10: OPPORTUNITIES BEFORE EFFICIENCIES
Until Charles Darwin's discovery of evolution, life was surveyed in the present tense. Animals were probed to see how their innards worked, plants dissected for useful magical potions, the creatures of the sea investigated for their strange lifestyles. Biology was about how living organisms thrived day to day.
Darwin forever transformed our understanding of life by insisting that life didn't make sense without the framework of its billion-year evolution. Darwin proved that even if all we wanted to know was how to cure dysentery in pigs, or how best to fertilize corn, or where to look for lobsters, we had to keep in mind the slow, but commanding dynamics of life's evolution over the very long term.
Until recently, economics was about how businesses thrived year to year, and what kind of governmental policy to institute in the next quarter. The dynamics of long-term growth are quite remote from the issues of whether the money supply should be tightened this year. The study of economics has no Darwin yet, but it is increasingly clear that the behavior of everyday markets cannot be truly understood without keeping in mind the slow, but commanding dynamics of long-term economic growth.
...on average, a fractional percent per year. During the last couple of centuries it averaged about 1% per year, reaching about 2% annually this century, when the bulk of what we see on earth today was built. That means that each year, on average, the economic system produces 2% more stuff than was produced in the previous 12 months. Beneath the frantic ups and downs of daily commerce, a persistent, invisible swell pushes the entire econosphere forward, slowly thickening the surface of the earth with more things, more interactions, and more opportunities. And that tide is accelerating, expanding a little faster each year.
At the genesis of civilization, the earth was mostly Darwin's realm--all biosphere, no economy. Today the econosphere is huge beyond comprehension. If we add up the total replacement costs of all the roads in every country in the world, all the railways, vehicles, telephone lines, power plants, schools, houses, airports, bridges, shopping centers (and everything inside them), factories, docks, harbors--if we add up all the gizmos and things humans have made all over the planet, and calculate how much it is all worth, as if it were owned by a company, we come up with a huge amount of wealth accumulated over centuries by this slow growth. In 1998 dollars, the global infrastructure is worth approximately 4 quadrillion dollars. That's a 4 with 15 zeros. That's a lot of pennies from nothing.
What is the origin of this wealth? Ten thousand years ago there was almost none. Now there is 4 quadrillion dollars worth. Where did all of it come from? And how? The expenditure of energy needed to create this fluorescence is not sufficient to explain it since animals expend vast quantities of energy without the same result. Something else is at work. "Humans on average build a bit more than they destroy, and create a bit more than they use up," writes economist Julian Simon. That's about right, but what enables humans, on average, to ratchet up such significant accumulations?
...says evolutionist Steven Jay Gould. This is the remarkable ability of evolution to create a bit more, on average, than it destroys. Against the great drain of entropy, life ratchets up irreversible gains. The Great Asymmetry is rooted in webs, in tightly interlinked entities, in self-reinforcing feedback, in coevolution, and in the many loops of increasing returns that fill an ecosystem. Because every new species in life cocreates a niche for yet other new species to occupy, because every additional organism presents a chance for other organisms to live upon it, the cumulative total multiplies up faster than the inputs add up; thus the perennial one-way surplus of opportunities.
We call the Great Asymmetry in human affairs "the economy." It too is packed with networks of webs that multiply outputs faster than inputs. Therefore, on average, it fills up faster than it leaks. Over the long run, this slight bias in favor of creation can yield a world worth 4 quadrillion dollars.
...nor energy, nor stuff. The origin of economic wealth begins in opportunities.
The first object made by human hands opened an opportunity for someone else to imagine alternative uses or alternative designs for that object. If those new designs or variations were manifested, then these objects would create further opportunities for new uses and designs. One actualized artifact yielded two or more opportunities for improvement. Two improvements yielded two new opportunities each--now there were four possibilities. Four yielded eight. Thus over time the number of opportunities were compounded. Like the doubling of the lily leaf, one tiny bloom can expand to cover the earth in relatively few generations.
Perhaps the most potent physical force on earth is the power of compounded results, whether that is compounded interest, compounded growth, compounded life, or compounded opportunities. The inputs of energy and human time into the economy can only be supplied in an additive function, bit by bit, but over time the output is multiplied to compound upon itself, yielding astounding accumulations.
A steady stream of human attention and thought is applied to inventing new tools, devising new amusements, and creating new wants. But no matter how small and inconsequential, each innovation is a platform for yet other innovations to launch from.
...that creates an ongoing economy. It is this boundless open-ended arena for innovations that spurs wealth creation. Like a chain reaction, one well-placed innovation can trigger dozens, if not hundreds, of innovation offspring down the line.
Consider, for example, email. Email is a recent invention that has ignited a frenzy of innovation and opportunity. Each tiny bit of email ingenuity begets several other bits of ingenuity, and they each in turn beget others, and so on compoundfinitum. Unlike a piece of junk mail, an email advertisement costs exactly the same to send to one person or one million people--assuming you have a million addresses. Where does one get a million addresses? People innocently post their addresses all over the net--at the bottom of their home page, or in a posting on a news group, or in a link off an article. These postings suggested an open opportunity to programmers. One of them came up with the idea of a scavenger bot. (A bot, short for robot, is a small bit of code.) A scavenger bot roams the net looking for any phrase containing the email @ sign, assumes it is an address, pockets it, and then compiles lists of these addresses that are sold for $20 per thousand to spammers--the folks who mail unsolicited ads (junk mail) to huge numbers of recipients.
The birth of scavenger bots suddenly created niches for anti-spam bots. Companies that sell internet access seed the net with decoy phony email addresses so that when the addresses are picked up by scavenger bots and used by the spammers, the internet provider will get mail they can track to find out where the spam is coming from. Then the provider blocks the spam from that source for all their customers, which keeps everyone happy and loyal.
Naturally, that innovation creates opportunity for yet more innovation. Creative spammers devised technology that allows them to fake their source address; they hijack someone else's legitimate address to mail spam from and then flee after using it.
Every move generates two countermoves. Every innovation creates an opportunity for two other innovations to succeed by it.
...launches at least two new opportunities.
The entire web is an opportunity dynamo. More than 320 million web pages have been created in the first five years of the web's existence. Each day 1.5 million new pages of all types are added. The number of web sites--now at 1 million--is doubling every 8 months. (Think lily pond!) A single opportunity seized in 1989 by a bored researcher began this entrepreneurial bloom. It is not the lily leaf that is expanding now, but the lily pond itself.
The number of opportunities, like the number of ideas, are limitless. Both are created combinatorially in the way words are. You can combine and recombine the same 26 letters to write an infinite number of books. The more components you begin with, the faster the total possible combinations ramp up to astronomical numbers. Paul Romer, an economist working on the nature of economic growth, points out that the number of possible arrangements of bits on a CD is about 10^ billion. Each arrangement would be a unique piece of software or music. But this number is so huge there aren't enough atoms in the universe to physically make that many CDs, even subtracting all the duds that are just random noise.
Think of the mineral iron oxide, suggests Romer. It's rust. More than 10,000 years ago our ancestors used iron oxide as a pigment to make art on cave walls. Now, by rearranging those same atoms into a precisely thin iron oxide film on plastic we get a floppy disk, which can hold a reproduction of the same cave paintings, and all the possible permutations of it wrought by Photoshop. We have amplified the possibilities a millionfold.
The power of combinatorial explosions--which is what you get with ideas and opportunities--means, says Romer, "There's essentially no scarcity to deal with." Because the more you use opportunities, the less scarce they get.
Everything we know about the structure of the network economy suggests that it will bolster this efflorescence of opportunities, for the following reasons:
- Every opportunity inhabits a connection. As we connect up more and more of the world into nodes on a network, we make available billions more components in the great combinatorial game. The number of possibilities explodes.
- Networks speed the transmission of opportunities seized and innovations created, which are disseminated to all parts of the network and the planet, inviting more opportunities to build upon them.
Technology is no panacea. It will never solve the ills or injustices of society. Technology can do only one thing for us--but it is an astonishing thing: Technology brings us an increase in opportunities.
...someone with twice his musical talents was born into a world that lacked keyboards or orchestras. We'll never hear his music because technology and knowledge had not yet uncovered those opportunities. Centuries later the fulfilled opportunity of musical technology gave Beethoven the opportunity to be great. How fortunate we are that oil paints had been invented by the time Van Gogh was ready, or that George Lucas could use film and computers. Somewhere on Earth today are young geniuses waiting for a technology that will perfectly match their gifts. If we are lucky, they'll live long enough for our knowledge and technology to make the opportunity they need.
--all these opportunities remain. But in addition we have added film, metal work, skyscrapers, hypertext, and holograms as but a few of the new opportunities for artistic expression. Each year we add more opportunities of every stripe. Ways to see. Methods for thinking. Means of amusing. Paths to health. Routes to understanding.
The Great Asymmetry of economic life ceaselessly amasses new opportunities while relinquishing few old ones. The one-way journey is toward more and more possibilities, pointing in more and more directions, opening more and more new territories.
"A few decades from now there will be ten billion people on the planet, and sophisticated computers will be cheaper than transistor radios," writes science fiction writer David Brin in his manifesto The Transparent Society. "If this combination does not lead to war and chaos, then it will surely result in a world where countless men and women swarm the dataways in search of something special to do--some pursuit outside the normal range, to make each one feel just a little bit extraordinary. Through the internet, we may be seeing the start of a great exploration aimed outward in every conceivable direction of interest or curiosity. An expedition to the limits of what we are, and what we might become."
...as more possibilities are manufactured, the unabated push of incremental growth also speeds up. In the long run, creating and seizing opportunities is what drives the economy. A better benchmark than productivity would be to measure the number of possibilities generated by a company or innovation and use the total to evaluate progress.
In the short run, though, problems must be solved. Businesses are taught that they are in the business of solving problems. Put your finger on a customer's dissatisfaction, the MBAs say, and then deliver a solution. This bit of hoary advice inspires business to seek out problems. Problems, however, are entities that don't work. They are usually situations where the goal is clear but the execution falls short. As in, "We have a reliability problem," or "Customers complain about our late delivery." In the words of Peter Drucker, "Don't solve problems." George Gilder distills the essence further: "When you are solving problems, you are feeding your failures, starving your successes, and achieving costly mediocrity. In a competitive global arena, costly mediocrity goes out of business."
Seeking opportunities is no longer wisdom relevant only to the long cycles of economic progress. As the economy speeds up, so that an "internet year" seems to pass in one month, the principles of long-term growth begin to govern the day-to-day economy. The dynamics of growth become the dynamics of short-term competitive advantage.
In both the short and long term, our ability to solve social and economic problems will be limited primarily to our lack of imagination in seizing opportunities, rather than trying to optimize solutions.
...opportunities than by optimizing existing ones.
Optimization and efficiency die hard. In the past, better tools made our work more efficient. So economists reasonably expected that the coming information age would be awash in superior productivity. That's what better tools gave us in the past. But, surprisingly, the technology of computers and networks have not yet led to measurable increases in productivity.
Increasing efficiency brought us our modern economy. By producing more output per labor input, we had more goods at cheaper prices. That raised living standards. The productivity factor is so fundamental to economic growth that it became the central economic measurement tracked and perfected by governments. As economist Paul Krugman once said, "Productivity isn't everything, but in the long run it is almost everything."
...to care about in the new economy.
To measure efficiency you need a uniform output. But uniform output is becoming rarer in an economy that emphasizes smaller production runs, total customization, personalized "feelgoods" and creative innovation. Less and less is uniform.
And machines have taken over the uniform. They love tedious and measurable work. Constant upgrades enable them to churn out more per hour. So the only ones who should worry about their own productivity are those made of ball bearings and rubber hoses. And, in fact, the one area of the current economy that does show a rise in productivity has been the U.S. and Japanese manufacturing sectors, which have seen an approximately 3% to 5% annual increase throughout the 1980s and into the 1990s. This is exactly where you want to find productivity. Each worker, by supervising machinery and tools, produces more rivets, more batteries, more shoes, and more items per person-hour. Efficiencies are for robots.
Opportunities, on the other hand, are for humans. Opportunities demand flexibility, exploration, guesswork, curiosity, and many other qualities humans excel at. By its recursive nature, a network breeds opportunities, and incidentally, jobs for humans.
...with their imaginations, we don't see productivity gains--and why would we? Is a Hollywood movie company that produces longer movies per dollar more productive than one that produces shorter movies? Yet an increasingly greater percentage of work takes place in the information, entertainment, and communication industries where the "volume" of output is somewhat meaningless.
The problem with trying to measure productivity is that it measures only how well people can do the wrong jobs. Any job that can be measured for productivity probably should be eliminated from the list of jobs that people do.
The task for each worker in the industrial age was to discover how to do his job better: that's productivity. Frederick Taylor revolutionized industry by using his scientific method to optimize mechanical work. But in the network economy, where machines do most of the inhumane work of manufacturing, the question for each worker is not "How do I do this job right?" but "What is the right job to do?"
Answering this question is, of course, extremely hard to do. It's called an executive function. In the past, only the top 10% of the workforce was expected to make such decisions. Now, everyone, not just executives, must decide what is the right next thing to do.
...next thing is far more fruitful than doing the same thing better.
But how can one easily measure this vital sense of exploration and discovery? It will be invisible if you measure productivity. But in the absence of alternative measures, productivity has become a bugaboo. It continues to obsess economists because there is little else they know how to measure consistently.
As bureaucrats continue to measure productivity, they find no substantial increase in recent decades. This despite $700 billion invested into computer technology worldwide each year. Millions of people and companies worldwide purchase computer technology because it increases the quality of their work, but in the aggregate there is no record of their benefits in the traditional measurements. This unexpected finding is called the productivity paradox. As Nobel laureate Robert Solow once quipped, "Computers can be found everywhere except in economic statistics."
...of computer systems were bungled, mismanaged, and squandered. Last year 8,000 mainframe computers--computers with the power of a Unix box and the price of a large building--were sold to customers imprisoned by legacy systems. IBM alone sold $5 billion worth of mainframes in 1997. Those billions don't help the efficiency ratings. The year 2000 fiasco is a world-scale screwup that also saps the payoff from information technology. But according to economic historian Paul David, it took the smokestack economy 40 years to figure out how to reconfigure their factories to take advantage of the electric motor, invented in 1881; for the first decade of the changeover productivity actually decreased. David likes to quip that "In 1900 contemporaries might well have said that the electric dynamos were to be seen 'everywhere but in the economic statistics.' " And the switch to electric motors was simple compared to the changes required by network technology.
...of the age of the microprocessor. Productivity will rebound. In a few years it will "suddenly" show up in elevated percentages. But contrary to Krugman's assertion, in the long run productivity is almost nothing. Not because productivity increases won't happen; they will. But because, like the universal learning curve that brings costs plunging down, increased productivity is a rote process.
The learning curve of inverted prices was first observed by T. P. Wright, a legendary engineer who built airplanes after the First World War. Wright kept records of the numbers of hours it took to assemble each plane and calculated that the time dropped as the total number of units completed increased. The more experience assemblers had, the greater their productivity. At first this was thought to be relevant only to airplanes, but in the 1970s engineers at Texas Instruments began applying the rule to semiconductors. Since then the increase of productivity with experience is seen everywhere. According to Michael Rothschild, author of Bionomics, "Data proving learning-curve cost declines have been published for steel, soft contact lenses, life insurance policies, automobiles, jet engine maintenance, bottle caps, refrigerators, gasoline refining, room air conditioners, TV picture tubes, aluminum, optical fibers, vacuum cleaners, motorcycles, steam turbine generators, ethyl alcohol, beer, facial tissues, transistors, disposable diapers, gas ranges, float glass, long distance telephone calls, knit fabric lawn mowers, air travel, crude oil production, typesetting, factory maintenance, and hydroelectric power."
As the law of increasing productivity per experience was seen to be universal, another key observation was made: The learning didn't have to take place within one company. The experience curve could be seen across whole industries. Easy, constant communication spreads experience throughout a network, enabling everyone's production to contribute to the learning. Rather than have five companies each producing 10,000 units, network technologies allow the five to be virtually grouped so that in effect there is one company producing 50,000 units, and everyone shares the benefits of experience. Since there is a 20% drop in cost for every doubling of experience, this network effect adds up. Advances in network communications, standard protocols for the transmission of technical data, and the informal, ad hoc communities of technicians all spread this whirlwind of experience, and ensures the routine rise of productivity.
Analyst Andrew Kessler of Velocity Capital Management compares the plummeting of prices due to the universal learning curve to a low pressure front in the economy. Just as a meterological low pressure system sucks in weather from the rest of the country, the low pressure point generated by sinking prices sucks in investments and entrepreneurial zeal to create opportunities.
...much like the two-step process of variation and death in natural selection. The primary role that productivity plays in the network economy is to disperse technologies. A technical advance cannot leverage future opportunities if it is hoarded by a few. Increased productivity lowers the cost of acquisition of knowledge, techniques, or artifacts, allowing more people to have them. When transistors were expensive they were rare, and thus the opportunities built upon them were rare. As the productivity curve kicked in, transistors eventually became so cheap and omnipresent that anyone could explore their opportunities. When ball bearings were dear, opportunities sired by them were dear. As communication becomes everywhere dirt cheap and ubiquitous, the opportunities it kindles will likewise become unlimited.
...of routine productivity. Technical experience can be shared quickly, increasing efficiencies in automation. The routine productivity of machines, however, is not what humans want. Instead, what the network economy demands from us is something that looks suspiciously like waste.
Wasting time and inefficiencies are the way to discovery. When Condé Nast's editorial director Alexander Liberman was challenged on his inefficiencies in producing world-class magazines such The New Yorker, Vanity Fair, and Architectural Digest, he said it best: "I believe in waste. Waste is very important in creativity." Science fiction ace William Gibson declared the web to be the world's largest waste of time. But this inefficiency was, Gibson further noted, its main attraction and blessing, too. It was the source of art, new models, new ideas, subcultures, and a lot more. In a network economy, innovations must first be seeded into the inefficiencies of gift economy to later sprout in efficiencies of the commerce.
Dialog was pretty futuristic. In the 1970s and '80s it was the closest thing to an electronic library there was, containing the world's scientific, scholarly, and journalistic texts. The only problem was its price, $1 per minute. You could spend a lot of money looking things up. At those prices only serious questions were asked. There was no fooling around, no making frivolous queries--like looking up your name. Waste was discouraged. Since searching was sold as a scarcity, there was little way to master the medium, or to create anything novel.
--clicking aimlessly through dumb web sites, trying stuff, and making tons of mistakes and silly requests--before you master its search process. The web encourages inefficiency. It is all about creating opportunities and ignoring problems. Therefore it has hatched more originality in a few weeks than the efficiency-oriented Dialog system has in its lifetime, that is, if Dialog has ever hatched anything novel at all.
The Web is being run by 20-year-olds because they can afford to waste the 56 hours it takes to become proficient explorers. While 45-year-old boomers can't take a vacation without thinking how they'll justify the trip as being productive in some sense, the young can follow hunches and create seemingly mindless novelties on the web without worrying about whether they are being efficient. Out of these inefficient tinkerings will come the future.
...what we want, we are exploring in every direction, following every idle curiosity, and inventing more wants to satisfy. Like everything else in a network, our wants are compounding exponentially.
Although at some fundamental level our wants connect to our psyches, and each desire can be traced to some primeval urge, technology creates ever new opportunities for those desires to find outlets and form. Some deep-rooted human desires found expression only when the right technology came along. Think of the ancient urge to fly, for instance.
KLM, the official Dutch airline, sells a million dollars worth of tickets per year to people who fly trips to nowhere. Customers board the plane on whatever international flight KLM has extra seats on, and make an immediate round-trip flight, returning without leaving the airport at the other end. The flight is like a high-tech cruise, where duty-free shopping and simply flying in a 737 at a steep discount is the attraction. Where did this want come from? It was created by technology.
Finance writer Paul Pilzer notes perceptively that "When a merchant sells a consumer a new Sony Walkman for $50, he is in fact creating far more demand than he is satisfying--in this case a continuing and potentially unlimited need for tape cassettes and batteries." Technology creates our needs faster than it satisfies them.
Instead they are fluid and reflexive. The father of virtual reality, Jaron Lanier, claims that his passion for inventing VR systems came from a long-frustrated urge to play "air guitar"--to be able to wave his arms and have music emanate from his motions. Anyone with access to a VR arcade can now have that urge satisfied, but it is a want that most people would have never recognized until they immersed themselves into virtual reality gear. It was certainly not a primary want that Plato would have listed.
At one time a useful distinction was made in economics between "primary" needs such as food and clothing, and all other wants and preferences, which were termed "luxuries." Advertising is undoubtedly guilty, as critics charge, of creating desires. At first these manufactured desires were for luxuries. But the reach of technology is deep. Sophisticated media technology first creates desires for luxuries; then technology transforms those luxuries into primary necessities.
...electric lights, a color TV, and a toilet are considered so elementary and primary today that we outfit jail cells with this minimum technology. Yet three generations ago, this technology would have been officially classified as outright luxurious, if not frivolous. In the government's eyes 93% of Americans officially classified as living in poverty have a color TV, and 60% have a VCR and a microwave. Poverty is not what it used to be. Technological knowledge constantly ups the ante. Most Americans today would find living without a refrigerator and telephone to be primitive, indeed. These items were luxuries only 60 years ago. At this point an automobile of one's own is considered a primary survival need of any adult.
The key point in economic terms is that each actualization of a desire--that is, each new service or product--forms a platform from which other possible activities can be imagined and desired. Once technology satisfies the opportunity to fly, for instance, flying produces new desires: to eat while flying, to fly by oneself to work each day, to fly faster than sound, to fly to the moon, to watch TV while flying. Once technology satisfies the desire to watch TV while flying, our insatiable imagination hungers to be able to watch a video of our own choosing, and to not see what others watch. That dream, too, can be actualized by technical knowledge. Each actualization of an idea supplies room for more technology, and each new technology supplies room for more ideas. They feed on each other, rounding faster and faster.
This ever-extending loop whereby technology generates demand, and then supplies the technology to meet those demands is the origin of progress. But it is only now being viewed as such. In classical economics--based on the workings of the brick and smokestack--technology was a leftover. To explain economic growth, economists tallied up the effects of the traditional economic ingredients such as labor, capital, and inventory. This aggregate became the equation of growth. Whatever growth was not explained by those was attributed to a residual category: technology. Technology was thus defined as outside the economic engine. It was also assumed to be a fixed quantity--something that didn't really change itself. Then in 1957 Robert Solow, an economist working at MIT, calculated that technology is responsible for about 80% of growth.
We see now, particularly with the advent of the network economy, that technology is not the residual, but the dynamo. In the new order, technology is the Prime Mover.
...of economic growth and productivity. Listening to the technology can loose them. Technology says, rank opportunities before efficiencies. For any individual, organization, or country the key decision is not how to raise productivity by doing the same better, but how to negotiate among the explosion of opportunities, and choose right things to do.
The wonderful news about the network economy is that it plays right into human strengths. Repetition, sequels, copies, and automation all tend toward the free and efficient, while the innovative, original, and imaginative--none of which results in efficiency--soar in value
If there is pressure to increase the productivity of human workers, the serious question to ask is, why can't a machine do this? The fact that a task is routine enough to be measured suggests that it is routine enough to go to the robots. In my opinion, many of the jobs that are being fought over by unions today are jobs that will be outlawed within several generations as inhumane.
The qualities needed to succeed in the network economy can be reduced to this: a facility for charging into the unknown. Disaster lurks everywhere, but so do unexpected bonanzas. But the Great Asymmetry ensures that the upside potential outweighs the downside, even though nine out of ten tries will fail. Upside benefits tend to cluster. When there are two, there will be more. A typical upside surprise is an innovation that satisfies three wants at once, and generates five new ones, too.
One opportunity triggers another. And then another. That's a rifle-shot opportunity burst. But if one opportunity triggers ten others and those ten others after, it's an explosion that cascades wide and fast. Some seized opportunities burst completely laterally, multiplying to the hundreds of thousands in the first generation--and then dry up immediately. Think of the pet rock. Sure, it sold in the millions, but then what? There was no opportunity cascade. The way to determine the likelihood of a cascade is to explore the question: How many other technologies or businesses can be started by others based on this opportunity?