Digital Musings

The Digital Gilded Age: On Robber Robot Lords

My friend, McGill University Professor of Economics, Reuven Brenner once wrote that prosperity is the consequence of one thing and one only: matching talent with capital, and holding both sides accountable. To prosper, people must indeed have access to capital. The key word in Brenner's definition is accountability. Prosperity will be short lived unless the two sides of the prosperity equation, talent and capital, recognize their respective rights and duties to each other. The failure of this mutual recognition always leads to disastrous outcomes. Brenner's simple equation furnishes a nice lens trough which one can observe episodes that have marked the history of prosperity. For the sake of simplicity I single out what I call the physical capital episode, the financial capital episode and, last but not least, the digital capital episode.

Let's start with the late 19th century, the century of the Carnegie, Rockefeller, Morgan, Vanderbilt etc. This is a time when capital was almighty. This is the era of physical capital, an age when capital was written with a huge capital C and talent with a small t. If you had talent, there was no other solution than to work for one of the ruling tycoons. They controlled the business game. At one point in time Rockefeller controlled 90% of the world's oil supply. Their power was such that they were accountable neither to talent nor to the rest of society. Their rules were the rules. Their grip on the economy was such that they were nicknamed "the robber barons". An article of an old issue of the Atlantic Monthly leaves no ambiguity on how they were perceived. Linda F. Baldwin writes:

"We hear now on all sides the term "robber barons " applied to some of the great capitalists. When it began to be generally so applied several years ago it had to my ears an oddly familiar sound. Suddenly it flashed upon me one day where I had heard it, and I turned to the old Atlantics. There stood this sentence in the issue for August, 1870: "The old robber barons of the Middle Ages who plundered sword in hand and lance in rest were more honest than this new aristocracy of swindling millionaires."

The nickname is not flattering to say the least. It derives from the medieval German aristocrats who levied excessive and illegal tolls on the Rhine river and on the roads crossing their lands. The late 19th early 20th century business practices of the American tycoons were not that different. They amassed amazing wealth through low wages, government bribery, competition destruction, control of natural resources etc... Accountability was not a priority. It would have slowed the pace of their wealth accumulation. As a result, their wealth did not translate into general prosperity and this was an issue of concern for Henry George, an American economist and popular author and speaker. In 1879, Henry George authored a book entitled, Progress and Poverty, in which he wrote

"the promised land flies before us like the mirage. The fruits of the tree of knowledge turn, as we grasp them, to apples of Sodom that crumble at the touch... So long as all the increased wealth which modern progress brings goes but to build up great fortunes, to increase luxury, and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent."

Accountability was eventually restored through, among other things, antitrust regulation and the emergence of powerful trade unions. It took a whole new social organization to match the power of the robber barons. Mass strikes and social revolts were needed to get there. The New Deal in the US and the Front Populaire in France are landmark steps in the rebalancing of accountability.

Let's now jump to the next historical episode that spans the late 20th century and early 21st century. The hallmark of this period is the financial deregulation, the surge of global financial capitalism. Capital markets were liberalized, banks were deregulated (The Glass Steagall act was suppressed) and derivatives instruments blossomed. Capital became more easily available to talent. To simplify this greater capital availability fueled the first Internet wave and the subprime mess. Needless to say that accountability issues struck back. Neither the new robber barons, the banksters, nor the managers played fair. The banksters forced us in a deadly head and tail game where they won upon head and we lost upon tail. Managers were loaded with stock options to ensure that they would maximize shareholder value. Although their knowledge of derivatives was close to nil, managers understood quite well that the higher the volatility of their stocks the higher the value of their stock options. Banksters and managers had no skin in the game (no credible downside) and a bet on the upside. The worst was to be feared, and the worst did happen. We still try to recover from it.

The last episode slightly overlaps with the second. It spans the early 21st century. Let's call it for the sake of simplicity the Google / Facebook episode. This is the era of digital capitalism. Digital capital is cheap. It is abundant. It takes the form of computers, software and robots. It is cheap because it can be easily duplicated, copied and pasted. The first unit of digital capital is costly but once the initial cost has been incurred the cost of production is the cost of reproduction, namely a marginal cost close to zero. As we have seen earlier this peculiar cost structure leads to winner-takes-all / superstars effects. Digital capital is controlled by the few, by a new breed of robber barons. I call them the robber robot lords. The Economist called them silicon sultans. They control firms like Google (now Alphabet), Microsoft, Amazon, Apple, Facebook, Twitter and the like. Google controls 70% of the search market in the US and a whopping 90% in Europe. Apple and Google control 90% of the phone operating system market. Again accountability issues strike back as digital capital diverges from the rest of the economy. This divergence has already been observed in the past when capital was not digital. Indeed, French economist Thomas Piketty recently wrote a very successful book, Capital in the 21st century, in which he rings the divergence bell. According to him, we have returned to the level of inequalities that prevailed during the robber barons era. The main culprit according to Piketty is the decoupling between the growth rate of capital and the growth rate of the economy. Capital has grown faster than the rest of the economy making those owning the capital richer and richer. The situation is worse with digital capital owners. Because Piketty has investigated a time period when digital capital was not in full traction yet, his diagnosis underestimates in my view the reality. Digital capital with its increasing returns to scale, its concentration in a few hands and the race of labor against robots may deepen the inequalities even faster than Piketty thinks. We cannot preclude the possibility that the ultimate outcome of the digital gilded age might be a small minority of huge winners (the robber robot lords) and a large number of losers. It is of course true that entrepreneurial luck can knock at anybody's door, and through winner-take-all effects put him or her in a dominant position. The question however is whether this entrepreneurial demography will be sufficient to go head to head with the powerful robber robot lords in place or even overturn them. This may indeed be enough if we do not let the current robber robot lords shape the world as they find fit. Sadly enough they have already started.

Indeed, although they keep on pretending they are not evil, they do exactly what the other robber barons did before them. They run firms that devote significant resources to tax avoidance. They exploit any loophole they can find not to pay their duties to the rest of society. But, guess what, at the same time they cheat, they create charities and foundations such as the Robin Hood Foundation. They tell the press and the rest of us that their immense wealth will be donated to foundations dedicated to its charitable management. This rather surprising "rob-redistribute" combination prompted American author Lynn Stuart Parramore to write an article titled "Meet the hedge funders and billionaires who pillage under the shield of philanthropy." The odds are indeed fairly high that the money that gets distributed by theses charities and foundations is far less than the money that should have been paid in taxes but was not. The robber barons discard these criticisms. They claim they are far more efficient at managing money than the government is. They supposedly know better how to spend in healthcare, education or poverty reduction. This is a well-known anthem that Carnegie was already singing in his times when he wrote that

"the man of wealth (is) becoming the mere agent and trustee for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could do for themselves."

This was in 1889! British novelist Anthony Trollope was not fooled by the philanthropists of his time. In 1862, he wrote a book, North America, he which he said "I have sometimes thought that there is no being so venomous, so bloodthirsty as a professed philanthropist." Nothing has changed except that the situation is getting worse in the digital gilded age. I must confess that this decoupled attitude of the robber robot lords (and of the robber barons in general) leaves me speechless. If they are men and women of experience and talent how come they do not share them in helping improve our governments and their agencies instead of robbing them in the first place! Shall we still have faith in the "we are not evil" gospel? Shall we trust the robber robot lords the same way we trusted the banksters and the ones supposed to regulate them? The answer is of course a resounding no. As Financial Times Chief Economics Commentator Martin Wolf wrote in the July/August 2015 issue of Foreign Affairs

"Techno-feudalism is unnecessary. Above all, technology itself does not dictate the outcomes. Economic and political institutions do. If the ones we have do not give the results we want, we will need to change them."

Still a lot of people disagree with Wolf. They do not ignore (how could they?) the misbehavior of the robber robot lords, but they underline that it is the price to pay for the robber barons' great achievements and contributions. 200,000 miles of rail tracks were laid down by Leland Stanford and E.H. Harriman connecting the West coast to the East coast of the US. Henry Ford transformed the automobile industry with the introduction of assembly lines. Bill Gates brought the PC everywhere. Google's Larry Page and Sergey Brin made information available a mouse click away. Mark Zuckerberg united friends all over the world. In short, we should all be happy to have (had) these heroes among us. Without their impressive talent and stamina, the world would not be the same. MIT Technology Review Amanda Schaffer writes that the great-man myth is enduring. This myth is rather strange as it fails to give full account of the amazing mix of ingredients it takes for a success story to materialize. Amanda Schaffer has a nice way of summarizing the great-man myth:

"He no more produced the technological landscape in which he operates than the Russians created the harsh winter that allowed them to vanquish Napoleon."

She talks about Elon Musk, CEO of Tesla Motors. Musk seems to think very highly of himself. He views himself as the man of impossible things. Musk simply forgets (to mention) that none of what he does would have been possible without public support to science and research from NASA to National Science Foundation. Steve Jobs, another deity of the Silicon Valley, is another case in point. But, as stressed by Mariana Mazzucato, Professor of Economics at the University of Sussex, in her book, The Entrepreneurial State, "There is not a single key technology behind the iPhone that has not been state funded." It is true that Apple did recombine these technologies in a smart way. However, recombination was made possible because the government did fund the necessary (prior) research efforts. Musk, Jobs and the like are after all tremendous surfers riding the waves of major state investments. There is nothing wrong with this. On the contrary. What is wrong is when we are mislead to believe that Musk, Page, Jobs, Gates are out of the box revolutionaries while no full credit is given to the box! What is wrong too is tax avoidance by these "geniuses" as if nothing or nobody was to be paid back. Robber robot lords are fast at internalizing a lot of things especially those they did not fund directly and as fast shipping to the rest of us their negative externalities. They have a peculiar view on taxes. Taxes should go one way only: in their pocket not out of their pocket!

Let's be serious. There is no such man as a corporate hero who drives it all, without whom life would be less prosperous. The famous Isaac Newton was a lot more modest than today's robber robot lords. In a 1676 letter to Robert Hooke, he wrote "If I have seen further it is by standing on the shoulders of Giants." Robber robot lords are so convinced of their superiority that they have a hard time giving full credit.

The hyper dominance of robber robot lords and the myths they surround themselves with should be taken very seriously. Otherwise, Jaron Lanier may indeed be right. They may own the future, and I do not know of any worst inequality than the one that separates those who own the future from those who don't. I do not know of any bitter feeling than losing a battle while all the planets were almost aligned (cheap digital capital, increasing returns to scale etc...) for it to be won. In 1905 a similar bitterness was strongly felt by Jack London when he wrote his short essay entitled Revolution:

"The point, however, is not that the mass of man kind is miserable because of the wealth the capitalist class has taken to itself. Far from it. The point really is that the mass of mankind is miserable, not for want of the wealth taken by the capitalist class, but for want of the wealth that was never created. This wealth was never created because the capitalist class managed too wastefully and irrationally. The capitalist class, blind and greedy, grasping madly, has not only not made the best of its management, but made the worst of it. It is a management prodigiously wasteful. This point cannot be emphasized too strongly."

In London's times planets could have aligned, but they did not:

"A wonderful era was possible for the human race. But the capitalist class failed. It made a shambles of civilization."

London is right: Too much power in too few hands is a sure recipe disaster especially when power inflates at digital speed!

 

The Digital Gilded Age: Madoff, Amazoff, Uberoff, Faceboff

Oddly enough, no commentator ever paid attention to the name of the building where the infamous Bernard Madoff exercised his talents. The epicenter of the global scam was located on the seventeenth floor of the Lipstick Building, a red granite skyscraper overlooking Third Avenue in Manhattan. This famous building in architectural manuals is named for its color and its bold form of lipstick tube.

One cannot dream of a more appropriate name and place to host the manipulations of a man who spent his entire career making up the performances of the funds which he managed on this obscure seventeenth floor. Fascinating floor indeed of a plush Manhattan skyscraper that attracted like flies greedy millionaires and charities that were in the wrong place to say the least. Madoff was a lipstick master who made contenders run for a glamorous spouse that turned out to be a fake.

I must confess that the ease with which people succumb to pyramid schemes leaves me speechless. I do not know what impresses me the most: the greed powered gullibility of clients or the undeniable ingenuity of these new breed of pharaohs. Anyway, pyramids and their guilty authors are still rampant. They even come to surge in unexpected places such as book publishing.

So far there were two ways to get one's book published. The mainstream way is that of the publishing house: You send your manuscript to the publisher and ... wait, wait... often forever. Most manuscripts are not read and end up in dust bins. This is why many authors try the second option, that of vanity publishing. You pay the publishing house to get published and pray that it will fulfill its residual task, namely market and promote your book. but, as everyone knows, promises commit only those who receive them!

Digital publishing has opened a third door: self-publishing. Nothing is easier than putting a manuscript online through a blog or an app such as Wattpad in the hope that it becomes a bestseller. Amazon gave this mode of publication a boost in offering authors self-publishing and distribution facilities through its Kindle program. Hundreds of thousands of authors, often rightly exasperated by the behavior of traditional publishing houses, have joined Amazon's self-publishing program. Indeed, instead of the meager 5% to 10% royalty of traditional houses, Amazon offers a 70% rate! A true bargain and a real snub to publishing houses and their avarice!

As far as I am concerned, I rather see a sort of pyramid, which cleverly capitalizes on the pride and greed of authors who feel unjustly banished from traditional publishing houses. The basic argument is that of success: with Madoff 10% rate of return , with Amazoff ;-) fame. Amazon makes its point with authors who indeed have passed the million downloads bogey. The wink is clear: it could be you, it must be you! The authors are rushing en masse and of course in the lot there will always be a winner that Amazon will hasten to praise thereby attracting new candidates. The truth is that most self-published authors sell only a few dozen copies purchased by ... their families and loved ones. David Weinberger puts it very nicely: "On the Web, everyone will be famous to fifteen people." A traditional publishing house would not survive with such sales. With the same numbers, thanks to its size, Amazoff is prosperous: 30% of the sales price charged to hundreds of thousands of Amazoffied authors is indeed good and quick money. Unlike Madoff, there is no fraud involved per se. The fast buck will however last as long as the pride of authors last. This is were Amazoff is a lot smarter than Madoff. A financial crisis was enough to dry up the flow of gullible investors and destroy Madoff. Pride comes in unlimited supply and, as a result, Amazoff may indeed compete with Ramses II!

Let us, however, avoid throwing pyramid stones at Amazoff only! Digital pharaohs are numerous these days: Uberoff, Faceboff, etc ... All are based one way or the other on some sort of pyramid dynamic. Take the example of Uberoff. With Uberoff, everyone can become his own boss, earn a living by becoming a taxi driver. Uberoff recruits hundreds of thousands of drivers around the world just like Madoff attracted investors to the Lipstick building. Uberoff's recruitment practices are indeed not that far from traditional pyramids as shown in a recent Newsweek article investigating its affiliation program: "It pays to have Friends. Get $250 for every friend that starts driving with Uber." On top of this bonus promises are made of an attractive income. Despite media campaigns that would turn a grizzly bear into a polar bear, Uberoff according its internal documents is not profitable. Not big enough says its CEO: the world is not ours yet. Who pays then? Investors who pour tons of dollars to help conquer the taxi planet. And, that's what is worrisome. The pyramid will stand on its own once a monopoly situation will be reached. For the moment being, investors do not ask questions. They flock as if they were magnetized by Uberoff's stratospheric successive valuations. We do not ask questions either. We flock en masse into a swap whose terms we do not have the faintest idea about: "cheaper now" against "trust Uberoff", "short term windfall" against "long term unknown". But, at the end of the day, do we really know the taxi planet we want to live in? Do the cabbies realize that the plan is already in place to swap them against self driving cars?

Faceboff also proceeds along some sort of pyramid scheme with the difference that the sinews of war is at the moment provided by advertising. The money from advertisers flock as they are convinced that Faceboff is where to invest money, that is to say as long as the "faces" continue to join and do not decide to go look elsewhere. I would be curious to know what all small advertisers (who make Faceboff big river) think of the advertising effectiveness of Faceboff. Here too, the stabilizing factor of the pyramid is the achievement of a monopoly, a situation that all the Net giants attempt to reach. Once again we flock en masse like flies on free honey. Maybe the fact that we are en masse acts a tranquilizer. This is not enough though to explain why we enter these swaps where the terms of the trade are so unclear not to say so unfair.

Every era has the pharaohs it deserves. Ancient Egypt had its builder pharaohs. The era of crazy finance gave us Madoff and the like. The digital gilded age is driven by pharaohs who dream bigger and bigger. What have they in common?: pyramids that for myself I call Faustian swaps: Free against our data. These swaps are gigantic. Faceboff is now the size of a continent in terms of its inhabitants. These inhabitants have all accepted to give away the (data) shop for free.

Pyramids of Egyptian pharaohs have held up rather well: they keep attracting tourists and archaeologists. I have however my reasonable doubt about the sustainability (of the pyramids / Faustian swaps) of the digital pharaohs. And, basically, it might not be such bad news. For, as a community, we are faced with companies that, besides the fact that they generate numerous collateral damage blithely violating many laws, try every loop possible to avoid paying taxes. They want us to be a gentle community but their behavior is far from being community driven. I fear they have learned too many odd swap tricks from the bank(st)ers who manage their rock and rolling IPOs.

You may find me suspicious and pessimistic. Again, I do not mean that fraudulent behavior is at stake. But, voilà, when leviathans keep telling me, "we are not evil," I do have a hard time! When they do not pay taxes but praise their charities, I have serious doubts. Despite being an entrepreneur myself, I hate monopolies. I hate being unfairly swapped!

Do yourselves a last favor: try to ensure that the Net pharaohs do not have the same sense of humor as Madoff. Go and check if by any chance they did not choose to host their activities in buildings with evocative names. This is no concluding joke: I myself noted that one of Amazoff platforms is named The Mechanical Turk. If words end up being the reality, this poor Turk tells you a lot about Amazoff's work vision!

 

The Digital Gilded Age: Californian Brain, Chinese Brawn, Stateless Robots

Have a look at your iPod or iPad, its base or its plug and read what it says: "Designed by Apple in California, Assembled in China."

Interesting. Easy to rephrase: "Inspired in California, Perspired in China."

Or, if you wish, "Californian brain, Chinese brawn."

The one who are inspired get named. The one who perspire remain in the distant shadow. Who cares about the names of sweatshops?

An Apple a day keeps the sweat away!

We have again fallen prey to another Faustian swap: low prices against cheap sweat. Truly myopic behavior. Cheap sweat simply means that we trade our jobs away for the short term benefit of low prices and fat shareholders returns. Cheap sweat also means that it will too sooner or later be swapped.

A lot of damage for a short-lived decoy moreover. Chinese sweat is no longer cheap enough. According to Boston Consulting Group for every $1 required to manufacture in the United States it costs now 96 cents to manufacture in China. And the spread is fast narrowing. Production starts moving back home.

Will the lost jobs be regained?

Yes. To stateless robots controlled by robber robot lords, and this is bad news and good news as we shall see in the next pages.

 

The Digital Gilded Age: Sinking In The Rain

Most of us fall victim of the sunk cost fallacy. In short, a sunk cost is an expenditure made in the past that cannot be modified. Neither now nor in the future. A sunk cost is a cost that cannot be recovered. The English language has a nice expression to describe it in plain words: "There is no use crying over spilled milk". The milk won't flow back into the saucer pan.

Many people nevertheless behave as if there was a hope that the milk would go back where it was.

A prime example is that of capital budgeting. Capital budgeting is the field that deals with the evaluation of investment decisions, that is whether one should buy a new piece of equipment, invest in a new factory etc... The usual treatment of such a decision is to carefully identify ingoing cash-flows and outgoing cash-flows over the investment lifespan. But not any kind of cash-flows though. Only those that are unambiguously triggered by the new investment. The economists call them marginal cash-flows.

This is generally where the sunk cost fallacy strikes hard. People are for instance tempted to include past expenses and, for instance, to allocate existing overheads. Including past cash-outlays is somehow a way to try to recoup the cash lost from past mistakes. This is the best way to loose money twice! It does not make any sense to overburden a project with costs that have nothing to do with them. Cut your losses first and then figure out whether some new venture is worth investigating.

Allocating existing overheads to forthcoming projects is bad and, sadly enough, quite common practice. Anybody who has taught capital budgeting rules knows that his or her audience insists on including a percentage of existing overheads into the outgoing cash-flows of the project. The usual argument goes on like this: "Well, if you don't do it who gonna cover them?".

There are different ways of addressing this objection. First, assume that an ideal world where everything can be processed just-in-time. Such a question would not arise. No fixed costs would have to be pre-committed. Only when a project would require a given amount of costs to be implemented would these costs be taken into account as they are indeed triggered by the project.

Now, we know that just-in-time is a fiction and that some costs have to be pre-committed. If every new project is charged by some overhead allocation, one ends up with the rather unfortunate result that "the fatter the better". Again, this is not because one may have too fat a legal department within the corporation that one must try to recoup this legal expense through wrong overhead allocation decisions. The truth is that the wrong decision was made at the time when corporate money was allocated to legal. It would have been wiser to wait, namely not to exercise one's allocation option to soon.

If it turns out that legal is too fat, the best way out is not to try to justify its existence by allocating the fat to new investment projects but to take the brave decision to downsize it!

There are for sure a host of good reasons why some costs must be pre-committed (signaling, contract obligations etc...). Nobody denies them. Hopefully all the options have been carefully looked at before leaping. Once these costs are incurred they won't change whether or not some new projects happen or not.

The key step then is obviously to go hunting for good projects and create new wealth opportunities. This hunt is not like horse racing: If you find a fast horse, ride it as fast as possible and don't let anybody make you believe that your horse needs handicapping!

 

The Digital Gilded Age: Is Nothing Sacred To You?

I once read Robert J. Barro's book: "Nothing is Sacred: Economic Ideas for the New Millennium." I like the title very much, especially the first part of it. Robert J. Barro is the Robert C. Waggoner Professor of Economics at Harvard University. He is one of the most famous living economists.

To make a long story short he is best known for his works on economic growth and budget deficits. On the economic growth side, he came up with the idea of convergence which was afterwards publicized under the "iron law of convergence". Simply described, convergence is a catch-up phenomenon. Under certain circumstances, backward countries tend to grow faster than rich countries, thus closing gradually the gap between them.

On the budget deficit side, he extended the notion of "Ricardian equivalence". Ricardian equivalence is an intuitive, though controversial theory, which suggests that government budget deficits do not affect the total level of demand in an economy. Indeed, there is no such thing as a free lunch: The government finances its extra spending either by raising new taxes or by increasing its budget deficit (namely borrowing). What Ricardo and Barro say is that people, you and me, are not fooled by the governmental choice and realize that the government choice boils down to "Tax now or tax later". If borrowing (tax later) is chosen, we, citizen, know that we are going to have to pay taxes later and, hence, we save now the present value of these taxes. The outcome is that we won't increase our spending. This equivalence is reminiscent of the Modigliani-Miller theorem on corporate financing that says (again under certain assumptions!) the way a corporation finances its operations (equity or debt) has no impact on its value. In simple words, the way you slice the pizza does not change its size!

The reason why I got attracted by "Nothing is Sacred" is a rather "incidental" one. Indeed, in many lunches or dinners I have with relatives and friends the discussion quite often drifts towards the "dismal science", namely economics. Whether we talk about environment, sustainable growth, inequality, poverty, publishing, health etc... I usually argue that a lot of insights can be gained by using economic tools to decipher the issues at hand. They help clarify the topic and help understand how people are making choices. What happens then is that I am under a heavy fire of criticisms: How dare you try to put a number on everything? How dare you measure things in terms of costs and benefits? IS NOTHING SACRED TO YOU? Here we are! Now you understand why Barro's book is appealing to me, the same way the works of John Kay or Tim Hartford, are to me.

One of my pet example is that of government debt. Public debt is said to ruin our children's future. They are not even born that they already carry debt. This alarmist message sounds weird to me. Too easy to scare people indeed! But let us push the rewind button. What is debt? Debt is an asset that we purchase from the government who borrows from us to finance its deficit. This asset is usually called a Treasury bond. Hence the first thing our kids will inherit from us is a bond, an asset in which one day we have decided to invest part of our savings. This bond pays a coupon. As citizen we will have to repay the debt and as investor we will be the ones to whom the debt is repaid. What is in the left hand will end up in the right hand! Remember, ecoinomics, the art of the other side of the coin! Debit vs. credit.

The question then is not so much how a public deficit is financed. What matters is what that deficit is spent on. This is where we have to show that we do care about our children. In the digital gilded age investing in health, education, research are indispensable bets. Thanks to scale effects, their proceeds will far more than repay the debt supporting them. It will help create a better society for our kids who by the way are the ones who are truly sacred!

PS: Do not believe that I am in love with debt, or leverage for that matter. My point is that what first matters is the cake, not where the money comes from. As long as, of course, we stay in financial control, something that is highly uncertain in these days of financial and digital Leviathans.  

 

The Digital Gilded Age: Economics or Eco"i"nomics

Every coin has two sides to it: Head and tail. Seems obvious. Well, if you consider economics, it seems that people have a marked tendency to discard this elementary fact.

This is sad, and more often than not leads to bad economics and poor policies. Some economists say that economics is precisely the science of the other side of the coin. I would not go that far. Economics is the art of the other side of the coin. Frédéric Bastiat, a remarkable 19th century French journalist (who was a major influence on American journalist Henry Hazlitt, the author of "Economics inOne Lesson") devoted an entire book on the topic titled: "What is seen and what is unseen". This book is a must read even if you think you have no interest in economics whatsoever.

Bastiat's most famous example is that of the broken window. The reasoning goes like this : Let's throw stones at windows. This will give good business to the glaziers, hence increase GDP (what is seen). But if windows are indeed broken, the money homeowners do have to pay to the glaziers will no longer be available for a fine meal at the restaurant. That is not good for the GDP (what is unseen).

What is true of broken windows is true of "broken" jobs. When we buy at low prices, we displace the job of somebody somewhere. We may even jeopardize our own job. This may happen faster than we think, namely at digital speed. As they say at Apple, inspired in California, no longer perspired in California! A coin has two sides indeed! Head may stand for credit, and tail for debit.

This coin metaphor is good advice: Always challenge what is seen against what is unseen. Always looking at the other side of the coin is more than an healthy attitude. It is an art of its own.

In conclusion, let's use and think Ecoinomics instead of Economics!

The Digital Gilded Age: Who Feeds Paris?

I know, you expect some breaking news about Paris ... Hilton. Sorry for the teasing but apart from having seen Paris feeding pigeons I have no inside information about her eating habits.

The "who feeds Paris?" question is the one economists ponder when they notice that "some how the right amount of fresh tuna makes its way from a fishing fleet in the South Pacific to a restaurant on the Rue de Rivoli" (Quote from Charles Wheelan's Naked economics, Norton, 2002).

Why would economists or yourself care about that? Because despite being often nicknamed "the dismal science", economics should be about keeping one's sense of wonder alive. In the introduction to his book entitled The Company of Strangers, University of Toulouse Professor of Economics Paul Seabright wonders how the whole earth (almost!) knew that this very morning he would wake up wanting to buy a shirt. Guess what, he was able to find the one he had in mind, buy it and proudly wear it. But how did the cotton producers, the textile industry, the designers, the transporters, to name a few, know that Paul would decide to purchase a shirt with some specific characteristics. Well nobody knew (and nobody knew each other by the way!) but the end result is as if everybody knew that Paul wanted a shirt and as if everybody knew each other. Is not that wonderful? Is not that something that we should be stunned at? It is hard to imagine all the ingredients that have been necessary to make the shirt purchase come true: people, trust, information, contracts, property rights, innovation, crops, machines, oil, electricity, trucks, planes, money, banking, insurance, law, firms, education, taxes, markets and more... Of course it is stunning. But, sadly enough, it seems that we have lost the sense of wonder, the simple joy of discovery that are so essential to living a joyful life. We take things for granted more often than not.

Biologist and environmental writer Rachel Carson once wrote

"If a child is to keep alive his inborn sense of wonder, he needs the companionship of at least one adult who can share it, rediscovering with him the joy, excitement and mystery of the world we live in."

She added

"The more clearly we can focus our attention on the wonders and realities of the universe about us, the less taste we shall have for destruction."

She was writing about nature. Well, economics should be viewed just the same way. The problem is that economics is an adult construction, nota child construction and there are not that many economists who have managed to keep what Carson calls "the inborn sense of wonder". As a result, the economy has become a massive fast buck operation that produces equally massive turmoil. It does not have to be so though.

We for instance tend to forget that trade is a kind of worthy miracle. As Wheelan reminds us in very simple terms, trade is "a machine that can convert corn into stereo equipment". He adds that "this machine is even more versatile; when properly programmed, it can turnWindows software into the finest French wines." And, it can work for every country, poor or rich. Of course, trade, especially if it is in the wrong hands, is a very imperfect machine: It creates losers, but so does no trade which prohibits, say, the Provence vineyard to share its wine gems with the rest of the world. All or nothing is not a solution. We should and we can become smarter and wiser accountants of the credit and debit we are exposed to, we are willing to incur, for in any economy there is rarely a credit without a debit, and by the same token a debit without a credit. To make things trickier, credit and debit may not occur at the same time, and they may not affect the same people.

In digital times the discrepancy between credit and debit is even more palatable as it expresses itself at Internet speed. Fortunes beyond imagination are made in no time. Yet, we remain poor accountants of the costs and benefits of this appealing digital prosperity. As we shall see in later pages, this proper and fair accounting issue is crucial: The digital gilded age may indeed deliver its full promises, or it may not. The game is not over though, and we may still place our bets. As long as we understand how digital prosperity can be properly fed and more importantly shared.

Now, as to the question of who feeds Paris Hilton? I will answer I do not know. I do not know which shirt Paul Seabright wants to buy tomorrow either. But, what I am sure of is that Paris will be well fed, and Paul will proudly wear a new shirt! I also know for a fact that a lot of people won't enjoy the same well-being as Paris and Paul. Their situation may worsen at a fast pace, and this does worry me a lot.

But, I do believe that the (digital) economy can be tamed as long as we all care for each other.

And this is up to us. Not to the dismal science!

 

The Digital Gilded Age

On Digital Economics, Robber Robot Lords, Big Data Despotism and Cottage Capitalism

For centuries trade winds have been used by sailing ships to cross the world's oceans. They powered the European expansion into the Americas, and helped establish trade routes across the Atlantic and Pacific oceans. But, trade winds are also the steering flow of tropical storms. They moreover carried the horrendous slave business.

Digital winds are like trade winds. They do blow our sails as our lives have become more and more digitized. They carry both promises (Wattpad is one of them) and threats (data despotism is one of them).

Given the path currently taken by the digital economy there is a significant risk that threats outweigh promises. US folk singer Dolly Parton once said that "we cannot direct the wind, but we can adjust the sails." As a matter of fact, we can and should do both.

There is indeed no reason why digital winds should always be blown by a prosperous winner take all minority only. Let's see why and how in the forthcoming posts!

A best seller in (geographic) action

Try to guess which French popular textbook we are talking about!

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To Mooc or not to Mooc

« Our fine arts were developed, their types and usages were established, in times very different from the present, by men whose power of action upon things was insignificant in comparison with ours... In all the arts there is a physical component which can no longer be considered or treated as it used to be, which cannot remain unaffected by our modern knowledge and power... We must expect great innovations to transform the entire technique of the arts, thereby affecting artistic invention itself and perhaps even brining about an amazing change in our very notion of art."

Paul Valéry, The Conquest of Ubiquity Pièces sur l'art, Paris, 1934, p. 103-104 (Bibliothèque de la Pléiade, Tome II, 1960, P 1284)

Introduction :

This quotation from a short essay by the French poet appears as the epigraph of Walter Benjamin's groundbreaking text: The Work of Art in the Age of Mechanical Reproduction. Authored in the 1930s by two men of letters, their writings constitute a visionary interrogation on the status of the work of art at a time when technology renders it reproducible ad infinitum. Walter Benjamin's interest in the question did not arise haphazardly. His passion for photography was such that he devoted a book to its history. For him, photography is a form of art unlike the other arts insofar as a negative allows for a multiplicity of prints remaining "identical" to the original. This also pertains to motion pictures, in which film ensures ubiquitous projection. As technology permits large-scale reproduction of a work of art, Benjamin puts forward a key question: In what respect are we called upon to reconsider the duality between original and copy "authentically" distinguishing a painting, for example, from a duplicate? What becomes of the creative act in a context propitious to mass production and dissemination of the copied? What is to become of the work of art and the fine arts in a world of untethered reproduction? In order to address these far-ranging interrogations on art and its practice, Benjamin puts forward a simple question: What, ultimately, distinguishes an original from its copies?

According to Benjamin, the original is a physical object characterized by its presence in space and time: its "hic et nunc" (here and now) and its belonging to a cultural tradition. The here and now circumscribe the precise time and place of the original; they are constitutive of its authenticity. Benjamin writes that "The whole sphere of authenticity is outside technical -- and of course, not only technical -- reproducibility." He adds: "Secondly, technical reproduction can put the copy of the original into situations which would be out of reach for the original itself." According to Benjamin, the transfer not only alters the here and now of the work of art, but also jeopardizes another dimension, namely "the authority of the object". When all is said and done, states Benjamin, "that which withers in the age of mechanical reproduction is the aura of the work of art." He sums up: "One might generalize by saying that the technique of reproduction detaches the reproduced object from the domain of tradition. And by permitting the reproduction to meet the beholder or listener in his own particular situation, it reactivates² the object reproduced." The original is consequently unique insofar as its "here and now" and its aura are unique; any reproduction is an alteration of the "here and now" and the aura. On the other hand, and this is a fundamental point, reproduction reactivates the object reproduced. And reactivation is a source of potentialities, of innovations and novelties of which we fail to realize, in the immediacy of reproduction, the range and scope.

Some eighty years later, the questions raised by Walter Benjamin and Paul Valéry are strikingly echoed in the domain of pedagogy, which is being thrown into upheaval by the emergence of Massive Open Online Courses (MOOCs, also known by the French acronym FLOT), of which the best-known avatars are Coursera (www.coursera.org), Udacity (www.udacity.com), FutureLearn (www.futurelearn.com), EdX (www.edx.org) and OCEAN (http://www.ocean-flots.org/). It is not by chance that the mergers and consolidations of business schools, for instance, have been occurring at a time of digital fever. And having previously escaped the digital tsunami that has wrought havoc on industry, economic institutions are now in the eye of the storm. In a nutshell, MOOCs are courses to which millions of students throughout the world have free access via the web. Outfitted with a pronounced community dimension, the classes are neither walled off nor subject to geographical boundaries; generally speaking, as is the case with Coursera, they are drawn up from the lectures given in renowned colleges and universities such as Stanford, Yale or Princeton. The recent popularity of extra-mural pedagogy is nothing short of phenomenal; over the same lapse of time, student enrollment in Coursera has increased far more rapidly than member registration in Facebook or Twitter! As of now, Coursera counts more than four million students scattered around the world. Given these figures, it may be claimed that pedagogy has entered the age of large-scale digital reproducibility. Needless to say, e-learning and distance learning came into being prior to MOOCs, but neither of them has been able to attain comparable quantity (number of enrollees, countries and universities involved) or quality (worldwide learning communities, dissolution of the focal point of pedagogical authority).

Michel Serres, the veteran philosopher and eternal optimist, is hardly worried by the shape of things to come: "Far from disappearing, the class is plugging itself into the network and restructuring itself following an open and participatory model. It was previously formatted following the model of the page of a book: The teacher was in front of his class and held the position of the author, of the person who knows and transmits to those who are not in the know. Nowadays this model is falling to pieces. » Notwithstanding the optimism manifested by Michel Serres, the shattering of the model is tantamount to the loss of the hic et nunc, the "here and now" of the original, namely a professor's lecture in an amphitheater. The master lecture is inherently theatrical; it brings together the actors in a classic unity of time, place and action. It is built around a focal point, the podium; as Serres mentions, the lecturer's platform is a Power Point in the original sense of the word. The short-lived unity, which is anchored in long-standing academic tradition, endows the lecture with an aura that is dissipated by MOOCs and the new technologies. A MOOC is initially a large-scale copy of the original, a copy rendered possible by the technological resources of the Web. And yet, it is far more than that; it is a reworked copy that Benjamin might have termed "reactivated"; it is a copy preserving neither the "here and now" nor the aura of the original, and which may be said to trumpet its infidelity with regard to the original. And far from figuring as a net loss, the infidelity is ultimately a reflection of the ever-present tension provoked by technology between fidelity and convenience, of the tension considered by the American essayist Kevin Maney as characteristic of what he terms the "fidelity swap". Later in this paper, we will go into detail on the "fidelity-convenience" couple. In a nutshell, what the user (whoever and wherever he is) loses in fidelity (in "here and now") should be regained in terms of convenience.

This shattering could not help but vitally interest the co-founders of Cyberlibris (www.cyberlibris.com), who are co-authors of the present paper. Cyberlibris is a response to what we call the tyranny of the single, authoritative manual, and to what Serres terms the model of the page of a book. Like it or not, the book has entered the age of mechanical reproducibility. Similarly to MOOCs (Massive Open Online Courses), which emancipate pedagogy from the enclosed space of the classroom by detaching it from the focal point represented by the overhyped Power Point towards which the gazes of students seated in a lecture hall are supposed to converge, the digital book separates the contents from the "Gutenberg" container. Access to reading is consequently overhauled. A learner is no longer in a state of dependency with regard to the imposed focal point, the officially mandated book. When he reads a copy he is no longer depriving the other learners; queuing up and rationing are a thing of the past. As a digital community library dedicated to business schools, ScholarVox (www.scholarvox.com) epitomizes pedagogical and book-related emancipation. Day in and day out, several hundreds of thousands of students, professors and librarians converge towards a digital location where they can share their readings and manage, by design and community-based serendipity, to discover works they would surely never have otherwise known.

Needless to add, the library is anything but a new idea. On the other hand, the emancipated and emancipating library without walls is new indeed. Goodbye to the linear model of the appraised and validated, purportedly authoritative text; hello to a model of reading that is profoundly organic, literally natural; doesn't nature proceed tentatively and uncertainly, by trial and error? Doesn't nature constantly make mistakes, and isn't that what allows it to move forward in its untold wealth and multifarious diversity? The digital commons is a library creating a space in which serendipity ceases to be an exception, and becomes the rule. Given the library-based luggage we carry, we could not help but ask ourselves questions on MOOCs and their repercussions on the arts of learning and teaching and, more plainly, on education and the institutions with which it has been associated.

Continued here: Download MOOC_GB