The mainstreaming of technological abundance thinking
FT Alphaville started its “beyond scarcity” series in June 2012, having explored the core tenets of technological abundance theory and utopianism from about February 2012
onwards — influenced at the time by the thinking of Kurzweil,
Diamandis, Brynjolfsson and a whole bunch of technological utopians who
had come before.
Fundamentally, it was our way of going against the grain at a time when markets were still overly obsessing about the causes and side-effects of the global financial crisis, the Eurozone crisis, the subprime banking crisis and in general maintaining a “glass half-full” outlook on growth and the global economy.
It seemed to us that the bearish take was completely overlooking the innovation going on around us. So we thought, time to give these technological utopians a platform. Perhaps they do have a point?
Not that the FT Alphaville readership bought into the ideas. Here’s a selection of reader comments from back then on everything from the rise of the de-monetised sharing economy and whether it represents real growth, to having robots do all the work in a leisure economy:
Well, it’s now October 2015, and things have changed a lot.
Techno-utopianism is no longer the fringe view of some wildly over-optimistic guys at MIT. In the last two years, techno abundance has become a core investment thesis, rivalling that of the rise of the Chinese consumer before the crisis. Every analyst or consulting team worth their salt has issued research on “the great disruption” to come — from IoT, AI, and autonomous cars to the sharing economy. The effect has been to legitimise ideas once considered far-fetched or over-hyped, mainstreaming them to the point that it’s simply taken for granted that these things will be universally deployed, that they will work perfectly, and that even if they will be greatly disruptive in the roll-out stage overall they will be a positive force for everyone with little to no ill-effects.
Here’s the latest example of that thinking by way of Independent Strategy (our emphasis):
Here’s the opposing view: the moment we start convincing ourselves that nothing is something, squeezed capacity is everything and all reserve wealth is wasteful is probably the moment to ask cui bono from that line of thinking? Who benefits from a world where the barriers to entry are so high in terms of adding new capacity, it actually impedes qualitative competition.
Critical thinking, it seems to us, is in short supply these days. And we’re putting a helluva lot more trust in the technologists than in the bankers.
AI experts who warn about the dangers of opening Pandora’s AI box are an inconvenience, as are those who warn real AI is — as it has always been — still decades away. Fintech is universally touted as something guaranteed to free everyone from the clutches of an established banking elite, not a means to bind us to a new technocratic elite within a panopticon state. And no-one questions what the long term consequences of reducing the concept of a consumer surplus, not to mention society’s right to strive for such a thing, as a wasteful inconvenience may be. The future they tell us is about full capacity utilisation, the end of private ownership (albeit without a public ownership option, weird eh?), total transparency and putting our trust in algorithms instead of people.
No mention of the fact that algorithms don’t always work, need constant updating, supervision, programming and debugging, are prone to hacking, cyber crime and other forms of abuse — and that every IT-based system still requires the resources of real people, real energy and real materials to keep it ticking over. Or that manipulating wants and needs to keep them in check with available resources isn’t quite the same thing as delivering a consumer surplus into everyone’s hands.
Last of all, if information abundance sees us knowing the price of everything but the value of nothing, is there actually the risk that instead of ending up with an abundance of quality goods (as Independent Strategy suggests) we end up with the exact opposite, an oversupply of lemons – as per the famous George Akerlof paper which argues that low-prices drive away sellers with high-quality goods — because a technocratically efficient world doesn’t really allow sellers to sell anything else and arguably destroys markets rather than creates them.
Does too much information efficiency eventually discourage high-quality good investment altogether? And what about the long-term side-effect of cramming the world with too much information? Does this create a paradox which — lacking penalty costs for bad information — encourages it to be crammed with low-quality or purposefully misleading information which eventually collapses the perfect information state?
Regarding incentives, we know that corporations have been substituting capex for share buybacks — something which makes perfect sense in an environment where managers can’t guarantee that expected returns will exceed the cost of capital.
Where capex is forthcoming, meanwhile, it is increasingly being focused on investments in high-tech equipment, software and various kinds of intellectual property geared to maximise existing output not to add to it or those not valued by current GDP estimates like databases, staff training, business process improvement and restructuring.
As this recent McKinsey report on share buybacks and growth noted:
Which, perhaps, is fine in mature economies with plenty of access to high-grade facilities, infrastructure, goods and shelter — providing enough capex is dedicated to maintenance so that quality can be persistently assured — but not so fine in economies which still lack basic infrastructure or access to base material goods.
Furthermore, even in mature economies, if the consequence is perpetual downsizing, capital drawdown, the growing prevalence of low-quality utilitarian goods and the increasing disappearance of quality goods from the market — because there’s simply no incentive to invest if the surplus returns are information arbitraged away, does that really equate to the capitalist promise of American prosperity for all? Or does it empower only those who had the luck and fortitude to be endowed with capital assets in the system before the information age came upon us?
As Stiglitz once wrote, it may just be that the economy, in effect, has to choose between two different imperfections: imperfections of information or imperfections of competition.
If that’s true, perfect information — a.k.a our modern ability for everyone to know what’s inside everyone else’s head at near zero cost –for all the benefits it brings also empowers monopolists and oligopolists by making it too costly for anyone other than a vested interest from investing in more production. But that’s not abundance, that’s gaming.
Fundamentally, it was our way of going against the grain at a time when markets were still overly obsessing about the causes and side-effects of the global financial crisis, the Eurozone crisis, the subprime banking crisis and in general maintaining a “glass half-full” outlook on growth and the global economy.
It seemed to us that the bearish take was completely overlooking the innovation going on around us. So we thought, time to give these technological utopians a platform. Perhaps they do have a point?
Not that the FT Alphaville readership bought into the ideas. Here’s a selection of reader comments from back then on everything from the rise of the de-monetised sharing economy and whether it represents real growth, to having robots do all the work in a leisure economy:
Uh huh, said Buckminister Fuller, the dude who worked for a living. Well, if he thinks we should all quit and navel gaze I guess we should. Will Waitrose give me food for free? Will the cows milk themselves? Man, some of this stuff is so hippy-dippy. We should organise an FT Alphaville drum circle.Reassuringly realistic. And constantly keeping us in check. (For that, a thank you.)
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Also this goes back to the point about the difference between value and utility. Value is a function of scarcity, utility is not. GDP measures value not utility. If something is not scarce no matter who useful it is (eg water) than it’s value will be low. So things like information (which are public goods, and have little or no scarcity value – other than that created by intellectual property rights), despite their high utility often have no value.
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Doing the same things with less inputs is growth, nobody should dispute that. But sharing and collaboration are different, and there’s nothing new about either of them. Hotels, taxis, apartment buildings, office buildings, airplanes, power grids, all examples of sharing. Corporations, governments, clubs, IPOs all examples of collaboration. The internet is enabling new, sometimes more efficient ways of sharing and collaborating, which do represent some, generally modest growth. There is no new, separate “collaborative economy”.
Hah, as I’ve been saying, centrally imposed negative rates lead to barter, avoidance of use of currencies. It could seem as a good thing locally, but it ain’t, on an international scale since it reduces world trade. Be careful, what you wish for. This is a disaster, INTERNATIONALLY.
Well, it’s now October 2015, and things have changed a lot.
Techno-utopianism is no longer the fringe view of some wildly over-optimistic guys at MIT. In the last two years, techno abundance has become a core investment thesis, rivalling that of the rise of the Chinese consumer before the crisis. Every analyst or consulting team worth their salt has issued research on “the great disruption” to come — from IoT, AI, and autonomous cars to the sharing economy. The effect has been to legitimise ideas once considered far-fetched or over-hyped, mainstreaming them to the point that it’s simply taken for granted that these things will be universally deployed, that they will work perfectly, and that even if they will be greatly disruptive in the roll-out stage overall they will be a positive force for everyone with little to no ill-effects.
Here’s the latest example of that thinking by way of Independent Strategy (our emphasis):
Artificial intelligence (AI) will vastly reduce the cost of making things, as AI is cheaper than even the cheapest labour and unbelievably more productive. Unlike previous technological waves, it affects services as much as manufacturing… It threatens 45% of DM jobs and deprives EMs of their major comparative advantage: cheap labour for manufactured products or low-cost commodities and energy.That’s the new techno-utopian investment narrative in a nutshell: rising inequality doesn’t really matter because the future of wealth is all about intangible consumption and full capacity utilisation, meaning who cares who funds or owns the asset — we’re all long-term beneficiaries of the newly maximised efficient order. Even if Peter Thiel, Elon Musk and Larry Page don’t have a tendency to rent out their spare mansion capacity on AirBnb.
How the AI supply-side gain is matched by demand is undecided, but crucial; making things for virtually nothing still needs people with earnings and assets to buy them. The income and wealth distribution effects of AI are a major political challenge. The AI impact on the current recovery is still gradual. It will become disruptive. But not yet. The human cloud is already a significant example of the economy of sharing — but on the supply side. Here people do bespoke piecework online and gather ratings based on the quality of their output. It is an unmeasured source of job creation that transforms individuals into businesses, lowers the cost of production and increases the flexibility of labour markets (no minimum wage, nor work place regulation nor hiring and firing restrictions).
There are many other such technologies at work such as Big Data, shared (anonymised) medical data and diagnostics, the internet of things etc. But the common denominator is that they all destroy existing systems and replace them with new ones. They are all “intangibles”. And whereas they will impact the production of things, their real value-added is derived from their intangible nature. At a guess, they will:
• Increase living standards by lowering costs and improving quality. Even at stable income levels, living standards will rise.
• Make economic growth less dependent upon capital and raw material inputs. Weak gross fixed capital formation alongside booming R&D spending in the US highlights this shift.
Disruptive technologies will improve the quality of life. A bigger slice of economic life will be intangible. That uses less material inputs (the major desecrators of the planet) and uses them more efficiently. As an example, if one-third of food production currently wasted globally were distributed efficiently, one-third of crop land could be returned to the wilderness for our children. And that’s before counting the production gains per acre of crop land from advancing agricultural technology.
Here’s the opposing view: the moment we start convincing ourselves that nothing is something, squeezed capacity is everything and all reserve wealth is wasteful is probably the moment to ask cui bono from that line of thinking? Who benefits from a world where the barriers to entry are so high in terms of adding new capacity, it actually impedes qualitative competition.
Critical thinking, it seems to us, is in short supply these days. And we’re putting a helluva lot more trust in the technologists than in the bankers.
AI experts who warn about the dangers of opening Pandora’s AI box are an inconvenience, as are those who warn real AI is — as it has always been — still decades away. Fintech is universally touted as something guaranteed to free everyone from the clutches of an established banking elite, not a means to bind us to a new technocratic elite within a panopticon state. And no-one questions what the long term consequences of reducing the concept of a consumer surplus, not to mention society’s right to strive for such a thing, as a wasteful inconvenience may be. The future they tell us is about full capacity utilisation, the end of private ownership (albeit without a public ownership option, weird eh?), total transparency and putting our trust in algorithms instead of people.
No mention of the fact that algorithms don’t always work, need constant updating, supervision, programming and debugging, are prone to hacking, cyber crime and other forms of abuse — and that every IT-based system still requires the resources of real people, real energy and real materials to keep it ticking over. Or that manipulating wants and needs to keep them in check with available resources isn’t quite the same thing as delivering a consumer surplus into everyone’s hands.
Last of all, if information abundance sees us knowing the price of everything but the value of nothing, is there actually the risk that instead of ending up with an abundance of quality goods (as Independent Strategy suggests) we end up with the exact opposite, an oversupply of lemons – as per the famous George Akerlof paper which argues that low-prices drive away sellers with high-quality goods — because a technocratically efficient world doesn’t really allow sellers to sell anything else and arguably destroys markets rather than creates them.
Does too much information efficiency eventually discourage high-quality good investment altogether? And what about the long-term side-effect of cramming the world with too much information? Does this create a paradox which — lacking penalty costs for bad information — encourages it to be crammed with low-quality or purposefully misleading information which eventually collapses the perfect information state?
Regarding incentives, we know that corporations have been substituting capex for share buybacks — something which makes perfect sense in an environment where managers can’t guarantee that expected returns will exceed the cost of capital.
Where capex is forthcoming, meanwhile, it is increasingly being focused on investments in high-tech equipment, software and various kinds of intellectual property geared to maximise existing output not to add to it or those not valued by current GDP estimates like databases, staff training, business process improvement and restructuring.
As this recent McKinsey report on share buybacks and growth noted:
…since a company’s rate of growth and returns on capital determine how much it needs to invest, these and other high-return enterprises can invest less capital and still achieve the same profit growth as companies with lower returns.It pays to invest in IP and information resources rather than industrial capacity because this way existing capital can be maximised — stretching what we’ve already got to go further rather than investing more — in a way that increases returns on existing stock whilst entrenching the oligopolistic/monopolistic power of the most information-efficient organisations.
Which, perhaps, is fine in mature economies with plenty of access to high-grade facilities, infrastructure, goods and shelter — providing enough capex is dedicated to maintenance so that quality can be persistently assured — but not so fine in economies which still lack basic infrastructure or access to base material goods.
Furthermore, even in mature economies, if the consequence is perpetual downsizing, capital drawdown, the growing prevalence of low-quality utilitarian goods and the increasing disappearance of quality goods from the market — because there’s simply no incentive to invest if the surplus returns are information arbitraged away, does that really equate to the capitalist promise of American prosperity for all? Or does it empower only those who had the luck and fortitude to be endowed with capital assets in the system before the information age came upon us?
As Stiglitz once wrote, it may just be that the economy, in effect, has to choose between two different imperfections: imperfections of information or imperfections of competition.
If that’s true, perfect information — a.k.a our modern ability for everyone to know what’s inside everyone else’s head at near zero cost –for all the benefits it brings also empowers monopolists and oligopolists by making it too costly for anyone other than a vested interest from investing in more production. But that’s not abundance, that’s gaming.
