years. 

I believe this law held between 1825 and 1960, at which point the law hit its natural limits.

Here, I mean complexity in the loose sense I defined before: some function of mechanical complexity and operating tempo of the machine, analogous to the transistor count and clock-rate of chips.

I don’t have empirical data to accurately estimate the doubling period, but 10 years is my initial guess, based on the anecdotal descriptions from Morris’ book and the descriptions of the increasing presence of technology in the world fairs.

Along the complexity dimension, mass-produced goods increased rapidly got more complex, from guns with a few dozen parts to late-model steam engines with thousands.  The progress on the consumer front was no less impressive, with the Montogmery Ward catalog  offering mass-produced pianos within a few years of its introduction for instance. By the turn of the century, you could buy entire houses in mail-order kit form. The cost of everything was collapsing.

Along the tempo dimension, everything got relentlessly faster as well. Somewhere along the way, things got so fast thanks to trains and the telegraph, that time zones had to be invented and people had to start paying attention the second hand on clocks.

There is a ton of historical research on all aspects of this boom, but I suspect nobody has yet compiled the data in a form that can be used to fit a complexity-limit growth model and figure out the parameters of my proposed Hall’s Law, since it is the sort of engineering-plus-history analysis that probably has no hope of getting any sort of research funding (it would take some serious archaeology to discover the part-count, operating speed and production volumes for a sufficient number of sample products through the period to fit even my simple model, let alone a model that includes things like breakdown rates and actual, as opposed to theoretical, interchangeability).

But even without the necessary empirical grounding, I am fairly sure the model would turn out to be an exponential, just like Moore’s Law. Nothing else could have achieved that kind of transformation in that short a period, or created the kind of staggering inequality that emerged by the Gilded Age.

Break Boundaries and Tycoon Games

Both Moore’s Law and Hall’s Law in the speculative form that I have proposed, are exponential trajectories. These trajectories generally emerge when some sort of runaway positive-feedback process is unleashed, through the breaking of some boundary constraint (the term break boundary is due to Marshall McLuhan).

The positive-feedback part is critical (if you know some math, you can guess why: a “doubling” law in a difference/differential equation form has to be at least a first-order process; something like compound interest, if you don’t know what the math terms mean).

Loosely speaking, this implies a technological process that can be applied to itself, improving it. Better machines with interchangeable parts also means better machine tools that are themselves made with interchangeable parts and therefore can run continuously at higher speeds, with low downtime. Computers can be used to design more complex computers.  This is not true of all technological processes. Better plastics do not improve your ability to make new plastics, for instance, since they do not play much of a role in their own manufacturing processes.

This is the inner, technological positive-feedback loop (think of an entire technology sector engaging in a sort of 10,000 hours of deliberate practice; a major sign is that the most talented people turn to tool-building: Blanchard and Hall for Hall’s Law, people like the late Dennis Ritchie and Linus Torvalds for Moore’s Law).

But the technological positive-feedback loop requires an outer financial positive-feedback loop around it to fuel it. You need conditions where the second million is easier to make than the first million.

This means tycoons who spot some vast new opportunity and play land-grabbing games on a massive scale.

Both Hall’s Law and Moore’s Law led to wholesale management and financial innovation by precisely such new tycoons.

For Hall’s Law, the process started with Cornelius Vanderbilt, the hero of A. J. Stiles’ excellent The First Tycoon, who figured out how to tame the strange new beast, the post-East-India-Company corporation and in the process sidelined old money.

It is revealing that Vanderbilt was blooded in business through a major legal battle for steamboat water rights: Gibbons vs. Ogden (1824) that helped define the relationship of corporations to the rest of society. From there, he went from strength to strength, inventing new business and financial thinking along the way. Only in his old age did he finally meet his match: Jay Gould, who would go on to become the archetypal Robber Baron, taking over most of Vanderbilt’s empire from his not-so-talented children.

Vanderbilt was something of a transition figure. He straddled both management and finance, and old and new economies: he was a cross between an old-economy merchant-pirate in the Robert Clive mold (he ran a small war in Nicaragua for instance) and a new-economy corporate tycoon.  He transcended the categories that he helped solidify, which helped define the next generation of tycoons.

Among the four tycoons in Morris’ book, Rockefeller (Chernow’s Titan on Rockefeller is another must-read) and Carnegie appear on one side, as the archetypes of modern managers and CEOs. Both were masters of Wall Street as well, but were primarily businessmen.

On the financial side, we find the Joker-Batman pair of Gould and Morgan. Jay Gould was the loophole-finder-and-destabilizer; J. P. Morgan was the loophole-closer and stabilizer.  While Gould was a competent, if unscrupulous manager during the brief periods that he actually managed the companies he wrangled, he was primarily a financial pirate par excellence.

It makes for a very good story that he made his name by giving the elderly Vanderbilt, who pretty much invented the playbook along with his friends and rivals, the only financial bloody nose of his life (though Vanderbilt exacted quite a revenge before he died).   Through the rest of his career, he exposed and exploited every single flaw in the fledgling American corporate model, turning crude Vanderbilt-era financial tactics into a high art form. When he was done, he had generated all the data necessary for J. P. Morgan to redesign the financial system in a much stronger form.

Morgan’s model would survive for a century until the Moore’s Law era descendants of Gould (the financial pirates of the 1980s)  started another round of creative destruction in the evolution of the corporate form.

From Hall’s Law to Moore’s Law

Hall’s Law was the prequel to Moore’s Law in almost every way.  The comparison is not a narrow one based on just one dimension like finance or technology. It spans every important variable. Here is the corresponding Double Freytag:

I’ll save my analysis of the Moore’s Law era for another day, but here is a short point-by-point mapping/comparison of fundamental dynamics (i.e. things that were a consequence of the fundamental dynamics rather than historical accidents).

1. Obviously Hall’s Law maps to Moore’s Law
2. Increasing interchangeability in mechanical engineering maps to increasing transistor counts in semiconductor manufacturing. Increasing machine speeds map to increasing chip clock-rates.
3. Both technologies radically drove down costs of goods and created de facto higher standards of living
4. Both technologies saw the emergence of a new breed of tycoons within a few leadership generations. Jack Welch maps to Cornelius Vanderbilt. Bill Gates and Michael Dell map to Rockefeller and Carnegie. Jeff Bezos maps to Montgomery Ward and Sears.
5. The newer, younger “digital native” tycoons, starting with Zuckerberg, map to the post 1890 3rd generation innovators who were native to the new world of interchangeability rather than pioneers, similar to the early 20th century automobile and airplane industry tycoons (it is revealing that the Wrights were bicycle mechanics; bicycles were the first major consumer product to be designed around interchangeability from the ground up; the airplane was a result of the careful application of exactly the precise sorts of careful scientific measurement, experimentation and optimization that had been developed in the previous 75 years).
6. Each era was punctuated in the middle by a recessionary decade marked by financial excesses, as the economy retooled around the new infrastructure. The 1870s maps to the 2000s.
7. Each era enabled, and was in turn fueled by, new kinds of warfare, exemplified by major wars that disturbed a balance of power that had been maintained by old technology. The American Civil War maps to the Cold War, while the wars of the 1990s and 2000s are analogous to World War I.
8. Guns (including high-tempo machine guns) with interchangeable parts map to nuclear weapons. John Hall’s stint at Harper’s Ferry was the Manhattan Project of its day (here the mapping is not exact, since semiconductors were spawned by the military-industrial research infrastructure around electronics that emerged after World War II, rather than through the Manhattan project itself).
9. Lincoln’s assassination is eerily similar to Kennedy’s. Just checking to see if you are still paying attention. The first person to call bullshit on this point gets a free copy of The Tycoons.
10. The Internet and container shipping taken together are to Moore’s Law as the railroad, steamship and telegraph networks taken together were to Hall’s Law. The electric power grid provides the continuity between Hall’s Law and Moore’s Law.
11. Each era changed employment patterns and class structures wholesale. Hall’s Law destroyed nobility-based social structures, created a new middle class defined by educational attainments and consumer goods, and created paycheck employment. Moore’s Law is currently destroying each of these things and creating a Trading Up class, a new model of free agency, and killing education-based reputation models.
12. A new mass entertainment model started in each case. With Hall’s Law it was Broadway (which led on to radio, movies and television). With Moore’s Law, I’d say the analogy is to reality TV, which like Broadway represents new-era content in an old-era medium.
13. At the risk of getting flamed, I’d say that Seth Godin is arguably the Horatio Alger of today, but in a good way. Somebody has to do the pumping-up and motivating to inspire the masses to abandon the old culture and embrace the new by offering a strong and simple message that is just sound enough to get people moving, even if it cannot withstand serious scrutiny.
14. Hall’s Law led on to the application of its core methods to people, leading to new models of high-school and college education and eventually the perfect interchangeable human, The Organization Man. Moore’s Law is destroying these things, and replacing them with Y-Combinator style education and co-working spaces (this will end with the Organization Entrepreneur, a predictably-unique individual, just like everybody else).
15. Hall’s Law led to the industrial labor movement. Moore’s Law is leading to a new labor movement defined, in its early days, by things like standardized term-sheets for entrepreneurs ( the 5 day/40 hour week issue of our times; YC-entrepreneurs are decidedly not the new capitalists. They are the new labor. That’s a whole other post).
16. And perhaps most importantly, each era suffered an early crisis of financial exploitation which led first to loophole closing, and then to a new financial system and corporate governance model. Jay Gould maps to the architects of the subprime crisis. No J. P. Morgan figure has emerged to really clean up the mess, but new corporate models are already emerging that look so unlike traditional ones that they really shouldn’t be called corporations at all (hence the pointless semantic debate around my history of corporations post; it is really irrelevant whether you think corporations are dying or being radically reinvented. You are talking about the same underlying creative-destruction reality).

The New Gilded Age

When Mark Twain coined the term Gilded Age, he wasn’t exactly being complimentary. For some reason, the term seems to be commonly used as a positive one today, by those who want to romanticize the period.

I started to read the book and realized that Twain had completely missed the point of what was happening around him (the focus of the novel is political corruption; an element that loomed large back then, but was ultimately a sideshow), so I abandoned it.

But he got one thing right: the name.

Hall’s Law created a culture that was initially a layer of fake gloss on top of much grimmer realities. Things were improving dramatically, but it probably did not seem like it at the time, thanks to the anxiety and uncertainty. Just as you and I aren’t exactly celebrating the crashing cost of computers in the last two decades, those who lived through the 1870s were more worried about farming moving ever westward (outsourcing) and strange new status dynamics that made them uncertain of their place in the world.

It took time for Gilded to turn into Golden (about 50 years by my estimate, things became truly golden only after World War II). There were decades of turmoil which made the lives of transitional generations quite miserable. The 1870s were a you’ll-thank-me-later decade, but for those who lived through the decade in misery, that is no consolation.

I abandoned The Gilded Age within a few pages. It is decidedly tedious compared to Tom Sawyer and Huckleberry Finn. Sadly, Twain’s affection for a vanishing culture, which made him such an able observer of one part of American life, made him a poor observer of the new realities taking shape around him.

He makes a personal appearance in the stories of both Vanderbilt and Rockefeller, and appears to have strongly disliked the former and admired the latter, though both were clearly cut from the same cloth.

To my mind, Twain’s best stab at describing the transformation (probably A Connecticut Yankee in King Arthur’s Court — note the significance of Connecticut) is probably much worse than the attempts of younger writers like Edith Wharton and later, of course, everybody from Horatio Alger to F. Scott Fitzgerald.

We are clearly living through a New Gilded Age today, and Bruce Sterling’s term “Favela Chic”  (rather unfortunately cryptic ; perhaps we should call it “Painted Slum”) is effectively analogous to “Gilded Age.”

We put on brave faces as we live through our rerun of the 1870s. We celebrate the economic precariousness of free agency as though it were a no-strings-attached good thing.  We read our own Horatio Alger stories, fawn over new Silicon Valley millionaires and conveniently forget the ones who don’t make it.

New Media tycoons like Arrington and Huffington fight wars that would have made the Hearsts and Pulitzers of the Gilded Age proud, while us lesser bloggers go divining for smaller pockets of attention with dowsing rods, driven by the same romantic hope that drove  the tragicomic heroes of P. G. Wodehouse novels to pitch their plays to Broadway producers a century ago.

History is repeating itself. And the rerun episode we are living right now is not a pleasant one.

The problem with history repeating itself of course, is that sometimes it does not. The fact that 1819-1880 map pretty well to 1959-2012 does not mean that 2012-2112 will map to 1880-1980. Many things are different this time around.

But assuming history does repeat itself, what are we in for?

If the Moore’s Law endgame is the same century-long economic-overdrive that was the Hall’s Law endgame, today’s kids will enter the adult world with prosperity and a fully-diffused Moore’s Law all around them.

The children will do well. In the long term, things will look up.

But in the long term, you and I will be dead.

 Some thanks are due for this post. It was inspired in part by Chris McCoy of YourSports.com, who badgered me about the Internet = Railroad analogy enough that I was motivated to go hunt for the best place to anchor a broader analogy. His original hypothesis is now the generalized point 10 of my list. Thanks also to Nick Pinkston for interesting discussions on the future of post-Moore’s Law manufacturing; the child may resurrect its devoured parent after all. Also thanks to everybody who commented on the History of Corporations piece. 

Coded, informal communication — significant messages buried inside innocuous messages — has long interested me.  I don’t mean things like “NX398 VJ899 ABBX3″ that the NSA might deal with (though that’s related). I mean things like this:

You: let’s get coffee sometime

Me: Sure, that’d be great

We both know that the real exchange was:

You: let’s pretend we want to take this further

Me: yeah, let’s do that

The question of how such coded language emerges, spreads and evolves is a big one. I am interested in a very specific question: how do members of an emerging subculture recognize each other in public, especially on the Internet, using more specialized coded language?

The question is interesting because the Web is making traditional subcultures — historically illegible to governance mechanisms, and therefore hotbeds of subversion — increasingly visible and open to cheap, large-scale economic and political exploitation. This exploitation takes the form of attention mining, and is the end-game on the path to what I called Peak Attention a while back.

Does this mean the subversive potential of the Internet is an illusion, and that it will ultimately be domesticated? Possibly.

Mining Subcultural Attention

Manipulation of subcultures through the Internet has been limited to date because the tools are still very new. The mining of large reserves of attention — the largely one-way kind directed at work, beautiful sunsets, or the manufactured pop celebrity du jour for instance — is now a mature science.

Social attention though, trapped within relationships, is the shale oil of attention mining. The institutional world has not yet learned to efficiently mine the attention that is locked up today within subculture-scale social interactions.

As they learn over the next decade, today’s garden-variety subcultures will turn into docile and domesticated micro-markets for businesses, and micro-constituencies for politics. They will cease to be subversive threats, much as the old labor movement, which formed as a reaction to Gilded Age capitalism, ceased to be a threat within about a century. The world moves faster now. The new models of subcultural collective action, I predict, will last less than a decade or two before they become irrelevant. All attention that lives within subcultures is now vulnerable to external control.

Their weakness is that they seek to externalize their structure into digital institutions. Loose and transient P2P network institutions perhaps, but still institutions, due to their reliance on externalized trust, impersonal organizing principles and most importantly, social scaling.

They rely on the power of numbers rather than intelligence. Smart mobs are still mobs. As we will see, they are vulnerable to control, and attractive targets for attention mining. Rather ironically, most of the mechanisms required to observe and control subcultures are being invented by subcultures themselves. External forces are merely stepping in to co-opt them.

But let’s return to coded communication.  That’s where our journey begins.

Impersonal Secret Handshakes

The bulk of coded communication is designed to sustain the polite fictions of civil society, to limit relationships to the depth of immediate transactions, as in the example I started with.

But a proportion of such communication goes the other way: it serves to deepen relationships. Some of this is a matter of widespread convention and ritual, like the classic would you like to come upstairs for a drink? This one is not particularly interesting, because there is no content beyond the accepted meaning of the ritual incantation. It is visible culture, not invisible subculture.

More interesting is coded communication that allows members of a subculture to recognize and interact with each other, without an institutional context.

The most common way to do this is to use a linguistic motif that signals membership of a subculture, via reference to a recognized subcultural text.

If I use the word discourse in a specific way, it will signal baseline membership in postmodernist-pretender subculture.

If I begin an essay with the words: You can check out of Facebook any time you like, but you can never leave, the dropped reference signals a basic awareness of American music to others with a comparable awareness, but seems merely like an odd turn of phrase to others (my parents for instance, would not get this reference).

If you understand the coded message, you’ll respond with a coded message of your own that shows that you got it (perhaps using a phrase like always-already in the first case, or with a reference to a different classic song in the second case).

These are impersonal secret handshakes and have existed forever. They are based on shared cultural texts like the lyrics of Hotel California or immersion in the peculiar vocabulary of an academic subculture.

Hipsters might distinguish themselves from generic pop-culture aficionados by dropping references from Haruki Murakami novels instead of Hotel California, but it is still an impersonal secret handshake, since it is based on recognized common knowledge (stuff that everybody knows everybody knows) within an existing group, defined by its core texts.

The membership precedes the mutual recognition, and the secret handshake serves to validate membership of the group rather than knowledge of the text. The text is a social object with a limited role (note that the manufacture of social objects is slowly becoming a codified science in its own right, a development that is part of the ongoing colonization of subcultural attention). 

Impersonal secret handshakes are fundamentally weak, and the groups they protect are vulnerable to infiltration in very basic ways. Since the group is defined by impersonal texts that serve as common knowledge, strangers can acquire knowledge of the same impersonal texts and become pretenders (such as trustafarians faking poverty to gain access to hipster culture). Some subcultures are much easier to penetrate than others (the cute-kitten-picture subculture for instance), but they are all vulnerable.

Vulnerable to what or whom? To answer the question, we need to switch gears and talk about patterns of social organization for a bit, and where subcultures fit in the larger scheme of things.

Patterns of Social Organization

We are used to thinking about the global social order in terms of a class-culture matrix. This is the scheme upon which institutional social order  – the world of nation-states, corporations and religions — is based.  When you rebel, this is the scheme you try to disrupt. Both types of groupings rely on recognizable markers and boundaries to distinguish themselves from others, and cryptic in-group behaviors and language to sustain necessary opacity.

When a great deal of power is involved, cryptic in-group behaviors can give rise to a refined inner core of  formal institutional secrecy, creating a hidden social order. Though they increasingly seem ludicrous today, secret societies have always been an essential part of maintaining the social order, becoming more or less visible in concert with the waning and waxing of institutional power.

This class-culture organizing scheme is best understood as a global matrix. It is global in scope because it documents mutual recognition between maximally-distant parts: the Chinese Party-Member/Non-Member distinction is recognized globally, as is the American Republican/Democrat distinction. It is a matrix because it is understood in ordered, visual-spatial terms. Class is horizontal, culture is vertical.  This abstract visual ordering induces a literal geographic ordering. So rich and poor, black and white, sort themselves out at every geographic scale from town to nation, fractally embodying a fundamentally simple scheme.

There is another type of social organization, based on subcultures, that has historically served as a check and balance to the power of the class-culture matrix.

Contrary to popular belief, subcultures are not vague constructs. They have a precise, if negative, definition: a subculture is a pattern of social order that is not worth codifying and institutionalizing for the purposes of governance or economic exploitation, under normal circumstances. So subcultures have historically relied on their obscurity, illegibility and unimportance to ensure autonomy and security.

The very existence of a subculture is only known to neighboring subcultures. This limited local visibility suggests that the world of subcultures is not a matrix, but a web. Classic Rock fans can tell Punk Rock apart from other kinds. It all sounds the same to a non Rock-fan. Imperceptible distinctions that make no difference in the larger scheme of things.

Under abnormal circumstances, when seditious sentiments are brewing in the subcultural web, the zero-sum game of power swings in its favor, causing a reaction from the class-culture matrix: increased and more visible action by the hidden institutional order to restore the balance.

When slums start to seethe, the secret police gets going in not-very-secret ways.

If the slums win, subversive subcultures become institutionalized, and displaced ones turn into subcultures. If the slums lose, things stay roughly the same. Either way, the scheme of social organization remains the same: a balance of power between an institutional class-culture matrix and a subcultural web.

This is the world we are used to, and this is the world the Internet is changing. The subcultural web is now being made legible and governable under the harsh light of Facebook Like actions.  Just in time too, since the returns on coarser forms of political and economic exploitation are now rapidly diminishing.  Obama’s victory in the last Presidential election, and the penetration of entities like Groupon into local food subcultures, are just the early signs of where we are headed.

This is a contrarian conclusion. Most commentators today are arguing that the subcultural world is getting stronger, more incomprehensible and increasingly ungovernable.

This is a mix of an illusion, a poor sense of history, and the effects of a temporary learning phase on the part of class-culture matrix institutions. The world of subcultures are about to be comprehensively explored, mapped, tamed and domesticated. The larger the subculture, the faster it will fall.

The subcultural web looks increasingly incomprehensible (and therefore stronger and more ungovernable) to you and me as humans. It does not seem incomprehensible if you peer at it through the increasingly sophisticated instruments of digital governance. Facebook is to marketers and politicians what Google Maps is to travelers.

The poor sense of history is due to the passing of the last living generation that experienced truly terrifying levels of global conflict. Twitter revolutions pale in comparison to World Wars and the immense conflicts of the nineteenth century.

Which brings us to the only serious reason behind the temporary resurgence of subcultural power on an overall downward trajectory: learning lag in the institutional world.

The Taming of Subcultures

I remarked earlier that subcultures are sub-institutional in resolution. There is no Federation of American Hipster Societies with a national president and member organizations each with their own chairpersons, badge-printing machines and envelope-stuffing volunteers. There is no Annual National Hipster Convention that attempts to influence elections, and no zoning ordinances and tax laws that specifically target hipster neighborhoods. And perhaps most importantly, there is no master email list of hipsters that you can use to survey and promote.

But just because subcultures lack impersonal institutions in the traditional sense does not mean that they are personal patterns of social organization. They are not. They are merely illegible to the class-culture matrix working with pre-Internet tools.

Since they only serve a subset of the functions of formal organizations (relying on the class-culture matrix for basics like cars and underwear), they need fewer pieces of externalized infrastructure.

Shared common knowledge texts are often enough. Secret handshakes serve the purpose of one-to-one mutual recognition, and three-way introductions are enough to allow small local groups to cohere. Dress codes, popular haunts and the active-use texts change slowly enough that secret handshakes suffice for all information diffusion. No envelope stuffing or email lists are needed. Punishment for defection — shunning and expulsion — is generally weak and local, because the value of membership is generally weak and local (friends to hang out with, parties to go to, a local economy of favor trading).

Before the Internet came along, it was the sheer number and insignificance of local subcultures that made governance too expensive to bother with.  The risk of the rare seditious uprising could not justify the cost of more fine-grained pre-Internet governance mechanisms.

Businesses sold a modest selection of mass-produced shoes for instance, and produced more of the varieties that sold better. It wasn’t particularly useful to know that hipsters liked Converse sneakers. For politicians, a coarse color-coding of Red and Blue states (in America) and a certain amount of county-level intelligence sufficed to inform election campaigns.

The Internet though, has changed all this. It has allowed subcultures to scale (by moving their secret-handshake institutions online), and become more valuable in the process. While mass-manufactured celebrity cultures have been weakening, we are not returning to pre-mass-media patterns of local culture. Instead, we’ve evolved to mega-subcultures that scale without developing institutions.

And at the same time, the visibility of subcultural behaviors has made governance and exploitation much cheaper and easier. You don’t have to go to a specific neighborhood, in specific clothes, and drop specific references. You can sit at your desk, dress any way you want, and fake your way into any subculture. Long enough to sell a whole lot of shoes.

It will not take long for businesses and politicians to completely master this game.

The outcome is inevitable. Subcultures will be comprehensively tamed. Institutional sociopaths within the class-culture matrix are now in a position to detect and take control of subcultures before they even come into existence. This will lead on to control over the very inception of subcultures.

The Fabrication of Subcultures

Subcultures are vulnerable because they form around shared common-knowledge texts (even if the shared text in question comprises nothing more than a particular vocabulary of new urban slang). In Web terms, today’s invisible — to all but the eye of Big Data crunching AI —  pattern of preferences is tomorrow’s subcultural small world on the global Interest Graph. And tomorrow’s Interest Graph is next week’s Social Graph.

The day is not far off when Amazon will be able to predict, based on book-sales correlations in a given geography, the formation of a new subculture before the first defining event (say a party where an origin-myth is created) ever takes place. It won’t be long before influence mechanisms  emerge, to complement the detection mechanisms.

Today, naive marketers try to clumsily set up online communities framed by their products or services, to attract target subcultures, and generally fail.

Somewhat smarter ones try to “own” relevant conversations, based on identifying core subcultural texts that are adjacent to the product-positioning conversation (the classic example is: want to own the teen tampon market? Set up a community for girltalk). This is marketing-by-peripheral-vision.

The smartest ones try to infiltrate and co-opt existing subcultural communities online.

But all these mechanisms have had very limited success. Because they are all about taming wild subcultures.

But once marketers working with Big Data get ahead of the cultural curve, you can expect the balance of power to shift decisively in their favor. From detecting subcultures before future members themselves do, to actively seeding, breeding and shaping desirable subcultures, is not a big leap to imagine. It will be a world of pre-cognitive marketing, run by quants in data vats.

Taming will turn into domestication.

Today, the marketing machine can at best put its muscle behind a Justin Bieber and create coarse, large-scale culture whose manufactured nature is obvious to all but the dimmest of observers.

Tomorrow, it will be able to create tiny, niche cultures whose members will either sincerely believe that the subculture is their own creation, or ironically not care that it has been manufactured for them to find through engineered serendipity.

A sort of Moore’s Law of cultural fabrication will get underway, and it will eventually be capable of etching an entire subculture within a few city blocks.

Heck, let me go out on a limb and make a Moore’s Law type prediction: the size of the smallest manufacturable subculture will halve in size and transience every 18 months. In 10 years, we’ll have a microprocessor moment: the ability to etch culture at a one-city-block-for-one-month level of resolution. Working in concert with neo-urbanists, the new marketers will be able to pack a thousand domesticated hyperlocal subcultures in every major city, and entirely reprogram it culturally every few months, to sell a new crop of products and services.

That future (either utopian or dystopian, depending on where you stand) is a ways off, but we’ll get there.

Three of the four companies that dominate the Web today: Facebook (Like patterns), Google (search patterns) and Amazon (purchase patterns), are equipped with extremely powerful cultural early-warning radars, based on massive data flows. Data flows so massive that only large institutions within the class-culture matrix will have the power to crunch them into usable intelligence.

Apple, the fourth company, curiously does not have the capacity to lead the zeitgeist this way. Their historic competitive advantage — the mind of Steve Jobs — has turned into a serious weakness with his passing. Because he was preternaturally good at following the zeitgeist, Apple squandered its potential to lead it. A key kind of cultural early-warning radar (based on music tastes) was ceded to startups. It was cheaper to let Jobs stay one step ahead of other gut-driven pre-Internet marketers than to invest in assets that could be exploited by less-talented post-Internet data-driven marketers, capable of staying ahead of culture itself.

This is why Bruce Sterling was right to label Apple an example of Gothic-High-Tech zeitgeist following  rather than zeitgeist leading, but I believe he is wrong in thinking that all marketing is going to be this way; much of it is now going to get ahead of the zeitgeist and actively shape it, within the decade.

As a revealing sign, it is noteworthy that subcultures have already been subverted so completely that they voluntarily self-document their doings online on privately-owned platforms. Every party or group lunch is now likely to be photographed, video-taped and archived online as part of collective memory. Group-life streams and grand narratives are out there, for the reading.

If you’re not paying, you’re the product. Indeed.

But the nitty-gritty aside, the conclusion is inevitable. The subcultural web is now open for colonization. It will retain a potential for very coarse and rough kinds of subversion (#OccupyWallStreet is sort of the Swan Song of subcultural power). This potential will soon peak, and then begin to decline.

The Fortune at the Bottom of the Attention Pyramid

How big is the potential value of subcultural attention mining? The rumored valuation of the Facebook IPO provides a hint: $100 billion. That suggests a market that is big enough — when you consider all players — to move global GDP a few percentage points. Is that a lot or a little? Depends on your frame of reference.

One way to frame the value is to imagine a pyramid of social groupings, representing various levels of social attention (not attention devoted to the non-human world).

At the bottom you have 7 billion little pools of individually-directed attention. At the very top, you have a single point, the group called humanity. There are moments, like 9/11, when all available attention floods to the top.

One organizational rung below, you have perhaps 18 groupings at the coarsest resolution level of the global class-culture matrix: the three basic social classes (rich, middle-class, poor) times the half-dozen or so major civilizations.

Then you have perhaps 700-odd nation-class groupings, and so on down, past cities, kinship groups, traditional family-societies and various other kinds of groupings that were long ago domesticated and subsumed within the class-culture matrix.

At some level of resolution, past a gray transition zone, the class-culture matrix gives way to the untamed subcultural web. The gray zone is moving relentlessly downwards, domesticating the subcultural web and subsuming it within the class-culture matrix.

This is not like the fortune at the bottom of the C. K. Prahalad pyramid. This is the cultural equivalent of the “plenty of room at the bottom” remark by Richard Feynman, which serves as inspiration today for the entire field of nanotechnology.

Except that there isn’t plenty of room. Though the social space occupied by the subcultural web is vast, it is being domesticated so fast that we can expect complete colonization within a decade. Recall what happened with the nineteenth-century railroad boom in America. Settlement processes that had been crawling painfully along for three and a half centuries, suddenly accelerated and finished the job within a few decades (the marker was a major 5-year depression that began in 1873).

So from that perspective, $100 billion seems both reasonable and not particularly large.  It seems like a market that should take no more than a decade  to occupy. At that point, I’d expect Facebook to turn into a mature company with declining margins.

At that point, we will hit the limit I called Peak Attention.  Once all subcultural attention is mined, only two kinds of attention will remain: the attention currently trapped within personal relationships, and the attention controlled by individualist instincts.

Both are likely to be resistant to industrial-scale attention-mining techniques. All genuine subversive instincts will retreat to these lowest two layers of the attention pyramid: groups of size one and two respectively (there are likely around half a trillion one-on-one relationships in the world; I’ll leave you to figure out why).

We will move past Peak Attention, and a new game will begin.

Last time, I did a quick comparative scan of Francis Fukuyama’s The Origins of Political Order, Pankaj Ghemawat’s World 3.0 and David Graeber’s Debt: the first 5000 years, and covered Fukuyama’s book in more detail.

Let’s tackle World 3.0 next.

Ghemawat’s book is a tour de force of quantitative synthesis. Let’s start with an annotated version of the 2×2 that anchors World 3.0 (cleverly rotated by 45 degrees; I don’t know why other 2×2 inventors don’t do this). 

This 2×2 is almost the only major piece of conceptual scaffolding in a book that is otherwise an empiricist’s delight. Everything is argued with numbers, and what cannot be argued with numbers is mostly not argued at all. It makes for a book with a lot of narrative potholes wherever the data gods to not smile, but where there is data, the book is extremely solid. It’s a refreshing change for me to read something that stays away from data-free speculation.

For conceptual/narrative types like me, this relentless assault with numbers can be hard to process, but it is worth the effort. I found myself taking notes of key interesting statistics. I compiled some highlights, if you want a data cheat-sheet.

The book is devoted to unpacking this 2×2 in gory, quantitative detail. The main point of the diagram is to separate the global economic integration conversation from the global regulation conversation.

1. Low economic integration and low regulation gives you traditional, pre-nation-state societies, which some atavists believe they can and should return to. Ghemawat calls this World 0.0. It accounted for most of the world until about 1650.
2. Low economic integration and high regulation gives you a world economic order where nation-states are the dominant unit. This is the world as it was between about 1650 and 1910, and the world people like Lou Dobbs want to return to.
3. High economic integration and low regulation gives you the world Thomas Friedman thinks exists, but does not (as Ghemawat shows). It is something of a Darwinian state of nature, red in tooth-and-claw, where regulation, tied to strong nations and weak international bodies, cannot do much.
4. Finally, high integration and high regulation gives you World 3.0, the one Ghemawat believes we should work towards. In fact, he believes we have no choice but to work towards it.

The Historical Framework

There is a Z-shaped historical Z-shaped trajectory here, (0.0 to 1.0 to 2.0 to 3.0) which bears a curious resemblance to an oscillation proposed by Graeber, though there are enough differences that you can only claim that they are talking about correlated, but different cyclic phenomena.

In terms of progress along the Z, we are somewhere halfway between 1.0 and 2.0 according to Ghemawat. At 1.5 say. His broad argument is that 0.0 is a hopelessly deluded and unrealistic state to attempt to get back to. 1.0 is achievable, but at enormous economic cost and reversal of global standard of living gains. Friedman’s “flat world” 2.0 is far too dangerously chaotic, but if international institutions of the right kind (i.e., not the World Bank/IMF type mechanisms) aren’t created or strengthened appropriately, we may well end up in a disaster-prone 2.0 regime, or fall back to a primitive 1.0 state.

Worlds 2.0 and 3.0 are possible futures. The level-elevating agenda is an explicit one: for Ghemawat, it is the only way to get beyond the Davos vs. anti-Davos framing of globalization.  As he notes rather late in the book, on page 259:

“World 3.0 is an essential construct because focusing on just World 1.0 and World 2.0 conflates questions of integration and regulation into a tug-0-war along a single dimension.”

It’s an agenda I am entirely sympathetic to.  So let’s see where he takes it. But a little sidebar first.

A Quick Sidebar on Free Agency

Ghemawat’s scenarios map in interesting ways to the scenarios in another 2×2: in Listening to the Future by Don Tapscott and Rob Salkowitz.  Proving Ghemawat’s point that people tend to conflate economic integration and regulation into one “globalization” axis, with dangerous consequences, that’s the x-axis here. The y-axis is degree of free-agency in the workforce.

Since increasing free agency in the workforce is related to declining power for corporate forms of economic organization, and since (as Ghemawat shows) corporations are responsible for most ongoing integration, there are some interesting questions about coupling among the variables here.

But glossing over those difficulties (making good 2×2 diagrams is an art form), at a very rough level, you could say that Continental Drift maps to 1.0, Proud Tower to World 2.0 and Frontier Friction to World 0.0. Freelance Planet doesn’t really map to Ghemawat’s model, and his World 3.0 does not really map to this 2×2.

Though the global labor markets are a major theme in Ghemawat’s model, he doesn’t call out the free agency phenomenon per se. Instead, he argues for greater international labor mobility, and presents the quantitative case for the anti Lou-Dobbs argument: that it actually costs far more taxpayer money to “save” a job domestically than to allow freer migration and pursue comparative advantage models.

His slogan, which the free agency camp will like, is protect work, not jobs. 

But on to the main part of the book.

The 3.0 Challenge

Both Ghemawat and Fukuyama belong to a breed of thinkers about world affairs whom you could characterize as being neither pro or anti-globalization. You could call them, instead, irreversabilists. They are historicists who believe that the process of globalization — gradual global political and economic integration — is irreversible. In the sense that reversal would be very painful, not conceptually impossible. A tiger-by-the-tail effect. Letting go could turn you into lunch.

For Ghemawat, the irreversibility is simply a matter of the sheer scale and momentum of the processes underway. As he notes, by 2050 the world will have doubled in population, and will be attempting (based on the rise of the middle class in the developing world) to create a five-fold increase in average per-capita income.

I hadn’t really thought of the effects of simultaneous population increase (from 6 to 9 billion) and attempts to raise the standard of living (moving a large segment of the global population to the middle class).

To avoid structural collapse along the way, Ghemawat argues, we have no choice but to try and make globalization work. Reversal of globalization processes would be extraordinarily painful for large portions of the world’s population.

I agree with Ghemawat’s point that we don’t have much choice. I am much less optimistic that it is actually possible. A five-fold increase in global output means something like a steady 4.2% global growth rate for the next 38 years (and that’s without adjusting for inflation).

What’s more, much of the population increase will actually happen in the next 15-20 years (i.e., population growth will be front-loaded). If economic growth is not front-loaded as well, we will be left with several decades where growth fails to match the demand.

This means that hundreds of millions of people who appear poised to enter the middle class around the world will either fail, or endure a couple of decades of  pretty terrible times. It would be a modified global version of what happened in parts of Africa following the AIDS epidemic: a phenomenon called demographic fatigue, where growth cannot be sustained and ends up being reversed. In the African case, the death of many working-age males caused economies to collapse, which in turn destroyed standards of living and triggered population declines.

We just crossed 7 billion this year. We’ll hit 8 billion by 2025, and 8.5 billion by 2035. The last half billion on the way to 9 billion will take 15 years (at which point the world population is expected to stabilize and start decreasing). We happen to be in the midst of a global downturn now, with no real recovery on the horizon until at least 2015 0r 2016. All in all, the next 20 years or so look extremely gloomy to me.

Broadly speaking, the book is about whether we can meet this challenge. It starts with a round of debunking of dangerous globalization myths.

Globaloney Slaying

The book starts of with an unsparing take-down of what Ghemawat calls “globaloney” — data-free posturing and rhetoric that he sees as characterizing both the pro- and anti-globalization political camps. The early part of the book is devoted to such debunking.

While he spends a fair amount of time debunking claims from the far left, he reserves his most strident criticism for Thomas Friedman. You may want to read (or re-read) Friedman’s The World is Flat just to get reoriented around globalization as the dangerously uninformed understand and frame it.

For the left, he takes a quick look at their pet ideas: highly local, self-sufficient economies built around organic farming, green practices and so forth, and quickly demonstrates that when you attempt to translate those ideas to a 9-billion-person planet, you basically fail. Those models are at best survivalist models for an elite.

The anti-Friedman narrative in the book is the most entertaining part. Ghemawat recounts several anecdotes where his own dry and pragmatic data-driven advocacy of globalization ran into Friedmanology. As part of his work, he encountered several business and political leaders (Colin Powell among them) who were operating with The World is Flat as their guide, and leaning towards dangerously flawed decision-making as a result. I can imagine his frustration at being told to “go read Friedman” to educate himself about globalization.

Rather cleverly, he turns the sales figures for The World is Flat as yet another piece of data to shed light on globalization itself.

The heart of the criticism of Friedman-style thinking lies in two points. First, globalization has simply not progressed as far as Friedman and his fans think it has. Second, if it were to progress in the manner Friedman hopes it will, we’ll get to a very dangerous sort of world.

The first claim is based on an interesting model of actual and potential levels of globalization in the world.

Distance Sensitivity, Economic Integration and ADDING Value

The framework for analysis of globalization data that Ghemawat presents is based on a notion of distance sensitivity of international relationships of all sorts (ranging from email communication patters to trade). The distance measure he uses combines geographic, cultural, administrative (similar governance forms) and linguistic ideas of distance. Using these, he shows that all economic interaction is strongly sensitive to distance.

His most compelling piece of evidence is probably his analysis of US-Canada trade, the closest bilateral relationship in the world. He shows that even in this best-case scenario, compared to an ideal situation where distance and borders (in his abstract sense) didn’t matter, the US-Canada bilateral trade, the biggest in the world, is missing several trillion dollars.

From there, he broadens the scope of his argument and shows how most kinds of interaction are nowhere near their actual potential if distance and borders really didn’t matter. He goes into measure after measure and demonstrates the distance effects that exist. A table he compiles at the end of this exhaustive survey provides a great freeze-frame picture of globalization. These numbers represent how far globalization has progressed, with respect to a “full economic integration” end state represented by 100%. The details of the analytical model are more than I can get into, but they are worth making an effort to understand. Here’s a summary of internationalization measures, approximately captured by a chart on page 30:

1. Mail: 1%
2. Telephone calls: 2%
3. University students: 2.5% (?)
4. Immigrants:  3%
5. Charity: 5-10%
6. Direct investment: 10%
7. Patents: 15%
8. Venture capital: 17%
9. Internet traffic: 17%
10. Exports: 20%
11. Equity investment: 20%
12. News media: 21%
13. Bank deposits: 25%
14. Government debt: 35%

A general pattern here is that money is far more mobile than labor or human communication. The Internet traffic measure at 17% is probably an optimistic over-estimate, since the location of servers doesn’t really correlate very well with the content and traffic that flows through it.

This dataset is presented alongside some rather subtle arguments. For example, the different kinds of global interaction have very different kinds of leverage. Technology transfer (via IP) is very high-leverage indeed. Most countries rely on technology transfer for 90% of productivity increases. The US is the only country where the pattern is reversed: it is a net exporter of productivity-increasing technologies.

There are revealing glimpses at how hard it is to produce sensible numbers. Take the rhetoric around China taking away US manufacturing for instance.  This is actually really hard to measure. Foreign content accounts for 50% of China’s exports, and 25% – 30% of global exports. This means circulation in intermediate goods is poorly modeled by commonly cited statistics, which indicate a need for value-added accounting to correct for inflated trade deficits. Often the oveerstatement is about 3x due to such “roundtripping.”

If you want more data highlights, look at my cheat sheet.

This first part of the book ends with a scorecard model for measuring progress along 6 major vectors towards World 3.0, represented by the acronym ADDING:

1. Adding volume, (raw growth)
2. Decreasing costs (through best-sourcing)
3. Differentiating (adapting to distance sensitivity effects via localization)
4. Improving industry attractiveness or bargaining power
5. Normalizing (or optimizing) risk
6. Generating and deploying knowledge (and other resources and capabilities).

I won’t attempt to summarize what the dimensions entail.

The Road to 3.0

Having debunked data-free globalization myths, and established something of a quantitative foundation on which to build in Part I, the book then turns to a series of common globalization themes, and attempts to look for the truth behind the rhetoric in each theme with numbers.

This is necessarily a dicey exercise, and given the hugely acrimonious debates around every single one of the themes, Ghemawat understandably adopts a conservative (in the academic sense), defensive approach. The themes he addresses, over several chapters, include: concentration, global externalities, global risks, global imbalances, global exploitation, oppression and homogenization. 

While he suggests mechanisms to address concerns around each theme, Ghemawat’s primary objective is to attach numbers to each theme. For example, he counters the “global homogenization” criticism with the reframing that more diverse choices for everybody isn’t really homogenization.  If people in all countries have access to each other’s cuisines in local restaurants, that is hardly homogenization. He manages to argue that such global diversification is ultimately going to be more important than McDonaldization.

After the tour of major themes, the book winds down with a rather weak prescriptive section in Part III. While some of the prescriptions are believable, (his proposals for mechanisms to contain global financial contagion events for instance), the rest amounts to somewhat wishful thinking, given the magnitude of the challenge posed in the beginning of the book (achieving a five-fold increase in world output by 2050, to support 9 billion people at a higher average standard of living than most of them enjoy today).

But he does manage to convince that increasing global integration and regulation is the only real path forward. Those who hope for innovation-driven growth to deliver all the increase in output necessary vastly overestimate the growth potential of innovation by itself. For Ghemawat’s prescription to work, we need both Schumpeterian and Smithian models of growth to continue. And this is assuming that the increased global regulation will happen. In an era when individual nations are struggling to resist regulatory capture by the business world and regulate even their domestic economies meaningfully, hoping for sufficient international regulation to enable safe global growth seems rather optimistic.

For my part, I don’t think the challenge can be met at all. Instead, we will find growth lagging population growth, a period of demographic fatigue and middle class collapse in many parts of the world (a decline where it already exists, and a stillborn failure to launch in other parts of the world), followed by a very slow recovery through a Dark Age that will probably last at least a half-century beyond 2050. Since I’ll be dead well before then, I can safely make this prediction.

One possible pattern that may emerge by 2050 is a division of the world into two zones. One where the world continues gingerly along its current World 1.5 path, swinging dangerously between 1.0 and 2.0, and another zone where we see a collapse back to somewhere between 0.0 and 1.0: failed states, and a forced return to local economics.

Thomas Barnett’s interesting map of the world postulates one such boundary between the zones. The “Core” might be Zone 1 and the “Non Integrating Gap” might be Zone 2 (image from New World Notes).

A Brief Note on Graeber’s Debt

Thanks to a skirmish in the comments of Part I, that I’d rather not continue, with a commenter who appears to be Graeber himself, I’ve decided not to review Debt after all. It’s a good book, but not worth that much trouble for me.

While I do have opinions on many of the questions raised in the book, a review is not the place to present them. I’ll save them for exploration within my own preferred frames of reference. I still think it is well-worth a read. There’s plenty of value there, and I’ll be citing some of the book’s ideas selectively in future posts.

I recommend you read Julio Rodriguez’ review and Daniel Lemire’s shorter review.  There are also plenty of other good reviews around.

If you want to seriously level-up your thinking about how the world works, you might want to try reading 3 very ambitious books together: Francis Fukuyama’s The Origins of Political Order, Pankaj Ghemawat’s World 3.0 and David Graeber’s Debt: the first 5000 years. All three are from the reading list that I posted in August, so I am hoping at least some of you have been attacking them.

It’s worth reading them together because they attempt to tell the same story, towards the same purpose — explaining how the world works in some sense — drawing on roughly the same body of raw material. It is illuminating to see the surprising ways in which the stories agree and disagree. All three books are also particularly valuable for me personally, since I hope to take a stab at telling the same story some day.

My version will of course be the definitive one when I write it, but let’s take a look at the versions of the story on the market today.

An Academic Celebrity Death-Match

After finally finishing all three books last week, it struck me that you’d get very entertaining Jerry Springerish outcomes if you put the authors together on a conference panel. Going by their books, I’d say that Fukuyama and Ghemawat would mostly agree but eye each other very warily, given their drastically different methodologies. Fukuyama is the ultimate metaphysical conceptualizer and Grand Narrative weaver, while Ghemawat is a data-driven empiricist and narrative debunker par excellence.

Graeber is a sort of micro-narrative ethnographer-storyteller with a visceral suspicion of both numbers and abstractions. In a way the title of Graeber’s book is misleading. Debt is not one big story spanning 5000 years, but more like a collection of 5000 little stories and arguments thrown together, with a bigger narrative almost slapped on as an afterthought. And for a book about debt, money and finance, it manages the astounding feat of filling up several hundred pages with almost no numbers, equations, graphs or mathematical arguments.

On our hypothetical conference panel, Graeber would probably start out politely but end up trying to bludgeon the other two to death within a few minutes. Ghemawat would probably fight back impatiently, with barely-concealed annoyance, held back only by a sense of scholarly dignity. Fukuyama would probably walk off the stage with the tired, resigned and martyred look of a misunderstood senior academic statesman.

Moving on from these idle fantasies of academic-celebrity death-matches, let’s talk about the books.

Where they are Coming From

Jerry Springer jokes aside, the books are interesting to read together because of the sharp differences in politics, maturity of thought and individual personalities that inform the book.

It’s interesting to note that Fukuyama was born in 1952, Ghemawat in 1959 and Graeber in 1961. Personality-wise — and perhaps this is a function of age — they come across as gentle, impatient and angry, respectively.

Along another dimension, Fukuyama is mostly descriptive (though his politician-fans often mangle his ideas into prescriptions), Ghemawat is weakly prescriptive in a tentative and technocratish way, and Graeber is strongly normative.

And along a third dimension, Fukuyama is mildly reactionary (taking on classical man-in-the-state-of-nature models, but reconstructing rather than destroying them), Ghemawat is moderately reactionary (simultaneously taking aim at what he labels “globaloney” arguments on the anti-globalization side and Thomas Friedman on the pro-globalization side) and Graeber is almost entirely reactionary (devoting the entire book to attacking the foundations of mainstream economics rather than constructing an alternative framework).

I am deeply tempted to read the three as a sort of Brahma-Vishnu-Shiva trinity. Fukuyama’s project is ultimately a creationist account of the world in a sort of “more perfect union” sense. Ghemawat’s is a preservationist account, deeply absorbed in the actual complexity and constraints of the world as it exists, and the problem of defending against threats and preventing things from unraveling. Graeber’s is destructive-nihilist, focused on fundamental inequities, social justice and a revolutionary agenda. You get the sense that he wouldn’t be too upset if everything unraveled.

Taken together, the three accounts constitute a fascinating creative-destructive reading of contemporary world affairs situated within a broader historical context.

But I won’t belabor this rather overwrought trinity metaphor, just leave it as a framing suggestion for you.

For Fukuyama, this book represents a sort of swan song in a long career in the public eye that began with The End of History and the Last Man (1993). He gained notoriety via an association with the neocon coterie around George W. Bush (a movement he later disavowed) and with this book, he is clearly wrapping up a lifetime of scholarship devoted to a single question. There is a certain sadness and poignancy in his approach to the subject matter as a result.

Ghemawat is best understood as an anti-Thomas-Friedman and anti-anti-globalists. In fact, World 3.0 is best viewed as a systematic attempt to tear down the anti-intellectual Friedman-Globalization-complex, which he clearly views as having done immense damage to the pro-globalization movement through its sloppy “flat” metaphors, shoddy arguments, and wild and ungrounded swings between alarmist and exuberant rhetoric. The most entertaining (though not most useful) parts of his book are the stories of his encounters with Friedman-influenced types. The project of countering anti-globalization types does not get as much attention, mainly because Ghemawat clearly does not take them very seriously.

As an ex-McKinsey consultant, ex-HBS professor (where he worked for 25 years), and current professor at IESE, Barcelona in the heart of the Eurozone and its present crisis, he is everything Friedman is not: an extremely careful, data-driven advocate of globalization: relentlessly pragmatic, skeptical of just-so stories, and studiously averse to grand-standing. Where Friedman is the ultimate uncomprehending journalist-outsider, going “Oh Wow!” at everything, Ghemawat is the ultimate insider-technocrat of globalization, the sort of immensely influential person who normally stays out of public conversations and sticks to persuasion in backrooms, cabinets and boardrooms.

And finally, Graeber is the (relatively) young hothead demagogue of the bunch. He appears to have been blooded in political combat during the anti-globalization movement of the eighties and nineties (he seems to have been involved in the resistance to the IMF/World Bank  approach to managing the world economy in particular). Of the three, he is clearly the Man of the Hour, given his association with the Occupy Wall Street movement.

As scholars, all three are complex people with careful and nuanced views on their subject matter. These are not the sorts of people you could reduce to simplistic political stances.

To the extent that they have actually been involved in world affairs, however, they cannot really avoid being politically pigeonholed: Fukuyama is a social and political conservative, Ghemawat is a classic business conservative/social liberal and Graeber is a cross between an anarchist and a neo-socialist.

With Fukuyama, you get a separation of scholarship and personal political history that is almost surreal. There is absolutely no acknowledgment that his involvement in Bush-era world affairs might be a relevant backstory (I was hoping to find some personal commentary in the preface, but was disappointed). The professor and the political influencer might as well be different people.

With Ghemawat, the separation is maintained, but there is open acknowledgment of how his involvements in world affairs have shaped his scholarly views (there are plenty of ideas substantiated by references to his role as a consultant to various world bodies and national governments for example).

With Graeber, there is a weak attempt to maintain some sort of scholar-activist separation early in the book, but by the end, the effort is completely abandoned and the scholarly endeavor is openly and clearly subordinated to the activist agenda. Debt starts out as a disinterested scholarly book, but ends as an openly political polemic.

The Raw Material

Each book tackles the question of how the world works, and each takes a historical approach to the question.  The time-span under consideration ranges, for all three, from roughly 5000 BC to modern times.

Ghemawat, after a quick tour of the first few thousand years, settles on the last century and the modern era of globalization (Zakaria’s Post-American World is a good companion read, since it fill in more detail around the parts that Ghemawat skips over a little too quickly, with the same data-driven approach).

Fukuyama ranges over the first few thousand years at a leisurely pace and stops just sort of the industrial revolution. His account of modernity is to be published in a second volume in 2012, which I am now impatient to read.

Graeber ranges all over the entire time-span, mainly to the detriment of his treatment of post-1800 modernity, since the 300-odd years between 1800 AD-2011 AD probably contain about the same quantity of relevant raw material as the 6800 years between 5000 BC and 1800 AD (that’s exponential trajectories for you). Where Fukuyama and Ghemawat modestly limit themselves, Graeber ambitiously tries to do it all in one book. In some ways he succeeds, and in other ways, he over-reaches.

(An unrelated reason for the weakness of the post-1800 parts of Graeber’s book is probably the difficulty of providing a purely qualitative-ethnographic account of the modern era. I cannot see any way to truly understand things like the subprime crisis without mathematics for instance).

The result is that Fukuyama and Ghemawat end up telling their stories in steady and measured ways, taking care to substantiate their arguments. Both are also somewhat predictable: the surprises they have to offer are relatively minor, but rigorously argued.

Graeber is more original than either Fukuyama or Ghemawat; there are startling insights, ideas and examples at practically every turn. But every argument seems suspect due to the hurried nature of the development.

It doesn’t help that the overarching narrative is shaky to the point of being incoherent, and unravels completely towards the end. At various points, I found myself reflecting that Debt would have worked better as a compendium of ethnographic anecdotes and short essays debunking of economic myths.

I’ve been discussing Debt with a few people over the last week and Daniel Lemire observed that the whole thing reads like somebody’s research notebook hastily published, without much editing. Justin Pickard (an alum of Goldsmith’s University, where Graeber teaches) rather evocatively called it “a mountain of intellectual rubble and tiny anecdotes that I can start playing with.” It’s an apt description: the book provides a lot of astounding value, but you definitely have to excavate the book rather than read it, and work hard to separate the politics from the scholarship.

Let’s take a brief look at each of the books in turn, in descending order of author age.

The Origins of Political Order

You cannot really understand Fukuyama’s book without reading it in the context of The End of History and the Last Man, the book that made him famous almost 20 years ago. If you just read The Origins of Political Order (which you can do, since it is written in a stand-alone way), you are likely to find the arguments less substantial than they actually are.

That’s because he dealt with the harder foundational questions to his own satisfaction (and to the satisfaction of about half the people who think about this sort of stuff) back in 1993. This book can be understood as a reading of history, assuming the conceptual framework of The End of History as a starting point, where he drew upon Hegelian philosophy to argue in favor of a strongly historicist understanding of political evolution, and came to the conclusion that the natural and necessary end point of political evolution is liberal democracy. It was an abstract and metaphysical argument rather than a historical one.

At the time, the problem of conceptually explaining the so-called “democratic peace” (the observation that liberal democracy has been spreading rapidly, and that liberal democracies normally don’t go to war with each other) was a much-debated question in political science, and Fukuyama provided one compelling answer. His former mentor, Samuel Huntington, and later Huntington’s student, Fareed Zakaria, fought back with counterarguments in books like The Clash of Civilizations and Illiberal Democracy. These reactions (in my opinion) conspired to miss the point: attempting to counter a purely conceptual argument intended to illuminate philosophical questions, sort of like the idea of general equilibrium in economics, with  empirical and historical counter-arguments. To be fair to Fukuyama’s critics, they were responding more to the co-option of his ideas by politicians seeking a post-Cold-War moral justification for “spreading democracy” than to Fukuyama himself. But in the process, they ended up resorting to thinly-disguised cultural essentialism (later, Huntington attracted a lot of criticism for his stridently cultural-essentialist treatment of the question of the rise of Latino culture in the US).

I read these books in the late 90s, during a period when I was myself rather enamored of complexity theory (I worked briefly with Robert Axelrod who was also working on computational models of the “democratic peace” at the time), so my own history of thinking about such questions has mostly been in computational-modeling terms. I fell in love with Fukuyama’s ideas mainly because they lend themselves very well to computational modeling perspectives.

In fact, The End of History served as my introduction to advanced political science debates.

I didn’t quite buy his liberal-democracy-is-natural-and-necessary conclusion, but I convinced myself that in a weaker form (contingent upon the specific conditions prevailing on planet earth, and given the peculiar psychology of homo sapiens, but not contingent upon cultural differences within humanity, which is what his critics argue), his idea of liberal democracy as the evolutionary end-state made complete sense to me.

The point of going into this extensive backstory is that without it, there is a good chance you might miss the point of Origins.

Origins is an analysis of history. Avoid the temptation to think of it as some sort of empirical “proof” of End of History. In a sense the End of History arguments are metaphysical and unfalsifiable. It is best to read Origins as a reading of history through the lens of End of History.

So what is the book about?

It is about the evolution of the institutional structure of modern liberal democracies. Given liberal democracy as the assumed end point of convergence for all political forms (think water drops flowing down from different points on the edge of a bowl to the bottom) Fukuyama wants to know where the institutions of liberal democracy come from. He identifies three core institutions in particular: the state, the rule of law and accountable government.

The book starts with classic Man in the State of Nature theories from Hobbes and Rousseau, reconstructs them in light of evolutionary biology. He argues that both Hobbes and Rousseau were wrong to posit states of war and peace amongst primitive individuals as starting points. Instead, he offers the idea that individualism itself is a relatively late (13th century) political development, and that State-of-Nature models must begin not with individuals but groups. You could say he arrives at a Hobbesian starting point, adapted for warring groups rather than warring individuals.

With traditional political science thought experiments thus reconstructed, he begins his story with kinship groups and tribes, and moves on to the formation of the earliest states (pristine state formation as opposed to competitive state formation).

Here he again breaks with traditional Western scholarship that usually begins with Greece (really, for no good reason), and chooses to start with China instead (which turns out to yield a much more coherent story).

He argues — very successfully — that the first modern state was the one based on the bureaucracy that emerged in China during the Warring States era and successfully endured, providing the first historical break from politics governed by kinship and tribal dynamics.

After noting that China did not develop the other two institutions (rule of law and accountable government) until modern times, he moves on to India where, he argues, a modern state in the Chinese sense never developed, but rule of law and a form of accountable government did, but without being embodied in stable institutional forms within which power and inertia could accrue.

Next, he moves westward and carefully examines the case of the Islamic state, which possessed a strong state capable of resisting kinship and tribal power (by developing the unique institution of slave armies and state institutions that finessed the problem of dealing with tribal loyalties — the famous devshirme and Mamluk models), and a strong rule of law, but no accountable government.

Finally, he picks up the European story with the growth of Christianity, the tussle between the church and the state, the weakening of family and kinship structures due to the impact of the church, the emergence of the modern idea of the socially mobile “individual” and ultimately, the modern liberal democracy, with functioning state, rule-of-law and accountable-government institutions.

The story is without a doubt a work of extraordinary synthesis. Having read more than a few world histories (both straight-up narratives and analytical accounts), I can safely say that Origins is in something of a class by itself. Like it or dislike it, it will definitely allow you to appreciate world history in ways that you probably have not occured to you.

Ignoring the foundational assumptions inherited from The End of History, which you pretty much have to either accept or reject based on your ideological leanings, the one weakness of the book is its uncritical assumption that the institutional structure of the world is in some sense central to the story of political evolution.  We do not really get a more fundamental account of organizations and institutional forms, and how they emerge from more basic forces. We also do not get an adequate account of the birth-death lifecycle dynamics of institutions. So you could call this position “institutional essentialism,” which makes the account something of a curve-fit of ideal and timeless notions of institutions onto the actual institutional history of the world.

I’ll stop here, since I can’t do justice to all three books in one post. Next time, I’ll cover the other two, and try to weave all three stories together into some sort of harmonious synthesis. Should be an interesting challenge.

Remember the pigs in George Orwell’s Animal Farm and their sloganeering? In the beginning of the story, when they overthrow the humans, they lead with the chant, “four legs good, two legs bad!” By the end, they’ve  become human-corrupt, and lead the chant, “four legs good, two legs better!”

Just one word changed, and the new and old words both begin with b, bolstering the illusion of continuity and natural evolution.

Let’s call such a slowly shifting narrative, simple enough to be captured in a slogan, and designed to help a small predatory class dominate a larger prey class, a Pig Narrative.  The American Dream is a Pig Narrative. For the record, in case you are immediately curious about my politics, I think this Pigs-and-Prey structure of the world is the natural order of things. You can mitigate its effects, but not change it in any fundamental way. If I had to pick, I’d side with the pigs.  Moving on.

You can compare Pig Narratives on the basis of the degree of prey liberty (or conversely, predator control) they represent, allowing you to plot the evolution over time. If you plot the course of the American Dream through its many rewrites (9 so far by my count, each associated with a major coming-of-age event that defined a generation), you get something like the picture above.

The Rate of Change of Pig Narratives

For Pigs (I’ll capitalize from now on, to distinguish my pigs from Orwellian pigs and real pigs) to remain secure, Pig Narratives must not be shifted too quickly, because they provide the functional logic of dominant institutions. So if a key piece of the narrative is go to college and get a good job, the narrative allows colleges to exist. If the Pigs change it to go to college to learn entrepreneurial skills,  they get to keep existing institutions. But if some renegade Pigs want to stage a coup, and successfully rewrite it as drop out of college and found a startup, universities face an existential threat.

Ideally, changes should be so small that the prey barely notices.

Fortunately for the Pigs, Pig narratives are naturally hard to shift. We imprint on the dominant one during the crucial coming-of-age window of 15-21 say, just as baby ducks imprint on the first thing they see as “Mommy.” And like Mommy Ducks, Pig Narratives are essentially sources of authoritative and trusted parental guidance.

Unfortunately for the Pigs, there is also a dynamic which forces  rapid shifts despite their best efforts. This is the impact of the defining events for each generation, which provide the motivation and raw material for each rewrite, and therefore constrain the level of spin achievable.  For the generations that came of age during the Great Depression or the 2000-01 boom-bust/9-11 period, the pig narrative had to shift rapidly, even with the most creative damage control on the part of the Pigs. Things get garbled during such times, leading to widespread anomie among those waiting and expecting to be programmed by a Pig. It’s like being a duckling faced with no stable shape to imprint upon.

As another way to understand why pig narratives must change slowly, you can apply the Milo Criterion (products must mature no faster than the rate at which users can adapt) to the body politic as a whole. The pig narrative is a normative behavior at the scale of the average life, and it can change no faster than the rate at which generations displace each other from the population.  The American Dream in this interpretation is merely the core user experience of “America” as a product sold by Pigs to prey.

The 9 American Dream Rewrites

The phrase American Dream was apparently coined by James Truslow Adams in 1931 and was defined by him as the idea that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

Except that that isn’t the definition. That’s merely the brand. Here are the actual premises of the 9 scripts between the 1870s to the 1990s, and the archetypical life stories they informed. I am playing fast and loose with generational and cohort analysis here to make a broad point, so please don’t hold me to very precise sociological details.

Note that the dates are the coming-of-age windows for each generation (i.e. when they were between 15-21 and impressionable), not birth decade. Subtract 15-21 years to get the birth year range.

1. Civil War generation (1870s): If I Go West as a Young Man, and work hard, I have as good a chance as anyone else of making it (gold miner, wildcatter)
2. Gilded Age generation (1890s): If I work hard, I can make it (Horatio-Alger-inspired young people working for Robber Barons)
3. Gatsby generation (1920s): Anybody can make it (Gatsby type easy money)
4. New Deal generation (1930s): Together, we can make it* (worker building Hoover Dam)
5. GI Bill generation (1940s): Any American can make it if he fights hard (WW II veteran, college-educated and starting high-responsibility job white collar job with young, growing American post-war companies)
6. Organization Man generation (Silents, 1950s): I already have it; if I don’t screw it up, I can keep it (employee of mature, wealthy post-war company)
7. Peace Corps generation (Boomers, 1960s): Americans already have it; we should share it (progressive, generous child of Cold War prosperity)
8. Deregulation generation (X, 1980s): We’re losing it. If I keep my head down and step around the falling rubble smartly, I may escape (entering workforce among layoffs and uncertainty in manufacturing)
9. Net generation (Y, late 1990s): We’re losing it. I don’t know what to do, I’ll go Occupy Wall Street (this generation lived through a boom and a bust and 9/11 while coming of age, turning the pig narrative into garbage at the starting gate, leaving a harsh, anomic landscape)
10. Next generation (coming of age right now ):  If I Go East as a Young Person, and work hard, I have as good a chance as anyone else of making it (lifestyle entrepreneur in Asia or Eastern Europe — this script will likely take shape with the 2016 election, when the generation is first courted by politicians).

[*My reading of the New Deal is from FDR campaign rhetoric: "Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth... I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms."]

Notice how messy the trajectory has been, despite my smooth sketch of overall shifts in liberty.  The gold miner script comprehends both risk and effort and has a fair amount of liberty. The Gilded Age script drops risk, and keeps effort, trapping the prey more comprehensively. By the time of Gatsby, effort is gone as well.

Then there is a big reset with the New Deal, and a new element is introduced (while keeping the unexamined “make it” premise): collectivism and solidarity.

The GI Bill generation keeps the solidarity (forged under enemy fire in their case), in the form of nationalism, but adds individualism, previously implicit in I statements, back into the mix explicitly.

Like the Gilded Age generation, the Silents hit a maturing economic landscape and became followers rather than leaders. But there is a hugely crucial shift now. From prosperity being something to be achieved, it becomes something that can be lost by risk. So risk makes a reappearance, but with emphasis on downsides.

With the Boomers, this natural assumption of abundance turns into an assumption of surplus and a rather arrogantly presumptuous desire to spread American prosperity.

Then there’s my gang: Generation X, whose American Dream slightly resembles that of the New Deal generation, in that it was scripted during a downturn, though not as severe as the Great Depression, and lacking the emphasis on collective solidarity. It is a gloomy and pragmatic, and somewhat fatalistic, kind of individualism.

(Generation X in 1980s India was defined not by deregulation, but two assassinated Prime Ministers, two terrorist uprisings and a slowly collapsing Soviet era industrial landscape, culminating in a near-death experience for the economy in 1991; post World War II, Pig Narratives march in lock-step to a fair degree, thanks to increasing global integration, which is why I am comfortable calling myself a Gen X’er).

Perhaps it is arrogant of me to presume that X’ers represent the “liberty turn around” generation. By dropping the delusions of the Boomers, the X’ers made themselves more free, but their environment made them use that freedom in fundamentally cautious, risk-averse ways.

The Net Generation is one I feel truly sorry for. Somebody born in 1980 would have been 17-20 during the boom, 20-22 during the bust and 9/11 and then endured the mess that has been the past decade. It’s a recipe for schizophrenia, and that’s what you get. You have triumphalist stories like those of the Web 2.0 superstars, as well emerging adults (people in their 20s) living in their parents basements, stuck in anomie and despair. I haven’t seen any reliable data on the Occupy movement, but I suspect it is a mix of Generation Y and Boomers (X’ers in the middle probably are too busy to take time off, even if they support the idea; they are now the heart of the workforce and raising kids).

But despite their sorry state, their American Dream is more liberating than anything seen since the Gilded Age. Simply because it is so completely garbled, it is not a very effective control instrument.

And to wrap up, the generation that is coming of age now will obviously be a downturn generation (like the X’ers and New Dealers). We can also predict that their script will be even more liberating, likely incorporating risk in the same sense that the post-Civil-War script did, where you only get a shot at making it, not a guarantee.

The Key Narrative Variables

Hidden in this messy evolution, you can spot a few key variables that change value as the narrative gets tweaked generation by generation. Here are the main ones I can see (you can think of them as on/off variables or sliding scale).

1. Risky vs. risk-free
2. Effort-ful vs. effortless
3. Individualist vs. collectivist
4. Upturn vs. Downturn vs. Cusp
5. Scarcity vs. Abundance vs. Surplus
6. Mine to Make vs. Mine to Lose (Make/Lose) framing

Using these variables, you can code the 10 narratives in a parametric form:

1. Civil-War: risky, effort-ful, individualist, upturn, scarcity, make
2. Gilded: risk-free, effort-ful, individualist, upturn, abundance, make
3. Gatsby: risk-free, effortless, individualist, upturn, surplus, make
4. New Deal: risky, effort-ful, collectivist, downturn, scarcity, make
5. GI Bill (WW II vets): risky, effort-ful, collectivist-individualist, upturn, abundance, make
6. Organization Man (Silents): low-risk, medium effort, collectivist, upturn, abundance, lose
7. Peace Corps (Boomers): low-risk, effortless, collectivist, upturn, surplus, lose
8. Deregulation (X): risky, effort-ful, individualist, downturn, scarcity, lose
9. Net (Y): risky, schizoid on effort, collectivist, cusp, schizoid on abundance/scarcity, schizoid on make/lose
10. Next Generation: risky, effort, unclear, downturn, unclear, unclear

I won’t try to do this, but I suspect you could even turn this coding into a meaningful numerical scale, code up life-narrative transcripts (such as those in Dan McAdams’ The Redemptive Self, or those studied by George Vaillant), and draw a real version of the graph I started with.

The Institutional Landscape

Several key institutions have designs that reflect the structure of the dominant script, and react to different variables with different degrees of sensitivity.

Higher education, for instance, is most sensitive to changes in the first two variables (risk and effort) and the last one (make/lose). People want degrees when risk is low, effort is likely to be rewarded, and prosperity is yours to lose rather than yours to make.

I imagine a sort of acid bath of narratives within which institutions are dipped.

Working out how the other key social institutions — work, entrepreneurship, family and religion — respond to script changes, would be an interesting exercise. I believe you can predict future patterns of institutional disruption using such analysis. If I had money, I’d be researching this stuff.

Pig Views and Prey Outcomes

Though I’ve characterized the American Dream as a Pig Narrative, I am more Pig than prey, at least in how I think, if not in how effective I am (not very, I am a pretty lousy Pig).

The Pig-side view is frankly fascinating to think about.

One way to fingerprint Pig views is to make up archetype descriptions for each generation as viewed by Pigs. To do that you have to first identify the pig class. For the post-Civil-War era, the Pigs would be the Robber Barons. They would have viewed the prey as foolhardy: daring, adventurous, but fundamentally stupid and easily conned out of any gold or oil strikes. The Gilded Age prey, living in less risky times, would have been merely fools, rather than foolhardy.

Another way to fingerprint the pig views is to list the consequences of following Pig Narratives. This is not as simple as it seems. Even though they are scripted to favor the Pigs (in heads-I-win-tails-you-lose ways, a concept I explored recently), depending on whether a given age is actually prosperous or not, the prey may do quite well. You have to characterize the before/after condition of the prey.

• If the script is positive, but there is a downturn overall across prey lives for that script, denial or disillusionment follows. Silents, who began retiring amidst the 80s turmoil, I suspect are largely disillusioned.
• If the script is positive and the prey get lucky, an unfounded sense of redemption follows. That gives you the boomers and early X’ers who made piles of money in the 90s and got away with it.
• If the script is negative and outcomes are negative, you get fatalism. I think that’s where we X’ers are headed.
• If the script is negative and outcomes are positive, I don’t know what happens. I suppose the New Deal generation (say somebody who was 20 in 1930 and 35 in 1945) sort of qualifies. They would have come of age amidst depression and looming war, rejoined the post-War boom economy as older veterans, and possibly mellowed out and became more positive.

I’ll stop this post now. For those of you who have read Tempo, you’ll probably recognize this post as an attempt to take the narrative analysis models in the book to the collective level, in an effort to get at Grand Narratives, which many of you have asked me about.

I am not yet sure how best to define Grand Narratives that might exist beyond Pig control levels, so I thought I’d start with the easier case of Pig Narratives. I suppose Pigs (Orwellian or otherwise) are economy-level Sociopaths in the Gervais Principle sense. That’s another thing I am starting to think about: what happens to Sociopaths in the open economy, outside the walls of individual corporations.

Apologies for any sloppiness in analysis or the writing in this piece, I am writing it in a break between things out here in Sunnyvale, CA. I am here for the next days for some work.

Engineering romantics fall in love with the work of Jorge Luis Borges early in their careers.  Long after Douglas Hofstadter is forgotten for his own work in AI (which seems dated today), he will be remembered with gratitude for introducing Borges to generations of technologists.

Borges once wrote:

“I should define the baroque as that style which deliberately exhausts (or tries to exhaust) all its own  possibilities and which borders on its own parody…I would say that the final stage of all styles is baroque when that style only too obviously exhibits or overdoes its own tricks.”

The baroque in Borges’ sense is self-consciously humorous. Borges’ own work in this sense is a baroque exploration of the processes of  thought. As one critic (see the footnote on this page) noted, Borges writings “serve to dramatize the process of thought in the apprehension of truth.”

Unlike art, complex and mature technology (not all technology) is baroque without being self-conscious. At best there is a collective sensibility informing its design that can be called a baroque unconscious.

This post is a sequel of sorts to The Gollum Effect. You can read it stand-alone, but you will probably get more out of it if you read that first. Within the Lord of the Rings metaphor I developed in that post, “baroque unconscious” is basically my answer to the question, if extreme consumers are Gollums, who is Sauron?

This idea of a baroque unconscious helps clarify things about the phenomenon of technological refinement that have been bothering me for a while. In particular, it helps distinguish among three kinds of refinement in technological artifacts: refinement that is useful to the user, refinement (often exploitative) that is useful to somebody besides the user, and refinement that benefits nobody at all.

It is this last characteristic that interests me.  Refinement that benefits nobody — anything that attracts the adjective overwrought  — is what I attribute to the workings of the baroque unconscious. And I write this fully aware of the irony that this kind of post, might be viewed as overwrought analysis by some.

Interestingly though, viewed from this perspective, the other two kinds of apparently intentional refinement can be seen as opportunistic exploitation. They arise  through manipulation of those elements of the workings of the baroque unconscious that happen to be consciously recognized.

In other words, I am arguing that the collective unconscious component in the evolution of technology is primary. The conscious component is peripheral.

Or to borrow another idea from art, it is technology for technology’s sake. And unlike in art, there is no primary artist.

The Baroque in Art

There is no such thing as the baroque unconscious in art.

When art exhausts its own possibilities unintentionally we generally characterize it as camp (what Susan Sontag aptly called “failed seriousness” in Notes on Camp). The baroque element in the work is evident to observers, even if the creator lacks the self-awareness to recognize it.

When art exhausts its own possibilities as a side-effect, while pursuing other objectives, we do not call it baroque. We call it either cynical or tasteless. The auteur theory of art applies well enough that if we cannot reasonably impute baroque intentions to the artist, we feel safe assuming that artist was aware of the baroque consequences of his/her decisions. Michael Bay’s Transformers movies (especially the last installment) are examples. They are both tasteless and cynical, but they are not campy or baroque.

Technology is generally more complex and collaborative than even the most collaborative kinds of art, such as movies. The process can create things that exhaust certain possibilities, with no single creator or observer being fully conscious of it. Yet, we cannot call such things campy, cynical or tasteless.

To understand this, suspend for a moment your default idea of what it means for something to be baroque. You are probably thinking of European architecture of a certain period with an exaggerated and visible sort of drama on the surface. That prototypical idea of the baroque is what we tend to apply, in unreconstructed form, to technology: clunky user interfaces and a degree of featuritis that has us groaning.

This is a narrow sense of the baroque. The original architectural instances  served a specific function: to impress and intimidate commoners with a display of awe-inspiring grandeur (some art historians have argued that the original examples of baroque were therefore not baroque at all, but cynical). The exhaustion of possibilities in that kind of baroque is all on the surface.

But things can be baroque without being visibly so, depending on the audience for the original function. The key is that the governing aesthetic must seek to self-consciously exhaust its own possibilities.

Invisible, but still intentional baroque is particularly common in modern American pop culture. Most viewers of The Simpsons for instance, miss the bulk of the hidden pop-culture references in the show. A loyal subculture of fans devotedly mines these references and discusses them online. While this sort of thing is often cynical (deliberate creation of baroque plots to create addiction, as in the show Lost), in the case of The Simpsons, I suspect the writers genuinely seek to exhaust the possibilities of the artistic technique of reference, without annoying the mainstream audience.

The Baroque in Technology

In technology, Apple’s products border on the baroque in their exaggerated simplicity. Once the iPad achieves the edge-to-edge display and maximal technically feasible thinness for instance, it is hard to imagine how one would parody it — there is no room left for exaggeration in the physical form at least. Certain possibilities will have been exhausted.

This sort of intentional (and therefore artistic) baroque in technology, however, is not really what interests me. What fascinates me is technology that grows baroque without anyone consciously intending to exhaust any design possibilities. Social forces, such as the competitive pressures of an arms race, or the demands of extreme lead customers, don’t seem to be sufficient explanations.

Art is usually the outcome of a singular vision. But technology, even the auteur form of technology practiced by Steve Jobs, is deeply collectivist. Engineering real things is far too hard for one mind to impose a singular vision on all but the simplest of products. When a piece of technology appears to be the work of a single mind and possesses the dense layers of coherent complexity that can only be the product of a large team, it is evidence of a deep coherence in the team itself. In such a team, individuals trust the collective to the point that  they feel comfortable narrowing their domain of conscious concern to their own work.

The baroque sensibility resides in the collective unconscious of the team that produces it. The baroque in the whole is greater than the sum of the baroque accounted for by the self-awareness of the many individuals.

Moderately obsessive-compulsive attention to detail at the level of individuals oblivious to larger purposes, eventually turns into baroque exhaustion of possibilities at the level of the whole product.

This brings us to the idea of refinement, and the question of when, why and how wrought keels over into overwrought.

Refinement and the Baroque

When I first started thinking about refinement, in the context of addictive consumption (as in, refined cocaine), I had examples such as American fast food in mind: precisely engineered concoctions of key refined substances (salt, sugar and fat) designed to cause addictive over-consumption.

The pathologies of consumerism can be traced to an entire universe of such refined goods. I offered the term gollumized to describe humans who end up being entirely defined by a pattern of such consumptive behavior, much like the character of Gollum in the Lord of the Rings, with his addictive, enslaving attachment to the One Ring: a highly refined, pure essence.

Something bothered me however, about the implicit equation of refinement with pathological addictive dependence on the one hand, and cynical exploitation on the other.

The refinement in the construction of something like the space shuttle does not seem pathological. It seems necessary.

A highly refined kitchen knife  that plays a role in your creative self-expression as a chef seems somehow different from a McDonald’s hamburger or an expensive wine, both of which are consumption-addiction refined in their own ways.

Even with hamburgers, while acknowledging that they are effectively exploitative and addictive foods designed to enrich the food industry by ruining the health of consumers, it is clearly farfetched to believe that there is some vast conspiracy that includes every biochemist.

The idea that the creation and sale of such foods is more a matter of cynical opportunism is more reasonable. You could accuse the industry of carefully engineering high-fructose corn syrup as a way to make money off corn surpluses, but the industry didn’t create the necessary biochemistry knowledge or surplus-creating agricultural advances with the idea of eventually selling cheap and addictive burgers (for one thing, the evolutionary processes took longer than the lifetime of any individual involved in the story).  You could say that the existence of HFCS is 10% intentional and 90% a consequence of the baroque unconscious driving food technology.

In other words, the existence of a Gollum does not imply the existence of a Gollumizer. Sauron in the The Lord of the Rings is at best a personification of the baroque unconscious (with Saruman being one of the cynical exploiters — an HFSC creator so to speak).

But let’s figure out what refinement in technology really means. Consider the following senses of the word refinement:

1. Refinement as in purity or purification of substances: ore, oil, drugs, foods
2. Refinement in the sense of highly developed and cultivated sensibilities, as in refined palate
3. Refinement in the sense of elaborate sophistication of mature or declining cultures
4. Refinement in the sense of detailed, attentive design in advanced technologies
5. Refinement in the sense of an Apple product (or any other possibility-exhausting product aesthetic)

How do these different senses of the idea of refinement relate to each other and to the baroque? What distinguishes the space shuttle, quality kitchen knife from an iPad, an expensive wine, or a McDonald’s hamburger?

The Sword, the Nail and the Machine Gun

I found a key clue when Greg Rader decided (to my slight discomfort) to overload this sense of refinement with an economic meaning in his 2×2 model of types of economies.

In Greg’s model, the economic role of refinement is to make it easy to value artifacts in an impersonal way, in a cash economy. Unrefined artifacts get you attention or help build social capital in relationships. Refined artifacts help you earn money or participate in the gift economy.

But why should refinement lead to easier valuation and thence to exchange for money.

The crucial missing piece is the role of interchangeability in mass production. As Joseph Ellis writes in The Social History of the Machine Gun:

It was always theoretically possible to conceive of a gun that would spew out vast numbers of bullets or whatever in a short period of time…manufacturing techniques [were not] sufficiently well-advanced to allow individual craftsmen to work to the fractional tolerances demanded for every part of such a complex gun.

The key point here is often lost in discussions of industrialization that use Adam Smith’s simple example of a nail to highlight the division of labor aspect of industrial production. Nail manufacture illustrates the reductionist capacities of industrialization, but it is the integration capacity of industrialization that drives refinement.

The machine gun illustrates the dynamics of integration. It is a complex machine, and as such, liable to break down more easily. Reliability involves network effects within a complex artifact. Roughly speaking, in a design with no redundancy, the more parts you have, and the more complex and fast-moving the linkages among them, the less reliable the machine.

Unless you find an opposed network effect that can scale at least as fast, machines will get less reliable as they scale.

The opposed network effect that was discovered late in the industrial revolution was interchangeability. Interchangeability creates a network effect between artifacts. Crucially, they need not be functionally similar. They only need share a structural language. A machine gun can be cannibalized to repair a telescope for instance.

The significance of Ellis’ point about fractional tolerances has to do with replacement and cannibalization. Craftsmen are capable of very refined work, but the work tends to be unique. It involves fitting this hilt on this sword with great precision. You can get away with this because craft also tends to involve fewer parts, static linkages and performance regimes where breakdowns are infrequent.

With interchangeability comes the possibility of easy valuation, since it is possible to talk of supply and demand at the level of many non-unique parts that can be compared to each other. That helps connect the dots to Greg’s economic hypotheses.

But we still haven’t fingerprinted the essence of refinement itself.

Replacement and Repair

The first key threshold crossed on the road to industrialization was the replacement of human, animal and uncontrolled inanimate power (wind or water) with controlled inanimate power: coal and oil. Much of the attention in attempts to characterize industrialization is given over to the study of this threshold-crossing.

The second key threshold crossed was the shift from repair to replacement. When breakdowns became frequent enough that anticipatory manufacture of replacement parts became cheaper than reactive repair or replacement, the network effects of industrialization truly kicked in.

The network effects of reliability in a sword are not strong enough that you need to counteract them with interchangeability effects. In fact, much of the complexity in a sword may well be in baroque artistic elements that serve no purpose (a sword that loses a diamond from its hilt is still equally effective on the battlefield).

Even early industrial-age artifacts, do not have enough complexity and speed to really require interchangeability. This is one reason I find elaborate steampunk fantasies fundamentally uninteresting. They involve imagined machines that come across as laughably Rube Goldberg-esque precisely because they don’t comprehend reliability problems, and the methods actually created during the industrial age to mitigate them.

When you get to something like a machine gun though, where breakdowns are frequent and waiting for custom replacement parts is hugely expensive, you must meet absolute tolerances, so that any replacement part can replace any broken part (and equally crucially, so that two broken, complex assemblies can be cannibalized to produce at least one working assembly).

So we can conclude that:

1. Refinement in craft based on relative tolerances leads to uniqueness.
2. Refinement in manufacturing based on absolute tolerances leads to interchangeability.

From these two basic kinds of refinement, we get the five connotations of the word I listed earlier. This happens via the appearance of a refinement surplus.

The Refinement Surplus

Interchangeable parts based on absolute tolerances solve the reliability problem and then some. The network effects of interchangeability turn out to be stronger than the network effect of increasing unreliability in individual complex artifacts.

What’s more, since interchangeability limits the need for communication among collaborating makers, refinement of component technologies can progress much faster (as Adam Smith noted). This is what we call “specialization.” It happened in physical engineering before object-oriented programing ported the idea to software engineering.

You could say that work previously achieved by communication among makers is now achieved via communication among artifacts.  This is most obvious with software objects, but the core idea is present even when you shift from a custom-made nut-bolt pair to a standardized pair that “communicates” via numerical absolute tolerances.

So interchangeability creates a social network of (say) machine guns. There are functional linkages within complex artifacts that make them useful, and substitution and reuse linkages between them that make them reliable (redundancy inside an artifact is merely a semantic distinction: think of it as carrying interchangeable spare parts inside the boundary of the artifact, with the capacity to automatically switch out broken parts). Interchangeability and standardization make every machine gun less unique, and more a part of a sort of hive-machine-gun beast.

Dramatic as this effect is, it pales in comparison to the effect of commonalities across the needs of different types of complex systems. This connects all complex artifacts into a giant social network. The One Machine.

A high-tolerance part can serve a low-tolerance function, but not vice versa. Economies of scale then kick in and dictate that many components become more refined than they need to be, for typical artifacts that make use of them. The result is that systems gradually get more refined than they functionally need to based on immediate intentions. The needs of a few artifacts drive the refinement levels in all technologies.

This creates a refinement surplus. Industrial technology, unlike craft work, runs a continuous refinement surplus. The surplus was initially triggered by the need for interchangeability to solve the reliability problem, but that turned out to be a case of using a sledgehammer to kill a fly.

Or so it might seem if you only look at individual artifacts. I’ll argue in a future post that once software and the Internet kick in, reliability problems can once again overtake what interchangeability can mitigate. As the One Machine gets increasingly interconnected, the unreliability network effect may overtake the interchangeability network effect, hence the fundamental Singularity-vs.-Collapse debate.

The possibilities represented by limiting refinement levels are always greater than the universe of artifacts in existence at any given time.

Exploitation of this refinement surplus is fundamentally what creates the predictable “growth” in industrial age Schumpeterian creative destruction. But it isn’t the intent to exploit that drives the evolution. It is a collective unconscious drive to exhaust possibilities and find limits, independent of any specific need.

The Platonic Baroque

The Lord of the Rings captures artistic anxieties about engineering: the “good” races create beautiful craft, the “evil” ones engineer ugly things.

Where LOTR goes wrong is in focusing on beauty in craft as the distinguishing factor (there is a line in The Hobbit which goes something like “the Goblins create many clever things, but few beautiful ones”).

In LOTR, evil engineering artifacts are crude, unrefined and possess little symmetry. Good ones made with craft are intricate, refined and highly symmetric.

This is obviously the exact opposite of what actually happens.

Open up a laptop and compare what you see to (say) a beautiful hand-crafted necklace. Not only is the inside of the laptop more intricate than the necklace, it is more intricate than you can even see. You would need electron microscopes to get a sense of how unbelievably intricate, refined and symmetric a laptop is.

The technological landscape is defined by two kinds of beauty. On the one hand, you have the possibility-exhausting conscious baroque artifacts that we view as “pushing the envelope.” Both the iPad and the space shuttle belong on this end of the spectrum. One contains chips at the limit of fabrication technology, the other contains materials that can handle enormous heat and cold, produce unimaginable levels of thrust, and so on.

On the other hand you have things that are not at the edge of technological capability, but manufactured out of component and process technologies created for those leading edge technologies. And I don’t just mean obviously over-engineered things like space pens that write upside down (which you can buy at NASA museums). I mean everything. Regular Bics included.

In this category, makers strive to exhaust the possibilities, but always lag  behind. The surplus refinement potential shows up in the unnecessarily clean lines of modernism. Unused bits. Unbroken symmetries. Blank engineering canvases that expand faster than designers and technicians can paint.

The interaction of the two kinds of beauty is what creates the texture of the modern technological landscape. I call it platonic baroque. This may seem like a contradiction in terms, but bear with me for a moment. 

The baroque unconscious is the force that drives technological evolution: a force whose potential increases faster than it can be exploited.

Recall that the baroque seeks to exhaust its own possibilities. It is a technical exercise in exploring process limits, not an exercise in expressing ideas or creating utility. But this process needs ideas to fuel it.

In the days when royalty and religion loomed large in the minds of creators, it was natural to exhaust possibilities by filling them up with the content of the mythology associated with the power and money that drove their work. It was natural to fill up blank walls with gargoyles and cherubs, popes and princes.

But when the power and money come from a force whose main characteristic is vast and featureless potential, the baroque aesthetic seeks to exhaust possibilities by expressing that emptiness with platonic forms.

So  the Bauhaus chair is not a rejection of the baroque. The modernist designer merely seeks to build cathedrals to his new master: a vast emptiness of possibility within the refinement surplus. This possibility is the father of industrial invention, a restless, paternalist force that replaces necessity, the mother of craft-like invention.

I am tempted to explore that male/female symbolism further, but I’ll limit myself to one overwrought metaphor. This unexploited possibility that is the father of industrial invention is at once a Dark Lord and engineering Dark Matter.

Maker Addiction and Exponential Technology

Where there is surplus, it will be exploited. Possibility, rather than necessity, drives invention. When ideas for exploitation lag the potential to be exploited you get baroque unconscious design.

Why would somebody build something simply because it is possible?

Both craft and engineering are driven by an addiction to making. It does not matter whether needs or possibilities enable the making. Makers will make. What determines how fast they make is whether they are able to focus on their strengths or whether they are limited by their weaknesses.

This is the shift in maker psychology due to industrialization: from deliberative craft work limited by individual weaknesses, to reactive engineering work that is not limited in this way, thanks to specialization.

Need-driven making requires a focus on function and utility. Non-functional making in craft is easily recognized as artistic embellishment.

The idealized craftsman — and it was usually a he – was a deliberate and mindful creator. He made the whole, and he made the parts. When things broke, he made repairs or crafted new parts. Each whole was unique. When craftspeople collaborated on larger projects — stone-masons making blocks for cathedrals say — assembly itself became a craft that was limited by the skill of the best (if you look at the history of masonry, you can see an obvious and gradual progression from rough-hewn blocks carefully fitted together, to more refined blocks that look increasingly interchangeable in late pre-modern architecture).

In industrial artifacts based on interchangeability, however, the role of craftsman bifurcates into the twin roles of technician and engineer-designer (for now, we can safely conflate engineer and designer). Both are reactive roles where function and utility take a backseat to sheer maker addiction.

The technician reacts to component work defined in terms of absolute tolerances by pushing the boundaries of process capabilities and component quality with addictive urgency. I explored this earlier in my post, The Turpentine Effect (though I didn’t connect the dots until now). The result is Six Sigma, an explosion of process tools, and the dominance of an intrinsic and abstract notion of potential future value over an extrinsic and specific notion of realizable current value. Somebody will use this in the future beats nobody can use this right now.  By and large, this trust is justified: increasing demands for refinement from the most demanding applications keep up with the possibilities.

In this process of reactive design, refinement in available components and processes starts to drive refinement levels in complete artifacts that have already been invented, and suggests new inventions. A positive feedback loop is set in motion: increasing component and process refinement overtakes application needs as individual artifacts mature, but then new applications emerge as pace-setters. Design bottlenecks migrate freely across the entire technological landscape, via the coupled technological web, instead of remaining confined within the design space of individual artifacts.

For those of you who are familiar with the S-curve models of technology maturation and disruption, imagine disruption S-curves bleeding across unrelated artifact categories via shared components and processes, creating an overall exponential technology evolution curve of the sort that both Singularity and Collapsonomics watchers like to obsess about, and that I will obsess about in future posts.

Across the fence from the technician, the engineer-designer loses mindfulness by shifting from deliberately dreaming up useful ideas to reacting to the possibilities of available component and process sophistication levels.

A perfect example is Moore’s Law: semiconductor companies began pushing fabrication technology to extremes before applications for the increased capability became clear.

On the other end we have Alan Kay’s reaction to Moore’s Law in the early 70s: the idea that computing should strive to “waste bits” in anticipation of decreasing cost. Computer design shifted from fundamentally deliberative before PARC to fundamentally reactive after.

Effects, Large and Small

So the net effect of maker addiction faced with refinement surplus is that existing artifacts get pulled into a baroque stage of their evolution and new artifacts appear to exploit possibilities rather than respond to necessities. I am not sure this is much better than Gollumizing consumption.

The One Machine gets increasingly integrated, and takes on an eerily coherent appearance due to uniform refinement levels and the operation of the platonic baroque aesthetic at the level of individual artifact design. Design bottlenecks drift around within this technological body politic, making it more coherent, more eerily platonic-baroque over time.

If the creation of unrealized refinement potential ever slows, and exploitation starts to catch up, you can expect the platonic baroque to become less platonic and more visibly overwrought. The blank canvas will start to fill up.

Thanks to this eerie collectively created aesthetic coherence, the One Machine takes on the appearance of subsuming intelligence and intentionality that suggests visions of a Singularity-AI to some.  Whether this is a case of anthropomorphic projection onto a smooth facade beneath which unreliability-driven collapse lurks, or whether there is an emerging systemic intelligence to the process, is something I still haven’t made up my mind about. If you’ve been following my writing, you know that at the moment, I lean towards the collapse interpretation. Darwinian evolution as refined complexity created by a blind watchmaker is too much of a precedent to ignore.

At more mundane levels, the baroque unconscious creates a critical shift in the nature of engineering: the pull of under-exploited refinement surplus is so strong that nominally less useful things that exploit the surplus can diffuse far faster, and suck away resources, far faster than nominally more useful things that ignore it.

All you need is a human behavior with potential for escalating addiction. You can then move as fast as the refinement surplus will allow. I explored this idea in The Milo Criterion.

Ignoring this leads to the classic entrepreneurial mistake: attempting to build useful things instead of things that exploit refinement surplus. The most high-impact technologies of the day are almost never whatever the wisdom of the day identifies as the most potentially useful ones. They are the ones that can spread most rapidly through The One Machine, mopping up refinement surplus.

So the best and brightest flock to Facebook or Google, and cancer remains uncured. Again, I am not sure whether this a good thing or not.  Perhaps from the perspective of the Dark Lord, optimizing the One Machine, now is simply not the right time to cure cancer. One day perhaps, the design bottlenecks will drift to that corner of the technological Web. Until then, we’ll have to content ourselves with doctors who tweet during surgeries and webcast the proceedings, but still cannot cure cancer.

I’ll stop here for now. This post has been something of a stream of conscious expression of my own baroque-unconscious addicted-maker tendencies. But then, I figure I can allow myself one of these self-indulgent posts every once in a while.  Especially since my birthday is coming up in a couple of days.

I am not normally a big consumer of online video content, but in the last couple of months, I’ve watched three very significant videos that together have turned my mind into silly putty. They are incredibly fertile, thought-provoking and demanding without being merely stimulating in an infotainment/mindcandy sense. This is protein, not sugar.

They total about 6 hours, but if you choose to invest a clear-brained morning or afternoon, you will not be disappointed. You should find that you’ve leveled-up your thinking about a lot of stuff that we talk about frequently.

I am also posting a roundup of the last couple of months, since I am now blogging on enough different venues to justify some periodic aggregation.

Three Deep Videos

The three videos: watch them in the following order.

The Century of the Self (HT: Cameron Schaefer and somebody I forget, on Quora)

What it’s about: A marathon 4-part BBC series about how Freud’s ideas, via his nephew Edward Bernays and daughter Anna Freud, created the modern PR and marketing industries, shaped politics, business and culture, drove secret (and nutty) CIA research and generally pwned the American national identity for a century (I rarely resort to gamerisms, but pwned is the only word that covers the case). I have my notes, summary and critiques filed away. I am going to be milking this one for insight for a long time. The video provides context for a lot of my writing that I was previously unaware of (particularly The Gollum Effect). I feel particularly dumb for having missed the direct historic influence of Maslow on market segmentation, via work at SRI.

Bruce Sterling’s Closing Address at Reboot 2009 (HT: Justin Pickard and Dorian Taylor)

In a way, this picks up where the previous video leaves off.  Where the BBC show starts in the 1920s and ends with politics and business slavishly pandering to a self-absorbed crowd in a civilization-level circle-jerk at the turn of our century, Sterling looks ahead to the consequences of our current state. It is a grand-visionary look at the next 10 years, covering the themes of collapse and survival. Justin Pickard called it one of his “ur texts” and it has become almost that for me as well. Sterling is a science fiction writer, so you should expect somewhat overwrought language. The talk is built around a few key words/phrases — dark euphoria, favela chic, gothic high tech, acting dead — that are annoyingly opaque until you’ve heard the talk, but stick in your head like viruses once you’re done; I find that I have to fight myself to not use the terms on random people, who haven’t watched the video.

Programming and Scaling by Alan Kay (HT: Jean-Luc Delatre)

Even if you don’t know much about programming (Alan Kay developed object-oriented programming at PARC), you should be able to get quite a bit out of this video. It is a great complement to the other two videos because it outlines the large-scale problems and opportunities in the current state of software engineering. With software eating the world, whether we get a Singularity scenario or a Collapsonomics scenario largely depends on whether or not some fundamental problems with software (involving entropy and bugginess) can be solved. Kay is optimistic. If he’s right, we’ll get the Singularity, and Lord Skynet will let us continue happily in our current state of self-absorbed idiocracy that the BBC documentary describes. If we fail, we get Bruce Sterling’s world: grim, with collapse looming, and rich and poor alike scrambling to adapt to inevitable decline.

The main reason I am strongly encouraging you to watch all three videos is a selfish one: I want to write about some of these ideas, and I suspect I’ll lose anybody who hasn’t leveled-up their thinking with this preparation. I’ll try to make any future essays on this stuff self-contained, but it may be a losing battle. At the very least, you’ll get more out of some of my planned future posts if you watch these videos first.

A 6-8 Week Roundup

I’ve been quite busy and all over the place these last couple of months. Here’s the roundup of the last 6-8 weeks at various venues. If you only care about Ribbonfarm, skip to the end.

Forbes

First off, I booted-up my new technology blog at Forbes. Here’s the output for the first month. I am still sort of finding my feet with this general technology theme, so the pieces are a bit all over the place.

1. Zappos and the Rise of Corporate Neo-Urbanism
2. The Social Graph as Crude Oil (Go Ahead, Build that YASN!)
3. Kubler-Ross and #OccupyWallStreet
4. Public Computing and the Next Gang-of-Four
5. We Are All Macs Now
6. The Electric Leviathan

Information Week

Next, on my Information Week column, I’ve been writing a few pieces to sort of wrap up the first phase of my thinking (which has evolved over the last 2-3 years) on Enterprise 2.0 themes. I am planning to collect my IW columns from this year, along with some of my older posts on the E2.0 conference blog, into an ebook soon. But this Star Wars style trilogy that I posted over the last 6 weeks kinda sums up the big picture view I currently hold.

1. Social Wars: A New Hope
2. Social Wars: The Enterprise Strikes Back
3. Social Wars: Return Of The Radicals

If you haven’t seen my IW stuff on Enterprise 2.0/social business (or weren’t aware that I was writing there), and the theme interests you, you may want to catch up with my dozen or so posts so far. I am sensing that the Enterprise 2.0/social business trend is shifting into a new gear, and I am trying to tie up my Phase I thoughts into a neat little package so I can sort of get it off my mind and think about Phase II.

Tempo Blog

On the Tempo blog, over the last couple of months, I’ve  had a series of loosely related pieces on mindfulness, time-management and productivity that I am really happy with. The plan to use the blog to beta-test ideas for a future edition of the book is going well. This stuff is going into the second edition of the book in some form (read in this order if you want to follow the train of thought):

1. Daemons and the Mindful Learning Curve
2. The Calculus of Grit: (this is actually an August ribbonfarm post, but seems to belong in this series)
3. Bandwagon Timing verus Biding Your Time
4. Forgivable Sloppiness: The Art of Epoch-Driven Time Management
5. Thrust, Drag and the 10x Effect

Ribbonfarm

And finally, here at home, I only had five “real” pieces in the last two months (not counting last week’s guest post and a couple of announcement posts), but they were biggies for me personally. I seem to be moving into a new phase on the home front. The impending end of the Gervais Principle series, which has sort of been the sine qua non of this blog for two years, has frankly gotten me into a soul-searching mode about where to go next.

1. The Stream Map of the World
2. The Gervais Principle V: Heads I Win, Tails You Lose
3. Ubiquity Illusions and the Chicken-Egg Problem
4. The Milo Criterion
5. Fixing the Game by Roger L. Martin

Hope that’s enough to keep you guys busy for a while. I can sense some significant steering in my writing direction(s) looming in November. Not entirely sure which way I’ll be turning.

For most of the last decade, Israeli soldiers have been making the transition back to civilian life after their compulsory military service  by going on a drug-dazed recovery trip to India, where an invisible stream of modern global culture runs from the beaches of Goa to the mountains of Himachal Pradesh in the north.  While most of the Israelis eventually return home after a year or so, many have stayed as permanent expat stewards of the stream. The Israeli military stream is changing course these days, and starting to flow through Thailand, where the same pattern of drug-use and conflict with the locals is being repeated.

This pattern of movement among young Israelis is an example of what I’ve started calling a stream. A stream is not a migration pattern, travel in the usual sense, or a consequence of specific kinds of work that require travel (such as seafaring or diplomacy). It is a sort of slow, life-long communal nomadism, enabled by globalization and a sense of shared transnational social identity within a small population.

I’ve been getting increasingly curious about such streams. I have come to believe that though small in terms of absolute numbers (my estimate is between 20-25 million worldwide), the stream citizenry of the world shapes the course of globalization. In fact, it would not be unreasonable to say that streams provide the indirect staffing for the processes of modern technology-driven globalization. They are therefore a distinctly modern phenomenon, not to be confused with earlier mobile populations they may partly resemble.

Stream Citizenship

Stream citizens are not global citizens (a vacuous high-modernist concept that is as culturally anemic as the UN). Their social identities are far narrower and richer. They are (undeclared) stream citizens, whose identities derive from their slow journey across the world.

But the individualist, existential notion of nomadism that I wrote about in On Being an Illegible Person does not apply. In particular, stream citizens are not necessarily nomadic in literal ways (such as living out of cars, boats or mobile homes). They may buy or rent property, accumulate material possessions, and so forth.

Streams are highly sociable collectives, not individuals. The stream itself may be illegible on a map of nation-states, but individuals within it are fairly legible at least to fellow citizens within the same stream. In this sense, streams are like David Hackett Fischer’s folkways. Unlike folkways, streams use geographic movement to structure themselves internally. You could also apply the John Hagel model in The Power of Pull and think of traditional folkways as “stock” folkways and streams as “flow” folkways. The running example in the book (global surfer culture) is not quite a stream, however.

The argument for a distinct new construct, the stream, is not based on a single clear criterion that separates it from other kinds of population movements. Instead, we have a distinctive pattern of deviations from other kinds of population movements.

I have a few examples in mind (such as the Israeli one), but to avoid the dangers of over-fitting, I’ll characterize the idea of the stream via a dozen abstract features, and follow it up with a very primitive and sketchy “world stream map,” without trying to describe specific streams in these abstract terms.

1. Distinct social identity: Streams possess a unique and distinct social identity, unlike more inchoate movements that may share some of the features of streams.  Unlike rite-of-passage travel patterns though (such as “karma-trekkers”), they tend not to have named, brand-like identities. Instead, they have unmistakeable, but implicit identities.
2. Partial subsumption: Streams subsume the lives of their citizens more strongly than more diffuse population movements, but less strongly than focused intentional communities like the global surfing community. There is a great deal more variety and individual variation. In particular, there is no solidarity around grand ideologies in the sense of Benedict Anderson’s Imagined Communities.  In this, streams differ from nation-states, even though they provide something of an alternative organizational scheme. Not only is the subsumption at about a middling level at any given point in time, it varies in intensity throughout life, being particularly weak early and late in life.
3. Voluntary slowness: a stream is a pattern of movement where individual movements take place over years or decades, spanning entire development life stages. Unlike a decade-long limbo state imposed by (say) waiting for an American green card, which has individuals impatient to get the process over with and “settle down” in either a new home, or return to an old one, stream citizens don’t experience their state as a limbo state. They are always “home.” Being a relatively new phenomenon, there are no streams that are life-encompassing as yet. But I believe those will emerge — distinctive cradle-t0-grave geographic journeys.
4. Exclusionary communality: streams provide a great deal of social support to those who are eligible to join and choose to do so, but are highly exclusionary with respect to very traditional variables like race, ethnicity and gender. The exclusionary nature of streams is not self-adopted, but a consequence of the fact that streams pass through multiple host cultures.  A shared social identity in one host culture may splinter in another, while distinct ones may be conflated in unwanted ways.  So only relatively tightly-circumscribed social identities can survive these forces intact. I am really tempted to illustrate this particular point with examples, but I’ll leave it as an abstraction.
5. Distinct economic identity: unlike commercial travel that is part of broader economic activity (such as sea-faring), or non-commercial travel (such as tourism), streams tend to be at least partially self-sustaining within every host culture that they pass through. This partial self-sustainability often involves patterns of global commercial activity that lends money a different meaning within the stream. So even though streams don’t issue currencies, and merely borrow the economic apparatus of their host cultures, the money behaves in very different ways while it is circulating within the stream.
6. Non-tribal: Streams are not completely self-sufficient though, in the sense of segmentary tribes.  This is a crucial distinction from nomads or barbarians in the classical sense. They do not seek to form bonds of mechanical solidarity with other streams. Instead they seek to form fairly strong bonds of organic solidarity (mutual interdependence) with host cultures.
7. Vorticity: Streams contain higher-tempo patterns of travel among the waypoints, especially to old “home” bases, due to obligations and attachments inherited from pre-stream home cultures.
8. Partial self-absorption: stream citizens are not very interested in the host cultures they pass through except to the extent of maintaining economic and practical relationships. There is no sense of being on the periphery, looking on with longing at the action at the center. There is no oppressive sense of being trapped in a diaspora-ghetto.
9. Relative poverty: unlike the global jet-setting (think Davos) elite, streams are generally impoverished. In fact a great deal of the motivation for living in a stream is to leverage limited means. But this does not mean we are only talking about lifestyle-designing Internet marketers in Bali. We are also talking about migrant labor from Asia to the Middle East that starts with a “let me save money working in construction in Dubai for a few years” motivation, but ends up extending to a whole lifetime.
10. High adaptability: Unlike nomads who carry their lives around with them, creating tiny shells of reassuring familiarity around themselves, stream citizens behave more like hermit crabs. They cobble together the necessities of life — shelter, income, patterns of diet and exercise — from whatever is around them. Stream citizens eat Chinese food in China and Thai food in Thailand, not because they are particularly curious about local cuisines, but because the sustainability of the stream lifestyle is based in part on such adaptation. Nostalgia is weak for stream citizens, as is the faraway-home/near-exotic sense of alienation from surrounding. Stream citizens are both home and abroad at the same time.
11. Direct connection to globalization: In a sense, the notion of “stream” I am trying to construct is a generalization of the Internet-enabled lifestyle designer, which I think is much too narrow. But streams are definitely a modern phenomenon, and owe their capacity for stable existence to some connection with the infrastructure of globalization. The Internet is the major one for the creative class, but anything from container shipping to the Chimerica manufacturing trade to the globalized high-rise construciton industry qualifies.
    
12. Lack of an arrival dynamic: this is perhaps the most important feature. There is no sense of anticipation of an “arrival” event  such as getting an American green card, after which “real” life can begin. There is a wherever you go, there you are indifference to rootedness. This psychological shift is the central individual act. By abandoning arrival-based frames, stream citizens free themselves from yearning for geographically rooted forms of social identity.

The Scale and Impact of Streams

In terms of sheer numbers, global migration does not seem to be a very powerful force. In World 3.0, Pankaj Ghemawat notes that only about 3% of the world’s population comprises first-generation immigrants. Over 90% of the world’s population will never leave their home country.

As a small subset of global migration and travel, the total population of stream citizenry is unlikely to exceed about 0.3% of the world population by my estimate (about 20-25 million perhaps). In terms of populations of individual streams, given the level of cultural complexity I am talking about, you would need between about ten thousand to a million people to create a stream.

This suggests that there are less than a few hundred streams, with perhaps a few lower levels of differentiation into sub-streams and sub-sub-streams. This means a project to catalog and map the streams of the world should not be too hard.

In terms of impact however, I suspect streams are hugely important.  Viewed as a process of increasing global integration on multiple fronts (commodities, money, products, services and people), most fronts of integration are developing painfully slowly. Measured with an appropriate set of metrics, according to Ghemawat, globalization is generally somewhere between 10-30% of its theoretical potential for maximal integration along most fronts.

Human movement is actually one of the least-developed fronts. However, since moving humans is the most efficient way to move ideas, and since ideas are very high-leverage things to move across borders, this slow front is also the highest-impact front. Two African students returning to Eritrea infected with the Y-combinator virus can do more than several container loads of iPads.

Another way to think about the increasing impact of streams is to compare them to their ancestors. Consider the populations that staffed the diffusion of previous waves of technology-driven globalization, such as sailing ships (which created among other archeo-streams, a population of lascars who formed a stream stretching from South Asia to the Caribbean, for several centuries).

Compared to such populations, the modern stream citizenry of the world is much larger. Perhaps an order of magnitude larger. Thanks to the more mature and stable substrate (container shipping is not going away anytime soon for instance), the cultures that take root along patterns of movement are much more robust and fully-formed.

They may lack the romantic transience of older archeo-streams (such as a putative “Silk Road” culture, which may or may not have ever had a distinct identity), but they are a lot more substantial internally.

Stream Mapping

I didn’t try to illustrate the idea of a stream with reference to specific examples because they interact among themselves and with host cultures in such complicated ways. The only meaningful way to understand streams is to start with a more global situation awareness of a sort of “stream map of the world.”

I have no idea how to make one (other than to follow the contours of globalization), so I’ll illustrate the geography to the extent that I’ve traversed it.

The Israeli stream, in its path across India, collides with the Tibetian exile community in Dharamshala, itself a lake created by an older stream of migration that flowed for a few brief years during the 1950s, when the Dalai Lama fled Tibet and landed in India.

Along this route, the Israelis get into fights with the locals, run an underground drug culture and in general recover from their PTSD in the messy ways you might expect.  The modern Israeli stream runs along roughly the same course that, decades ago, played host to the hippies on journeys of self-discovery from Goa to Kathmandu. Ecstasy has replaced LSD, and the culture is a darker, cyberpunk echo of the naive spirituality that marked the questing of the swami-seeking hippies.

Today, the stream is shifting course towards Thailand, as I noted earlier. The Indian branch may dry up, or slow to a trickle. I suspect a branch of the stream continues, post an Israel-return, to America, via high-tech startups founded by friends who perhaps were blooded in combat together, or met in India or Thailand.

Curiously, even though the Israeli stream runs right through Bombay, where I lived for years, I had no idea it existed while I was there.

I learned the story partly from an Israeli anthropologist (from whom I borrowed the term “liminal passage” which I used in Tempo) and partly from a Romanian-born Australian, herself an expat  in Bali, married to a Dutch expat (Indonesia was once a Dutch colony).  The two of them run canoeing tours on Lake Batur for tourists. We’d gotten started on the subject of nomadic expat cultures after I’d asked, rather innocently, if the success of Eat, Pray, Love had had an impact on Bali tourism. “Oh My God!” my guide exploded, “All these annoying American women in their 30s landing here and expecting to find their Argentinian Man!”

Eat, Pray, Love might well be the motif of a new emerging stream, involving older single Western women.  It is probably a gyre rather than a one-way stream, originating in, and returning to, an American home base.

I personally am a product of a one-way migration pattern that matured into a full-blown stream-and-gyre just around the time I joined it.  Post 9/11 and Y2K, as the US economy began slowing down, and the Indian economy began to heat up, increasing numbers of Indians began choosing to inhabit a vague loop between the two countries instead of settling down in one, trying to have their cake and eat it too — the economic opportunities of India and the lifestyle of the US. The first observers of this loop tended to classify them as “global citizens” but I find the term to be pretty non-descriptive of what is actually happening.

The Tibetan community and the India-US stream-gyre are well-known. The Israeli PTSD Stream is less well-known. The Eat-Love-Pray gyre is just starting to mature.

Around the globe, streams slosh about, run into each other, branch, loop, and in general carve out new cultural landscapes within a hydrologically active layer that exists above earlier landscapes.

This is a complicated view of cultural geography. But I bet it could be properly represented on a map. As I said, the number of important streams cannot be more than a few hundred, about comparable to the number of nation states or significant multinational corporations.

Globalization as Liquefaction

This post is really about my dissatisfaction with the static units of analysis for globalization. We are reluctant to embrace more fluid units like streams because they seem so small in terms of population sizes.  It seems wrong to basically ignore the 90% of the world who are never going to venture beyond the borders they were born within.

Yet, I find that it is far easier to understand globalization as a system of such human flows, than it is to understand it in terms of nations, states and multi-national corporations. It is the actions of the 0.3% that will ultimately drive the fates of the 90%. The cultures that play host to streams are starting to see their evolution being driven by the very act of hosting streams. There are entire regions in the Indian state of Kerala for instance, whose culture can only be explained with reference to the gyre that transports Keralites back and forth from the Middle East.

The word globalization itself is a clue.

Globalization signifies an incomplete process, not a state. For a long time I was convinced that there was a bit of semantic confusion somewhere. Why is there a becoming without discernible being states before and after? The reason is that the word globalization works like the word liquefaction. Liquids aren’t a transition from one solid state to another. They are a transition from a fundamentally static state to a fundamentally dynamic one.

The world is not getting flatter, rounder or spikier. It is liquefying. There you go, Thomas Friedman, that’s my modest little challenge to your metaphor.

More seriously, I’d like to get started building a stream map of the World. If you have candidate streams to propose, or some cartographic insights to offer, please do so in the comments.

So far my list includes:

1. The Israeli stream
2. The Indo-US technology stream
3. Eat-Pray-Love
4. Tibetian expats
5. Americans camping out in Eastern Europe for several years
6. Mainland Americans moving to Hawaii to set up what appears to be an economy based entirely on yoga studios
7. Lifestyle designers converging on Thailand and Bali

Sometimes the difference between a good book and an Aaargh! book is a single unexamined value. Fixing the Game by Roger L. Martin is an Aargh! book. The phrase that kept running through my head as I read was so close… so close.

The book is two things: an exceptionally clear and original analysis of the question of what ails modern capitalism, and an exceptionally woolly headed prescription for how to fix it. Unlike many books that are strong on analysis, the prescription isn’t bad because it is an anemic afterthought shoved into a last chapter (here, the prescription runs through the entire book, with a goodly fraction of the word count devoted to it). It is weak because its foundational assumptions about the psychology of capitalism are hopelessly idealistic.

That’s what makes the book so frustrating. It could have been so much more. Still the book retains a lot of its value because it is relatively easy to tease apart the parts colored by idealism from the parts that are not.

Fixing the Game is among an early offering in what will undoubtedly turn into a whole what-ails-capitalism cottage industry.

Unlike the first wave of books that appeared shortly after the subprime meltdown, this book does not concern itself with investigative journalism or with blow-by-blow narration of the events that led up to the crisis. Instead, the book focuses on presenting an alternative theory of capitalism based on different assumptions.

The current theory, Martin argues (based on maximizing shareholder returns), has basically been proved false beyond all reasonable doubt. Fixes based on the current theory are doomed to fail in predictable ways.

The alternative theory is based on the idea of significantly decoupling the real market of business functioning from the expectations market (the stock market).

The narrative as a whole is based on a telling of the story of capitalism on two time scales: the decade of the 00′s (which spanned three significant financial scandals: the 2000 bubble collapse, the 2005 options backdating scandal and the subprime crisis) and  the post World War II half-century, which spanned a watershed shift in 1976 towards shareholder returns becoming the dominant performance metric for businesses.

The analysis is compelling, but the prescription, unfortunately, is both conceptually flawed and ideologically compromised.

Still, for a first book in what I hope will be a genre that spawns many more, it gets the conversation off to an excellent start.

Business as a Professionalized Sport

This is one book that can be forgiven its sports metaphor because it is so precise and so apt. If you are unfamiliar with the basics of the main American sports, you will unfortunately miss a lot of the nuanced arguments. This is not a generic metaphor where you can easily replace football with soccer and baseball with cricket.

Others have made the point Martin makes: that the main problem with capitalism is the manic focus on shareholder returns. Where the analysis breaks new ground is in explaining clearly how and why shareholder-returns is the problem, using an extended metaphor of business as a professionalized sport. Using this metaphor, and by holding up the NFL as an organization that manages its sport (American football) well,  the book illuminates an inherently murky subject bedeviled by far too much esoteric jargon.

The metaphor frames both professionalized sports and business as the interplay of two markets: the real market (games on the field or actual company performance) and the expectations market (the sports betting market and the stock market respectively).

The rest of the mapping falls out naturally. Executives become star players. The SEC and company boards become the governing forces. Customers become sports fans. Stock market speculators become gamblers. Boards become coaches. Owners become major shareholders.

The highlight of the analysis is the contrast between governance of football as practiced by the NFL and governance of business as practiced by the regulatory forces. Martin’s main claim is that much of the sustained performance of the NFL in governing American football well (as evidenced by its increasing popularity compared to basketball and baseball) can be attributed to just a handful of practices:

1. Strict separation of the real market and the expectations market via prohibition of gambling on the part of players and coaches, and effective policing of the prohibition, to ensure that players pursue returns in the real market rather than the expectations market
2. Continuous, deliberate evolution of the game rules on and off the field to keep game outcomes as unpredictable as possible. I’ll get to why this is a good thing later (Martin’s analysis is incomplete).
3. An effective model of player free agency that maintains a healthy balance of power among players, owners and game administrators and salaries on earth (in contrast to the MLB).

By contrast, Martin argues, the game of capitalism (and sports other than football) violates all these three sound design principles for a sound regulatory environment.

1. The real and expectations market are strongly and deliberately coupled via stock-based compensation for executives (and employees), whose performance is judged based on their ability to set and meet (i.e. “manage” under conditions of moral hazard) expectations in the expectations market. This would be like team captains offering spread estimates before games and apologizing for not meeting them, or trying to win by a certain margin.
2. Knee-jerk upgrades to regulatory regimes via band-aid fixes, based on a false theory of capitalism and economic disease, implemented in the wake of crises, rather than proactive prevention based on a better theory of economic health.
3. A very poor balance of power that favors executives over all other stakeholders (employees, stockholders, board members, customers), rather like star players in baseball, who earn outrageous salaries in relation to the value they add, compared to star NFL players.

If these seem like rather broad and tautological philosophical points, you’re going to be surprised by the elegance of some of the pieces of evidence marshaled in support of this analysis. For example, in the period 1983 – 1993, CEOs met stated earnings expectations 50% of the time. Between 94-97, a turbulent period widely regarded as less predictable, they hit expectations 70% of the time. Either leadership quality increased miraculously, or the CEOs had simply learned to manage expectations rather than realities (a tougher challenge).

Martin presents a wealth of both quantitative and anecdotal evidence showing in detail how expectations are actually managed. CEOs may be the conductors of these orchestras, but weak boards, craven analysts and greedy shareholders are equally complicit in this theater of absurdity. What makes the analysis particularly compelling is the detailed comparison to behaviors that are actually outlawed in the NFL (all varieties of throwing games to win in the gambling markets). As the saying goes, knowing how not to fail is not the same as knowing how to succeed. The NFL offers a compelling model of how to succeed.

If the capitalism game rewards executive behaviors that are somewhere between neutral and harmful, it also penalizes good behavior: companies that pay attention to customers and building up the value of actual assets see stagnant performance on the stock market (Apple is a recent  exception that is insufficiently analyzed in the book).

If you’re like me and don’t  have a detailed technical understanding of how stock markets work, the book is also invaluable for its exposition of a few key academic ideas that are central to the design of the modern game of capitalism (in particular the 1976 paper by Jensen and Meckling, The Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, which led to the elevation of stock performance above all other metrics, and the 2005 paper by Erik Lie, On the timing of CEO stock option awards which precipitated the options back-dating scandal).

Overall the analysis is very persuasive and most importantly clear, thanks to the NFL analogy. Without the striking contrast of an existence proof for a system that actually works, the analysis might have been no more than a just-so story, easily countered by an alternative just-so story.

Problems with the Analysis

That said, given the ambition of the change agenda being proposed (nothing less than the re-invention of capitalism), the analysis is not nearly strong enough. In particular, the heavy dependence of the argument on the before/after comparison around the 1976 watershed year unnecessarily weakens the overall argument.

For example, one piece of evidence offered is that real average returns dropped from 7.5% for 1933-1976 to 6.5% for 1977-2010, with significantly increased volatility (both in everyday terms and in terms of the frequency of big bubble-bust cycles).

Even accepting these not-too-solid numbers as roughly right, causality is harder to determine than Martin admits. It is not clear that the rise of shareholder returns is entirely to blame. 1976 is also a very good watershed year for a lot of other things that changed.

• American businesses suddenly encountered real competition for the first time since World War II for example, with many technology markets based on WWII innovations (automobiles, aircraft, radio, computing) maturing and turning into zero-sum mature market games.
• The OPEC crisis in 1979 is another major factor that confounds the historical analysis. Oil is so fundamental to the industrial economy that significant events in the story of oil must be incorporated into any larger story.
• The late 70s also marked a powerful transition from sloppy and inefficient operational cultures that had reigned for several decades, to lean and quality-focused cultures that have reigned (with their own problems) between 1980 and today.
• This operational shift was accompanied by the birth of the modern strategy industry, also around 1979 (as Walter Kiechel documents in Lords of Strategy). While one subplot of the strategy story was devoted to managing share prices, there was a larger shift in management models as well. CEOs started actually “doing” strategy.
• A few decades of middle-management Organization Men ruling the roost ended, and sociopath senior management types regained control, a transition that, for all its problems, was a positive one.
• The era of lifetime employment began to crumble, with both employee and employer loyalty crumbing with it.

With so many things changing at once, a story that blames one factor for much of the malaise is suspiciously convenient. I do think the focus on shareholder returns was a major cause, but it is unlikely to have been  the only cause or even a primary cause. I suspect Jensen and Meckling merely codified operating principles that had already emerged in response to environmental shifts. The shareholder-value rulebook likely came after the actual subterranean shifts were already underway.

The restriction to two time scales (2000-2010 and 1933-2010 with a 1976 watershed) is also a source of weakness. The excesses of poorly regulated capitalism during the Gilded Age (which I am reading about right now) and the longer history of bubble phenomena, dating back to the South Sea Bubble of 1622, need to be comprehended in a truly credible version of the argument. Shareholder-returns-focus  seem like it might be the latest manifestation of a more fundamental force. A longer natural history of corporate performance metrics seems called for.

That said, most of these problems can be fixed with more words and research. The fundamental argument, appropriately qualified, is believable.

The deeper problem is with the proposed theoretical framework itself. In particular, some of the weaknesses arise from the simplistic characterization of the market as non-zero-sum and value producing (fan enjoyment and customer value respectively) and the expectations market as zero-sum and non-value-creating.

This isn’t really true or completely fair.

The so-called “real” market is non-zero-sum only during  expansion phases while a generation of new technologies (often birthed by war) matures. Innovation unfortunately is a punctuated equilibrium process rather than one that adds value steadily.

In mature markets, leading up to the next technological paradigm shift, the market behaves more like a zero-sum game where market share is won or lost driven by fluctuations in the distribution of natural resources, random fashion trends and advertising rather than fundamental increases in value.

It is  also unclear to me that a real-market entity is a good thing simply because it produces “real” things. Many sincere people work hard solving real problems and creating real products and services that customers use. Unfortunately, many of those products and services are arguably, bad for the world. From cigarettes to addictive junk food to television programming that panders and enslaves, the real market is hardly a cornucopia of humanity-elevating production. Indeed, some of these things are worse than hedge funds, which is saying a lot.

Equally, the zero-sum and negative-sum dynamics of the expectations market does play a legitimate role in driving the diffusion of certain kinds of information and creating an environment of Darwinian weeding out of weaknesses (or what we like to call creative destruction).

While that legitimate role does not excuse the existence of perverse incentive structures that lead to outsize, under-taxed profits (especially in pure expectations market games like hedge funds), the strong suggestion in the book that the real market is “good” and the expectation market “bad” is simply misguided.

Unlike sports betting, the stock market plays an actual information-theoretic governance role in the functioning of capitalism. Even hedge funds (for which Martin reserves his worst criticism), with a few rule changes can probably do some good through their apparently perverse amplification of market volatility.

The Prescription

Martin’s prescriptions are a curious mix of subconscious cynicism and conscious idealism.

On the one hand, we get careful and detailed accounts of exactly how the 2-20 model of hedge funds leads to cancerous dynamics, and how simple changes to those rules can make the game vastly healthier. Some of the ideas are quite radical (like banning normal options-based compensation packages) but supported by very cogent arguments.

But on the other hand we get the vacuous suggestions that company board members should view their work as public service and that the rules should be written to enable CEOs to lead “authentic” lives (apparently, while enjoying their fabulous wealth, they are secretly pining for “authenticity” and bemoaning their empty lives, beholden to investor meetings, and are to be pitied).

While many of the individual tactics are based on realistic psychology and ideas about checks and balances, removal of moral hazards and conflicts of interests, and strengthening of weak parties in a currently unequal balance of power, the big picture suggestions essentially amount to a forlorn appeal to higher motives and positive psychology principles.

The whole prescription rolls up into a surprisingly weak grand goal: to displace the formula “maximize shareholder value” with the equally problematic “maximize customer delight.”  Martin’s argument in favor of customer delight is based on one good reason and one bad one.

The good reason is his rather clever argument (which he explains at length) that customer delight is a “powerful” objective in that it subsumes other, weaker objectives.  If you pursue customer delight, he argues, you will automatically also grow shareholder value at a “reasonable” rate (“reasonable” is one of many weasel words in the prescription). Since optimizing a robust function of many variables tends to be difficult in complex systems, maximizing the most powerful single objective is the next best thing.

The problem with this argument of course is the one I have already mentioned: “customer delight” reveals nothing about social value. You could be a drug pusher delighting cocaine addicts.

I don’t have an alternative proposal. No single formulaic and static objective is going to work. What you need is a more powerful dialectic that keeps the the meaning and pursuit of economic value in a state of fluid contention among contending voices.

Much of the woolly headedness starts with a fundamental value-based assumption on page 94 and then runs through the book like a gigantic fault line:

The illegal and unethical behavior of business executives over the past few decades suggests that something is seriously out of whack in the corporate world. Assuming people would rather be ethical than unethical, how did we wind up with such pervasive unethical and illegal behavior?

Far from being a throwaway line, the entire prescription rests on this one assumption. In effect, Martin’s is a theory of executive behavior based on Douglas McGregor’s Theory Y: that left to themselves people will naturally behave well (as opposed to Theory X, that given a chance, people will lie, cheat and look for any old way to get ahead). You just have to remove the perverse conditions that make them behave badly, and perhaps offer them an uplifting sermon to get them started in a new direction.

This assumption, quite simply is not true, but that’s a longer story, going back to theories about “man in the state of nature” due to Rousseau and Hobbes, and involving more recent work in evolutionary psychology. I’ll talk about that story another day, when I review Francis Fukuyama’s The Origins of Political Order, but for now, let me just offer without proof, the assertion that humans are a mix of X and Y tendencies. Some have more of one tendency and some have more of the opposed tendency. Different environments confer advantages on people with different tendencies. Good governance systems are designed around the full range of likely human behaviors.

When you base an ambitious prescription on a Theory Y model of executive motivation, you necessarily end up with such non-solutions as promoting “authenticity,” shaky conflations of “real” with “non-zero sum” and an uncritical idolization of an idealized “real” market where real things are produced and executives nobly strive to delight customers and life improves for all.

Yes. There was a time when men were real men, women were real women and small furry creatures from Alpha Centauri were real small furry creatures from Alpha Centauri.

Is there a way to assemble the ideas in the book into a different prescription? One that is not based on notions of human perfectibility and shaky appeals to the nobler motives of executives who are doubtfully cast as “would rather be ethical” characters? I am not suggesting we should be developing systems based on assumptions of inherent corruptibility. Such systems tend to be too cautious, paranoid and costly.

I am suggesting that we think about systems based on realism rather than either idealism or cynicism.

A Different Dialectic for Capitalism

If an unreconstructed notion of “delighting customers” cannot fuel a richer dialectic for capitalism, where might we find a richer dialectic? To create a powerful dialectic, you need a collision of well-matched forces.

There are two strong clues in the analysis and NFL analogy.

The first is the idea that keeping the game unpredictable is central to good governance. This means making more games real contests. Organized sports become boring when one force consistently beats another (example, offenses consistently beating defenses or vice-versa) or when one player is allowed to accumulate too large an advantage. At a deeper level, when every game is a challenge, innovation rates increase.

The second is the idea that empowering of players via free-agency was central to creating this unpredictability in the NFL. You cannot create a system of rules that leads to mostly even and unpredictable contests if one side is able to accumulate significantly more resources than the other. A rule change can neutralize a specific idea like the West Coast Offense, but it cannot restrain a team stacked with more stars, and fueled by more money than the competition. Innovation stagnates because some teams lose hope and others win without trying.

Unpredictability is a time-honored goal in the design of sports. Thorstein Veblen noted, in The Theory of the Leisure Class, that the games of the leisure class evolve their rules to reduce outcomes to pure chance. Mechanisms like handicaps carry this logic to an extreme.

The purpose is not to create a contest where the best team or athlete wins, but one where the definition of “best” is kept fluid so that the audience has the most fun, due to the unpredictability. As a side-effect, the gambling markets remain inherently simple because there isn’t as much information for them to process: at most you have simple betting or spread betting. The gambling markets merely process superstitions, tacit outsider information, and other forms of information that are not of immediate value to players in the real market. Usable information is kept out of the expectations market to the extent possible, and people in possession of usable information are prevented from participating in the expectations market and encouraged to actually use it to improve performance.

This is a fundamentally sensible strategy. The best use of real information is improving the real game; feeding it back and improving real performance via innovation. Using real information to manipulate expectations is a tragic waste.

Chasing Unpredictability, Arming Free Agents

In the NFL, the game is changed when a tactical innovation provides makes a previously unpredictable element of the game predictable. Such an advantage is mostly used to win games, not to manipulate the gambling market. Rules are eventually changed to even the odds when such innovations occur. The spurs innovation and the game evolves faster than the gambling.

The fact that the stock market is a maze of incomprehensible regulation that changes with every new crisis, while the copyright and patent regimes have been evolving at a glacial pace, suggests that we are driving innovation in the wrong game.

To move the rapid innovation to the real market, and to keep the stock market game comprehensible and slowly evolving, you need a contest in the real market between forces that have fundamentally opposed objectives.

Martin’s prescription (and his proposed new model of capitalism) perpetuates a fundamental mistake: treating capitalism as a game between regulators (both central and board-level) and players — people with information and levers that allows them to manipulate both expectations markets and real markets.  To use the NFL analogy, this amounts to having the players and coaches fight the NFL governing body and team owners.

This isn’t a contest. The people with privileged information will always win. It cannot be made an unpredictable and even contest: those with privileged information will use that information to get ahead whatever the incentive structure.

You cannot neutralize an arms race with rules. You can only displace it with a different arms race.

So what you need instead is to displace the contest: make it a game between two parties with equal access to privileged information and fundamentally different motivations, who are forced to fight in the real market rather than the expectations market.

In the sports examples that Martin cites, this other party comprises individual players. Thoughtfully enabled free agency was a big part of what made the NFL formula work. Pitting individual players against teams creates a contest between equally powerful forces.

The natural conclusion is that you need to enable serious free agency in the working population with respect to their “teams” (corporations). From portable health insurance and IP regimes that favor individuals to protection for whistle-blowers and venture capital markets that are stacked in favor of entrepreneurs rather than VCs, plenty can be done to create a very interesting new dialectic for capitalism.

When individuals, ranging from good to slightly evil to totally evil, find that they can do more with their skills and information in the real market than in the expectations market, innovation will shift to the real game instead of being focused on the design of ever more incomprehensible derivative instruments and frenzied loophole-chasing.

Why does Martin miss this obvious argument and insistently return to authentic executives and delighted customers? How does he manage to miss the biggest source of real information in the business world, the large mass of employees?

I am not sure.  Possibly it is due to past failures to mobilize this class via a challenge to capitalism itself (i.e., socialism). Or perhaps it is something else.

August is always a bitch of a month for me, to the point that I agree with David Plotz of Slate that we should get rid of it entirely. It seems to be my de facto annual planning month, though I have no reason anymore to be on an annual planning cycle. In August, I always seem to have far too many things in early stages of development, and too few leaving at the other end. I am currently in the early stages of several rather ambitious blog posts, a couple of new consulting projects and a couple of new personal projects. This year, thanks to my summer travels (I am back in Las Vegas now), I also have piles of unprocessed raw material from stuff I researched on the road, to write about.

So that’s a long, whiny excuse for rather sparse output over the last several weeks. I think I’ve hit my August trough though, so I can only build up momentum from here. But in the meantime, I assume many of you are on vacation, or planning to go on vacation, so I thought I’d share my current reading list, if any of you want to read along. Some of this will show up on the blog, some will not. My reading list piles up so fast that I’ve decided to be brutal. This list is it for the rest of the year. I will not be adding more books to the queue until I am done with these.

1. Titan by Ron Chernow: Multiple people have recommended this Rockefeller biography to me.
2. Tycoons by Charles Morris: Seems like a good overview of the Robber Barons
3. The First Tycoon by T. J. Stiles: A biography of Vanderbilt, probably the founding father of the Robber Baron era.
4. The Origins of Political Order by Francis Fukuyama: Don’t let the vague neocon associations dissuade you. There’s a reason this guy is so famous. If he writes a history of political order, you need to read it.
5. World 3.0 by Pankaj Ghemawat: As meaty as Friedman’s The World is Flat is not. I suspect it’s going to become the definitive textbook introduction to globalization for those who actually care about getting the details and numbers right. The title is unfortunately rather uninspired, but the contents are solid gold.
6. Fixing the Game by Roger L. Martin: Haven’t yet started it, but seems like a really intriguing premise: applying the lessons of the NFL to figuring out how capitalism should be fixed to avoid the kinds of messes we seem to keep getting into.
7. Quicksilver by Neal Stephenson: I rarely read fiction these days, but everybody keeps telling me to read Stephenson, so I finally caved, especially since it seemed to go well with the rest of this list.  This is the first volume of the Baroque Cycle. If I have time, I may attempt to finish all three volumes this year.
8. Debt: the first 5000 Years by David Graeber: I like ambitious reframings of everything from a new perspective, and this certainly qualifies. An attempt to rethink all of civilization and society as a manifestation of debt. If you want to sample before you decide, Julio Rodriguez at Wild Intent has attempted a valiant assault on this Mt. Everest scale book (ambition, not raw size).

Yes. There’s a definite theme here. No, the theme won’t take over the blog. I may even decide not to pursue it at all.

Mostly I am trying to flesh out the thinking around this year’s summer blockbuster hit, A Brief History of the Corporation to figure out just how deep the rabbit-hole goes. Though I hate to admit it, that piece did share some rather unpleasant characteristics with Michael Bay’s movies, so I am trying to think through some Oscar-season type follow ups.

Here’s to all of us seeing this beast of a month through. I’ll be in Hawaii over Labor Day weekend, so there is that to look forward to.

I don’t normally do straight-up reblogs here, but the new post, Unifying the Value Universe from Greg Rader at onthespiral.com is very relevant to some themes we are starting to attack here. It divides up value exchange into four types of economics: gift, transactional, relationship and attention that can be neatly arranged in a 2×2. As with any 2×2, the identification of the axis variables to use is key, and I think the ones Greg has picked really might be the right ones: relatedness of the parties and refinement of the value-add being exchanged (in the sense of rough vs. polished). Click on and read.  He has a more detailed analysis of how this diagram works and in particular, of transactions that cross quadrant boundaries.

On 8 June, a Scottish banker named Alexander Fordyce shorted the collapsing Company’s shares in the London markets. But a momentary bounce-back in the stock ruined his plans, and he skipped town leaving £550,000 in debt. Much of this was owed to the Ayr Bank, which imploded. In less than three weeks, another 30 banks collapsed across Europe, bringing trade to a standstill. On July 15, the directors of the Company applied to the Bank of England for a £400,000 loan. Two weeks later, they wanted another £300,000. By August, the directors wanted a £1 million bailout.  The news began leaking out and seemingly contrite executives, running from angry shareholders, faced furious Parliament members. By January, the terms of a comprehensive bailout were worked out, and the British government inserted its czars into the Company’s management to ensure compliance with its terms.

If this sounds eerily familiar, it shouldn’t. The year was 1772, exactly 239 years ago today, the apogee of power for the corporation as a business construct. The company was the British East India company (EIC). The bubble that burst was the East India Bubble. Between the founding of the EIC in 1600 and the post-subprime world of 2011, the idea of the corporation was born, matured, over-extended, reined-in, refined, patched, updated, over-extended again, propped-up and finally widely declared to be obsolete. Between 2011 and 2100, it will decline — hopefully gracefully — into a well-behaved retiree on the economic scene.

In its 400+ year history, the corporation has achieved extraordinary things, cutting around-the-world travel time from years to less than a day, putting a computer on every desk, a toilet in every home (nearly) and a cellphone within reach of every human.  It even put a man on the Moon and kinda-sorta cured AIDS.

So it is a sort of grim privilege for the generations living today to watch the slow demise of such a spectacularly effective intellectual construct. The Age of Corporations is coming to an end. The traditional corporation won’t vanish, but it will cease to be the center of gravity of economic life in another generation or two.  They will live on as religious institutions do today, as weakened ghosts of more vital institutions from centuries ago.

It is not yet time for the obituary (and that time may never come), but the sun is certainly setting on the Golden Age of corporations. It is time to review the memoirs of the corporation as an idea, and contemplate a post-corporate future framed by its gradual withdrawal from the center stage of the world’s economic affairs.

Framing Modernity and Globalization

For quite a while now, I have been looking for the right set of frames to get me started on understanding geopolitics and globalization. For a long time, I was misled by the fact that 90% of the available books frame globalization and the emergence of modernity in terms of the nation-state as the fundamental unit of analysis, with politics as the fundamental area of human activity that shapes things. On the face of it, this seems reasonable. Nominally, nation-states subsume economic activity, with even the most powerful multi-national corporations being merely secondary organizing schemes for the world.

But the more I’ve thought about it, the more I’ve been pulled towards a business-first perspective on modernity and globalization. As a result, this post is mostly woven around ideas drawn from five books that provide appropriate fuel for this business-first frame. I will be citing, quoting and otherwise indirectly using these books over several future posts, but I won’t be reviewing them. So if you want to follow the arguments more closely, you may want to read some or all of these. The investment is definitely worthwhile.

• The Corporation that Changed the World by Nick Robins, a history of the East India Company, a rather unique original prototype of the idea
• Monsoon by Robert Kaplan, an examination of the re-emergence of the Indian Ocean as the primary theater of global geopolitics in the 21st century
• The Influence of Sea Power Upon History: 1660-1783 by Alfred Thayer Mahan, a classic examination of how naval power is the most critical link between political, cultural, military and business forces.
• The Post-American World by Fareed Zakaria, an examination of the structure of the world being created, not by the decline of America, but by the “rise of the rest.”
• The Lever of Riches by Joel Mokyr, probably the most compelling model and account of how technological change drives the evolution of civilizations, through monotonic, path-dependent accumulation of changes

I didn’t settle on these five lightly. I must have browsed or partly-read-and-abandoned dozens of books about modernity and globalization before settling on these as the ones that collectively provided the best framing of the themes that intrigued me. If I were to teach a 101 course on the subject, I’d start with these as required reading in the first 8 weeks.

The human world, like physics, can be reduced to four fundamental forces: culture, politics, war and business. That is also roughly the order of decreasing strength, increasing legibility and partial subsumption of the four forces. Here is a visualization of my mental model:

Culture is the most mysterious, illegible and powerful force. It includes such tricky things as race, language and religion. Business, like gravity in physics, is the weakest and most legible: it can be reduced to a few basic rules and principles (comprehensible to high-school students) that govern the structure of the corporate form, and descriptive artifacts like macroeconomic indicators, microeconomic balance sheets, annual reports and stock market numbers.

But one quality makes gravity dominate at large space-time scales: gravity affects all masses and is always attractive, never repulsive.  So despite its weakness, it dominates things at sufficiently large scales. I don’t want to stretch the metaphor too far, but something similar holds true of business.

On the scale of days or weeks, culture, politics and war matter a lot more in shaping our daily lives. But those forces fundamentally cancel out over longer periods.  They are mostly noise, historically speaking. They don’t cause creative-destructive, unidirectional change (whether or not you think of that change as “progress” is a different matter).

Business though, as an expression of the force of unidirectional technological evolution, has a destabilizing unidirectional effect. It is technology, acting through business and Schumpeterian creative-destruction, that drives monotonic, historicist change, for good or bad. Business is the locus where the non-human force of technological change sneaks into the human sphere.

Of course, there is arguably some progress on all four fronts. You could say that Shakespeare represents progress with respect to Aeschylus, and Tom Stoppard with respect to Shakespeare.  You could say Obama understands politics in ways that say, Hammurabi did not. You could say that General Petraeus thinks of the problems of military strategy in ways that Genghis Khan did not. But all these are decidedly weak claims.

On the other hand the proposition that Facebook (the corporation) is in some ways a beast entirely beyond the comprehension of an ancient Silk Road trader seems vastly more solid. And this is entirely a function of the intimate relationship between business and technology. Culture is suspicious of technology. Politics is mostly indifferent to and above it. War-making uses it, but maintains an arms-length separation. Business? It gets into bed with it. It is sort of vaguely plausible that you could switch artists, politicians and generals around with their peers from another age and still expect them to function. But there is no meaningful way for a businessman from (say) 2000 BC to comprehend what Mark Zuckerberg does, let alone take over for him. Too much magical technological water has flowed under the bridge.

Arthur C. Clarke once said that any sufficiently advanced technology is indistinguishable from magic, but technology (and science) aren’t what create the visible magic. Most of the magic never leaves journal papers or discarded engineering prototypes. It is business that creates the world of magic, not technology itself. And the story of business in the last 400 years is the story of the corporate form.

There are some who treat corporate forms as yet another technology (in this case a technology of people-management), but despite the trappings of scientific foundations (usually in psychology) and engineering synthesis (we speak of organizational “design”), the corporate form is not a technology.  It is the consequence of a social contract like the one that anchors nationhood. It is a codified bundle of quasi-religious beliefs externalized into an animate form that seeks to preserve itself like any other living creature.

The Corporate View of history: 1600 – 2100

We are not used to viewing world history through the perspective of the corporation for the very good reason that corporations are a recent invention, and instances that had the ability to transform the world in magical ways did not really exist till the EIC was born. Businesses of course, have been around for a while. The oldest continuously surviving business, until recently, was Kongo Gumi, a Japanese temple construction business founded in 584 AD that finally closed its doors in 2009. Guilds and banks have existed since the 16th century. Trading merchants, who raised capital to fund individual ships or voyages, often with some royal patronage, were also not a new phenomenon.  What was new was the idea of a publicly traded joint-stock corporation, an entity with rights similar to those of states and individuals, with limited liability and significant autonomy (even in its earliest days, when corporations were formed for defined periods of time by royal charter).

This idea morphed a lot as it evolved (most significantly in the aftermath of the East India Bubble), but it retained a recognizable DNA throughout. Many authors such as Gary Hamel (The Future of Management), Tom Malone (The Future of Work) and Don Tapscott (Wikinomics) have talked about how the traditional corporate form is getting obsolete. But in digging around, I found to my surprise that nobody has actually attempted to meaningfully represent the birth-to-obsoloscence evolution of the idea of the corporation.

Here is my first stab at it (I am working on a much more detailed, data-driven timeline as a side project):

To understand history — world history in the fullest sense, not just economic history — from this perspective, you need to understand two important points about this evolution of corporations.

The Smithian/Schumpeterian Divide

The first point is that the corporate form was born in the era of Mercantilism, the economic ideology that (zero-sum) control of land is the foundation of all economic power.

In politics, Mercantilism led to balance-of-power models. In business, once the Age of Exploration (the 16th century) opened up the world, it led to mercantilist corporations focused on trade (if land is the source of all economic power, the only way to grow value faster than your land holdings permit, is to trade on advantageous terms).

The forces of radical technological change — the Industrial Revolution — did not seriously kick in until after nearly 200 years of corporate evolution (1600-1800) in a mercantilist mold. Mercantilist models of economic growth map to what Joel Mokyr calls Smithian Growth, after Adam Smith. It is worth noting here that Adam Smith published The Wealth of Nations in 1776, strongly influenced by his reading of the events surrounding the bursting of the East India Bubble in 1772 and debates in Parliament about its mismanagement.  Smith was both the prophet of doom for the Mercantilist corporation, and the herald of what came to replace it: the Schumpeterian corporation. Mokyr characterizes the growth created by the latter as Schumpeterian growth.

The corporate form therefore spent almost 200 years — nearly half of its life to date — being shaped by Mercantilist thinking, a fundamentally zero-sum way of viewing the world. It is easy to underestimate the impact of this early life since the physical form of modern corporations looks so different. But to the extent that organizational forms represent externalized mental models, codified concepts and structure-following-strategy (as Alfred Chandler eloquently put it), the corporate form contains the inertia of that early formative stage.

In fact, in terms of the two functions that Drucker considered the only essential ones in business, marketing and innovation, the Mercantilist corporation lacked one. The archetypal Mercantilist corporation, the EIC, understood marketing intimately and managed demand and supply with extraordinary accuracy. But it did not innovate.

Innovation was the function grafted onto the corporate form by the possibility of Schumpeterian growth, but it would take nearly an entire additional century for the function to be properly absorbed into corporations. It was not until after the American Civil War and the Gilded Age that businesses fundamentally reorganized around (as we will see) time instead of space, which led, as we will see, to a central role for ideas and therefore the innovation function.

The Black Hills Gold Rush of the 1870s, the focus of the Deadwood saga, was in a way the last hurrah of Mercantilist thinking. William Randolph Hearst, the son of gold mining mogul George Hearst who took over Deadwood in the 1870s, made his name with newspapers. The baton had formally been passed from mercantilists to schumpeterians.

This divide between the two models can be placed at around 1800, the nominal start date of the Industrial Revolution, as the ideas of Renaissance Science met the energy of coal to create a cocktail that would allow corporations to colonize time.

Reach versus Power

The second thing to understand about the evolution of the corporation is that the apogee of power did not coincide with the apogee of reach. In the 1780s, only a small fraction of humanity was employed by corporations, but corporations were shaping the destinies of empires. In the centuries that followed the crash of 1772, the power of the corporation was curtailed significantly, but in terms of sheer reach, they continued to grow, until by around 1980, a significant fraction of humanity was effectively being governed by corporations.

I don’t have numbers for the whole world, but for America, less than 20% of the population had paycheck incomes in 1780, and over 80% in 1980, and the percentage has been declining since (I have cited these figures before; they are from Gareth Morgan’s Images of Organization and Dan Pink’s Free Agent Nation). Employment fraction is of course only one of the many dimensions of corporate power (which include economic, material, cultural, human and political forms of power), but this graph provides some sense of the numbers behind the rise and fall of the corporation as an idea.

It is tempting to analyze corporations in terms of some measure of overall power, which I call “reach.” Certainly corporations today seem far more powerful than those of the 1700s, but the point is that the form is much weaker today, even though it has organized more of our lives. This is roughly the same as the distinction between fertility of women and population growth: the peak in fertility (a per-capita number) and peak in population growth rates (an aggregate) behave differently.

To make sense of the form, the divide between the Smithian and Schumpeterian growth epochs is much more useful than the dynamics of reach. This gives us a useful 3-phase model of the history of the corporation: the Mercantilist/Smithian era from 1600-1800, the Industrial/Schumpeterian era from 1800 – 2000 and finally, the era we are entering, which I will dub the Information/Coasean era. By a happy accident, there is a major economist whose ideas help fingerprint the economic contours of our world: Ronald Coase.

This post is mainly about the two historical phases, and are in a sense a macro-prequel to the ideas I normally write about which are more individual-focused and future-oriented.

I: Smithian Growth and the Mercantilist Economy (1600 – 1800)

The story of the old corporation and the sea

It is difficult for us in 2011, with Walmart and Facebook as examples of corporations that significantly control our lives, to understand the sheer power the East India Company exercised during its heyday. Power that makes even the most out-of-control of today’s corporations seem tame by comparison. To a large extent, the history of the first 200 years of corporate evolution is the history of the East India Company. And despite its name and nation of origin, to think of it as a corporation that helped Britain rule India is to entirely misunderstand the nature of the beast.

Two images hint at its actual globe-straddling, 10x-Walmart influence: the image of the Boston Tea Partiers dumping crates of tea into the sea during the American struggle for independence, and the image of smoky opium dens in China. One image symbolizes the rise of a new empire. The other marks the decline of an old one.

The East India Company supplied both the tea and the opium.

At a broader level, the EIC managed to balance an unbalanced trade equation between Europe and Asia whose solution had eluded even the Roman empire. Massive flows of gold and silver from Europe to Asia via the Silk and Spice routes had been a given in world trade for several thousand years. Asia simply had far more to sell than it wanted to buy. Until the EIC came along

A very rough sketch of how the EIC solved the equation reveals the structure of value-addition in the mercantilist world economy.

The EIC started out by buying textiles from Bengal and tea from China in exchange for gold and silver.

Then it realized it was playing the same sucker game that had trapped and helped bankrupt Rome.

Next, it figured out that it could take control of the opium industry in Bengal, trade opium for tea in China with a significant surplus, and use the money to buy the textiles it needed in Bengal. Guns would be needed.

As a bonus, along with its partners, it participated in yet another clever trade: textiles for slaves along the coast of Africa, who could be sold in America for gold and silver.

For this scheme to work, three foreground things and one background thing had to happen: the corporation had to effectively take over Bengal (and eventually all of India), Hong Kong (and eventually, all of China, indirectly) and England. Robert Clive achieved the first goal by 1757. An employee of the EIC, William Jardine, founded what is today Jardine Matheson, the spinoff corporation most associated with Hong Kong and the historic opium trade. It was, during in its early history, what we would call today a narco-terrorist corporation; the Taliban today are kindergarteners in that game by comparison. And while the corporation never actually took control of the British Crown, it came close several times, by financing the government during its many troubles.

The background development was simpler. England had to take over the oceans and ensure the safe operations of the EIC.

Just how comprehensively did the EIC control the affairs of states? Bengal is an excellent example. In the 1600s and the first half of the 1700s, before the Industrial Revolution, Bengali textiles were the dominant note in the giant sucking sound drawing away European wealth (which was flowing from the mines and farms of the Americas). The European market, once the EIC had shoved the Dutch VOC aside, constantly demanded more and more of an increasing variety of textiles, ignoring the complaining of its own weavers. Initially, the company did no more than battle the Dutch and Portuguese on water, and negotiate agreements to set up trading posts on land. For a while, it played by the rules of the Mughal empire and its intricate system of economic control based on various imperial decrees and permissions. The Mughal system kept the business world firmly subservient to the political class, and ensured a level playing field for all traders. Bengal in the 17th and 18th centuries was a cheerful drama of Turks, Arabs, Armenians, Indians, Chinese and Europeans. Trade in the key commodities, textiles, opium, saltpeter and betel nuts, was carefully managed to keep the empire on top.

But eventually, as the threat from the Dutch was tamed, it became clear that the company actually had more firepower at its disposal than most of the nation-states it was dealing with. The realization led to the first big domino falling, in the corporate colonization of India, at the battle of Plassey. Robert Clive along with Indian co-conspirators managed to take over Bengal, appoint a puppet Nawab, and get himself appointed as the Mughal diwan (finance minister/treasurer) of the province of Bengal, charged with tax collection and economic administration on behalf of the weakened Mughals, who were busy destroying their empire. Even people who are familiar enough with world history to recognize the name Robert Clive rarely understand the extent to which this was the act of a single sociopath within a dangerously unregulated corporation, rather than the country it was nominally subservient to (England).

This history doesn’t really stand out in sharp relief until you contrast it with the behavior of modern corporations. Today, we listen with shock to rumors about the backroom influence of corporations like Halliburton or BP, and politicians being in bed with the business leaders in the Too-Big-to-Fail companies they are supposed to regulate.

The EIC was the original too-big-to-fail corporation. The EIC was the beneficiary of the original Big Bailout. Before there was TARP, there was the Tea Act of 1773 and the Pitt India Act of 1783. The former was a failed attempt to rein in the EIC, which cost Britain the American Colonies.  The latter created the British Raj as Britain doubled down in the east to recover from its losses in the west. An invisible thread connects the histories of India and America at this point. Lord Cornwallis, the loser at the Siege of Yorktown in 1781 during the revolutionary war, became the second Governor General of India in 1786.

But these events were set in motion over 30 years earlier, in the 1750s. There was no need for backroom subterfuge.  It was all out in the open because the corporation was such a new beast, nobody really understood the dangers it represented. The EIC maintained an army. Its merchant ships often carried vastly more firepower than the naval ships of lesser nations. Its officers were not only not prevented from making money on the side, private trade was actually a perk of employment (it was exactly this perk that allowed William Jardine to start a rival business that took over the China trade in the EIC’s old age).  And finally — the cherry on the sundae — there was nothing preventing its officers like Clive from simultaneously holding political appointments that legitimized conflicts of interest. If you thought it was bad enough that Dick Cheney used to work for Halliburton before he took office, imagine if he’d worked there while in office, with legitimate authority to use his government power to favor his corporate employer and make as much money on the side as he wanted, and call in the Army and Navy to enforce his will. That picture gives you an idea of the position Robert Clive found himself in, in 1757.

He made out like a bandit. A full 150 years before American corporate barons earned the appellation “robber.”

In the aftermath of Plassey, in his dual position of Mughal diwan of Bengal and representative of the EIC with permission to make money for himself and the company, and the armed power to enforce his will, Clive did exactly what you’d expect an unprincipled and enterprising adventurer to do. He killed the golden goose. He squeezed the Bengal textile industry dry for profits, destroying its sustainability. A bubble in London and a famine in Bengal later, the industry collapsed under the pressure (Bengali economist Amartya Sen would make his bones and win the Nobel two centuries later, studying such famines). With industrialization and machine-made textiles taking over in a few decades, the economy had been destroyed. But by that time the EIC had already moved on to the next opportunities for predatory trade: opium and tea.

The East India bubble was a turning point. Thanks to a rare moment of the Crown being more powerful than the company during the bust, the bailout and regulation that came in the aftermath of the bubble fundamentally altered the structure of the EIC and the power relations between it and the state. Over the next 70 years, political, military and economic power were gradually separated and modern checks and balances against corporate excess came into being.

The whole intricate story of the corporate takeover of Bengal is told in detail in Robins’ book. The Battle of Plassey is actually almost irrelevant; most of the action was in the intrigue that led up to it, and followed. Even if you have some familiarity with Indian and British history during that period, chances are you’ve never drilled down into the intricate details. It has all the elements of a great movie: there is deceit, forgery of contracts, licensing frauds, murder, double-crossing, arm-twisting and everything else you could hope for in a juicy business story.

As an enabling mechanism, Britain had to rule the seas, comprehensively shut out the Dutch, keep France, the Habsburgs, the Ottomans (and later Russia) occupied on land, and have enough firepower left over to protect the EIC’s operations when the EIC’s own guns did not suffice. It is not too much of a stretch to say that for at least a century and a half, England’s foreign policy was a dance in Europe in service of the EIC’s needs on the oceans. That story, with much of the action in Europe, but most of the important consequences in America and Asia, is told in Mahan’s book. (Though boats were likely invented before the wheel, surprisingly, the huge influence of sea power upon history was not generally recognized until Mahan wrote his classic. The book is deep and dense. It’s worth reading just for the story of how Rome defeated Carthage through invisible negative-space non-action on the seas by the Roman Navy. I won’t dive into the details here, except to note that Mahan’s book is the essential lens you need to understand the peculiar military conditions in the 17th and 18th centuries that made the birth of the corporation possible.)

To read both books is to experience a process of enlightenment. An illegible period of world history suddenly becomes legible.  The broad sweep of world history between 1500-1800 makes no real sense (between approximately the decline of Islam and the rise of the British Empire) except through the story of the EIC and corporate mercantilism in general.

The short version is as follows.

Constantinople fell to the Ottomans in 1453 and the last Muslim ruler was thrown out of Spain in 1492, the year Columbus sailed the ocean blue. Vasco de Gama found a sea route to India in 1498. The three events together caused a defensive consolidation of Islam under the later Ottomans, and an economic undermining of the Islamic world (a process that would directly lead to the radicalization of Islam under the influence of religious leaders like Abd-al Wahhab (1703-1792)).

The 16th century makes a vague sort of sense as the “Age of Exploration,” but it really makes a lot more sense as the startup/first-mover/early-adopter phase of the corporate mercantilism. The period was dominated by the daring pioneer spirit of Spain and Portugal, which together served as the Silicon Valley of Mercantilism. But the maritime business operations of Spain and Portugal turned out to be the MySpace and Friendster of Mercantilism: pioneers who could not capitalize on their early lead.

Conventionally, it is understood that the British and the Dutch were the ones who truly took over. But in reality, it was two corporations that took over: the EIC and the VOC (the Dutch East India Company,  Vereenigde Oost-Indische Compagnie, founded one year after the EIC) the Facebook and LinkedIn of Mercantile economics respectively. Both were fundamentally more independent of the nation states that had given birth to them than any business entities in history. The EIC more so than the VOC.  Both eventually became complex multi-national beasts.

A lot of other stuff happened between 1600 – 1800. The names from world history are familiar ones: Elizabeth I, Louis XIV, Akbar, the Qing emperors (the dynasty is better known than individual emperors) and the American Founding Fathers. The events that come to mind are political ones: the founding of America, the English Civil War, the rise of the Ottomans and Mughals.

The important names in the history of the EIC are less well-known: Josiah Child, Robert Clive, Warren Hastings. The events, like Plassey, seem like sideshows on the margins of land-based empires.

The British Empire lives on in memories, museums and grand monuments in two countries. Company Raj is largely forgotten. The Leadenhall docks in London, the heart of the action, have disappeared today under new construction.

But arguably, the doings of the EIC and VOC on the water were more important than the pageantry on land.  Today the invisible web of container shipping serves as the bloodstream of the world. Its foundations were laid by the EIC.

For nearly two centuries they ruled unchallenged, until finally the nations woke up to their corporate enemies on the water. With the reining in and gradual decline of the EIC between 1780 and 1857, the war between the next generation of corporations and nations moved to a new domain: the world of time.

The last phase of Mercantilism eventually came to an end by the 1850s, as events ranging from the first war of Independence in India (known in Britain as the Sepoy Mutiny), the first Opium War and Perry prying Japan open signaled the end of the Mercantilist corporation worldwide. The EIC wound up its operations in 1876. But the Mercantilist corporation died many decades before that as an idea. A new idea began to take its place in the early 19th century: the Schumpeterian corporation that controlled, not trade routes, but time. It added the second of the two essential Druckerian functions to the corporation: innovation.

II. Schumpeterian Growth and the Industrial Economy (1800 – 2000)

The colonization of time and the apparently endless frontier

To understand what changed in 1800, consider this extremely misleading table about GDP shares of different countries, between 1600-1870. There are many roughly similar versions floating around in globalization debates, and the numbers are usually used gleefully to shock people who have no sense of history.  I call this the “most misleading table in the world.”

Chinese and Indian jingoists in particular, are prone to misreading this table as evidence that colonization “stole” wealth from Asia (the collapse of GDP share for China and India actually went much further, into the low single digits, in the 20th century). The claim of GDP theft is true if you use a zero-sum Mercantilist frame of reference (and it is true in a different sense of “steal” that this table does not show).

But the Mercantilist model was already sharply declining by 1800.

Something else was happening, and Fareed Zakaria, as far as I know, is the only major commentator to read this sort of table correctly, in The Post-American World. He notes that what matters is not absolute totals, but per-capita productivity.

We get a much clearer picture of the real standing of countries if we consider economic growth and GDP per capita. Western Europe GDP per capita was higher than that of both China and India by 1500; by 1600 it was 50% higher than China’s. From there, the gap kept growing. Between 1350 and 1950 — six hundred years — GDP per capita remained roughly constant in India and China (hovering around $600 for China and $550 for India). In the same period, Western European GDP per capita went from $662 to $4,594, a 594 percent increase.

Sure, corporations and nations may have been running on Mercantilist logic, but the undercurrent of Schumpeterian growth was taking off in Europe as early as 1500 in the less organized sectors like agriculture. It was only formally recognized and tamed in the early 1800s, but the technology genie had escaped.

The action shifted to two huge wildcards in world affairs of the 1800s: the newly-born nation of America and the awakening giant in the east, Russia. Per capita productivity is about efficient use of human time. But time, unlike space, is not a collective and objective dimension of human experience. It is a private and subjective one. Two people cannot own the same piece of land, but they can own the same piece of time.  To own space, you control it by force of arms. To own time is to own attention. To own attention, it must first be freed up, one individual stream of consciousness at a time.

The Schumpeterian corporation was about colonizing individual minds. Ideas powered by essentially limitless fossil-fuel energy allowed it to actually pull it off.

By the mid 1800s, as the EIC and its peers declined, the battle seemingly shifted back to land, especially in the run-up to and aftermath of, the American Civil War. I haven’t made complete sense of the Russian half of the story, but that peaked later and ultimately proved less important than the American half, so it is probably reaosonably safe to treat the story of Schumpeterian growth as an essentially American story.

If the EIC was the archetype of the Mercantilist era, the Pennsylvania Railroad company was probably the best archetype for the Schumpeterian corporation. Modern corporate management as well Soviet forms of statist governance can be traced back to it. In many ways the railroads solved a vastly speeded up version of the problem solved by the EIC: complex coordination across a large area.  Unlike the EIC though, the railroads were built around the telegraph, rather than postal mail, as the communication system. The difference was like the difference between the nervous systems of invertebrates and vertebrates.

If the ship sailing the Indian Ocean ferrying tea, textiles, opium and spices was the star of the mercantilist era, the steam engine and steamboat opening up America were the stars of the Schumpeterian era. Almost everybody misunderstood what was happening. Traveling up and down the Mississippi, the steamboat seemed to be opening up the American interior. Traveling across the breadth of America, the railroad seemed to be opening up the wealth of the West, and the great possibilities of the Pacific Ocean.

Those were side effects. The primary effect of steam was not that it helped colonize a new land, but that it started the colonization of time. First, social time was colonized. The anarchy of time zones across the vast expanse of America was first tamed by the railroads for the narrow purpose of maintaining train schedules, but ultimately, the tools that served to coordinate train schedules: the mechanical clock and time zones, served to colonize human minds.  An exhibit I saw recently at the Union Pacific Railroad Museum in Omaha clearly illustrates this crucial fragment of history:

The steam engine was a fundamentally different beast than the sailing ship. For all its sophistication, the technology of sail was mostly a very-refined craft, not an engineering discipline based on science. You can trace a relatively continuous line of development, with relatively few new scientific or mathematical ideas, from early Roman galleys, Arab dhows and Chinese junks, all the way to the amazing Tea Clippers of the mid 19th century (Mokyr sketches out the story well, as does Mahan, in more detail).

Steam power though was a scientific and engineering invention. Sailing ships were the crowning achievements of the age of craft guilds. Steam engines created, and were created by engineers, marketers and business owners working together with (significantly disempowered) craftsmen in genuinely industrial modes of production. Scientific principles about gases, heat, thermodynamics and energy applied to practical ends, resulting in new artifacts. The disempowerment of craftsmen would continue through the Schumpeterian age, until Fredrick Taylor found ways to completely strip mine all craft out of the minds of craftsmen, and put it into machines and the minds of managers. It sounds awful when I put it that way, and it was, in human terms, but there is no denying that the process was mostly inevitable and that the result was vastly better products.

The Schumpeterian corporation did to business what the doctrine of Blitzkrieg would do to warfare in 1939: move humans at the speed of technology instead of moving technology at the speed of humans. Steam power used the coal trust fund (and later, oil) to fundamentally speed up human events and decouple them from the constraints of limited forms of energy such as the wind or human muscles. Blitzkrieg allowed armies to roar ahead at 30-40 miles per hour instead of marching at 5 miles per hour. Blitzeconomics allowed the global economy to roar ahead at 8% annual growth rates instead of the theoretical 0% average across the world for Mercantilist zero-sum economics. “Progress” had begun.

The equation was simple: energy and ideas turned into products and services could be used to buy time. Specifically, energy and ideas could be used to shrink autonomously-owned individual time and grow a space of corporate-owned time, to be divided between production and consumption. Two phrases were invented to name the phenomenon: productivity meant shrinking autonomously-owned time. Increased standard of living through time-saving devices became code for the fact that the “freed up” time through “labor saving” devices was actually the de facto property of corporations. It was a Faustian bargain.

Many people misunderstood the fundamental nature of Schumpeterian growth as being fueled by ideas rather than time. Ideas fueled by energy can free up time which can then partly be used to create more ideas to free up more time. It is a positive feedback cycle,  but with a limit. The fundamental scarce resource is time. There is only one Earth worth of space to colonize. Only one fossil-fuel store of energy to dig out. Only 24 hours per person per day to turn into capitive attention.

Among the people who got it wrong was my favorite visionary, Vannevar Bush, who talked of science: the endless frontier. To believe that there is an arguably limitless supply of valuable ideas waiting to be discovered is one thing. To argue that they constitute a limitless reserve of value for Schumpeterian growth to deliver is to misunderstand how ideas work: they are only valuable if attention is efficiently directed to the right places to discover them and energy is used to turn them into businesses, and Arthur-Clarke magic.

It is fairly obvious that Schumpeterian growth has been fueled so far by reserves of fossil fuels. It is less obvious that it is also fueled by reserves of collectively-managed attention.

For two centuries, we burned coal and oil without a thought. Then suddenly, around 1980, Peak Oil seemed to loom menacingly closer.

For the same two centuries it seemed like time/attention reserves could be endlessly mined. New pockets of attention could always be discovered, colonized and turned into wealth.

Then the Internet happened, and we discovered the ability to mine time as fast as it could be discovered in hidden pockets of attention. And we discovered limits.

And suddenly a new peak started to loom: Peak Attention.

III. Coasean Growth and the Perspective Economy

Peak Attention and Alternative Attention Sources

I am not sure who first came up with the term Peak Attention, but the analogy to Peak Oil is surprisingly precise. It has its critics, but I think the model is basically correct.

Peak Oil refers to a graph of oil production with a maximum called Hubbert’s peak, that represents peak oil production. The theory behind it is that new oil reserves become harder to find over time, are smaller in size, and harder to mine. You have to look harder and work harder for every new gallon, new wells run dry faster than old ones, and the frequency of discovery goes down. You have to drill more.

There is certainly plenty of energy all around (the Sun and the wind, to name two sources), but oil represents a particularly high-value kind.

Attention behaves the same way. Take an average housewife, the target of much time mining early in the 20th century. It was clear where her attention was directed. Laundry, cooking, walking to the well for water, cleaning, were all obvious attention sinks. Washing machines, kitchen appliances, plumbing and vacuum cleaners helped free up a lot of that attention, which was then immediately directed (as corporate-captive attention) to magazines and television.

But as you find and capture most of the wild attention, new pockets of attention become harder to find. Worse, you now have to cannibalize your own previous uses of captive attention. Time for TV must be stolen from magazines and newspapers. Time for specialized entertainment must be stolen from time devoted to generalized entertainment.

Sure, there is an equivalent to the Sun in the picture. Just ask anyone who has tried mindfulness meditation, and you’ll understand why the limits to attention (and therefore the value of time) are far further out than we think.

The point isn’t that we are running out of attention. We are running out of the equivalent of oil: high-energy-concentration pockets of easily mined fuel.

The result is a spectacular kind of bubble-and-bust.

Each new pocket of attention is harder to find: maybe your product needs to steal attention from that one TV obscure show watched by just 3% of the population between 11:30 and 12:30 AM. The next displacement will fragment the attention even more. When found, each new pocket is less valuable. There is a lot more money to be made in replacing hand-washing time with washing-machine plus magazine time, than there is to be found in replacing one hour of TV with a different hour of TV.

What’s more, due to the increasingly frantic zero-sum competition over attention, each new “well” of attention runs out sooner. We know this idea as shorter product lifespans.

So one effect of Peak Attention is that every human mind has been mined to capacity using attention-oil drilling technologies. To get to Clay Shirky’s hypothetical notion of cognitive surplus, we need Alternative Attention sources.

To put it in terms of per-capita productivity gains, we hit a plateau.

We can now connect the dots to Zakaria’s reading of global GDP trends, and explain why the action is shifting back to Asia, after being dominated by Europe for 600 years.

Europe may have increased per capita productivity 594% in 600 years, while China and India stayed where they were, but Europe has been slowing down and Asia has been catching up. When Asia hits Peak Attention (America is already past it, I believe), absolute size, rather than big productivity differentials, will again define the game, and the center of gravity of economic activity will shift to Asia.

If you think that’s a long way off, you are probably thinking in terms of living standards rather than attention and energy. In those terms, sure, China and India have a long way to go before catching up with even Southeast Asia. But standard of living is the wrong variable. It is a derived variable, a function of available energy and attention supply. China and India will never catch up (though Western standards of living will decline), but Peak Attention will hit both countries nevertheless. Within the next 10 years or so.

What happens as the action shifts? Kaplan’s Monsoon frames the future in possibly the most effective way. Once again, it is the oceans, rather than land, that will become the theater for the next act of the human drama. While American lifestyle designers are fleeing to Bali, much bigger things are afoot in the region.

And when that shift happens, the Schumpeterian corporation, the oil rig of human attention, will start to decline at an accelerating rate. Lifestyle businesses and other oddball contraptions — the solar panels and wind farms of attention economics — will start to take over.

It will be the dawn of the age of Coasean growth.

Adam Smith’s fundamental ideas helped explain the mechanics of Mercantile economics and the colonization of space.

Joseph Schumpeter’s ideas helped extend Smith’s ideas to cover Industrial economics and the colonization of time.

Ronald Coase turned 100 in 2010. He is best known for his work on transaction costs, social costs and the nature of the firm. Where most classical economists have nothing much to say about the corporate form, for Coase, it has been the main focus of his life.

Without realizing it, the hundreds of entrepreneurs, startup-studios and incubators, 4-hour-work-weekers and lifestyle designers around the world, experimenting with novel business structures and the attention mining technologies of social media, are collectively triggering the age of Coasean growth.

Coasean growth is not measured in terms of national GDP growth. That’s a Smithian/Mercantilist measure of growth.

It is also not measured in terms of 8% returns on the global stock market.  That is a Schumpeterian growth measure. For that model of growth to continue would be a case of civilizational cancer (“growth for the sake of growth is the ideology of the cancer cell” as Edward Abbey put it).

Coasean growth is fundamentally not measured in aggregate terms at all. It is measured in individual terms. An individual’s income and productivity may both actually decline, with net growth in a Coasean sense.

How do we measure Coasean growth? I have no idea. I am open to suggestions. All I know is that the metric will need to be hyper-personalized and relative to individuals rather than countries, corporations or the global economy. There will be a meaningful notion of Venkat’s rate of Coasean growth, but no equivalent for larger entities.

The fundamental scarce resource that Coasean growth discovers and colonizes is neither space, nor time. It is perspective.

The bad news: it too is a scarce resource that can be mined to a Peak Perspective situation.

The good news: you will likely need to colonize your own unclaimed perspective territory. No collectivist business machinery will really be able to mine it out of you.

Those are stories for another day. Stay tuned.

Note #1: This post weighs in at over 7000 words and is a new record for me.

Note #2: I hope those of you who have read Tempo got about 34.2% more value out of this post.

Note #3: Yeah, I am opening up a new blogging battlefront, after nearly two years of pussyfooting around geopolitics and globalization via things like container shipping and garbage. Frankly, I’ve been meaning to for a while, but simply wasn’t ready.

I pride myself on my hard-won sense of history. World history is probably the subject I’ve studied the most on my own, starting with Somerset Plantagenet Fry’s beautifully illustrated  DK History of the World at age 15.  I studied the thing obsessively for nearly a year, taking copious notes and neglecting my school history syllabus. It’s been the best intellectual investment of my life. Since then, I periodically return to history to refresh my brain whenever I think it my thinking is getting stale. Most recently, I’ve been reading Gibbon’s Decline and Fall of the Roman Empire and Alfred Thayer Mahan’s The Influence of Sea Power Upon History. My tastes have gradually shifted from straightforward histories by modern historians to analytical histories with a specific angle, preferably written by historians from eras besides our own.

The big value to studying world history is that no matter how much you know or think you know, one new fact can completely rewire your perspectives. The biggest such surprise for me was understanding the real story (or as real as history ever gets) of how iron came to displace bronze, and what truly happened in the shift between the Bronze Age and the Iron Age.

What comes to mind when you think “bronze?” Hand-crafted artifacts, right?

What about iron? Big, modern, steel mills and skyscrapers, right? Iron metallurgy is obviously the more advanced and sophisticated industry in our time.

The Iron Age displaced the Bronze Age sometime in the late second millennium BC. The way the story is usually told, iron was what powered the rise of the obscure barbarian-nomads known as the Aryans throughout the ancient world.

You could be forgiven for thinking that this was a sudden event based on iron being suddenly discovered and turning out to be a “superior” material for weaponry, and the advantage accidentally happening to fall to the barbarian-nomads rather than the civilization centers.

Far from it.

Here’s the real (or “less wrong”) story in outline.

The Clue in the Tin

You see iron and bronze co-existed for a long time. Iron is a plentiful element, and can be found in relatively pure forms in meteorites (think of meteorites as the starter kits for iron metallurgy). Visit a geological museum sometime to see for yourself (I grew up in a steel town).

It is hard to smelt and work, but basically once you figure out some rudimentary metallurgy and can generate sufficiently high temperatures to work it, you can handle iron, at least in crude, brittle and easily rusted forms. Not quite steel, but then who cares about rust and extreme hardness if the objective is to split open the skull of another guy in the next 10 seconds.

Bronze on the other hand is a very difficult material to handle. There have been two forms in antiquity. The earlier Bronze Age was dominated by what is known as arsenical bronze. That’s copper alloyed with arsenic to make it harder. That’s not very different from iron. Copper is much scarcer and less widely-distributed of course, but it does occur all over the place. And fortunately, when you do find it, copper usually has trace arsenic contamination in its natural form. So you are starting with all the raw material you need.

The later Bronze Age though, relied on a much better material: tin bronze. Now this is where the story gets interesting. Tin is an extremely rare element. It only occurs in usable concentrations in a few isolated locations worldwide.

In fact known sources during the Bronze Age were in places like England, France, the Czech Republic and the Malay peninsula. Deep in barbarian-nomad lands of the time. As far as we can tell, tin was first mined somewhere in the Czech Republic around 2500 BC, and the practice spread to places like Britain and France by about 2000.

Notice something about that list? They are very far from the major Bronze Age urban civilizations around the Nile, in the Middle East and in the Indus Valley, of 4000-2000 BC or so.

This immediately implies that there must have been a globalized long-distance trade in tin connecting the farthest corners of Europe (and possibly Malaya) with the heart of the ancient world. Not only that, you are forced to recognize that the metallurgists of the day must have had sophisticated and deliberate alloying methods, since you cannot assume, as you might be tempted to in the case of arsenical bronze, that the ancients didn’t really know what they were doing. You cannot produce tin-bronze by accident. Tin implies skills, accurate measurements, technology, guild-style education, and land and sea trade of sufficient sophistication that you can call it an “industry.”

What’s more, the use of tin also implies that the Bronze Age civilizations didn’t just sit around inside their borders, enjoying their urban lifestyles. They must have actually traded somehow with the far corners of the barbarian-nomad world that eventually conquered them. Clearly the precursors of the Aryans and other nomadic peoples of the Bronze Age (including the Celts in Europe, the ethnic Malays, and so forth) must have had a lot of active contact with the urban civilizations (naive students of history often don’t get that humans had basically dispersed through the entire known world by 10,000 BC; “civilization” may have spread from a few centers, but people didn’t spread that way, they spread much earlier).

In fact, tin almost defines “civilization”: only the 3-4 centers of urban civilization of that period had the coordination capabilities necessary to arrange for the shipping of tin over land and sea, across long distances. It is well recognized that they had trade with each other, with different trade imbalances (there is clear evidence of land and sea trade among the Mesopotamian, Nile and Indus river valleys; the Yellow River portions of China were a little more disconnected at that time).

What is not as well recognized is that the evidence of commodities like tin indicates that these civilizations must have also traded extensively with the barbarian-nomad worlds in their interstices and beyond their borders in every direction.  The iron-wielding barbarians were not shadowy strangers who suddenly descended on the urban centers out of the shadows. They were marginal peoples with whom the civilizations had relationships.

So tin implies the existence of sophisticated international trade. I suspect it even means that tin was the first true commodity money (commodity monies don’t just emerge based on their physical properties and value; they must provide a raison d’etre for trade over long distances).

Iron vs. Bronze

So what about iron? Since it was all over the place, we cannot trace the origins of iron smelting properly, and in a sense there is no good answer to the question “where was iron discovered?” It was in use as a peripheral metal for a long period before it displaced bronze (possibly inside the Bronze Age civilizations and the barbarian-nomad margins). As the Wikipedia article says, with reference to iron use before the Iron Age:

Meteoric iron, or iron-nickel alloy, was used by various ancient peoples thousands of years before the Iron Age. This iron, being in its native metallic state, required no smelting of ores.By the Middle Bronze Age, increasing numbers of smelted iron objects (distinguishable from meteoric iron by the lack of nickel in the product) appeared throughout Anatolia, Mesopotamia, the Indian subcontinent, the Levant, the Mediterranean, and Egypt. The earliest systematic production and use of iron implements originates in Anatolia, beginning around 2000 BCE. Recent archaeological research in the Ganges Valley, India showed early iron working by 1800 BC. However, this metal was expensive, perhaps because of the technical processes required to make steel, the most useful iron product. It is attested in both documents and in archaeological contexts as a substance used in high value items such as jewelry.

Unlike tin-bronze, which probably required a specific sequence of local inventions near the ore sources followed by diffusion, iron use could (and probably did) arise and evolve in multiple places in unrelated ways, because it didn’t depend on special ingredients. The idea that it might have been expensive enough, in the form of steel, to be jewelry, is reminiscent of the modern history of another metal: aluminum. Like iron, it is one of the most commonplace metals, and like iron, until a cheap manufacturing process was discovered, it was a noble metal. Rich people ate off aluminum ware and wore aluminum jewelry.

So you can tell a broader, speculative history: since you didn’t need complicated shipping and smelting to make a basic use of iron, its use could develop on the peripheries of civilization, among barbarian-nomads who didn’t demand the high quality that the tin-bronze markets did. Iron didn’t need the complicated industry that bronze did. What’s more, chances are, the bronze guilds were likely quite snooty about the crappy, rusty material outside of highly-refined and expensive jewelry uses.

But the margins, which didn’t have the tin trade or industry, had a good reason to pay attention to iron.  I speculate that for the barbarian-nomad cultures that were far from the Bronze Age urban centers, the upgrade that iron provided over stone, even with the problems of rust and brittleness that plagued primitive iron, was enough for them to take down the old Bronze-powered civilizations, and then leisurely evolve iron to its modern form. I suspect a bronze-leapfrogging transition from stone to iron happened in many places, as with cellphones today in Africa.

(aside, I assume there is an equally sophisticated story about how bronze displaced stone; neolithic stone age cultures like the ones the Europeans encountered in America, were far from grunting cave-dwellers. They had evolved stone use to a high art).

By the time iron got both good enough and cheap enough to take on bronze as a serious contender for uses like weaponry, the incumbent Bronze Age civilizations couldn’t catch up. The pre-industrial barbarian-nomads had the upper hand.

Iron didn’t completely displace bronze in weaponry until quite late. As late as Alexander’s conquests, he still used bronze; iron technology was not yet good enough at the highest levels of quality, but the point is, it was good enough initially for the marginal markets, and for masses of barbarian soldiers.

Sound familiar?

This is classic disruption in the sense of Clayton Christensen. An initially low-quality marginal market product (iron) getting better and eventually taking down the mainstream market (bronze), at a point where the incumbents could do nothing, despite the extreme sophistication of their civlization, with its evolved tin trading routes and deliberate metallurgical practices.

Rewinding History

Understanding the history of bronze and iron better has forced me to rewind my sense of when “history” proper starts by at least 11,000 years. The story has given me a new appreciation for how sophisticated human beings have been, and for how long. I used to think that truly psychologically modern humans didn’t emerge till about 1200 AD. The story of bronze made me rewind my assessments to 4000 BC. Now, though I don’t know the details (nobody does), I think psychologically modern human culture must have started no later than 10,000 BC, the approximate period of what is called the Neolithic revolution.

Now I think the most interesting period in history is probably 10,000 BC to 4,000 BC. Even 20,000 BC to 10,000 BC is fascinating (that’s when the caves in Lascaux were painted), but let’s march backwards one millennium at a time.

It is always interesting to recognize a simple pattern in your own thinking. Recently, I was wondering why I am so attracted to thinking about the margins of civilization, ranging from life on the ocean (for example, my review of The Outlaw Sea) to garbage, graffiti, extreme poverty and marginal lifestyles that I would never want to live myself, like being in a motorcycle gang. Lately, for instance, I have gotten insatiably curious about the various ways one can be non-mainstream. In response to a question I asked on Quora about words that mean “non mainstream,” I got a bunch of interesting responses, which I turned into this Wordle graphic (click image for bigger view)

Then it struck me: even in my qualitative thinking, I merely follow the basic principles of mathematical modeling, my primary hands-on techie skill. This interest of mine in “non mainstream” is more than a romantic attraction to dramatic things far from everyday life. My broader, more clinical interest is simply a case of instinctively paying attention to what are known as “boundary conditions” in mathematical modeling.

Mathematical Thought

To build mathematical models, you start by observing and brain-dumping everything you know about the problem, including key unknowns, onto paper.  This brain-dump is basically an unstructured take on what’s going on. There’s a big word for it: phenomenology. When I do a phenomenology-dumping brainstorm, I use a mix of qualitative notes, quotes, questions, little pictures, mind maps, fragments of equations, fragments of pseudo-code, made-up graphs, and so forth.

You then sort out three types of model building blocks in the phenomenology: dynamics, constraints and boundary conditions (technically all three are varieties of constraints, but never mind that).

Dynamics refers to how things change, and the laws govern those changes. Dynamics are front and center in mathematical thought. Insights come relatively easily when you are thinking about dynamics, and sudden changes in dynamics are usually very visible.  Dynamics is about things like the swinging behavior of pendulums.

Constraints are a little harder. It takes some practice and technical peripheral vision to learn to work elegantly with constraints. When constraints are created, destroyed, loosened or tightened, the changes are usually harder to notice, and the effects are often delayed or obscured. If I were to suddenly pinch the middle of the string of a swinging string-and-weight pendulum, it would start oscillating faster. But if you are paying attention only to the swinging dynamics, you may not notice that the actual noteworthy event is the introduction of a new constraint. You might start thinking, “there must be a new force that is pushing things along faster” and go hunting for that mysterious force.

This is a trivial example, but in more complex cases, you can waste a lot of time thinking unproductively about dynamics (even building whole separate dynamic models) when you should just be watching for changes in the pattern of constraints.

Inexperienced modelers are often bored by constraints because they are usually painful and dull to deal with. Unlike dynamics, which dance around in exciting ways, constraints just sit there, usually messing up the dancing. Constraints involve and tedious-to-model facts like “if the pendulum swings too widely, it will bounce off that wall.” Constraints are ugly when you first start dealing with them, but you learn to appreciate their beauty as you build more complex models.

Boundary conditions though, are the hardest of all. Most of the raw, primitive, numerical data in a mathematical modeling problem lives in the description of boundary conditions. The initial kick you might give a pendulum is an example.  The fact that the rim of a vibrating drum skin cannot move is a boundary condition. When boundary conditions change, the effects can be extremely weird, and hard to sort out, if you aren’t looking at the right boundaries.

The effects can also be very beautiful. I used to play the Tabla, and once you get past the basics, advanced skills involve manipulating the boundary conditions of the two drums. That’s where much of the beauty of Tabla drumming comes from. Beginners play in dull, metronomic ways. Virtuosos create their dizzy effects by messing with the boundary conditions.

In mathematical modeling, if you want to cheat and get to an illusion of understanding, you do so most often by simplifying the boundary conditions.  A circular drum is easy to analyze; a drum with a rim shaped like lake Erie is a special kind of torture that takes computer modeling to analyze.

A little tangential kick to a pendulum, which makes it swing mildly in a plane, is a simple physics homework problem. An off-tangent kick that causes the pendulum bob to jump up, making the string slacken, before bungeeing to tautness again, and starting to swing in an unpleasant conic, is an unholy mess to analyze.

But boundary conditions are where actual (as opposed to textbook) behaviors are born. And the more complex the boundary of a system, the less insight you can get out of a dynamics-and-constraints model that simplifies the boundary too much. Often, if you simplify boundary conditions too much, the behaviors that got you interested in the first place will vanish.

Dynamics, Constraints and Boundaries in Qualitative Thinking

Without realizing it, many smart people without mathematical training also gravitate towards thinking in terms of these three basic building blocks of models. In fact, it is probably likely that the non-mathematical approach is the older one, with the mathematical kind being a codified and derivative kind of thinking.

Historians are a great example. The best historians tend to have an intuitive grasp of this approach to building models using these three building blocks.  Here is how you can sort these three kinds of pieces out in your own thinking. It involves asking a set of questions when you begin to think about a complicated problem.

1. What are the patterns of change here? What happens when I do various things? What’s the simplest explanation here? (dynamics)
2. What can I not change, where are the limits? What can break if things get extreme? (constraints)
3. What are the raw numbers and facts that I need to actually do some detective work to get at, and cannot simply infer from what I already know? (boundary conditions).

Besides historians, trend analysts and fashionistas also seem to think this way. Notice something? Most of the action is in the third question. That’s why historians spend so much time organizing their facts and numbers.

This is also why mathematicians are disappointed when they look at the dynamics and constraints in models built by historians. Toynbee’s monumental work seems, to a dynamics-focused mathematical thinker, much ado about an approximate 2nd order under-damped oscillator (the cycle of Golden and Dark ages typical in history). Hegel’s historicism and “End of History” model appears to be a dull observation about an asymptotic state.

How the World Works

In a way, the big problem that interests me, which I try to think about through this blog, is simply “how does the world work?”

At this kind of scale, the hardest part of building good models is actually in wrestling with the enormous amount of “boundary conditions” data.  That’s where you either get up off the armchair, or turn to Google or Amazon.  Thinking about boundary conditions — organizing the facts and numbers in elegant ways — becomes an art form in its own right, and you have to work with stories, metaphors and various other crutches to get at the right set of raw data to inform your problem. Only after you’ve done that do dynamics and constraints get both tractable and interesting.

Abstractions and generalizations, if they can be built at all, live in the middle. Stories live on the periphery.

This is part of the reason I don’t like traditional mathematical models at “how the world works” scale, like System Dynamics. They ignore or oversimplify what I think is the main raw material of interest: boundary conditions. A theory of unemployment, slum growth and housing development cycles in big cities that ignores distinctions among vandalism, beggary and back-alley crime is, in my opinion, not a theory worth much. If you could explain elegantly why some cities in decline turn to crime, while others turn to vandalism or beggary, then you’d have interesting, high-leverage insights to work with.

It’s not surprising therefore, that one of the most seductive ideas in abstract thinking about history, the deceptively simple “center periphery” idea (basically, the idea that change and new historical trends emerge on the peripheries and in the interstices of “centers”) is extremely hard to analyze mathematically, since it involves a weird switcheroo between boundary conditions and center conditions. Some day, I’ll blog about center-periphery stuff. I have a huge, unprocessed phenomenology brain-dump on the subject somewhere.

So in a way, thinking about things like the words in the graphic is my way of wrapping my mind around the boundary conditions of the problem, “how does the world work?”  If I just made up a theory of the mainstream world based on mainstream dynamics, it would be very impoverished. It would offer an illusion of insight and zero predictive power.  A theory of the middle that completely breaks down at the boundaries and doesn’t explain the most interesting stories around us, is deeply unsatisfying.

I have proof that this approach is useful. Some of my most popular posts have come out of boundary conditions thinking. The Gervais Principle series was initially inspired by the question, “how is Office funny different from Dilbert funny?” That led me to thinking about marginal slackers inside organizations, who always live on the brink of being laid off. My post from last week, The Gollum Effect, came from pondering extreme couponers and hoarders at the edge of the mainstream.

So I operate by the vague heuristic that if I pay attention to things on the edge of the mainstream, ranging from motorcycle gangs to extreme couponers and hoarders, perhaps I can make more credible progress on big and difficult problems.

Or at least, that’s the leap of faith I make in most of my thinking.

Throughout the last year, I’ve been increasingly troubled by a set of vague thoughts centered on the word addiction.  Addiction as a concept has expanded for me, over the last few months, beyond its normal connotations, to encompass the entire consumer economy. Disturbing shows like Hoarders have contributed to my growing sense that conventional critiques of consumerism are either missing or marginalizing something central, and that addiction has something to do with it. These vague, troubling thoughts coalesced into a concrete idea a few weeks ago, when I watched this video of a hand supermodel talking about her work, in a way that I can only describe as creepy.

The concrete idea is something I call the Gollum effect.  It is a process by which regular humans are Gollumized: transformed into hollow shells of their former selves, defined almost entirely by their patterns of consumption.

The Creation and Consumption of Gollum

There is a sense in which Gollum, rather than Frodo, is the central protagonist in The Lord of the Rings, since his destiny is tied to the inanimate star of the show, the One Ring. He is the only character who truly rises above the standard two-dimensional archetypes of the fantasy genre, and elevates Tolkien’s works to a near-literary status.

Gollum is a real character. He does not evoke a one-dimensional emotional response such as identification, annoyance, pity, disgust, fear, suspicion or hate.  He evokes a full-spectrum response that involves all those feelings and more.

And yet paradoxically, he is in fact one-dimensional, almost as featureless as the object that holds him in thrall, the One Ring.

It is tempting to conclude that the featurelessness of the One Ring symbolizes the abstract nature of the malignancy of which it is an agent.  But you can read a much deeper meaning into the Lord of the Rings if you interpret the featurelessness as symbolizing purity and refinement: in the sense of cocaine.

That Gollum is the archetypal addict is not a particularly novel reading of the character. In their parody of The Lord of the Rings, the writers of South Park turned the character of Butters into Gollum, a newly-minted porn addict, following a porn video tape through the plot, calling it his “precious,” and ultimately falling into the tape return slot at the video store (Gollum falls into the fires of Mount Doom along with the One Ring).

Gollum is a creature created, and ultimately consumed by, the One Ring. Smeagol, the ordinary living being with a single fatal flaw, is transformed into a pure pattern of addictive consumption. He sustains the ring through its lost years, and is sustained by it.

If it weren’t for the spirit-like remnants of Smeagol in his character, Gollum would be no more than a dead finger defined entirely by the ring, a ring-wearing appendage. The ring only allows the ghost of Smeagol to persist because it brings with it the capacity for cunning, deception and trickery, which it needs to further its own objectives.

The ring itself though, remains unchanged by Smeagol-Gollum, even as it transforms and consumes him. It is important to note that the One Ring does not actually destroy Gollum till its own end is imminent; it keeps Gollum alive to serve.

I want to offer you this thought as a starting point for understanding Gollumization: consumerism is not about humans consuming products. It is about products consuming humans.

Again, this is not a novel thought, but it is marginalized to the status of a joke in our discourses around consumerism. In an episode of The Simpsons, for instance, a hippie tells Principal Skinner: “Do you own the car, or does your car own you? Simplify man!”

It is rather ironic that this potent and consequential message is only heard today from an impotent and inconsequential peripheral subculture that is so predictably ineffective, nothing need be done by the forces and institutions of consumerism that it threatens. In the hands of hippies, the message reduces itself to farce.

But Gollum is not truly the sort of hollowed-out and useless addict created by something like cocaine, a product that is more predatory than parasitic, since it destroys its host prematurely. The scariest thing about Gollum is that he is just functional and lucid enough to be usefully employable within the tale. This high-functioning state of addictive collapse makes him a creature of mainstream consumer culture, rather than of the back-alley culture where we first meet him (hiding, murdering and thieving among the Goblins in subterranean caverns in The Hobbit).

The One Ring does not just drain Gollum to feed itself, the way a drug like cocaine sucks a victim dry of wealth. It also needs Gollum’s more creative and productive servitude, and for that, it needs him to be functional.

Gollum is both employee and consumer. A prosumer locked in a death embrace with a product. He is a raving fan.

Gollumization Showcased

What is utterly scary about Ellen Sirot, the hand model in the video, is that like Gollum, she is not a cocaine-devastated creature living a wrecked life on the margins of society. She is an employable, functional creature living at the very center of it, in the spotlight. She is a mainstream Gollumized creature, whose particular pattern of Gollumization just happens to be a little more extreme and visible than the patterns that define the rest of us.

As I watched Sirot’s Gollum-like mannerisms in the video, my hair actually stood on end. I was that creeped out by her, as she caressed her own hands lovingly throughout her conversation with Katie Couric. I fully expected her to say, “My Precioussss” at some point. I found the video via a post on kottke.org, in which Jason Kottke notes:

This is a really strange and fascinating video…Sirot is constantly performing with her hands but it’s also like she hasn’t got any hands, not functional ones anyway. She holds them like atrophied T. Rex arms!

Sirot is a poster-Gollum for consumerism.  I expected she is a leading and discerning consumer of hand-care products, which must help feed what appears to be a narcissistic obsession with her own hands, that goes well beyond pragmatic concern for her means of  income.

The economy that produces those hand-care products has found a larger, life-consuming role for her. One that requires reducing her not just to her hands, but to a single aspect of her hands: their camera-friendliness.  You and I aren’t as different from her as you might think. She is a fully-realized Gollum, whose special talents attract special attention. Her ring demands her extreme services under the glare of studio lights. You and I are lesser Gollums; what saves us is not strength of will on our parts, but the fact that we are just not useful enough for our rings to completely possess.

Watch the video. Sirot’s hands seem like  lifeless cul de sacs within which her humanity is trapped. She refers to her hands as “elite Olympic athletes” (“my athletesssess!!?”), but unlike say, a pianist’s hands, her hands are not instruments through which she can express her entire human nature. Her fingers are the bars of a gilded cage. As she says later in the interview, her life is all about constraints and saying “no” to the merely human. Forget playing the piano with her “elite athlete” hands; she can’t do the simplest things that the rest of us take for granted, like twisting open bottle caps, pushing elevator buttons, or picking up things.

The only spark of humanity I saw in the entire interview was a bit of mischievous, self-deprecating humor: she noted how ironic it was that her hands frequently feature in commercials for dishwashing products, but she cannot afford to actually risk that most mundane of household chores in her own life. In fact, she wears gloves all day. I had assumed, based on the Seinfeld episode where I first heard about hand models, that this was just comedic exaggeration. Apparently not.

But like I said, you and I are not that far removed from Ellen Sirot.

Combinatorial Consumption and Gollumization

The sheer variety of things that we consume obscures and moderates, but does not entirely prevent, our collective Gollumization. The subsuming envelope of consumption behaviors we adopt helps each of us sustain an illusion of  fully-expressed and uniquely individual humanness. As a line in a recently-popular song goes, “I am wearing all my favorite brands, brands, brands.”

Put us all together, and you get what we call mainstream culture. What separates us from the fully-realized Gollums is that we mostly lack the talents to deserve complete possession. Our very mediocrity as food, with respect to the devouring appetites of the products that choose us,  saves us. Each of our consumption behaviors feeds on us every day, but slowly enough that we can heal ourselves and achieve a fragile stalemate with the forces of complete Gollumization.

But the equilibrium state falls well short of  “fully-human.”

The apparent variety and uniqueness in our personalities is as illusory as the apparent variety in what we consume. This illusory variety in our consumption homogenizes us, while supplying each of us with the raw material we need, to construct illusory notions of our own uniqueness.

Take the choices offered by the food industry for instance:  permutations and combinations of a few pure and highly-refined (a lot of them corn-based) ingredients, all designed to hook our three main addiction circuits that crave salt, simple sugars and fat respectively. It doesn’t matter whether you are addicted to burgers, pizza, french fries or chips (my particular poison). To the extent that you don’t cook your own meals from scratch, you have been partially Gollumized by the food industry.

Our food choices are only a subset of our overall mode of consumption, which I call combinatorial consumption. Combinatorial consumption reduces the universe of human potential to a deeply-impoverished ghost of itself; a potentially infinite range of creative consumption behaviors reduced to paint-by-numbers consumption. Our lives are about choosing within the confines of a giant macro version of the Starbucks drink-construction decision tree. The dizzying, but finite variety on offer, helps distract us from the general impoverishment of what’s on the decision tree, with respect to the unbridled bounty of nature that is not on it.

We live in a cartoon universe where Claritas PRIZM psychographics categories have morphed from partial description of a population of human beings to a nearly-complete, Procrustean prescription for the construction of a universe of Gollums.

Within the realm of food consumption, we are prisoners of what Michael Pollan calls nutritionism: a highly-legible combinatorial food consumption universe reductively captured in “Nutrition Information” labels.

Real food is simply so time-consuming to prepare that we cannot be allowed to indulge in it too much, lest it steal time from our reductive roles as crank-widget producers. The widget-cranker is necessarily a frozen-meal-eater. Only true free agents, like my friend Erik Marcus, who have chosen to trade their talents for time instead of money, can actually afford to eat real food routinely (Erik is responsible for some of the finest, and cheapest, home-made food that I’ve ever eaten; his recipes for vegan chili and japonica rice with stir-fried kale are to die for).

For the rest of us, real food is an occasional luxury.

To the extent that his value as a producer lies in a few simple and optimal motions dictated by time-and-motion studies, like Gollum’s limited repertoire of tricks, the widget-cranker’s consumption of food must be imprisoned within the Nutrition Information box. A marginal market for heirloom tomatoes, on the edges of the three-dimensional salt-sugar-fat universe, is all that can be tolerated, to allow him to retain a sense of connection to the natural.

For the most part the widget-cranker must eat, not food, but what Pollan calls “processed food-like substances.” Functionally, he is not actually distinguishable from the Mad-Cow cannibalistic humans of The Matrix.

Thanks to established critiques like The Organization Man, we have come to understand, and partially defend against, the forces that map us to our reductive roles as producers in cookie-cutter jobs. We can turn to things like Dilbert, or to my own modest contribution, the Gervais Principle, for succor.  There are survival strategies both inside and outside the workplace.

This is due to the liberating and self-actualizing effects of even the meanest kind of widget-cranking production work. All but the clueless retain their humanity as long as they are actually producing. Gollum, recall, remains Smeagol only to the extent that the ring needs his producer-skills, the cunning and craft of his forgotten Smeagol-hood. That little foothold might have been enough for Gollum to claw his way back to existential health, in a different telling of the story.

Now, not all products and services are like the abominations that are fattening America up for slaughter, but the point is that the cheapest stuff at the heart of mainstream culture almost entirely comprises Gollumizing, pure-and-refined products and services, starting with the eternally-youthful Barbies, Kens and Ellens (now available in different pure-and-refined racial flavors) acting out the life scripts that teach us how to consume the rest of what’s on offer.

What makes these core products such a potent force is that their low cost makes them the stable attractors for the weak and at-risk. If you stumble even slightly on the periphery, where you can be close to luxuries like farmers markets that can serve as life-preservers, you will spiral down into the hell of Gollumhood, optimizing calories-per-dollar along the way. Answers to the question, “what does it feel like to be poor?” reveal the horrifying fact that pop-tarts are the calorie-optimal food for the poor.

So heirloom tomatoes on the periphery (the butt of another Simpsons joke) notwithstanding, addiction to the pure-and-refined is at the heart of consumerism. And this is so uncontroversial that even well-intentioned entrepreneurs uncritically declare that their goal is to create “addictive” products and services that can attract a small core group of “raving superfans” who can organize (if you pay them a sub-minimum wage via games and coupons), an inchoate crowd into a synchronized raving tribe.

So the world of combinatorial consumption that Gollumizes our lives as consumers is a more complete prison than the world of work that imprisons us as producers.  True escape is nearly impossible, except through extreme acts of rebellion, self-imposed exile, and marginalized live-off-the-land self-sufficiency.

In our consumption behaviors, unlike our production behaviors, there is no natural source of redemption to be found.  The world of combinatorial consumption provides a pseudo-richness that is so superficially close to the richness of nature in fact,  that one of the survival strategies in the world of work, loser-dom, actually relies on  discovering a sufficiently interesting pattern of Gollumizing consumption outside the workplace. This is the person who endures cubicle farm days, daydreaming about the slightly richer pleasures of (say) football-fandom on evenings and weekends.

And if you decide to fight Gollumization from within, you must venture dangerously close to the thin line dividing those fighting for their souls from those who have already lost it.

So let’s talk about extreme couponers and hoarders.

Couponers and Hoarders

On one side of the line separating those fighting for their souls and those who have lost it, you have the deadly game of existential chess played by the protagonists of Extreme Couponing, who exult every time they game the system and manage to buy $1000 worth of groceries for $20.

These are people who spend all their spare time collecting, organizing, investing in, and analyzing their coupon collections, to mount weekly attacks on grocery stores, like card-counting blackjack players at casinos. This is what Gollumized raving-fandom looks like.

For the most part, these are not resellers or rational participants in a supply chain; they literally stock up on 150 years worth of hand soap and deodorant. As with the Sirot video, there were a few glimpses of humanity in the Extreme Couponing show (catch a rerun if you can). In one rare, human moment, an extreme couponer managed to score thousands of boxes of cereal essentially free, which he then gave away to the homeless.

The lives of couponers are apparently about gaming the Big, Bad marketing machine. One extreme couponer constantly made references to chess, beating the house, and gambling with a strategy that allows him to win every time. He conveniently discounted his hours of preparatory labor as a fun hobby. He clearly viewed the marketing machinery of his grocery store as an adversary to be beaten, and himself as some sort of hacker.

You might wonder then, why does the marketing machine tolerate such acts of sedition? Is it only because they are not worth the cost of completely stamping out, and are unlikely to grow into wide-spread revolt? Perhaps occasional patching of particular exploits in the arbitrary universe of couponing is enough for the marketing machine to stay one step ahead in the arm’s race?

This seductive analysis, and the implied analogy to hackers attacking a computer system, is deeply misguided. When hackers compromise a valuable site via an undocumented exploit, they can steal or cause millions or even billions of dollars worth of damage.  The process is in no way controlled, let alone legitimized, by the site owners.

By contrast, the extreme couponers, if you count the value of their time, basically make a modest living doing below-minimum-wage marketing work for the coupon-based marketing universe that welcomes them as raving fans.

From the point of view of the stores, far from being hostile opponents in some asymmetric game of chess, these are merely cheap and committed marketers. They are encouraged to model, in extreme ways, the very couponing behaviors that the marketing machine wants others to emulate in less extreme ways.

Which is exactly what happens. So long as you and I casually clip and use coupons, inspired by the extreme couponers in our midst, the grocery stores still comes out on top. If the extreme couponers’ leadership behavior were to actually lead to large-scale loss-driving sedition by too many customers, the store could easily staunch the losses overnight, by making minor changes to coupon-redemption rules.

The coupon-based raving-fan gambling industry is merely a less-regulated version of Las Vegas. Instead of the temptations of low-probability jackpots, the house strategy for coming out on top merely relies on making profitable couponing so difficult, boring and time-consuming, that only the destitute or obsessive, in possession of more time than money and underutilized sunk-cost home warehouse space, would attempt it.

If you need proof that this is a gambling industry rather than a hacker subculture, you need only look at the support the stores provide to extreme couponers. In the show, the store employees actually applaud when the extreme couponers check out with their ridiculous hauls. Letting a hard-working couponer walk away with “winnings” of $5000 worth of groceries for $200 is basically cheap marketing. The store makes more than its money back through the cheaply-inspired loyalty of the less-disciplined casual couponers, who halfheartedly mimic the extreme Gollums.

If you want more validation, simply visit a Vegas casino and wait for someone to win reasonably big. You will see the exact same applause and encouragement from the staff. And the applauding front-line service employees in both cases aren’t faking it. They genuinely believe the little guy has “beaten the house” rather than provided it with cheap marketing. If you’ve been reading this site for a while, you should be able to figure out why the applause is genuine (hint: losers).

On the other side of the dividing line, you have the hollow shells of human beings profiled on Hoarders. These are human beings whose patterns of addictive consumption have reduced their homes to toxic garbage dumps. Literally. The interventions are triggered by the threat of having their residential properties — you can hardly call them homes — condemned by health inspectors. Where extreme couponers carefully stockpile supplies in their garages under relatively sanitary conditions, the hoarders have homes full of refuse, decay, cockroaches and mold.

One episode almost made me throw up: it featured an elderly woman, a real-life Miss Havisham, who began buying dolls to cope with some traumatic life event. She lived in a house that was packed with thousands and thousands of dolls. In all my years of television watching, I have seen few creepier scenes than this one: the interventionists gingerly parading her dolls past her, one at a time, allowing her to make individual keep/give away decisions, letting her have just enough of a sense of control over the intervention to avoid triggering a full-blown psychotic episode.

Here is what should worry you: both the extreme couponers and the hoarders map better, conceptually, to the center of our consumerist world than to the margins. The margins are for drop-out exiles who have managed to flee sufficiently far away that they can live semi-redeemed human lives. Couponers and hoarders, by contrast, straddle the event horizon of the black hole at the very heart of things.

And around the black hole, sandwiched in an annular ring between the full-blown Gollums and the exiles, is the mainstream world you and I inhabit. Not far enough out to have escaped, not close enough to have been torn apart and assimilated like couponers and hoarders.

The mainstream world, as I said, is characterized by the reassuring faux-variety that stands in for diversity, within which individual uniqueness is replaced by the faux-uniqueness induced by a sufficiently rare combination of consumption choices.

This is a universe within which your doppelganger is not an eerie existential twin with whom you might share a mystic bond, but merely that hard-to-find person who also happens to live at the intersection of a Coke-over-Pepsi, McDonalds-over-Burger King, DC-over-Marvel and Nike-over-Reebok.

Rather curiously, the Harry Potter series manages to incorporate both kinds of connection in the relationship between Harry and Voldemort: the mystic connection created by Harry’s scar, and the more prosaic one created by the twin phoenix feathers in their respective wands, from the same phoenix.

Anyday now, I expect to see a doppelganger app on Facebook based on “Likes.” It will likely be named “phoenix feather.”

When that happens, the black hole at the center of our universe, now equipped with a social-graph fishing net, will begin gaining mass at an accelerating rate, drawing more of us into the embrace of subterranean Social Gollumization,  caught up in some  surreal world of addictive, mobile-app-based coupon-trading games.

From Customers to Consumer

In a rather popular post of mine from a while back, I derived, from Druckerian first principles, a definition of a customer.

A customer isn’t a human being. A customer is a novel and stable pattern of behavior.

I have since reused that definition in other popular posts, which have served to validate its soundness. But with each new and successful post that rests on that definition, I become more uncomfortable about its implications.

When I came up with the definition, I finessed its obviously de-humanizing implications with the idea that it was merely a functional definition that relied on an aspect of the underlying human being. The whole, I allowed myself to believe, was still fully human, and greater than the isolated stable behaviors of interest to the marketer.

I now believe that is a deeply disingenuous stance, based on a perverse assumption that combinatorial consumption of a sufficient variety of products and services is equivalent to fully-experienced humanity.

I believe that the definition of customer, unfortunately implies another definition: of an abject inhabitant of the macro-economy called a consumer:

A consumer is a human being reduced to the sum total of the behaviors that define his various customer-roles in relation to the products and services s/he consumes.

This ideal addict of an abstract economic process (the One Ring is perhaps shopaholism) is also the perfect Gollum.

While each business is morally responsible for the individual behavior – the customer role – that it creates, the problem is that no one product or service can be deemed culpable for the creation of the emergent sub-human: the consumer.

Each business, in codifying the microeconomic behaviors that define its “customer” contributes to making the market as a whole more reductively legible,  in the sense of James Scott. We become, as I have said, our psychographic personas, defined by our “Likes” rather than our likes.

Is there any kind of escape that does not involve couponing on the edge of hoarding-madness, or log-cabin survivalism?

Beyond Gollumhood

If you’ve been following my writing, you know that I’ve been inching reluctantly towards this contrarian position with respect to prevailing marketing orthodoxy (especially the uncritical, unironic and frothy 2.0 kind).  I have been reluctant to talk openly about this viewpoint, because I know a lot of you are believers in the raving fan/raving tribe school of marketing, and I know you try hard to view your customers as humans, even as you think about how to “acquire” and “retain” them.

In my own marketing work (of products that I hope liberate rather than enslave, including this blog), I have been extremely reluctant to engage in raving fan/raving tribe tactics.

On this blog in particular, I have immediately disengaged from anyone who shows any signs of becoming a true raving fan (and there have been a couple whose obsessive and uncritical consumption of my writing has bordered on stalking). If marketing discipline is about being willing to fire your customers, I am a terrible marketer: I fire my best customers instead of my worst ones.

I do not want sub-human addicts around me or anything I help market, let alone entire zombie-tribes of them. Perhaps I will live to regret this decision. Or perhaps there is a sustainable economic model that does not involve zombie-tribes at all.

There’s a good deal more to be said here. When you look at the other side of the free market, at entrepreneurs and capitalists in particular, very troubling questions arise. Starting with this one: within the Lord of the Rings metaphor, what do “Dark Lord” characters like Sauron really want?

So the ideas in this post are threatening to snowball into yet another series (these serieses consumes us! my precious!), which I may or may not continue, depending on the reactions to this piece.

I am going to come across as a terrible person in this post. I recently finished a fascinating book, Portfolios of the Poor, which chronicles the lives of desperately poor people around the world living on less than $2 a day. And I am going to review it from a thoroughly selfish angle: the surprising lessons for entrepreneurs from the $2/day world. In my defense, I started reading the book with nobler and more compassionate motives: I truly did want to understand the plight of the poor and learn what I could do to help. I was also just plain curious about povertynomics, if you will pardon a terrible neologism. But the content of the book was so surprising, and so obviously and intimately connected to the world of entrepreneurship, that that angle hijacked both my reading and blogging intentions.

So let’s go doing some greedy mining of wisdom-of-the-poor. If you’re not interested in entrepreneurship, this is not going to be the best review/summary/introduction for you, but should still be acceptable.

Framing Poverty

To most of us rich people (relative to the $2/day world, if you are reading this post, you are rich) the idea of an entire family living on $2/day seems somewhere between ridiculous and impossible.

And I am not just talking about First Worlders sitting in places like the US, sipping $2 Starbucks drinks as I am right now. The $2/day lifestyle seems impossible even from a middle-class perspective in the developing world.  I lived in India for the first 22 years of my life, often next door to the types of people described in the book, and to be honest, they might as well have been on the other side of the world. To calibrate, as a middle-class undergraduate student in the mid-90s in a heavily state-subsidized university in Bombay, the total unsubsidized cost of living for me was probably around $10 – $15 a day (or about 15-20x the per-day cost for a member of a $2/day 3-member household). My standard of living was probably comparable to that of an American undergraduate student in a big city like New York.

Yes, I personally knew many people living these $2/day lives (to call them “lifestyles” seems insulting) personally. I saw the awful standard of living up close. I saw some of the visible details of how they made ends meet.

But for all that proximity, I have to admit I was not very much wiser about the $2/day world than the typical American, and it wasn’t just that I was 15 years younger at the time. The complexity, dynamics and deep structure of poverty is just not visible on the surface. And the surface is just ugly and guilt-inducing enough to the middle class that we hurry by hastily without risking a second glance.

Portfolios of the Poor allows you to peer into the world, guilt-free, and really understand how it works.

Let me hasten to add that it doesn’t do this by romanticizing the world of the poor the way naive forms of  the fortune at the bottom of the pyramid idea do. Too many people use the “bottom of the pyramid” model as a way to conveniently excuse themselves from social justice concerns entirely, pretending that just bringing capitalist motives to the engagement of poverty will solve all problems.

The moral posture of the book is what I consider exactly right: yes, the poor are a hell of a lot more resourceful and entrepreneurial than we give them credit for. Yes, there is a thriving capitalist economy in every major slum. True, they don’t need our charity if it comes with a condescending view that we are somehow smarter because we happen to be richer. Yes, the “International Aid” model is beyond broken.

But, the book is careful to point out, this does not mean that they are not miserable or that their lives cannot be improved beyond what free market forces can accomplish.

It all starts with understanding the contours of the financial lives of the poor.

Small, Irregular and Unpredictable

The book frames the financial world of the poor as being driven by three characteristics of their income streams. They are small, irregular and unpredictable.

We rich people are at least aware of “small”: it is the incomprehension with which we grope around the $2/day idea. To me today, that means “cup of coffee.” When I was a student in India, it meant “fun movie+dinner night out with friends.”

But as it turns out, a regular and predictable $2/day income would actually be powerful enough that the poor could potential bootstrap themselves out of poverty with it. What makes their condition so difficult is irregularity and unpredictability.

Irregularity means that the $2/day, which amounts to $730 a year, does not come in a steady trickle. It is distributed messily through the year. For a street hawker, the week-to-week variance might be very high. For a small-holding farmer, the income might be concentrated around a single month. For a construction worker, it might vary with the business cycle.

Unpredictability means the $730 is not a guaranteed number but an average. There can be good and bad months, bad and terrible years.

The second big insight in the book is that despite these extremely severe conditions, the poor do not live hand-to-mouth. They do not spend every night in terror, wondering if they’ll eat the next day. They actually go beyond daily expenses and manage to save, buy insurance, raise capital and plan for retirement. Not very effectively by rich-world standards, but they do it.

Turns out that they manage their small, irregular and unpredictable incomes with extraordinarily sophisticated financial portfolios. Reviewing the details, I was shocked: for many of the research subjects, the financial lives on display were more complicated than mine, not less. They used a wider variety of financial instruments than I do, in more complex ways. Here’s just one example:  the financial life of Hamid and Khadeja, a married couple with one child, from a poor coastal village in Bangladesh. Hamid, who was in poor health, earned money as a rickshaw driver and construction worker. His wife, Khadeja, made some money sewing. Income: $0.78/person/day. Here’s their balance sheet for a non-exceptional month, November 2000:

Assets

• Microfinance savings account: $16.80
• Savings with a “moneyguard” (like a trusted neighbor): $8.00
• Home savings: $2.00
• Life insurance: $76.00
• Remittances to home village: > $30
• Loans out: $40
• Cash in hand: $2

Liabilities

• Microfinance loan account: $153.34
• Private interest-free loan: $14.00
• Wage advance: $10
• Savings held for others: $20.00
• Shopkeeper credit: $16.00
• Rent arrears: $10.00

Financial net worth: -$48.54

If you know anything at all about finance, this is extremely impressive management. There is highly active cash flow management, multiple horizon savings, risk management, management of different lines of credit and debt, and a diverse collection of social-financial relationships.

To you and me, this level of financial activity is simply not worth managing actively at all. We use our significantly larger cash reserves to just absorb all this variability, so we don’t have to actively deal with financial management decisions below about $200. For us, the fact that the income is not “small” in this sense allows us to simply swamp out the irregularity and unpredictability.  Financially, my life for instance, has enough of a cushion that if I were to lose my job tomorrow, I could last for several months with no real lifestyle change. That’s plenty of time to figure out a financial recovery strategy. That means I can be lazy and not think as much about money until events force me to.

And it’s not that the poor have more time than you and me to invest in financial management. The idea that the poor have “more time than money” only applies to the educated kinda-poor with basic needs taken care of. The real poor work the same long hours (while burning way more calories), and at the end of the day are more tired, less informed, and less able to do the thinking and management. But they do it anyway, because they have to. And with a sophistication that would put you and me to shame.

Cash Flow Management vs. Wealth Management

This is where the analogy to startups comes in. Like startups (and unlike paycheck employees or big corporations), poor people manage cash flows, not wealth (at this point, it may be worthwhile for some of you to read/reread my Fools and their Money Metaphors and Ancient Rivers of Money posts).

You could boil down all of finance to two basic problem. The first is to make money supply predictable and stable, and the second is to gain enough control over it that you can match supply to demand.

If you solve those two problems, you can get to the third one: creating wealth with the surplus.

If you live on a paycheck as an individual, or a predictable and mature market as a big company, you get the predictability and stability for free. You only have to solve the second problem of control. You do this in two ways. First you plan for the big anticipated events in life (retirement, college, house purchase) through savings and debt. Second, you plan around the known risks (health, floods, fires, theft) through insurance.

Your personal life may seem very tough to you, relative to your environment, but actually your demand/supply matching problem is very easy. The evidence is that most of us do manage to solve it and move on to wealth management problems (early retirement, how to get that yacht, earning f*** you money, engineering 4-hour work-week lifestyles).

For the poor, the first problem is to actively manage cash flows, which you and I solve by simply making a couple of credit card payments and writing a couple of checks a month, with the rest on autopilot. As the book demonstrates, you get a sense of just how actively the poor manage cash flows by looking at churn.

The story is revealed when we look at cash flows rather than balance sheets. During the year, all of the financial diary households pushed and pulled through financial instruments amounts far greater than their year-end net worth… We use the expression “turnover” to mean the total sum of money being “pushed” and “pulled”… The high level of financial activity is particularly surprising when considered in relation to income. We might call this ratio the “cash flow intensity of income”:… In India, households shifted, on average, between 0.75 and 1.75 times their incomes, with high-velocity money movers like rural small traders shifting more than three times their earnings in an average month…. In South Africa, the poorer half of the households turned over a bigger multiple of their income than the richer half… This attests to our general notion that lower incomes require more rather than less active financial management.

When I read this analysis, the thought that popped into my head was “ants versus elephants.”  Ants can lift many times their body weight, while elephants can only lift 4-5% (300-500 kg). Yet we think of elephants as the heavy lifters. The scale difference also causes qualitative differences: ants can walk or water or get trapped in a droplet, due to the effect of surface tension at their scale. The poor, similarly, have to deal with “surface tension” type phenomena that simply don’t affect you and me, given the scale of our financial lives (there’s an interesting “hydrodynamics of money” theory lurking here).

The big insight in the book is the extent to which the cash-flow management solution is a social, rather than individual. You might have the mistaken idea that until microfinance came around, the only financial instrument available to the poor was loans from sharks at predatory interest rates. This is wrong on two levels.

First, the loan “sharks” aren’t the evil oppressors we tend to imagine. The details are tricky (and the book devotes many pages to explaining them, with worked example calculations of true interest rates and meaningful cost-of-capital analyses), but if you actually examine in detail how loan “sharks” operate in poor communities, you realize that a lot of it is very humane, practical and flexible. It is actually the apparently superior low-interest banking models we use that are oppressive for the poor, due to the rigidity of how they can be used.

Second, there are a variety of instruments beyond shark loans.

Most of them are social. Some are as simple as you might expect: keeping money with a moneyguard (a trusted neighbor or older relative) to avoid temptation and protect against dangers like drunk husbands. Others are so complex, I had to do some pen and paper math to understand how the hell they worked. This includes a bewildering variety of loan clubs, revolving credit schemes, all sorts of peer-to-peer arbitrage, and amazing forms of what can only be called “angel investing” within the poor. One instrument that I was aware of is a traditional Indian one called a “chit fund” (a specific variety within a broader class called RoSCA — rotating savings and credit association — that is found throughout the world). Growing up, I saw “chit funds” advertised all over the place, but never knew what the hell they were and how they differed from banks, insurance companies or mutual funds. Now I know. They are RoSCAs with some clever auction and derivative-trading type mechanisms built in.

Grameen Bank of course, is the pioneer here. Most of us regard it as revolutionary in its sophistication in providing financial services to the poor. But the Aha! moment for me was realizing that relative to the sophistication of the natural financial systems within the poor communities, the institutions are clumsy, lumbering elephants. Devices like only lending to (for example) peer groups of women are blunt instruments compared to what the poor manage to do for themselves.

The Grameen story (and the stories of its peers and competitors), of course, features prominently in the book, but it is a story that you probably haven’t heard: how Grameen slowly grew more sophisticated as it learned to refine its offerings by mimicking what the poor were already doing.  For me, this was a radical reframing of what I thought I knew about microfinance. Rather than a smart banker figuring out how to profitably service an unsophisticated market with sophisticated instruments, the story is about a humble banker starting with a relatively unsophisticated instrument for a very sophisticated market, and gradually refining it to rise to the level of sophistication the marked needed and expected.

The Social Costs of Financial Sophistication

But the sophistication of organic financial systems among the poor comes at a cost. They put enormous strain on reserves of social capital. To make the mechanisms work, the poor are forced to trust each other far more than we rich people do. And like us, they are ordinary human beings, who’d rather not deal with unpleasant neighbors or annoying relatives more than they must. The social burden is bad enough that the poor often forgo even food, rather than have to deal with the mechanisms available to them.

To get a sense of the social-psychological pressure that the poor face, imagine this: you only get your paycheck if you and your 3 closest coworkers go to a weekly confessional meeting where you bare your financial souls to each other and to your manager. That’s the level of nanny-banking many microfinance institutions originally practiced. And when customers started avoiding microfinance, or sending their loan payment via proxies to the weekly meetings, or even reverting to traditional practices, the institutions gradually loosened up their models to lower the debilitating and unnecessary levels of social pressure that were originally assumed to be necessary.

Or imagine that your financial life revolves around conducting annual financial transactions greater than your total income with your least favorite aunt.

Doesn’t sound like fun, does it?

In fact, one of the evolutions in the practices of Grameen and its peers has been to gradually figure out how to trust individual poor people more (among a variety of other evolutions, which include non-social ones like being more flexible about the timing of microcredit, and the coupling microcredit from microsavings in more sophisticated ways that approach comparable social-organic equivalents).

There is also significant unsecured financial risk in the social-capital based system. Your neighbor might run away with the money he’s holding for you to a slum in the big city, for instance. Or your moneyguard uncle might use your savings to pay for his kid’s medicines, forcing you to choose between being a good family member and a jerky creditor.

Many of the books recommendations for financial institutions that want to do more revolve around helping the poor trade off financial independence and financial interdependence in more flexible ways.  This is perhaps the deepest lesson in the book: beyond a point, capitalism can only work if individualism is supported. The social mechanisms that keep the poor afloat also what keep them trapped and unable to bootstrap themselves out of poverty.

Lessons for Entrepreneurs

What lessons can entrepreneurs learn from the book? I’ll just list them here, and encourage you to read the book to get at the “how.” The list by itself won’t teach you how to actually achieve the learning.

1. Diversify your cash management practices to a larger variety of instruments, time horizons and partners. It takes a village to keep a $2/day family going. It takes a village to keep a startup going.
2. Stop thinking around the “wealth management” milestone of “free cash-flow positive.” Start thinking around gradually stabilizing and controlling cash flows in the presence of the small, irregular and unpredictable triad of forces.Your first meaningful financial milestone is predictable quarterly revenues, not cash-flow-positive.
3. Try to simultaneously be an investor and an investee. Even if you are yourself scrambling for angel investments, you should be open to making (smaller of course) angel investments in others. Many angels already do this, but most are already successful. The strategy ought to be adopted even by those who haven’t yet “made it.”
4. There is a world of cash beyond investment capital: the world of smartly-managed debt. Most startups think of debt financing later than they should, and in more limited ways than they should (there’s more to short-term debt than a credit line from a bank based on average accounts receivable).
5. Milk as much value as possible out of informal transactions, barter, and reciprocal favor-banking. This is one reason it is great to be in a startup-hub environment. You could trade a week of your Javascript genius’ time for a week of your neighbor’s graphic design prodigy’s time. Link exchanges for cross-promotion is just the tip of the iceberg of possibilities.
6. Diversify your income streams: complement your capital-asset project (say a Web product) with consulting and other short-term, non-capital-based income streams
7. Get insights into how to orchestrate angel rounds from the way poor families manage big capital rounds, relative to their income (marriages in India and Bangladesh, and funerals in South Africa, are the running examples of capital raising in the book). I don’t think the lessons will port as well to VC rounds, which appear to be a lot more ritualized.
8. Try to cycle more money than you actually earn. Money grows when it moves, and capital must circulate. Keep the money moving.
9. Recognize the amount of active cash flow management you will need to do, and take on that complexity. Managing the finances of a startup is an order of magnitude more complex than managing a paycheck lifestyle or the budget of a department within a big company. Abandon those financial mental models before you step into the entrepreneurship world.

Most entrepreneurs recognize the need for this in the abstract. I’ve seen isolated examples of every “$2 a day” behavior in the book among entrepreneurs. But most only practice occasional bits of creative social-financial management. There is no deliberate attempt to manage an entire cash-flow portfolio and loan/credit models over multiple time horizons.

There are also two philosophical analogies between poor people and startups.

Most startups don’t make it. They die young of various curable-with-money diseases. That harsh reality holds in the world of the poor as well. Most of the poor don’t “make it.” They die younger, poorer, and more painfully and miserably than us rich people.

A small minority of startups make it. A small minority of the poor climb out of poverty. Startups exit poverty through acquisitions and (rarely these days) IPOs. The poor exit poverty by getting a child educated enough to enter the lower middle class via steady paycheck employment (“acquisition” by the middle class), or turning a small business into a success (“IPO”).

The Rest of the Book

As I said, I’ve chosen to pluck out and highlight the ideas from the book that are most relevant to entrepreneurs. But there’s a lot more to the book, and the book is well worth reading even if you aren’t interested in entrepreneurial matters.

Just the methodology of the study (financial diaries) is very illuminating, and should teach you a lot about how good social science research is done.

The anthropological details of the lives of the poor are fascinating. I found the study of funerals in South Africa to be particularly engrossing.

And finally, read as just straight-up “reality TV,” the stories of the various subjects are just fascinating. Each would make a fantastic movie. Most, unfortunately would be tragedies rather than redemptive tales of leaving poverty behind.

If you like this post, don’t buy me a coffee. Sponsor a micro-loan on kiva.org instead.

For the last two years, I’ve had three books on garbage near the top of my reading pile, and I’ve gradually worked my way through two of them and am nearly done with the third. The books are Rubbish: The Archeology of Garbage by William Rathje and Cullen Murphy (1992), Garbage Land: On the Secret Trail of Trash by Elizabeth Royte (2005), and Gone Tomorrow: The Hidden Life of Garbage by Heather Rogers (2005).  Last week, I also watched the CNBC documentary, Trash Inc.: The Secret Life of Garbage. Notice something about the four subtitles? Each hints at the hidden nature of the subject. It is a buried, hidden secret physically and philosophically. And there are many reasons why uncovering the secret is an interesting and valuable activity. The three books are motivated by three largely separate reasons: Rathje and Cullen bring an academic, anthropological eye to the subject. Royte’s book is a mix of amateur curiosity and concerned citizenship, while Rogers’ is straight-up environmental activism. But reading the 3 books, I realized that none of those reasons interested me particularly. I was fascinated by a fourth reason: garbage (along with sewage, which I won’t cover here) is possibly the only complete, empirical big-picture view of humanity you can find.

The Boundary Conditions of Civilization

Sometimes an engineering education can lead to very curious ideas about what is important. Garbage is important and interesting in an engineering sense because it illuminates one of the boundary conditions of any systemic view of the world. If you cut through the crap (no pun intended) of all our lofty views of ourselves, humanity is essentially a giant system that feeds on low-entropy resources on one end (mines, forests, oilfields) and defecates high-entropy waste at the other. Among other things, this transformation allows us to create low-entropy islands of order around ourselves (cities, buildings and everything else physical that we build). If this flow from resources to garbage were to shut down, nature would rapidly reclaim every inch of civilization, and you can read about this fascinating thought experiment in The World Without Us by Alan Weisman which I’ve mentioned before.

Here’s the thing about this view: the input end is simply too complex to comprehend in any summary sense. We suck resources out of the planet in extremely complicated and diversified ways. The processing part is also far too complex to understand (it is basically “civilization”), but thought experiments like Weisman’s at least help us get a non-empirical sense of the scale and complexity of our presence on this planet.

But the output end? Easy. Just drill into the nearest landfill. Or follow the course of a single man-made artifact. In Trash Inc., there is a revealing  example: plastic beverage bottles.

Message in a Bottle

The story of plastic water/soda bottles from a trash perspective is simple. According to Trash Inc., in the US, about 51 billion bottles are used every year (this number seems incredible. It amounts to about 1 bottle per person every 2 days. But it seems to be correct).

Only about 22% are recycled. The recycled stuff goes to make polyester fabrics, mats and the like. Ironically, a manufacturer of such recycled plastic goods in the US profiled in the documentary noted that he was forced to import about 70% of his bottle needs from countries like Canada.

What happens to the rest?  Those that get thrown away with the regular trash make it into the regular waste stream, with companies like Waste Management working hard to figure out how to cheaply separate the bottles out (since they represent a significant revenue opportunity; a WM talking head in the documentary noted that WM could potentially increase its revenues from $13 billion to $23 billion if it could just figure out how to cheaply separate valuable recyclables from the waste stream headed to landfills).

And there is a third category: stuff that doesn’t even get to landfills, but washes down streams and rivers into the open ocean, where it drifts for hundreds of miles to form garbage islands in the middle of the ocean, such as the Great Pacific Garbage Patch.

The story of the plastic water bottle serves as a sort of radioactive tracer through the garbage industry, touching as it does every piece of the puzzle.

The three books and the documentary explore different aspects of the system, so let’s briefly review them.

Rubbish by Rathje and Cullen

Rubbish, though a little dated, is the most professional of the three books, since it is the result of a large, long-term academic study, with no particular agenda in mind, and written by the godfather of the entire field of Garbology. To the principals of the University of Arizona Garbage project, garbage is just archeological raw material. The fact that drilling into modern, active landfills tells us about modern humans, while digging into ancient mounds tells us about Sumerians, is irrelevant to them. The perspective lends an interesting kind of objectivity  to the book.

The first and most basic thing I learned from the book surprised me no end, and answered a question that I had always wondered about. Why do ancient civilizations seem to get buried under “mounds”?

Turns out that for much of history, waste simply accumulated on floors inside dwellings. Residents would simply put in new layers of fresh clay to cover up the trash. Every dwelling was a micro landfill.  When the floor rose too high, they raised the ceiling and doorways.

The result was that most ancient civilizations rose (literally) on a pile of their own trash. There is even a table of historical waste accumulation rates included. South Asia is the winner in this contest: the Bronze Age Indus Valley Civilization apparently had the fastest accumulation of waste at nearly 1000 cm/century. (I can’t resist a little subcontinental humor: how about we attribute all the great cultural achievements of the Indus Valley Civilization to modern India, and the trash to modern Pakistan, where the major archeological sites are situated today?)

Ancient Troy was also quite the trash generator, at about a 140 cm/century. Since those ancient times, accumulation rates have declined dramatically (this doesn’t mean we’ve been producing less trash per capita; merely that we’ve stopped burying it under our own floors).

Historically, trash was also thrown out onto streets, and burned outside cities. The composition of trash has changed as well. If you think today’s plastic water bottles are a menace, you should read the description of the horse-manure problem that (literally) buried New York before the automobile.

Skipping ahead a few thousand years, you get the modern sanitary landfill. But the takeaway here is a sense of perspective. Historically speaking, our modern times are not the trashiest time in our history. Though the scale and chemical diversity of the trash management problem is huge in our time simply because of the size of the global population, we are relatively far ahead of older civilizations in managing our trash.

Much of the work described in the book is about the insights you can obtained by drilling into landfills,  or collecting garbage bags directly from households.   The findings provide  fascinating glimpses into the delusions of human beings. Take food habits for instance. One interesting research exercise the book describes is a study comparing self-reported food habits to the revealed food habits based on trash analysis. The authors call this the Lean Cuisine Syndrome:

People consistently underreport the amount of regular soda, pastries, chocolate, and fats that they consume; they consistently over-report the amount of fruits and diet soda.

The book notes a  related phenomenon called the Surrogate Syndrome: people are able to describe the actual habits of family members and neighbors with “chilling accuracy.”

Another fascinating analysis involves pull-tabs of beer cans. These seem to be a sort of carbon-dating tool for modern garbage.

The unique “punch-top” on Coors beer cans, for example, was used only between March of1974 and June of 1977… In landfills around the country, wherever Coors beer cans were discarded, punch-top cans not only identify strata associated with a narrow band of dates but also separate two epochs fone from another.

Perhaps the most fascinating part of the book is the demographic detective work stories. It turns out you can accurately figure out a lot of things about neighborhoods: income levels, race, number of children, consumption patterns and the like, simply by looking at and classifying the trash. Trash also appears to be a goldmine of market research (I am surprised there isn’t a market research agency out there offering segmentation reports based on personas/clusters derived from trash analysis. Or perhaps there is). Interestingly, the hardest thing to infer from trash is the proportion of men in a population.  A Census Bureau funded project failed to find any convincing models. For other variables, reliable equations are available. For example,

Infant Population = 0.01506*(Number of diapers in a 5 week collection)

There are similar correlates for women. For men though, such indicators are unreliable: “Men are not exactly invisible in garbage, but garbage is a more unreliable indicator of their live-in presence than it is for any other demographic group… ”

Overall, the book is fascinating in the sense that Levitt’s Freakonomics is fascinating. There is no overarching conceptual framework, just an entertainingly told story that weaves together a few broad themes and dozens of anecdotes chosen as much for entertainment as insight.

Garbage Land by Elizabeth Royte

Royte’s book is much more of a popular science treatment. The interesting part is her “follow the trail” approach to her subject.

She starts with an account of an urban adventure: canoeing in Gowanus Canal, a highly polluted waterway in Brooklyn, in 2002, with volunteers dedicated to keeping it clean. From there she moves on to an analysis of her own life by examining her own garbage, an amateur self-study along the lines of the Rathje-Cullen study of larger communities. Among her reflections:

Picking through garbage was smelly and messy and time-consuming, but it was revelatory in a way. I hadn’t realized my diet was so boring. Anyone picking through my castoffs would presume my family survived on peanut butter, jelly, bread, orange juice, milk, and wine. And, largely, we did.

The opening chapter includes a page from her garbage diary, and it inspired me enough to stop and reflect on my own garbage and recycling that week. Suffice it to say, the lessons were not pleasant.

From her home, Royte moves on to the next logical step: the curbside. She arranges a ride-along with a garbage truck. This section is a fascinating portrait of New York’s Strongest, as the sanitation department workers call themselves (the cops are the “Finest” and the firefighters are “the bravest”). The NYC garbagemen lift about five to six tons a day, in seventy-pound bags. The view from the garbageman’s perspective is disturbing. Royte notes:

I knew, after just one day on the job, that san men constantly made judgments about individuals. They determined residents’ wealth or poverty by the artifacts they left behind. They appraised real estate by the height of a discarded Christmas tree, measured education level by the newspapers and magazines stacked on the curb. Glancing at the flotsam and jetsam as it tumbled through their hopper, they parsed health status and sexual practices.

It is not entirely a first-person narrative though. Bits of history and research are woven through the narrative. There is an interesting section on the history of New York’s sanitation history, and the horse manure problem I mentioned before. In 1880, we learn, 15,000 dead horses had to be cleared from city streets. City horses dumped 500,000 pounds of manure and 45,000 gallons of urine onto city streets daily. The situation needed a hero, and Colonel George Waring was that hero. He created the first modern civic garbage-handling infrastructure in the US.

The rest of the book continues in this vein, chronicling Royte’s explorations of landfills, incinerator plants, toilets and sewage. The story is by turns alarming, amusing, disgusting and scary. While there is no overt alarmism, the book, by virtue of being a very personal exploration, gets to you in a way that the more detached and objective Rathje-Cullen book does not.

Gone Tomorrow by Heather Rogers

For completeness, I’ll offer just a note about Gone Tomorrow, since I haven’t finished reading it. It covers much of the same ground as the first two books, but primarily from an environmentalist perspective (there is also a documentary). It lacks the open-ended curiosity and sense of discovery you get from the other two books, but you do get the right pattern of highlighting if you are interested in the environmental angle.

Trash Inc.

And let’s wrap with the CNBC documentary. While rather shallow, the documentary does have the largest scope of  all the material I went through. Of particular interest is a segment on the garbage problem in China, another on the MIT Trash Track project, and the plastic water bottle story I told in the beginning. Catch a rerun if you can.

Landfills

Through the three books and the documentary, the star of the show is definitely the landfill. One particular landfill, the Fresh Kills landfill in New York (closed about a decade ago) plays a role in all the stories (the largest landfill in the US today is the Apex landfill in Nevada).

The closing of Fresh Kills turned out to be a big event in garbage history, since it triggered possibly the biggest trash transport program in history, as the city orchestrated a massive garbage trucking program that today ships its trash out all over the country. Of New York City’s 1.3 billion dollar annual budget, about $330 million a year goes towards exporting the trash.

New York’s statistics are astounding: 12,000 tons a day, 24,000lb per person per year, garbagemen making $70,000 a year with overtime (the most experienced making six figures), a 300 square mile territory, a Mafia angle, 1500 trucks, and a transport network that fans out hundreds of miles into the American hinterland.

At the other end of the distribution chain are towns like Fox Township in Pennsylvania, neighbor to the Greentree landfill owned by Veolia, a French company. The residents are understandably ambivalent about the presence of a giant garbage can in their backyard. On the one hand, the landfill is a constant threat to the local environment, the water quality in particular. But on the other hand, half the town’s budget comes from the fees paid by the landfill, which charges $3 per ton as tipping fees to customers, and passes along a cut to the city.

The landfills themselves are fascinating civil engineering structures. Today’s modern sanitary landfills are “dry” landfills (the old theory that garbage should be “wet” so it can degrade faster has been discarded in favor of keeping it as dry as possible and sealing it in so that a landfill is effectively forever). Liquid runoff (“leachate“: exactly the same stuff that you sometimes find at the bottom of your trash can, the brown smelly liquid) is carefully directed to the sewage stream, while vents release the gases. The gases include methane and are a source of revenue, via power generation (there is a BMW plant that runs off landfill gas).

But despite the engineering complexity, these are basically just large trash cans. Lined with plastic like the one in your kitchen. The only difference is that the trash has nowhere to go. Once it is full, it is capped and landscaped, and you get all those strangely beautiful platonic mountains you see when you drive along country highways (you can tell when you are looking at a trash mountain: you will see venting pipes sticking out, and the slopes will be at a precise 30 degree gradient). There doesn’t appear to be any need for alarmism though. America at least, has plenty of room. Other parts of the world may not be as lucky.

There are 2300 landfills around the country. You could say the United States is a collection of 2300 large families, each with one giant trash can.

The Global Picture

I haven’t found a good source that provides a global picture. The CNBC documentary provides a glimpse into China, where Beijing alone has a catastrophe looming (the city is overflowing with garbage in unauthorized dump sites, because the available government-owned landfills are insufficient for the growing city’s waste stream).

Growing up in India, I have some sense of the world of garbage there.  There are both positives and negatives. On the positive side, the large-scale consumerist levels of trash production are still relatively rare in India, and limited to the most well-off, westernized households. Growing up, we generated practically no trash, simply because we mostly ate home-cooked food and did not consume the bewildering array of consumer products that Americans routinely consume. As I recall, we owned a small 2-3 gallon trash basket, and generated perhaps one basket-full a week, most of which was organic matter (which went to our garden). There was little packaging. Groceries came in recycled newspaper bags, which we recycled again.

But what little waste we did generate was poorly captured in the organized waste stream. There were many disorganized small dumps in the back alleys and few dumpsters.

By my teenage years in the 80s, modernity began catching up. Thin plastic bags made from recycled (downcycled actually) plastic caught on and replaced the newspaper bags. After reigning for about a decade, they thankfully declined in popularity (thanks in part due to an unanticipated consequence: stray cows eating them and then dying as the plastic choked their intestines), and I believe have actually been banned, at least in major cities.

On the other end, though much of the waste is basically un-managed, recycling is probably vastly more efficient than anywhere in the West. But the efficiency comes at a great human cost: there is an entire hierarchy of impoverished classes (and socially immobile castes) that makes its living off the waste stream. At the very top (which isn’t saying much) are the door-to-door used-newspaper buyers, who make paper bags or sell to recycling plants (our gardener made some money on the side in this trade, and I spent many evenings as a kid happily helping him and his son,  who was about my age, make paper bags). Also at the top are the wandering traders who exchange junk and scrap metal for new aluminum kitchenware. Below them you find a variety of roles, from the ragpickers and scavengers, who clamber over landfills looking for anything of value, to entire shantytowns of scrap merchants that spring up around the landfills, buying from the scavengers. The system is efficient and picks the waste-stream clean of anything of even the lowest potential value. But yes, it involves humans running a daily risk of all sorts of infection and other dangers.

To foreigners, looking out the window as an airplane comes in to land at Mumbai can be a shock. The landing/take off glide paths often go right over the main garbage dumps of Mumbai and the sprawling mess is anything but pleasant to look at. But if you ever drive past through the city’s neighborhoods where the scavenger trade shops line the streets, you cannot help but admire the gritty resourcefulness with which so many people manage to live off garbage.

But the situation is gradually getting worse, driven both by the exploding population and the rise of American-style consumerism. During my last visit to India in 2008, I noticed that while my mother still ran the same tight, low-footprint household she always has, many of the younger yuppie couples seemed to have adopted the same lifestyle that had shocked me when I first arrived in America in 1997. A lifestyle whose story is written with discarded paper cups, too many paper napkins, water bottles, product packaging and discarded, broken appliances. A culture of home-cooked food is gradually transforming into a culture of take-out food. And it isn’t American-style fast-food that is to blame. You can now buy frozen or packaged versions of almost everything that I thought of as home-made Indian food, growing up. And I have to admit, every passing year here in the States, I cook less, and buy more frozen, packaged foods from my local Indian grocery store. Pizza boxes may be appearing in Indian trash cans, but frozen chana masala boxes are appearing in American trash cans as well (looking around the world though, it seems to me that the Japanese are possibly the most in love with ridiculous amounts of packaging).

But there’s even more to the globalization of garbage than just different country-level views. There is the international trade in garbage. Places like India and China import garbage and recycling at all levels from entire ships destined for the scrap-metal yard (which I wrote about earlier), to lead batteries to paper meant for recycling. The waste stream is more than a network of dump routes that fans out from cities like New York. It is a huge circulatory system that spans the globe.

Exploring Further

I have to admit, despite reading a ton of material on the subject, I am merely a lot more informed, not much wiser. What is the true DNA of the world of garbage? What is its significance within an overall understanding of our world? Is it merely a treasure-trove of anthropological insights, or is there a deeper level of analysis we can get to? The books left me with the uncomfortable feeling that the garbage professionals were so absorbed in the immediate details that they were missing something bigger. But I don’t know what that is. Somehow garbage in the literal sense probably fits into the End of the World theme that I blogged about before (where I proposed my “garbage eschatology” model of how the world might end).

Anyway, I expect my interest in this topic will continue to evolve. I’ve started a trail on the subject (click the image below), which you can explore. Do send me link/resource suggestions to add to it. As you can tell by the relative incoherence of the trail, I don’t yet have a good idea about how to put the jigsaw puzzle together in a more meaningful way.

Sometimes a single phrase will pop into my head and illuminate a murky idea for me. This happened a few days ago. The phrase was “ancient rivers of money” and suddenly it helped me understand the idea of inertia as it applies to business in a deeper way. Inertia in business comes from predictable cash flows. That’s not a particularly original thought, but you get to new insights once you start thinking about the age of a cash flow.

We think of cash-flow as a very present-moment kind of idea. It is money going in and out right now. But actually, major cash flow patterns are the oldest part of any business. It is the very stability of the cash flow that allows a business to form around it. In fact, most cash flows are older than the businesses that grow around them. They emerge from older cash flows.  When you buy a sandwich at Subway, the few dollars that change hands are part of a very ancient river of money indeed. Through countless small and large course changes, the same river of money that once allowed some ancient Egyptian to buy some bread from his neighbor now allows you to buy a sandwich.

Buyers and sellers alike see markets as an illegible and turbulent churn of transaction opportunities. But really, they are landscapes carved out by great, ancient rivers of money and their tributaries. These rivers change course rarely. Cash flows are also among the most basic financial ideas. Only businesses make profits, but governments and non-profits form around cash flows too.

These ancient rivers carve out both a spatial and temporal landscape. Spatially, the flow metaphor suggests old, dried-up river beds, gorges and ravines, flood plains, ox-bow lakes, watersheds, and of course, the rivers themselves. This plays well with the idea of “segment.”

But markets also have a temporal dimension, based on which river of money you are talking about, and how long ago it last changed course.

If you think of markets that way, things look very different. Some rivers of money are very old and very stable. You can at most fight to displace others from prime positions along the banks. Others are new and unstable and may change course frequently, creating and destroying fortunes through their vagaries. Others may be maturing, with dams being built to stabilize them. People have always bought food and clothes. They are only now beginning to buy iPads. They are starting to not buy CDs.

Generalizing, you can even think of an average “age” of the market as a whole.  An interesting question to ask is whether early adopters as a group should be considered as living in a future market, or whether the mainstream should be thought of as living in the past. I prefer the latter model.

Organizations are like riverbank communities. They are as old as the last significant course change or waterfront battle. The stability of the river, not the attitudes of people, is what makes old organizations seem set in their ways.  Perhaps people resist new ideas not because they have specific personalities, but because they have settled on the banks of a river of money of a certain age.  Or perhaps there is self-selection. Possibly the hidebound kinds go settle on the banks of the most ancient rivers. Tax rivers are among the oldest and most stable rivers of money (and the only ones protected by the threat of legitimate force), and people attracted to government work aren’t exactly known for being passionate champions of creative destruction.

Some startups are about finding and colonizing the banks of minor unknown tributaries of old rivers. Others are about creating new rivers. Still others are about building canals between vigorous new rivers and somnolent old ones.  And of course, there are those that are about displacing incumbents from prime waterfront locations.

The nice thing about thinking this way is that the market is now a system of cash flows that exists independently of the specific set of businesses serving it in a given era. You can map the system and look for an unoccupied waterfront spot.

I would like to create a visualization of the oldest and most stable rivers of money, around things like food, clothing, taxes and shelter. I don’t know how to do that yet.

I first mentioned the metaphor of money as a system of flows (with things like glaciers mapping to frozen assets) in my old post, Fools and their Money Metaphors, and this particular one stuck in my head. Then in a comment to my Eight Metaphors of Organization post, a reader used the phrase “high inertia cash flow.”

When I first read that comment, an image popped into my head unbidden: a dark subterranean cavern with a river flowing through, with goblin-like creatures swarming around it, holding torches. Like Gringott’s bank in the Harry Potter movies. “Ancient” is how I would describe the feel of that image.

I’d like a t-shirt  with a skull-and-crossbones below graphic and the line “Don’t touch my cash flows!” below it. The attitude pretty much defines anybody who is effective in the world of business. When you meet a tough, no-bullshit businessperson, no matter what function they come from, chances are, they see their job as protecting a cash flow.

I don’t like reinventing the wheel, so for months now, I’ve been trying to reconcile everything I know about traditional business (think Peter Drucker and the Harvard Business Review) with all the seductive ideas I’ve been learning from the Lean Startup movement (and I’ll admit I am simultaneously attracted to, and wary of, those ideas). Some instinct led me to focus on a single word: positioning.

It seemed to be the key word, and I think my instincts were correct. I’ve concluded that positioning, defined in a 7-dimensional way, is the single most important word in business. So what is positioning? To paraphrase Marc Andreessen, it is the only thing that matters. It is the controlled, but not deterministic, crossing of a threshold beyond which the business suddenly seems to come alive and “work.” The emotion changes from depressed to excited. The energy changes from languid to explosive. The rhythms change from weak and uncertain to harmonious, vigorous and steady. Positioning happens when a business has an “Aha!” moment, and discovers identity, profitability and sustainability.  The business has found its groove and tempo (the business word for tempo is clockspeed) Positioning involves throwing seven firing switches from “Off” to “On” position and all 7 cylinders firing steadily enough that anyone in the business can take a real vacation without everything going to hell.

Seven is not an arbitrary number. I looked hard and that’s all I could find. I’ll tell you about two that didn’t make the cut later. Each of the 7 switches, if it causes successful firing, induces an S-curve (if not, you get a peak and collapse).

If the S-curves are clustered close together in time, you get one big Aha! Otherwise you get a series of smaller Ahas! All 7 must be switched on. Otherwise you’ll get a change in emotion and energy, but not a true business positioning. The characteristic sign is that you get a frenzied, high-anxiety, manic energy tempo instead of a harmonious, vigorous and steady tempo. I call the former the “fire alarm” situation, and it will collapse if it isn’t corrected. Steady rhythms are a sign that you are in a predictable place. So let’s explore the seven dimensions of positioning and see if there’s anything useful to be found.

1. Marketing: Positioning as Hole-in-the-Head

Positioning in marketing is Al Ries’ classic theory of marketing. People’s heads are overstuffed. The only way to get in is to associate yourself with what’s already in there. Avis, We’re No. 2, so we try harder, and The Uncola are examples. These either fill a “hole in the head” (creneau to use Ries’ French term), or reposition an incumbent to create a space for yourself. Nyquil created a position against strong incumbent cold remedies by turning their 24-hour nature against them. There was a creneau that could be created for a night-time cold remedy.

What happens when you get this right? Simple. An anemic demand-driven business turns into an overbooked supply-limited business. This is what Drucker meant when he said the job of marketing is to make sales superfluous.  One killer positioning concept smoked up by some Mad Men can bring the business to you, so you don’t have to pound the pavements.  Your selling costs shrink spectacularly. (Aside to readers who’ve been demanding I watch and write about Mad Men: I  finally caved and watched the whole series to date on DVD over the last few months; thank you all for a great recommendation, and stay tuned.)

Marketing positioning is not the same thing as finding a “repeatable sales road map” in the sense of customer development inside lean startups. Yes, you still have to be agile, and pivot, and get outside the building. But you don’t use the customer development model, which is optimized for sales-led discovery. You focus on typical marketing things like finding good names and taglines. If you talk to potential customers at all, you do so in different ways, to find a creneau. You look for inspiration in pop-culture trends. If it works really well, you may not have to do the sales pavement-pounding and hypothesis testing at all. At the risk of losing half of you, here’s the football metaphor. Customer development is a rush offense. One yard at a time. One problem or product presentation to a customer/group at a time. Effective marketing positioning is a Hail-Mary passing offense. Touchdown in one pass if you are lucky and skillful.

For ribbonfarm, I did no customer development, hypothesis testing or anything of the sort. I just wrote whatever the hell I liked. Then the Gervais Principle happened. Now ribbonfarm is positioned as a blog selling a certain darkly-humorous, realist, dystopian view of life, the universe and everything. Marketing positioning and luck, not customer development.

Getting marketing positioning right is at once liberating and confining. In the case of ribbonfarm, it is liberating because the blog is operating cash-flow positive (not counting my time, which I view as ongoing in-kind capital infusion). It is also enough of a believable insurance policy that I think I could make a living off it if I had to. Constraining because “ribbonfarm” now means very specific things to readers. Now if I want to experiment outside this core, I’ll need a different blog and brand. But within this core, my marketing costs are near zero. The Be Slightly Evil list is a natural line extension, but not a brand extension. With near zero additional marketing, and ONE email to a few readers counting as “customer discovery,” I was able to launch it. And in less than 3 months it is already getting close to 500 subscribers. But I could not have done this if I’d wanted to build a non sequitur or dissonant brand off the ribbonfarm base, like a blog about inspiring quotes or great shopping deals.

2. Operations: Positioning as Rapidly Improving Margins

Chronologically, this notion of positioning came first, with BCG’s pioneering role in the strategy industry (a long story I’ve told elsewhere), and focus on the fact that market leaders grow rapidly, learn and drive down cost curves, setting a pace that followers cannot keep up.  At the heart of it is an accelerating trajectory of increasing margins, generating growth money, leading to more revenues at better margins, a virtuous cycle that leaves competitors far behind until you are the entrenched low-cost leader. Only true disruption (item 7, wait for it) can displace you. Until then, others can fight over your table scraps at the margins. This is the growth curve you get to after Crossing the Chasm. This is a positioning problem start-ups rarely have to solve, since principals often exit before they are forced to solve it. You can get roaring rivers of revenue and still bleed margins for a long time.

This is also not the free-cash-flow positive threshold. It is the accelerating margin improvements threshold. You can limp along with razor-thin margins for quite a while and call yourself cash-flow positive, but until you hit this phase transformation, your position is very shaky indeed. Specific things happen to trigger this phase transformation. Startup types think of it as mechanical “introduce big company systems and processes” but there’s a lot more. You have to find the artistically right kind of systems and processes that can put you on the accelerating margins trajectory. For Zappos, for instance, it appears to have been the decision to move away from drop shipping. So it is not a matter of just hiring a few bureaucrats to create some tedious forms. Big companies know all about this transition. I’ve done work on this dimension, but unfortunately it isn’t work I can talk about publicly.

The fully-refined version of this gets you the classic  positioning model of Michael Porter (the five forces model). Practitioners like to call it “strategy” but it doesn’t deserve that lofty term. It’s operations they are talking about. Very useful nevertheless.

In BCG Growth Share Matrix language, the switch gets thrown when an uncertain “wildcat” (or “question mark”) business suddenly turns into a “Star” (moving from the top-right to the top-left quadrant). From here you can drive down costs faster than competitors can, and move the business into a relatively unassailable high-margin cash cow position.

3. Sales: Positioning as a Pain Point Relief

If you plow through the Lean Startup material, you’ll find that the entire customer development process hinges on one crucial decision: you only go after a small subset of early customers who a) have a problem you can solve, b) are aware that they have a problem c) are actively shopping for a solution d) are actually improvising temporary solutions.

This is a customer “in pain” as it were. Product-Market Fit (PMF) in this narrow sense “relieves” a pain for someone. Focusing on customers “in pain” is a very specific way to find a market.

In an earlier Drucker-inspired article, I defined a customer as a “novel pattern of human behavior” based on Drucker’s notion of “customer creation.” Creation is expensive, but it can be done. But in CD-driven businesses, you don’t create this novel pattern so much as you recognize it in the wild and then offer a less painful substitute. This is significantly cheaper, which is why it is so popular in the startup world.

It is a slightly worrying metaphor, but I like it: in customer development, you domesticate a wild customer.

Here is my example. I was the first employee at Sulekha.com, after the two founders, 10 years ago. Today, it is sort of the Craigslist-plus-Facebook-plus-Fandango of India. I witnessed (and, in modest ways, contributed to) the PMF phase change, when we found our first strong revenue model (online ticket sales). And yes, the script ran exactly as the lean startup people describe it, with pivots and everything. We just used different language to talk about what was happening.

4. Engineering: Positioning as Killer App

Everybody hates us engineers when it comes to the business side of things. Even engineers themselves, when they move over to the dark side, have a tendency to speak disparagingly about the narrow mindset they’ve left behind.  I’ve done the leap, but I don’t do the disparagement. For positioning to work you also need an engineering switch to fire: from platform concept to killer-app.

Visicalc is everyone’s favorite example of a killer app. Killer App is primarily an engineering dimensions of positioning. Engineers, like mathematicians, are lazy. They like to generalize and come up with powerful solutions that can do lots of things. This generality is what ultimately creates value, otherwise we’d be living in a flood of what Alton Brown (in the context of kitchen equipment) calls “unitasker” products. But a journey of a thousand apps must still begin with a first app.

The story repeats itself all over the place. Walk through this trail of killer apps to see more examples (Atari and Pong, Nintendo and Mario Brothers, Gutenberg’s Press and the Bible, and many more).

Brad Feld has labeled “platform” the annoying word of 2010. He correctly notes that you cannot build a platform, anymore than you can make a viral video. The best you can do is build a platform-intent product or service, or a viral-intent video. But platform-intent thinking is crucial. Otherwise if your first and only application idea fails, well, you’re screwed. Nor will a generic “multi-tasking” minimum-viable product do the trick. That gets you a Swiss Army knife. That still has only one shot at success. You don’t just want a multi-tasker product. You want multiple cheap shots at making an application catch on.

Once you ask the question minimum viable product that does WHAT? you’ll see why “Killer App” is a useful separate term. It is that last 20% of the engineering that brings in 80% of the value. First you build a minimum-viable platform, and then you start doing several 20% stabs to find your first killer app. Each stab is a minimum-viable product hypothesis, but each stab is not necessarily a full repositioning or pivot. Think of a startup as a new PC that and each MVP stab as a half-assed app like Microsoft Works.  If you find that a lot of people are using Microsoft Works, well, go ahead and build and sell Office. That’s your killer app. But if it doesn’t work, you shouldn’t have to retool 100%. Only 20%.

Most high-value engineering products turn out to be platforms with applications. So platform-intent is the right strategy. Unitaskers, such as combs or toothbrushes, are rarely enough to build a business (unitaskers are usually made by companies that maintain portfolios based on similarities in manufacturing or service delivery processes).

But don’t let the word “platform” intimidate you. A platform does not have to be as complex as an operating system or a new fighter plane. A knife is a very simple instrument, but it is a “platform” in the kitchen because it can do so many things. The killer app turned out to be “chopping,” but it can still do some mean squashing, stirring, serving and spatula-ing. Some caveman or cavewoman probably started the search for a business model with a stick, and figured out that sharpening one edge created the first “killer” app. Pun intended.

Note: there are two engineering styles which I call “vertical first” (the first app comes before the minimum-viable platform) and “horizontal first” (the other way around). I think both can work, but the risk-benefit tradeoff does favor at least some platform work upfront, in my opinion. Pure vertical-first too easily leads to a series of narrow visions, none of which is worth much.

5. Public Relations: Positioning as Brand Socialization

While a “pure marketing” brand can exist just as a service or product, entrenched and strong brands also become part of the society within which they live. Levi’s is not just a famous (and now trashed through mismanagement) brand. It is part of the story of the American West. Ford stars in the story of American ingenuity, with its role in the growth of the assembly line. The Tatas are the story of industrialization in India. The East India Company is the story of 17th Century Britain.

PR is the difference between a strong marketing position for an unsocialized brand and a socialized brand with a role in the grand narrative of its host society. The story doesn’t just happen. But it can’t be created in controlled ways like advertising either. You have to scan for sparks of genuine social “integration” in the environment and pour fuel on them. Volkswagen’s ongoing “punch-dub” series of commercials is an attempt to do exactly this: talk up something to do with VW customer culture. I am not sure if it will work though, because this is a case of trying to make marketing do PRs job. PR is essentially a hidden and delicate backstage influencer activity. You are trying to co-opt a story that’s already “out there,” in service of your brand. Many people have a stake in that story, so at best you can influence the story, not “tell it.” VW may regret its punch-dub series of commercials. It may have killed the golden goose. Now I bet people who play the game might want to stop. If, on the other hand, VW had spent its money on a grassroots word-of-mouth campaign around the punch-dub game, a lot more could have happened. Groundswell has several great examples. I could be totally wrong on this one. Only time will tell.

Aside: this is why the new continent of social media has primarily been colonized by PR people. The marketing and sales people are talking a lot about the potential, but it is PR people who are making the medium work for them. Good marketing talks more than it listens. Good sales listens more than it talks. Good PR strikes a conversational balance. Social media is fundamentally friendlier to PR than either sales or marketing. In the past companies had to have either marketing or sales cultures. You could not lead with PR. Today you can.This is especially true because rank-and-file employees can be turned into a PR army. To use them in marketing means cheesy employee photos in brochures. Using them in sales means sales people bringing customers in for “insider visits.” Though Word-of-Mouth can work for sales (forwarding discount coupons/referral/lead generation schemes), marketing (contests, “viral” videos) or PR, it works best for PR.

This is where the classic reading of the Google origin myth gets it wrong. The story goes that Brin and Page, when told they had to “choose” between a marketing or a sales culture,  (and this is engineering braggadocio pure and simple)  “chose” to create an “engineering” culture instead. This is wrong on two levels. First, it is a three-way fork today, not two way, and Google is a company built on effective PR. “Don’t be Evil” and stories about great buffets (and ironically, the story of Brin and Page “choosing” an engineering culture) are basically the core of a PR socialization narrative (how many people know Google’s marketing tagline of “organizing the world’s information?” or have encountered its AdSense/AdWords sales face?). Second, culture isn’t yours to choose. Your business model completely determines it, and it will always be a culture driven by a customer-facing function. More on that later.

6. Finance: Positioning as Pricing Sweet Spot

You didn’t think the bean counters would have nothing to say, do you? Pricing confuses a lot of people because they think it is some sort of objective, if inexact science. The most naive people think: “if only I had perfect information and could construct my demand/supply curves, identify my substitutes and measure elasticity, I could price this thing perfectly to maximize earnings.”

Wrong. Economics constrains, but does not determine, pricing design. Economics will make you crash and burn if you get it wrong, but it won’t tell you how to get it right. It’ll just create a canvas. Getting the pricing model right is a positioning switch in its own right.

Creative finance people know that pricing is a positioning art. There are many famous products that made it via the right pricing strategy. Gillette (cheap razors, expensive blades), Xerox (originally, “lease the copier, sell the toner”) and Netflix (no late fees) are examples. And of course the whole world of $0.99, $19.99, “introductory price,” artificial scarcity “limited editions,” and and the like are all pricing design ideas. The entire cloud computing sector is driven by a pricing idea: pay-by-the-sip $0.10 offerings for enterprises that are used to paying by the million. To innovate in the cellphone market, pricing should be your top concern.

I recently tried myfooddiary.com (a great calorie counting tool) for a couple of weeks. They advertise $0.29 a day. Not the equivalent $8.70 a month. Why? Monthly subscriptions are better, right? No. This has to do with the psychology, calibration points and money metaphors at work in the prospect’s mind. See my Fools and their Money Metaphors article. Calorie counting is a daily activity for dieters. Health and fitness run on “daily” tempo mental models. The most effective pricing models are likely to be “daily.” That way you can compare it to other daily health/nutrition expenses like food purchases. Gyms would do well to shift to a daily price advertising model. A $90/month gym membership is a $3/day membership. So I know that it costs me about as much to ruin my healthy day with a slice of pizza as it is to redeem it with a workout. Why would you want me to think about my gym membership with a mental model that contains things like rent checks and phone bills? If some gym uses this daily price advertising idea, I demand a royalty!

Money metaphors are complex beasts. Entrepreneurs think with the entrepreneurship (capitalist) metaphor. But to sell stuff, you must think and talk within the customer’s active metaphor. Get it right, and the pricing cylinder fires.

7. Innovation: Positioning as Disruptive Breakthrough

Disruption theory is the most fundamental explanation of differentiation. It is an innovation model, and while it can seem very close to engineering, it isn’t. Innovation can come from a platform-creating scientific breakthrough, but it can just as easily be an enabling breakthrough along any of the other 6 positioning dimensions. It may be technically major or trivial (or to use the correct terms, radical or incremental), but you won’t know what it enables until after it has happened.

Three conditions have to be met for disruptive breakthrough. First, an innovation is “disruptive” because the place it is born is not the place it can grow. So it needs to be transplanted into a new business unit run by a logic within which the idea is sustaining. Second, you need a grow-in-peace peripheral position next to a major disruptee market, where you are too small to pay attention to, but too big for the incumbent to kill once you gain traction. If you don’t do the first, the business is stillborn. If you transplant, but there is no big disruptee market, you create a small niche business. But if you do both, you can get “breakthrough.”

The theory of disruption is highly evolved, and the relevant phase change happens when your adoption S-curve crosses an older one. Read my primer if you are not sure about what disruption means (and most people who use the term without having read Clayton Christensen’s book don’t know what it means, but think they do).

Is every new business disruptive? Is this an optional switch? I’ll leave that for later.

What Really is Business Strategy?

The 7-dimensions model allows you to view the essence of business in a very simple way. It is a matter of turning 7 switches to the “On” position, and hoping the corresponding cylinder fires. If you’re lucky, you’ll start out with one or more of the cylinders already firing. If not, you’ll have to keep trying each switch till all cylinders are firing.

Are there more than 7 switches? I thought about this really hard, especially about two very attractive candidates for an eighth switch: the “culture” switch (going from an inchoate culture of random types of people to a distinctive one) and an “ecosystem” fit (where the corporation is socialized into a supply chain).

After much thought, I gave up on culture. A distinctive culture is an outcome, not a control variable. How you throw the 7 basic switches determines what a corporate culture looks like. Equally, when a culture seems to be going wrong or toxic, it is almost certain that one of the 7 basic cylinders is misfiring, and the switch has been reset to “Off.”  I think if you try direct cultural design rather than hiring against your 7-switch needs, you are asking for trouble. And once culture has emerged, naming, codifying or ritualizing it is a very dangerous game. All you can do is try subtle things to not screw up a working culture, and to protect it from too much toxic disruption. At the same time, you shouldn’t protect it too much, otherwise the culture will ossify, and when the business environment makes a particular cylinder misfire, the culture will lack the ability to adapt.

The last candidate is ecosystem fit. Normally, this would be part of operational fit (strong, effective and mutually beneficial supplier and distributor relationships are a big part of switching from Wildcat to Cash Cow). But there is a difference between “inside the corporation” fit as processes stabilize and fit into a jigsaw puzzle, and “outside the corporation” fit as a vertical or horizontal integration structure emerges in a sector. But overall, I don’t think this is a meaningfully separate distinction with separate legal control variables. Antitrust laws see to that. When these laws can be bent or broken without consequence, or the government gets involved, then you’ve got an eighth switch. Ecosystem fit design is therefore just a part of organization design. Where you draw the boundary of the “organization” is a somewhat arbitrary legal issue.

That’s it for now. This is Part I of a two-part article (the whole thing was starting to weigh in at over 6000 words, which I’ve decided is too much even for me, so I decided to separate this idea into two parts). I’ll finish and post Part II if people like this one. Call this the MVP of a potential series.

The Web of Intent is a term that’s starting to get tossed around a lot, and I’ve gone from being wary about it to believing strongly in it. I was introduced to the term by Nova Spivack of Lucid Ventures about a year ago and was initially skeptical. Could Web ADD be reversed? Can technology give us a true knob to allow us to tune our engagement anywhere from ‘distracted’ to ‘laser focused’? From knee-jerk reactive to coolly deliberate? Actually that’s how I think of the concept: a technology model that gives users this control knob to manage their online experiences:

The evidence is slowly starting to roll in. This conceptual knob can be created through a generation of “Intent” technologies. What’s more, this knob is what will likely save the publishing and media industries.  It will also save our brains from getting fried, and create a new dynamic in the ongoing disruption of all types of information work.

As many of you know, my day job is Entrepreneur-in-Residence at Xerox, where I run the Trailmeme project (go register! we launched on Sept 14). Nova and other seasoned industry folks have been telling me for a while that Trailmeme is actually a perfect example of an Intent technology for the Web. I was initially skeptical and concerned about linking our product positioning to a potentially ephemeral trend, but as I thought more about some of the core ideas (see Nova’s posts What’s After the Real-Time Web? and The Birth of the Scheduled Web), I started to understand the power of the model. Whether or not the term catches on, I think there is definitely something going on, and given the panel proposals, I think it will burst into the open at SXSW 2011.

This is where I am placing my bets. Not the 3D Web, not the “Mobile/Touch Web”, not the “Internet of Things” and not the “Semantic Web.” Those are important, but secondary. I am going all-in on the “Web of Intent” as the next main act that will reshape the Internet. As I’ll explain later, it is a gritty, greasy, roll-up-sleeves, fix-it vision, that is emerging in response to actual problems, as opposed to a vision born out of new possibilities (combined with the smoking of illegal substances).

If I am wrong, well, I can always pivot my life and the Trailmeme project.

So here you go: my primer on what the Web of Intent actually is, in terms of user experience (UX), concepts and technology. We’ll need to start by reframing what Web 2.0 actually is.

Web 2.0 is a Messaging Bus  with Human Switches and Buffers

You may think of Web 2.0 as “social media,” or technology becoming social in the human sense. It may look like it’s all about user-generated content, online communities and rich apps to improve our personal and collective lives. A utopia of sharing and co-creating. It’s all about technology democratizing power and empowering average humans, right?

How conveniently anthropocentric. And wrong.

Social media is not about technology becoming part of human society. It is about humans becoming part of technological society, in a Matrix sense. Power isn’t migrating from the old plutocrats to the new long-tailers as much as it is migrating from humans to technology. Social media isn’t a set of tools to allow humans to communicate with humans. It is a set of embedding mechanisms to allow technologies to use humans to communicate with each other, in an orgy of self-organizing.

Om Malik nailed it when he called Twitter the “messaging bus” of Web 2.0. That’s a raw, lowest-level hardware metaphor, the level with the highest volume of raw bytes. And we’ve plugged ourselves right into the switching circuitry at that level. Think about it, Twitter is a massively parallel stochastic switching circuit built as a global human bus, where more of us are routing bit.ly links than actually reading them. Think about the fact that even the name BIT-ly, which beat out other brands, is a bus-level metaphor. Humans don’t deal in bits, chips do, right? We’ve moved ourselves into the bottom layer of the information work stack.

The Matrix had it wrong. You’re not the battery power in a global, human-enslaving AI, you are slightly more valuable. You are part of the switching circuitry.

“Oh no, I actually read stuff, not just tweet” you say? Well, my friend @amitseshan has a hardware, chip-level metaphor for you too: he classifies people as long-buffer (people like you and me who read and write 2000 word posts), and short-buffer (people who add value primarily by quickly scanning and passing links along strong and well-curated social networks). Feeling dehumanized yet? And you thought social media was going to let you truly express your humanity. And if you want to find the perfect expression of this “embedded humans” architecture, look no further than Mechanical Turk and Demand Media. There is no better illustration of power migrating into the technology, with humans being mere electronic parts. The industrial age had its indelible image of Charlie Chaplin literally becoming caught in in a gear train in Modern Times. That’s what humans as “cogs” meant. The image today is someone furiously RT’ing links on their iPhone. Here’s my bad attempt at capturing history repeating itself:

Here’s the looming extreme Dystopia: writers hired via Mechanical Turk create content that Demand Media believes will sell, and then we shorten those Demand Media article links using bit.ly and busily pass it around on Twitter. And the long buffer types read the most popular of THOSE articles and bid on new Demand Media writing jobs that are automatically generated based on that popularity. Not to pick on those companies (they are all locally-optimizing in good faith), but where the heck is the actual creative thinking and new value in this madness-of-the-crowds churn? We are faced by a downward spiral into the world of the movie Idiocracy.

The fact that the technology matrix is dumb and entirely lacking in goals and intentions actually makes things worse, not better. We are not being enslaved by Skynet. We are being enslaved by an emergent retard whose behavior is basically a viciously randomized reflection of our own collective manias.

Now reconsider the classic symptoms of “social media disruption” within this new framing. What has Web 2.0 actually done to us?

1. It has unbundled all sorts of content and driven the center of gravity towards the 140 character tweet
2. Appointment Content  has started to move to On-Demand Content
3. Fixed publisher-subscriber models have been changed to Twitter/Facebook stochastic diffusion
4. The temporal horizon has changed from past-present-future to just a narrow present
5. We are starting to rely increasingly on analytics, and squeezing out creative intuition
6. Polished content and code has given way to perennial beta
7. Static search based on content-to-content links is starting to get displaced by dynamic search based on live social filtering

The scary part is that each of these is individually a good thing, but it all adds up to a toxic state of affairs.

That last two points are why we are switches in a messaging bus.

Implication of point 6: trading in incomplete stuff makes us part of the process middleware of some giant machine. The finished product that is finally made out of beta code and content is probably something like the hypothalamus of the emergent beast.

Implication of point 7: instead of linking to articles we like on our slow-changing static content, we are tweeting them live. In Web 1.0, while you slept, somebody could click on a link on your “home page,” find a valuable page, and be grateful to you. Win. Now that person is increasingly likely to ask a question on Twitter instead. And you lose sleep trying to stay in the stream, watching for every “real-time” opportunity to answer questions (or more likely, just flooding the timeline with your own tweets, hoping to intercept random intentions).

The whole thing could be called the “Random, Anxious Simul-Screaming Web!” (RASSW!).  The social psychology of the RASSW! is not pretty:

• We are all desperately shouting to be heard above everybody else, anxiously scanning several firehoses, watching for our opportunities, and navigating this chaos using a random soup of tweeted links.
• On-demand content, far from helping us manage our time better, has gotten us into an anxious state of over-demand. We now have the freedom to pack in extra RSS feeds and reading into every spare moment, and we do.
• There is none of that relaxed letting go of the news between broadcasts/newspaper editions. We are like the monkey in that famous experiment that was given a button to stimulate the pleasure centers of its brain. It got into a frantic self-stimulation loop and almost starved I believe. In our case, our competitive status-seeking/money-making instincts have been hooked, rather than our pleasure centers.
• We are being devoured alive by a mindless, formulaic empiricism; SEO aka “writing to the machine” is just the tip of the iceberg

Why are we doing this to ourselves? Are we just masochists with a species-wide death wish?

Actually no, it is a sort of tragedy of the attention commons. To see why ask yourself: why can’t we all agree to just take Sundays entirely off the grid as a planet?

The Tragedy of the Attention Commons

A finance expert once told me that most of the gains in the stock market in the last 50 years happened on just a handful of days. If you’d happened to be out of the market on those days, with your assets in cash, you’d have seen losses instead of the historic 8%. That’s why, he explained, buy-and-hold is best for long-term investing. You won’t miss those unpredictable big-jump days if you’re always in the market.

The same thing applies on the Web. Except that your Web 1.0 “Home page” is no longer your investment in the Web. Your personal live presence is.  Imagine having to show up on the NYSE floor everyday and having to shout above the noise, “I am still in!” to keep your investments in the market. Going off the grid is not really an option. Twitter eroding the position of RSS as a blog distribution medium for is the clearest instance. I now have to tweet new posts at optimal times. No more publish-and-forget.

But here’s why it is a tragedy of the commons: everybody is more frantic, but nobody is actually better off. It’s like one guy standing up at the stadium to get a better view, causing a chain reaction leading to everybody standing up. Now nobody has a better view, and everybody is paying the added cost of standing up.

Or to return to my “Sundays off” hypothetical, if there’s just one guy looking to buy something, tweeting on a Sunday, and just one guy willing to get on Twitter to listen on a Sunday, the rest of us are screwed. Now we all have to get on Twitter on Sundays or miss potential big wins. Actually we don’t listen much. We all choose to scream all the time.

There’s probably a nice game theory model here, but I’ll leave that to someone else.

Why this Disrupts Work and Media

Step back and you will see in this complex of effects the reason for both the disruption of the world of work and the world of media. We’ve paid a lot of attention to the coarse lifestyle level effects on work, such as virtual/distributed work and the economics of free agency. We haven’t really thought as much about the minute-to-minute work we are actually doing sitting at home, in our pajamas, working Skype and watching our free-agent earnings trickling into our Paypal accounts.

Yes, there are benefits, and added independence, and I’ve blogged about the positive side. But it isn’t a pleasant reality overall. The real-time Web so far, has created a race to the bottom in the labor force. We have to fight harder, with fewer protections, for every AdSense dime, rather than trusting that our paychecks will see us through our retirement. And a lot of the work is generally much duller. Not just the Mechanical Turk level of mindless drudgery, but also 90% of  formulaic “7 ways” list-post blogging drudgery. Hardly a fulfilling creative life for people inspired to write by Shakespeare.

The impact on media is an indirect effect, via the impact on work. Publishing “amateurs” (bloggers and the like) looking to establish free-agent/personal brand voices for the new economy are the prime villains in the disruption of old media. What frustrates Old Media attempts at creating new business models overnight is that people like me are grabbing thin slices of the attention that used to belong exclusively to them, and given the weight of numbers, it adds up. We are simultaneously eroding their attention market-share and disrupting their distribution channels (the blogosphere is like a giant, crowdsourced Walmart where every employee is creating his/her own store microbrands in addition to reselling bigger brands).

There is a solution. I hinted at it in a recent post on VentureBeat, reviewing Nick Carr’s Shallows. I offered the cautiously optimistic argument that technology is just a lever and that there is a powerful “intent” side and a manipulated “passive” side.  This post is a refinement of that argument: humans, not technology, are the only truly intentional beings in the picture at the moment. We’re not dealing with Skynet here, but a random, dumb emergent beast.

Greasy, Fix-it, Damage Control

I’ll define the Web of Intent in a very simple way:

A Web architecture that reduces the number and frequency of decisions you have to take, lets you control when you make those decisions, and prunes the number of options among which you need to choose in a trustworthy way. The overall effect of the Web of Intent will be to allow you to get OFF the Web without suffering an anxiety attack.

The Web of Intent isn’t like other big visions for the Internet. It is a trend that is emerging to solve an actual problem as opposed to creating a vision somebody figures is attractive. It isn’t a stimulating “new possibilities” vision like the Semantic Web or the 3D Web. It isn’t an enabling vision like the Mobile Web or the Internet of Things that allow us to do new things. It is also something of a damage control vision: lessons learned in the last 10 years show that our Great Information Overload Hope: filtering and “relevance” technologies, weren’t working well enough to significantly reduce our decision-making and information processing load (that’s why I said “prunes in a trustworthy way.” Most of us still don’t trust the existing relevance/filtration technologies). At the same time automation of decisions and action was also not really working. Most information still needed human judgment. Outside of a few things like email forwarding rules, we do most information handling manually. Information work is still largely manual labor.

The Web of Intent is a roll-up-your-sleeves, grungy, grease-stained “fix-it” vision. A vision that is about fixing the huge problems created by Web 2.0, which we’ve ignored while being distracted by the huge opportunities. We can’t live in the RASSW! for much longer without going collectively crazy. I can just imagine some crazed #iranelection style Twitter phenomenon in a few years creating the brinkmanship conditions for a nuclear war.

The Web of Intent solves these huge problems by amplifying the power of human intent, and taking power back from the (dumb, non-malicious) machines. It attempts to fix Web 2.0 before moving on to some new horizon labeled Web 3.0.

So as a fix-it vision, it starts not with the grand visionary designs of a single genius mind, but the collection of small local solutions that are already emerging, based on existing technology, to fix specific intent (little i) problems. We just need to generalize, grow and integrated these solutions into a coherent architecture. Here’s my list:

1. DailyLit and Instapaper allow you to schedule and control your reading
2. Trailmeme allows you prune and add intent to your browsing
3. Newer Twitter clients like HootSuite allow you to gain some time control over your Twitter account
4. Clicker is bringing back some of the benefits of the much-maligned Appointment TV without its costs
5. Nova is up to some interesting general scheduling technology with Live Matrix
6. Flipboard allows you to step back a bit from the Twitter feeding frenzy and bring some of the old leisurely magazine feel back to your Twitter/Facebook fueled reading
7. Meetup is a scheduling, back-to-real-world technology that is the beginning of the “get off the Web” aspect of the Web of Intent.
8. As befits a fix-it greasy vision, email, much maligned by the younger technologies, is being redeemed and restored to its position of respect
9. In a way, the failure of Google Wave is another piece of evidence in favor of the Web of Intent. It aimed to improve email, but turned it down an anxiety/frenzy increasing path. We said, “No thanks.” Perhaps that’s the big turning point.
10. The rise of social gaming on Facebook is very revealing. It may seem like distraction from a work point of view, but it is an example of how you can create intense focus in the middle of the Random Anxious Simul-Screaming Web (RASSW!).  It is particularly revealing that kaChing, a stock trading social game on Facebook, has now become an actual stock trading technology.

Note: I edited this piece to remove references to SXSW 2011, since the voting for panels has closed.