Comments to The Rise of New Technology

Comments to the FT review of the book:

“Capitalism without Capital: The Rise of the Intangible Economy”

With regards to Apple and how little of its value is in physical form, tangible assets: Yes, it is a surprise to see the numbers if one had no previous thoughts on this. As your column states, “It is its intangible assets — integration of design and software into a brand — that create value”. Now, is this so special? If we go back to the late middle ages, this is exactly the distinctive feature of the leading Italian cities of the Renaissance. The court of the Medici placed Florence at the vanguard of Europe, in big part because it was very rich in intangibles: it was effective translating ideas in designs, engineering, architecture, to tangibles and wealth, and in leading society forward.

With regards to the properties of intangibles, they only matter when they are translated into tangibles, simply because we are physical, tangible beings. What I mean is that while it is true that intangibles can acquire a very high value, this is only true because they somehow promise a future tangible return. With the rise of Intangibles there is a concomitant huge increase in freely shared cultural experiences and knowledge, from arts and crafts to spirituality, music, poetry, ideas, but if they cannot be monetized we do not assign them a huge market value; there is no market value assigned to my exploration of Buddhism through information technology, unless I purchase an item like a book and that determines a value which is registered in national income.

What is distinct about our times is the sheer volume of technical and scientific knowledge, and the ability it confers us to near-instantly create world-changing commercial products. Today our technological capacity can change the planet almost as an afterthought. Not just exploding a fraction of the total nuclear weapons stored, but generating new plant and animal species, changing the atmosphere geochemically, changing the subsurface of vast regions through industrialized agriculture (which is already happening, as an afterthought, just as we changed the global climate). Almost all this technical and scientific knowledge is part of our Capital in Intangibles. Incidentally, the nuclear physics knowledge that enabled the construction of the first nuclear weapons is perhaps the first Intangible that gave us the potential to change the planet cosmologically as well as anthropologically (if we explode them all simultaneously, we create a “new” solar system).

With respect to the “four Ss”, it would be nice to see a thorough historical economic comparative analysis, and ponder to what a degree they have always been part of human economies. It is true that full scale market economies embedding societies are quite new, and within this period technology has indeed exploded. There are infinite possibilities with regards to how technologies are used, how they change societies, how they can be used to change societies. We are indeed in a new era, as easily demonstrated by climate change, by the power of the combined nuclear arsenal relative to the size of the planet, by the power of new genetic tools to change plant and animal species.

“Scalability”, the fact that intangibles are “non-rival” goods, is probably as old as thinking. We can imagine that when the first wheel(s) was (were) used for something practical, soon after many wheels were seen in similar practical uses, and then new uses. In fact, this is what happened with all ideas, including hard-worked ideas which are expensive intangibles, right up the modern intellectual property legal frameworks. For instance, the knowledge on exactly how gravity works on Earth, derived by Newton, was freely used ever since by anyone. Or the realization that the Earth is a navigable globe, this is a scalable intangible that was used in a frenzy. Rather than resulting in economic losses or inefficiencies, these appropriated intangibles resulted in great economic activity properly accounted for in national incomes. In the case of navigating around the globe, the resulting commerce and resource exploitation was huge of course, creating very measurable tangible wealth. What is arguably new is that intellectual property protects scalable intangibles, and this is what leads to incumbency advantages and extremely fast corporate growth to huge size. The solution would be to dilute intellectual property, exactly the opposite of what is demanded today by large corporations. This could be easily done moving towards open sources strategies for all research done on public funds.

“Sunkness” would only support the value of reversing the privatization of knowledge that gathered so much momentum after the Bayh-Dole law was passed in the US in 1980. After all, Silicon Valley, the internet and the web, the first green revolution and so much more, in fact the greatest part of historical technical progress, happened before the current model. The “state capitalism” model that created the “golden” 30 years after the second world war produced a miracle of development without the manic rat races for patents and IP litigations we have today. Perhaps the current model is far more wasteful, much less optimal, than other options with higher degrees of knowledge sharing given these two properties.

This last argument takes us directly to “Spillovers”, the fact that knowledge is instantly assimilated and reworked, making investment in knowledge very risky. Well, if banking should be thought of as a Public Utility, what about knowledge created with public funds? Precisely because of these attributes, and because knowledge is today part of “The Commons”, states should invest the biggest proportion of science and development budgets. The benefits will feedback into society perhaps without these types of distortions and very grave inefficiencies discussed in your article. With “the commons” I mean the traditional understanding of the commons and the “bounty of nature” inherited by mankind. Knowledge about the laws and behavior of natural phenomena, ourselves included, is an inherent part of the commons (sooner or later).

Finally, we can see that Synergies are built into the public knowledge model, which corrects for uncertainty and contentedness as they are taking care off by the public itself, the state.

No doubt there has been a huge rise in “intangibles”, but this happened in parallel with the privatization of knowledge. As Mariana Mazzucato has shown, The State funding of risky research underpins much of the creation of this new knowledge intensive economy. One can only wonder if leaving much of the IP in the hands of federal governments wouldn’t have partially solved the increasing gap between leading companies and laggards, as you state, and consequently part of the “secular stagnation” trap. The same thought applies to some of the increase in inequality. It is quite established that private or industrial research and development tends to avoid risky “blue sky” research problems, and that they are no substitute for the science-based revolutions we have seen in the last century.

Incidentally, this is an alternative lens to use to look at the current trend in philanthropy in the US: that some of the biggest fortunes in the world decide to fund science through charitable foundations is naturally viewed with benign eyes. But this is exactly what the fortunes in Renaissance Italy were doing, this is the model for that period. So, are we to cheer a turn to a centuries old model, without asking harder questions such as “how much has the federal government recovered of the publicly funded research which underpins the technologies all these high-tech companies are founded on?” “Is this a fair and sustainable publicly funded research model?”.

Comments to the FT Opinion article:

High Frequency Trading: Self-driving finance could turn into a runaway train

Technology ahead of Policy

I would like to consider an extension to your analysis of the impact of new digital technologies in finance. Your thesis is so important, that it appears we should not confine it to trading and finance. The focus of your article is “self-driving” finance, and you rightly point out that the bulk of innovation is marching onward outside public scrutiny and debate. As you point out, this should change if we ever hope to be able to interpret the information flow, choose risks, and control outcomes. You reference the proportion of trading in equities, futures, and monetary instruments currently operated by computers, above 50% of all trading in all cases. Although the algorithms are today designed entirely by humans, this is also going to change as artificial intelligence (AI) is incorporated. AI is also a human creation, but the self-teaching algorithms operate outside or beyond a human logic rule-book. We could end up loosing more than our ability to interpret positions and operations carried out by AI, for instance policy choices according to human concepts of public good and general welfare or prosperity.

I would like to argue that this problem underpins all Big Tech today, or more generally the whole chain connecting research, innovations in the application of science, technology, and market commercialization of the concomitant products.

You appropriately draw a comparison with self-driving cars. Yes, it is true that this is a coming innovation that has fallen within the sphere of public debate, to some extent. However, even in this most conventional of new Big Tech areas, development is going forward at a much faster pace than policy proposals, analysis, and debate. Different societies may have established architectures that would be optimized by very different policies. For instance, while it is natural to abhor public transport in the USA for many synergistic reasons, it may be natural to love it in the city of Zurich which combines an urban heritage of centuries, high standards of technology, civic life, and economic efficiency. The solutions to public mobility may be very different while appropriate for each different context. The ability to differentiate, specialize, and refine technical solutions lays in the involvement of a community on a recursive basis throughout a process of controlled discovery: an accurate analysis must be followed by trials and errors iteratively. This applies to all new technologies capable of changing our way of life, and how societies are organized.

At which point does a new technology widely used, embedded in norms and policies, become a Public Good*? It appears to me that the issues you raised apply to quite a range of very powerful new technologies including: genetic editing of plants and animals; genetic editing of humans; renewable energy; electric vehicles; self-driving vehicles; artificial intelligence; automation; and many other ones constantly being invented or renewed (e.g. road and air vehicles; mining in space; etc). In all these cases technology commercialization is moving much faster than public engagement, analysis, and policy discussions. Excessive or inept regulation is stifling, but unchecked monopoly power is certifiably antithetical to progress and general affluence, in short economically inefficient. A refreshed realization that unregulated corporations are perfectly capable of maximizing their short-term profits against their own and the public long-term interests has been immortalized by Alan Greenspan in the aftermaths of the 2008 financial crisis**.

New technologies will bring novel ethical and moral dilemmas. As you point out, with “self-learning” finance, liability legislation will have to be re-thought for this specific case. But the same applies to policy guiding self-driving cars traffic and liability; new genetic engineering technology; the sourcing and disposing of batteries for electric vehicles; the use of artificial intelligence in medicine; drones traffic; home delivery of prescription drugs; etc. How are we going to choose the risks incurred across products and confine outcomes with a deliberately chosen dynamic range?

Indeed, the problem only gets much worse. Consider the case of geochemical engineering as an alternative to act on climate change, or the case of new genetic species released to nature. These problems, as most of the problems with the new wave of technology innovation, transcend communities and national boundaries. They involve the whole world, and they often change what we can historically call “The Commons”: the natural world inherited by humankind and the aggregate knowledge accumulated across human civilizations. Yet today most of such knowledge has been privatized. If at least governments would engage the public and guide a policy discussion, different countries could learn from one another in a process that would widen the dynamic range of well thought options.

Roads, bridges, and traffic laws are a public good; so are credit, savings, and pensions to some degree. ** Alan Greenspan’s hindsight with respect to the financial sector: “I made a mistake in presuming that the self-interest of organizations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms … I discovered a flaw in the model”.

Comment to the FT Opinion article:

“Work in the age of intelligent machines”

There are two challenges to the most dystopian hypothetical long-term outcomes, where we may end up.

First, as recursively mentioned by many people, an economy needs consumers, or in the terms analyzed in the article, a rentier economy of extreme inequality needs returns; thus we cannot end up, in the extreme, with the “Globalization Discontents” 99% unemployed. Even if democracy is replaced by a plutocracy, a good proportion of people would have to remain active in a “conventional” way, that is doing work that creates a surplus somewhere or provides a service or creates something new. Second, there is an odd paradox at the heart of these arguments: an economy, any economy, has so far been embedded in a society. When the rules create enough unfairness and discontent, societies have simply found ways to break the order and create new ones. This is the stuff of revolutions and wars. These dystopian views implicitly assume that humans will somehow be embedded in some economic order outside of themselves. Or ruled by a very few, a sort of return to an ancient past almost forgotten in history, with kings and religious plutocracies. Perhaps so, but back then people, the masses, were the factors of input. In a mechanized and automated post-human world run mostly by artificial intelligence, the majority of people would no longer be the essential labor input, thus not even the critically important consumers. Why would anyone, even the few ones within the privileged, prefer this world? In the end, an economy is an arrangement tacitly agreed upon by a society; we can end up in a society made up mainly by artificial intelligent machines and algorithms, with humans running around doing the little repairs and calibrations in the system, but why would humans choose such society? One reason would be just as a byproduct of “an aggravation of today’s politics of greed and grievance” as Martin puts it.

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