July 24, 2014

The zero marginal cost society by Jeremy Rifkin

The zero marginal cost society by Jeremy Rifkin

The internet of things, the collaborative commons, and the eclipse of capitalism

[Even though there is a more socialistic inclination, it is nice to read about paradigm shift]

The capitalist era is passing... not quickly, but inevitably. A new economic paradigm - the collaborative commons - is rising in its wake that will transform our way of life. We are witnessing the emergence of a hybrid economy, part capitalist market and part collaborative commons.

The French Enlightenment philosopher, Jean-Baptist Say argued that “a product is no sooner created then it, from that instant, affords a market for other products to the full extent of its own value... The creation of one product immediately opens a vent for other products”. A later generation of neoclassical economists refined Say’s Law by asserting that new technologies increase productivity, allowing the seller to produce more goods at a cheaper cost per unit. The increased supply of cheaper goods then creates its own demand and in the process, forces competitors to invent their own technologies to increase productivity in order to sell their goods even more cheaply and win back or draw in new customers (or both). The entire process operates like a perpetual-motion machine. Cheaper prices, resulting from new technology and increased productivity, mean more money for consumers to spend elsewhere, which spurs a fresh round of competition among sellers.

What happens if the marginal cost of producing and distributing a book plummeted to near zero? a growing number of authors are writing books and making them available at a very small price or even for free on the internet - bypassing publishers, printers, wholesalers, distributors and retailers. The only cost of marketing and distributing each copy is nearly free. The near zero marginal cost phenomenon has already wreaked havoc on the publishing, communications, and entertainment industries as more and more information is being made available nearly free to billions of people.

There are already millions of prosumers - consumers who have become their own producers- generating their own green electricity at near zero marginal cost around the world.

Oskar Lange, a University of Chicago professor of the early 20th century noted that when an entrepreneur introduces technological innovations that allow him to lower the price of goods and services, he gains a temporary advantage over competitors with antiquated means of production, resulting in the devaluation of the older investments they are locked into. This forces them to respond by introducing their own technological innovations, again increasing productivity and cheapening prices and so on.

Lawrence Summers, U.S> secretary of the treasury during President Bill Clinton’s administration and former president of Harvard University and J. Bradford DeLong, a professor of economics at the university of California, Berkeley argued that:

“If information goods are to be distributed at their marginal cost of production - zero - they cannot be created and produced by entrepreneurial firms that use revenues obtained from sales to consumers to cover their fixed setup costs. If the information goods are to be created and produced... companies must be able to anticipate selling their products at a profit to someone”.

All economic activity comes from harnessing available energy in nature - in material, liquid, or gaseous form - and converting it into goods and services. At every step in production, storage and distribution process, energy is used to transform nature’s resources into finished goods and services.

The coming together of the Communications Internet with the fledgling Energy Internet and Logistics Internet in a seamless 21st century intelligent infrastructure - the internet of things (IoT) - is giving rise to a Third Industrial Revolution. The IoT is already boosting productivity to the point where the marginal cost of producing many goods and services is nearly zero, making them practically free. The result is corporate profits are beginning to dry up, property rights are weakening and an economy based on scarcity is slowly giving way to an economy of abundance.

Infrastructure requires three elements, each of which interacts with the other to enable the system to operate as a whole: a communication medium, a power source and a logistics mechanism.

Gunpowder, the compass and the printing press were the three great inventions which ushered in bourgeois society. Gunpowder blew up the knightly class, the compass discovered the world market and founded the colonies and the printing press was the instrument of Protestantism and the regeneration of science in general; the most powerful lever for creating the intellectual prerequisites

Neither Karl Marx nor Adam Smith seemed to understand, however, that the print revolution and water and wind power were indispensable to each other and that together they created a general-purpose technology platform for an economic paradigm shift that changed the European social and political landscape.

While capitalism operates through the free market, free market does not require capitalism.

Three of the four largest shareholding companies in the world today are oil companies = Royal Dutch Shell, ExxonMobil and BP. Underneath the oil giants are ten banks - JPMorgan, Chase, Goldman Sachs, BOA / Merrill Lynch, Morgan Stanley, Citigroup, Deutsche bank , Credit Suisse, Barclays Capital, UBS and Wells Fargo Securities - that control nearly 60% of the worldwide investment banking market. And, beneath the financial investors are 500 globally traded companies - with combined revenue of $22.5 trillion, which is equal to one-third of the world’s $62 trillion GDP - that are inextricably connected to and dependent on fossil energy, global communication and the world’s electricity grid for their existence.

Robert Hoyt of the University of Minnesota summed up mirror relationship between the organization of feudal society and the Great Chain of Being. “The basic idea that the created universe was a hierarchy, in which all created beings were assigned a proper rank and station, was congenial with the feudal notion of status within the feudal hierarchy, where every member had his proper rank with its attendant rights and duties”.

Martin Luther launched a frontal attack on the church’s hierarchical rule of the pope and the papal administration over the lives of the faithful (Protestant Reformation). Luther accused the pope of being the Antichrist and warned that the Catholic Church was neither God’s chosen emissary on Earth nor the anointed intermediary by which the faithful could communicate with the Lord. Nor could church leaders legitimately claim the power to intercede with God on behalf of their parishioners and assure salvation in the next world.

In the case of first and second industrial revolution, the nature of the communication/energy matrices favored vertical integration of economic activity to reduce marginal cost and create sufficient economies of scale to recoup investments and make a profit. The new economy will optimize the general welfare by way of laterally integrated networks on the Collaborative Commons, rather than vertically integrated business in the capitalist market. The giant monopolies that presided over the music industry, the publishing industry, the print and electronic media, and large parts of the entertainment industry, have already experienced, firsthand, the shock and awe of peer production in laterally integrated economies of scale networks that push marginal costs to near zero.

Robert Solow - who won Nobel Prize in economics in 1987 for his growth theory - tracked the industrial age, he found that machine capital and labor performance only accounted for approximately 14% of all of the economic growth, raising the question of what was responsible for the other 86%. This mystery led economist Moses Abramovitz to admit that the other 86% is a ‘measure of our ignorance’. Economists researched and found that it is the increasing thermodynamic efficiency with which energy and raw materials are converted into useful work that accounts for the most of the rest of the giants in productivity and growth in industrial economies. In other words, ‘energy’ is the missing factor.

Despite a significant increase in efficiency, nearly 87% of the energy we used in the second industrial revolution was wasted during transmission. The third industrial revolution infrastructure, it is conceivable to increase aggregate energy efficiency to 40% or more in the next 40 years, amounting to a dramatic increase in productivity beyond what the economy experienced in the 20th century.

Free Energy

Many of the key players have come over from the information technology and internet sectors to apply experience they garnered there to the new energy paradigm. They correctly sense tow uncanny parallels. First, the harvesting power of renewable energy technology is experiencing its own exponential growth curve in solar and wind, with geothermal, biomass, and hydro expected to follow. Second, like the Communications internet where the up-front costs of all establishing the infrastructure were considerable, but the marginal cost of producing and distributing information is negligible, the up-front costs of establishing an energy internet are likewise significant, but the marginal cost of producing each unit of solar and wind power is nearly zero. Renewable energy, like information, is nearly free after accounting for the fixed costs of research, development and deployment.

The impact of society is all the more pronounced when we consider the vast potential of solar as a future energy source. The sun beams 470 exajoules of energy to Earth every 88 minutes - equaling the amount of energy human beings use in a year. If we could grab hold of one tenth of 1 % of the sun’s energy that reaches earth, it would give us six times the energy we now use across the global economy.

Richard Swanson, the founder of Sunpower Corporation, observed that the same doubling phenomenon in solar that Moore did in computer chips, Swanson’s law holds that the price of solar photovoltaic (PV) cells trends to drop by 20% for every doubling of industry capacity.

Knowledge Revolution

Knowledge revolution began when a Stanford University professor, Sebastian Thrun, offered a ‘free’ course on artificial intelligence (AI) online in 2011, one similar to the course he taught at the university. By the time it commenced, 160,000 students from every country in the world (except N. Korea) were sitting at their computers in the biggest classroom ever convened for a single course in all of history. Thrun went on to launch an online university called Udacity with the goal of providing a top-quality education for every young person in the world, esp. the poor in developing countries who otherwise would never have the opportunity to be exposed to learning at his level.  

Two of Thrun’s computer science colleagues, Andrew Ng and Daphne Koller, who participated with him in the online course experiment, set up a competing for-profit online university website called Coursera. Coursera was followed by edX, a nonprofit consortium put together by Harvard and MIT.  Coursera now has 97 participating universities as of this writing. EdX has also expanded to more than 30 universities. The new education phenomenon is called MOOCs (massive Open Online Coursera).
We are in the midst of an epic change in the nature of work. The first Industrial Revolution ended slave and serf labor. The second industrial revolution dramatically shrank agricultural and craft labor. The third industrial revolution is sunsetting mass wage labor in the manufacturing and service industries and salaried professional labor in large parts of the knowledge sector.

The tragedy of commons by Garrett Hardin’s essay (published in 1968) says freedom in a commons brings ruin to all. (In Hardin’s parable, a single group of herders shares a common pasture. The common is large enough to support many animals, but not infinitely many. From time to time, each herder must decide whether to add another animal to her flock. What’s a rational herder do? By adding an animal to her herd, she receives a substantial benefit when she sells the animal at market. However, the cost of supporting that animal is shared by all who use the commons. Thus herder gains a lot, but pays only a little, by adding an additional animal to indefinitely, so long as the commons remains available. Of course, every other herder has the same set of incentives. If each here acts according to her self-interest, the commons will be completely eroded and there will be nothing left for anyone”).

In 1986 - 18 years after Hardin’s essay seemed to put the last proverbial nail in the coffin of Commons theory - Carole Rose pried open the casket, breathing new life into what many had already concluded was a dead idea. The Northwestern University law professor entitled her salvo “the comedy of the commons” a scathing rejoinder to Hardin’s earlier thesis. Rose began by reminding her readers that not everything is amenable to private ownership.

Rose pointed out that “there lies outside purely private property and government-controlled ‘public property’ a distant class of inherently public property’ which is fully controlled by neither government nor private agents. This is property collectively ‘owned’ and managed by society at large, with claims independent of and indeed superior to the claims of any purported governmental manager” (e.g. oceans, air we breathe are all in the nature of public goods).

Rose cities the customary right to participate in the public square, noting that it has long been regarded as indispensable to social life. The public square - at least before the internet - is where we communicate, socialize, revel in each others company, establish communal bonds, and create social capital and trust, the indispensable elements for nurturing community. The right to be included to have access to one another which is the basic right to participate ‘in commons’ is the fundamental property right, while private property, the right to enclose, own, exclude is merely a qualifies deviation from the norm - although in modern times the qualification has all but subsumed the norm.

In regard to festivals, dances, sporting events and other social activities in the public square, the more individuals that participate says Rose, “the higher its value to each participant. Rose says that this is the reverse of the tragedy of the commons. it is a comedy of commons as is so felicitously expressed in the phrase ‘the more the merrier’.

What makes Rose’s insight so uncanny is she wrote it in 1986, before the emergence of the WWW. Rose’s blistering attack on Hardin’s tragedy of commons thesis and her equally spirited defense of the comedy of the commons was followed, just four years later by publication of Elinor Ostrom’s ‘The Governing of the Commons’. Her work dazzled the intellectual community and even the economic academy. Ostrom;s insightful analysis won her the coveted Nobel prize in economics in 2009 - making her the first woman ever to receive the honor.

After years of field investigations and research on what makes commons work, Ostrom and her colleagues came up with seven ‘design principles’ that seem to be integral to every effective commons surveyed.

1. Effective management of a commons requires ‘clearly defined boundaries on who is allowed to appropriate from the commons and who is not.

2. It is necessary to establish appropriation rules restricting the time, place, technologies and quantity of the resources that can be used as well as setting up the rules on the amount of labor, materials and money that can be allotted to the appropriation.

3. A commons association needs to guarantee that those affected by the appropriation rules jointly and democratically determine those rules and their modifications over time.

4. The commons association should ensure that those monitoring the activity on the commons are the appropriators or are accountable to them.

5. Appropriators who violate the rules should, in principle, be subject to graduated sanctions by the other appropriators or officials accountable to the appropriators to guard against overly punitive punishments that sours their future participation and creates ill will in the community.

6. The commons association ought to build in procedures for rapid access to low-cost private mediation to quickly resolve conflict among appropriators or between appropriators and public officials.
7. It is vital that government jurisdictions recognize and condone the legitimacy of the rules established by the commons association. If government authorities do not provide a minimum recognition of the authority of the commons association to self-manage and in effect treat it as illegitimate, the self-rule of the commons is not likely to be able to sustain itself over time.

These seven design principles appear over and over again in Commons arrangements all over the world.

Most of the major sectors on the internet today are controlled by one dominant company or an oligopoly. Google owns search, Facebook social networking, eBay rules auctions, Apple dominates online content delivery, Amazon, retail; and so on.

Review websites abound on the internet. yelp, Angie’s List, Citysearch, Tripadvisor, Travelocity, Judy’s Book and Local are among the hundreds of review sites where consumers check in to track other consumers experience with goods and services. It is estimated that Craigslist single-handedly wiped out $10 billion in classified ad revenues in print publications annually, replacing it with $100 million in online revenues, with operating costs representing a fraction of the cost incurred by newspapers and magazines, which long relied on classified to stay afloat. Craigslist's global online bulletin board is managed by a staff of just 30 people in its office in San Francisco.

Online banking platforms like Zopa, Lending Club, and Prosper lend money directly to individuals and projects.

In his masterful book ‘The Philosophy of Money’ the 19th century sociologist Georg Simmel reminds us of the critical role that money has played throughout history in extending and deepening human social interaction. Simmel pointed out that coins are promissory notes, backed by an unstated collective trust among strangers that guarantees that at some future date the token passed on in an earlier exchange will be honored by a third party in a subsequent exchange.

Peter Senge of the MIT Sloan School of Management points out that the average life of a Fortune 500 company is only around 30 years. Today many second industrial revolution companies are faced with a comparable opportunity and a choice, Some are already making the leap into the Third Industrial Revolution, incorporating the new business models and services into their existing portfolios and developing transitional strategies to keep pace with the paradigm shift into a hybrid economy made up of both Collaborative Commons and conventional capitalist marketplace.

The powerful social forces unleashed by the coming zero marginal cost society are both disruptive and liberating. They are unlikely curtailed or reversed. The transition from the capitalist era to the collaborative Age is gaining momentum in every region in the world 0 hopefully in time to heal the biosphere and create a more just, humane, sustainable global economy for every human being on earth in the first half of 21st century.

July 19, 2014

The Rise by Sarah Lewis

The Rise by Sarah Lewis
Creativity, the gift of failure and the search for mastery.

This book is about the advantages that come from the improbable ground of creative endeavor. Brilliant inventions and human feats that have come from labor - an endeavor that offers the world a gift from he maker’s soul - involve a path aided by the possibility of setbacks and inestimable gains that experience can provide. What we gain by looking at mastery, invention, and achievement is the value of otherwise ignored ideas - the power of surrender, the propulsion of the near win, the crucial role of play in achieving innovation, and the importance of grit and creative practice.

As legendary playwright Christopher Fry reminds us:
Who apart
From ourselves, can see any difference between
Our victories and our defeats?

It is a cliche to say simply that we learn the most from failure.

Lord, grant that I may always desire more than I can accomplish - Michelangelo implored, like a perpetual Adam with his finger outstretched but not quite touching Old Testament God’s hand in the Sistine Chapel (http://en.wikipedia.org/wiki/Sistine_Chapel_ceiling#mediaviewer/File:Hands_of_God_and_Adam.jpg)

Mountains are what create the illusion on the Bonneville Salt Flats - the massive can appear as if sky-suspended mounds of earth. The eye catches what we think must be their bottom, but that pile of rock bends with the exact down-slope of the plant, beyond our line of sight.

Artist Romare Bearden considered this fragmentary viewing central to his definition of being an artist: “An artist is an art lover who finds that in all the art he sees, something is missing; to put there what he feels is missing becomes the center of his life’s work. Michelangelo said, “art is an unending succession of contests”.

There is an inevitable in-completion that comes with mastery. It occurs because the greater our proficiency, the more smooth our current path, the more clearly we may spot the mountain that hovers in our graze. “What would you increase with knowledge? Jordan Elgrably once asked James Baldwin. “You learn how little you know,” Baldwin said.

The jolt of near-win is so enduring that the slot machines and instant lotteries are often programmed to display a higher than expected amount of one-number-off misses, to encourage follow-up play. Near-win scratch-off tickets, called “heart stoppers” so consistently manipulate the duration of sustained play that in the 1970s, Britain’s Royal Commission on Gambling put them in the category of industry ‘abuses’. The near-win is all around us, fabricated, or anticipated, even when it’s not.
“to manufacture failure, manufacture weakness just so it can be further motivation”.

Winning is easier than keeping winning (e.g. sport championship). The mental discipline and flexibility required to sustain excellence is different, and often harder, than the exertion it took to get there in the first place.

A near-win shifts our view of the landscape. It can turn future goals, which we tend to, envision at a distance, into more proximate events. We consider temporal distance as we do spatial distance. The near win changes our focus to consider how we plan to attain what lies in our sights but out of reach.

Churchill once said, “Success is going from failure to failure with no loss of enthusiasm”. Churchill later admitted that while the idea was true, success had a damn good disguise.

Harold Bloom explained, many artists engage in to “clear imaginative space for themselves”. In his classic text ‘The anxiety of Influence”, Bloom develops his idea of this strong misreading, where an often younger figure sees the work of a previous master and bends that work into a new form that fits the immediacy of his or her moment. An intentional misinterpretation can also lead to a unique approach perhaps not otherwise pursued. Sticking to our own views might be best achieved by finding lessons from the people who oppose us”.

If you surrender to the wind, you can ride it - Toni Morrison.
Nietzsche’s idea of ‘amor fati’, to love your fate. “The demon that you swallow gives you its power, and the greater life’s pain, the greater life’s reply.”

The power in the martial arts of aikido comes from strategic non-resistance. If you have ever watched martial arts footage and seen a person abscond, retreat, and reemerge - calm and smiling and in a stronger position before the attacker or group of attackers even realizes they are gone. Aikido is the art of being thrown, falling, and standing up in a different, more stable place. It is the martial art with no kicks, the one that deals with perfecting both dimensions of life, how to go down and rise stronger. Relax when we feel threatened, so as to maintain access to our internal resources. Our primitive survival reflex is to tighten up in the face of stress.

Zero is the oldest number. Its value is foundational and yet unstable; it has what seems to be inexplicable properties. It can threaten some - multiply or divide a number by zero and you wipe out. Or it can act neutrally - add or subtract zero from any number and it remains. For centuries, it has been a limit that most civilizations have preferred not to consider, with the exception of Hindu societies, which embraced it. It is on the threshold, separating positive from negative, all that we want from all that we don’t. Surrender, like zero, doesn't translate into an appreciable form. It is like the denude of the artist, living on the line in between worlds where intellect, intuition and force meet, and unendurable beauty is born of enduring travails.

Poets, prophets and reformers are all picture makers - and their ability is the secret of their power and of their achievements. They see what ought to be by the reflection of what is and endeavor to remove the contradiction. This penetration vision went far beyond a theory of our response to pictures. it described the chrysalis nature of becoming.

The story of the Black List is not only about how many blockbuster and Oscar Winning and nominated screenplays it helped get made, but also about how many of these nearly never did, Landing on the list is often “the difference between a script that keeps getting passed from hand to hand without really being read and a script that gets an actual look from a studio and starts to get some money behind it.  Most scripts on the list are long-odds contenders from teh standpoint of how studios make decision. They were scripts written on spec. where often the premise is very strange, very niche, but because the writer set a relatively high bar and then cleared it, they transcend the expectation that the premier is too weird to be good.

July 17, 2014

Capital by Rana Dasgupta

Capital by Rana Dasgupta

[Story of the India’s capital (New Delhi) and the boom following the opening up of India’s economy plunged Delhi into a tumult of destruction and creation: slims and markets were ripped down, and shopping malls and apartment blocks erupted from the ruins - corrupt, violent and traumatized city growing so fast it is almost unrecognizable to its own inhabitants]

Nehru had studied at Cambridge University - as too, did his opposite numbers in the independence struggle: the king -emperor George VI and the viceroy, Lord Mountbatten (Nehru was the only one of these three to complete his degree).

His 1972 visit to USSR, where he attended the 10th anniversary celebration of the revolution, filled him with hope and excitement.

July 1991 the prevailing system was in tatters and there was indeed, no other choice and the economy had reached a fatal crisis. Perennially unable to export enough to pay for what it imported, despite the old rhetoric of self-sufficiency, India’s foreign exchange reserves dropped in the middle of that year to just over half a billion dollars - enough to pay  for about three weeks of essential imports. In order to get through the situation, the government negotiated an emergency loan of $2 billion from the IMF. This loan came at a price. Pure gold, first of all: the government was forced to secure the loan by pledging 67 tones of its gold reserve as collateral; 47 tones were airlifted immediately to the Bank of England and 20 to the Union bank of Switzerland. The other condition of the loan was immediate free-market reforms.

Manmohan Singh had been appointed finance minister precisely because he had been calling for such reforms for  many years, even when they were an anti-Indian taboo and he seemed to be the person best equipped to implement them.

Victor Hugo once said, “no power on earth can stop an idea whose time has come”. I suggest to this august House that the emergence of India has a major economic power in the world happens to be on such idea. Let the whole world hear it loud and clear, India is now wide awake. We shall prevail. We shall overcome.

“you like this table? I designed it myself. Brilliant white. If anyone comes in to the room unexpectedly they will never be able to spot the cocaine on it” - Delhi millionaire.

In wealthy neighborhoods, gates and security guards prevent unauthorized movement across the dividing lines. Social life is no different. Delhi is not like Mumbai, whose citizens readily strike up conversations with strangers in bars and restaurants; here, introductions are necessary. People want to know who you are before they will let you in, which is why name and address dropping are so much part of social conversation: people must advertise their connections and allegiances if they are to enjoy a proper social existence. Not even the snaking Delhi metro can bring everyone together: though it provides 2.3 million rides a day, it is neglected by both the poorest and richest slices of society. So it is on heaving, honking, and smoking traffic arteries such that everyone is forced to move with other vehicles passengers.

People drive as if everyone is against them, and in fact it is true: any space or opportunity they do not seize with all the speed and bulk of their vehicle is immediately usurped by someone else. You can see it here, at a red light, where everyone is looking around to make sure no one else is scheming to take their advantage away. Waiting at a traffic light is not empty time. On the contrary, it is in this ceasefire that they anxiety of the battlefield suddenly erupts. Drivers are racked with apprehension. They light cigarettes, curse, tap the steering wheel, and honk impotently. The wait is intense and unbearable. Finally, the lights turn to green. And at this point, the engines of the cars out front, rearing, straining, and irrepressible - stall.

A furious wail of horns start up behind them - the light is green, the promise made us is denied, it is too awful, we always knew the world would turn out to be a swindle.... until the dead engines are cranked into life once more, and the swarm moves off. This is like survival mode - a slave behavior.

Delhi’s fantasies are feudal. Even those who have rather little social power respect the privileges of those who have a lot - perhaps hoping that one day they will enjoy for themselves their same exemption from law and custom. The scramble for driving opportunity is not equal. The status of people hidden behind tinted car window which is overwritten previous, more indecipherable, forms of status with the single catch-all of cost, advantages accrue, quite simply, to the most expensive cars. Mercedes flash Maruti's to let them through the throng, and Maruti's obediently move aside. BMW limousines are so well insulated that passengers don’t even hear the unflinching horn with which chauffeurs disperse everything in their pitch.

At the beginning of the decade, it had still been possible for the middle classes to imagine buying property in Delhi. But by the end, the formula had become impenetrable even to very successful corporate employees. Newly built 3-bedroom apartments in south Delhi, even relatively ordinary ones, cost half-a-million dollars, which was out of all proportion to all but the highest salaries. Not only this but, considering the fact that poor-quality construction, power-cuts and water shortages - this seemed dismal value for money compared to what that money could buy in London or New York.

In practice, the beginning of the 21st century saw a substantial hand-over of India’s capital from those who had acquired property after 1947 to a new black money elite and it was this group that increasingly set the tone for everyone else.