So my piece this week for the Huffington Post has been generating some discussion. Well at least on Twitter, which people tell me is a quite important site on the interwebs these days. It was a fun post to write, the entire thing was actually just a riff on a single sentence that Jason Calacanis wrote for his email listserv, which was:
The proper protocol in the valley is to at least try and partner, or purchase, the startups who have innovated in a space you’re going into.The idea of one of the most highly competitive sectors of business "playing nice" just wedged in my head. It's one of those against the laws of physics sort of observations that you can't help but struggle to reconcile.
But alighting on word "cooperation" reminded me of something I wrote a couple years ago for this here little neglected blog of mine, and it seemed like there was actually something interesting going on here.
Only problem was it was real late after a marathon day in the office and I was walking down the stairs to get on a pretty long subway ride. And my brain can become Swiss cheese when I'm tired, it wasn't gonna work the next morning. So... I became a blogger, except with a pen and my notebook, in longhand.
Came out pretty much in final form, with one exception being the crack-brained idea of feeling like it just had to have poker as the main theme. That didn't work out (though I emailed that part to Jason and he used it, so all was not lost) but otherwise all was OK.
Anyways, so I was wondering if I'm the first ever blogger to use this method. I think it needs a name, how about "offline blog leveraging."
Oh wait, I think it's called "writing."
Ah well, hard to be original in this world. Feel free click through and read for yourself if you're bored. Here's the first part:
...so, um, why?
For decades, there's been a gentleman's agreement in the Silicon Valley. If you're the big guy, when small companies get some traction in an area you dominate, you partner with them, or buy them. Taking young startups' ideas and using dominance and power to overrun them isn't sporting.
"Microsoft killed Lotus, WordPerfect, and Netscape. But the recent hurricane of criticism is hitting Facebook, and not just on privacy. They almost got into an all out war with Zynga (makers of the extremely lucrative Farmville and Mafia Wars games) and have been accused of rampantly "borrowing" ideas from Twitter, FourSquare, and many others.
"That's just not how things are done."
I don't think this is confined to music at all. Political consensus among the chattering classes is probably the most direct and clear example, with so much media, so much airtime to fill on deadline, and so many predictions that "have" to be made in the face of subjectiveness and a major herd mentality. It's also common to quickly moving technology trends (iPhone, Twitter, lots of other gadgets) and even financial opinions (Jim Cramer and Motley Fool come to mind especially). And probably quite a few other things. Just straight old TMZ style pop culture too.
"Professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees."
Now there's a light topic.
Or perhaps to state it another way, is being altruistic compatible with acting in your own self interest? Aren't those two things diametrically opposed?
Or to get to the crux of the matter, can a market based approach be compatible with the goal of advancing the common good? Short answer: yes. For my stab at a long answer, see below. Of course, it depends on how you look at it.
I've been meaning to follow up on some of the ideas raised by the Prisoner's Dilemma issues in the last post, so let's start by rushing to the conclusion, with a quote from Mario Henrique Simonsen:
Moreover, as game theorists have shown, the ruthless pursuit of self-interest often results in a comparative loss for everyone. Game theorists often appeal to what is known as the Prisoner's Dilemma. Typically, the Prisoner's Dilemma provides an example of a situation in which two people are faced with a choice about whether to act in a self-interested way or altruistically, and the example shows that both come out ahead if both act altruistically. Peter Singer gives an interesting variation of this dilemma in The Expanding Circle. Imagine two early human hunters who are confronted with a saber tooth tiger. If the tiger chases them, the tiger will only be able to chase one of them but will have at least a ninety percent chance of catching and killing the one that is chased. If both stand their ground together, there is only a very small chance that the tiger could kill either of them. If both hunters are narrowly self-interested, they will both flee in order to save their own skin and there is a fifty-fifty chance for each hunter of being caught and killed. If, on the other hand, both are altruistic and both stay to help the other hunter, then in fact both will benefit. In some situations, in other words, individuals actually derive more benefit by not being self-interested!
Let's build our own sabre-tooth-model then. There are ten people who believe in cooperation in one village. Ten who only act in a ruthless and caricatured version of self-interest in another village, on the other side of the river. In each, along comes a saber-toothed tiger that's hungry. Assume that the tiger only needs to eat one person a day to be happy. Assume that the tiger is faster than any given person. Assume that the tiger is really tough to kill, but 5 people could do it together if they try hard enough.
Day one. Tiger comes. In the first village someone gets eaten as they are caught surprised. In the other, everyone runs instantly. The slowest is killed. In the first village, they get together. The fastest runners decide also that everyone will work together, the next day they gang up and try to kill the tiger. They may lose another one or two, but he's dead eventually. In the other village, the tiger comes each day and kills the slowest runner. Two weeks later, every single person is gone.
So one responds -- banding together is not altruism, obviously, since if we don't do it we all die, so the other village (who act only by ruthless self-interest) would have done the same thing, they say. They'd just do it for a different reason, because it's also in their self interest.
But how? Nobody knew he was coming back the next day. Or any given person could have just run, and hoped that 5 others were able to kill the tiger and they would have avoided all risk.
Ok, so how do you deal with a system of rewards and penalties that is infinitely more vague and complex than this minor example? People can't predict the future, they have to make assumptions. You cannot make an absolute case for self-interest against altrusim, because you cannot absolutely define which is which.
In short, one learns how to balance altruism with self interest. Or more accurately, one learns that rational self interest -- and hence market based solutions -- isn't the opposite of altruism, with community, or with banding together to solve common problems.
If you view the above example through the prism of markets, and as an example of a market rendering judgement, the results of the invisible hand of said market are clear.
In one group everyone banded together, saw the oncoming existential threat to their entire community, and decided to do something about it. It didn't necessarily require the authority of command, all it took was the collective realization that the community would live or die by tackling the problem together. In the other group people refused to recognize the threat they faced, or argued that it wasn't rational for them individually to expend energy to face that threat. They ceased to exist.
When people talk about capitalism and markets that's just another way of talking about incentives.
There's no rule that says that self-interest has to be short sighted or blind. There's nothing magical about markets. But there's something very powerful about them, they present incentives and with lighting speed they channel resources towards those who adapt and thrive most efficiently.
As we face upcoming existential threats -- global climate change for example -- it's comforting to remember that we're all descendents of the first village, by definition. The second village didn't make it.
I was trading emails with a very smart friend of mine recently who had this to say:
There is no stopping the growing price of oil over the long haul, and there are no realistic alternatives to an oil-based economy. As a result, in my opinion, currencies over the next 10-25 years will largely be pegged to the value of oil, their dependency on oil / supply of oil, and the resulting health of their economy. Using this as one of many lenses to evaluate opportunities, the US economy is fucked. We have people that commute 80 miles to work in a car.
It's a point of view you're hearing more and more of these days. But I don't agree.
In the short term there is extremely low price elasticity for oil demand. In other words a modest increase in demand causes massive swings in price. It's this dynamic that has been driving the market recently.
However, the world can and will adjust for oil that is much more scarce. As my friend notes above it will make it impossible for people in the US to drive 2 ton SUV's 80 miles to work each day. It will also have major effects on global shipping, just in time business models, massive flows of cheap plastic goods
from Asia, and a lot of other things.
But I would strongly disagree that "currencies over the next 10-25 years will be largely pegged to the value of oil." And I don't think the U.S. economy is fucked. At least not forever.
The next 1-5 years may be rough. I think it's correct to say we've entered a new era of resource scarcity that's not just going to end. But over a 5 year period demand elasticity for oil is non-trivial -- and over a 25 year period almost anything is possible.
There are substitute goods for oil past the short term. There are ways to massively reduce consumption and divert to alternate forms of energy. For some things like air travel it's really hard. For things like home heating oil it's not hard at all.
For auto travel -- which fairly or unfairly tends to get most of the attention, as it's such an integral part of our lives -- it's a medium term shift that requires things like building rail lines, and people changing their habits and where they live.
What bothers me about the gloom and doom set is that I know this can be done in a generation, easily. I know this because we've already done it.
We built the interstate highway system almost entirely from 1950-1970, and we can build its replacement just as fast or faster. If we want to. And when the incentives line up, well then we'll want to.
Let's put it this way, if we could go from most people living in rural areas, to cities, to suburbs, all in about 100 years, we shouldn't be shocked if resource incentives cause another round of shifts over a 25 year
period. That's a long time, it's more than a generation. It's worth considering the change in living habits and demographics from 1925 to 1950 for some context.
The United States continues to be an incredible place for innovation. We have real problems that affect competitiveness (health care, infrastructure, and education high among them) but the economic capacity of the US is still astounding.
Betting that the US will cease to be wealthy and relevant isn't a bet I would take.