Of barons and corvos, continued

 

 

 

 

Yesterday I wrote about interventions that were needed to ensure that the Second Machine Age does not accelerate inequality. Continuing to think about that, I wanted to share a few things that came my way over the past 24 hours.

First, let me add a few bits about inequality.

The Gini Index is a useful tool for looking at income inequality, and in that context I found the two charts below instructive. The evolution of the index helps us see how interventions in public policy (particularly those on rights of access and operating in community) can battle inequality.

 

 

The second chart helped me understand a little more about the rising levels of polarisation that appear to accompany the rise in inequality. I’d signalled my concerns about this trend briefly in my first post of 2014.

 

 

Second, let me do the same with the theme of technology and evolution.

While doing my weekly scan of the Economist, I chanced upon this delightful paper on The Evolution of Air Resonance Power Efficiency in The Violin and Its Ancestors. A perfect example of the selection process in the evolution of technological artefacts. My thanks to the people at the Royal Society for making the material easily accessible and shareable. I’ve had the privilege of dining there a few times (most recently earlier this week, at the annual Labs to Riches dinner), and I fervently believe that institutions like the Society will become critical in helping us rein in the dangers of growing inequality.

Third, let me go back to the theme of the Second Machine Age 

….and its propensity to foment inequality unless humanity intervenes (usually in the form of the state, but sadly not quickly enough nor often enough).

I was alerted by an erstwhile colleague to a link that Mitch Joel had shared, on the apparent “secret to the Uber economy”: wealth inequality. It’s a classic argument that comes up every time we have butterfly markets, places where the wings of demand and the wings of supply come together in small bodies of middlemen.

It reminded me of conversations I’ve had with Peter Vesterbacka of Rovio, usually at DLD Munich, one of my favourite conferences. Here I’m paraphrasing him, but the gist of what he said encouraged me. Angry Birds was something like the 53rd game out of the Rovio stable. All the others didn’t get very far. Why? Because they had to deal with 180 different middlemen to get distribution in EU alone, each of whom felt they knew more about games than Rovio did, each of whom insisted on different and unique conditions, and each of whom insisted on keeping the lion’s share of the take.

Then Apple came along. Yes, Apple, the company that is currently worth more than any other company in the world, worth more than double its nearest competitor for that title. It is instructive for me to learn that Apple made it easier for Rovio to get global distribution and at the same time lowered transaction costs sharply in relation to Rovio’s prior experience with the phalanx of MVNOs.

Platform and exchange structures per se are not the problem. It’s when that structure can retain disproportionate shares of the take. You only have to look at the music and film industries for the last 100 years to understand what that disproportionateness looks like, and why Hollywood and the RIAA fight so hard to retain their historical models.

I’ve said it before and I’ll say it again. I will never meet the customer for whose benefit region coding on DVDs was invented.

In every market, there is always the temptation for middlemen to do three things: make it harder for others to become middlemen; having protected their market, to extract monopoly rents from both sides; and to somehow claim state protection for their monopoly.

This has always been truer. And it’s truer still in digital markets with butterfly shapes. Which is why the Apple example is instructive. It’s textbook Abundance Economics rather than the Scarcity Economics played out by the film and music industries.

Finally, let me spend a little time on rules and regulations.

Today was not a good day for the England cricket team. It was an even worse day for England’s James Taylor, who was denied the chance to make his maiden ODI century, and that too in a World Cup match against Australia in Australia.

He was denied that chance because three umpires (two on-field and one off-field) could not make the right decision. Considering how long it took me to (a) find the relevant rule and (b) interpret it, I am not at all surprised.

They had to be fully cognizant with the content of The ICC Cricket World Cup 2015 Playing Conditions, a document of nearly 30 pages, with the relevant rule stuck in an Appendix:

Now remember that this was in Appendix 6. The main body of the Rules, themselves to be read in conjunction with The Laws of Cricket (2000 Code 5th Edition – 2013), a much larger document, didn’t spend any time discussing the complete mess that administrators had made of the Decision Review System. After all, DRS only dealt with trivial stuff like whether someone should be ruled out or not. The main body, instead, had gems like this:

 

A minimum of 25.15 yards. Heaven help me. No wonder the world of sport is in the state it’s in.

There was some good that came out of the incident this morning. The ICC, the Governing Body, saw fit to say that a mistake had been made. And they saw fit to put out a statement to this effect in less than 2 hours. Bravo.

In a connected world where the evolution of public policy has meant that people, money, goods and ideas can travel at speed, we will tend to feel that life’s getting “faster”. In business as well as in sport, in public as well as in private life, there’s a perceived need to make decisions more quickly than ever before. Which puts pressure on the people and the services that are there to help you make decisions.

It also puts pressure on the people whose job it is to make sure that the right thing is done, and that things are done the right way. Who are these people?

Regulators. Regulators the world over. Using names like umpire and referee and judge and inspector and officer. And sometimes even just plain old vanilla “regulator”.

These people are the cadre of humanity tasked with the job of making sure that humanity’s interventions are meaningful. We’re not going to stop the runaway growth of inequality as The Second Machine Age gathers “steam”, not unless we make the jobs of regulators simpler.

Which means making regulations simpler. In every walk of life. We must all realise that hidden deep in the complexity of regulation are the very tools that the Robber Barons need. We have to fight that complexity.

Which is why I found Charlemagne’s column in the latest Economist timely. I could not help but smile wryly when I learnt that Frans Timmermans, the man the EU has charged with the responsibility of helping us build those interventions,  has the title First Vice President for Better Regulation, Inter-Institutional Relations, the Rule of Law and the Charter of Fundamental Rights. You cannot make stuff like this up.

The entire article is well worth reading.

And so to my summary, following on from yesterday’s post.

The Digital Age, the Age of Information, the Second Machine Age we live in, provides us with many Good Things. But it also has an inbuilt propensity to increase global inequality. Which is Not A Good Thing. It is a downright Bad Thing.

We need to know how to hold on to the Good Things of this Age while minimising the Bad Things. We’ve seen this movie before, we know how the book ends. We need to do a number of things. Democratise access. Empower and educate communities. Protect the commons. Prevent monopolies.

That’s why the battles for net neutrality, for affordable access, for rebuilding IP law and for continuing to fight discrimination are important. Without them the Robber Barons win.

So we need meaningful regulation. Regulation that understands the nature of technology and how technology evolves. Regulation that learns from the past, looking at how the less salubrious aspects of the Industrial Revolution were contained and eradicated. Regulation  that looks to the future by, for example, avoiding the benighted pressure from incumbents to criminalise the young.

We don’t just need meaningful regulation.

It has to be kept simple.

For it is in the weeds of poor regulation that the strongest Robber Barons find food and sustenance.