ikinci ligden üçüncü lige düşüyoruz

Abidik gubudik meselelerle uğraşmaktan dev bir devrimi kaçırıyoruz. Bu uyuşukluğun bedeli çok ama çok ağır olacak.

Dünya ekonomik tarihi üçüncü geçiş evresini yaşıyor. Tarım devrimi çoktan bitti. Sanayi devrimi ise sonlara geldi. Ülkeler arası ekonomik farklılıklar iyice açıldı. Şimdi ise sıra dijital devrimde.

Dijital devrim öncesi dünya dört lige ayrılmıştı:

1. Sanayi devriminin liderleri (Gelişmiş ülkeler)

2. Sanayi devrimini geriden takip edenler (Gelişmekte olan ülkeler)

3. Tarım devriminde takılıp kalanlar (Üçüncü dünya ülkeleri)

4. İlkel diye nitelendirilen tarım öncesi toplumlar

Türkiye, Atatürk’ün devrimsel politikaları sayesinde 3. ligden 2. lige çıkmayı başardı, fakat 1. lige hiç bir zaman çıkamadı ve Batı’ya bir türlü yetişemedi.

Dijital devrimle birlikte yeni bir lig doğuyor ve bu sefer dünya beşe ayrılıyor:

1. Dijital devrimin liderleri (Amerika, Çin)

2. Dijital devrimi geriden takip edenler (Avrupa)

3. Sanayi devriminde takılıp kalanlar (Türkiye)

4. Tarım devriminde takılıp kalanlar

5. İlkel diye nitelendirilen tarım öncesi toplumlar

Rekor sürelerde inanılmaz zenginlikler yaratılıyor. Çeşitli dikeyler hızlıca domine ediliyor. Devasa bir yer kapmaca oyunu oynanıyor ve biz maalesef sahnede bile değiliz.

TikTok adlı Çinli bir sosyal medya şirketi 2-3 sene içerisinde 100 milyar dolar değerlemeyi geçerken, bizim borsamızdaki bütün şirketlerin toplam (öz sermaye) değeri 150 milyar dolar bile etmiyor. TikTok sadece bir örnek tabi. Onun gibi milyar dolar üstü (unicorn) değerlemeye sahip yüzlerce yeni teknoloji girişimi var.

Bizden henüz sadece bir tane unicorn çıkabildi, o da bir kaç hafta önce Amerikan oyun şirketi Zynga’ya 1.8 milyar dolara satılan Peak Games. Fakat bugün hala Koç Holding gibi aile şirketleri konuşuluyor, örnek gösteriliyor.

Not: Karşılaştırılan değer öz sermaye değeridir.

Aradaki farka bakar mısınız? Resim net. Her yeni devrim bir öncekinden

• çok daha kısa sürede,

• çok daha az insanla,

• çok daha fazla değer

yaratıyor. Böylece, sadece dünyada değil, ülkelerin kendi içlerinde de eşitsizlik artıyor. (Dijital devrim, sanayi devrimi gibi bir çok sosyal travmayla birlikte geliyor.)

Atatürk gibi büyük düşünüp reformist bir düşünce yapısına geçmemiz gerekiyor. Yoksa dijital devrimi de kaçıracağız ve 2. ligden 3. lige düşeceğiz. Ve bu düşüşün bedeli, yazının başında dediğim gibi, çok ağır olacak. Nasıl Çin sanayi devrimini kaçırdığı için ezildiyse, biz de farklı formlarda ezileceğiz.

China used to be a world economic power. However, it missed its chance in the wake of the Industrial Revolution and the consequent dramatic changes, and thus was left behind and suffered humiliation under foreign invasion. Things got worse especially after the Opium war, when the nation was plagued by poverty and weakness, allowing others to trample upon and manipulate us. We must not let this tragic history repeat itself.

Xi Jinping - Governance of China (Page 189)

Peki ne yapmalıyız?

Öncelikle, artık geçerliliğini yitirmiş metriklere bakmamalıyız:

• Gayri Safi Milli Hasıla. Bu metrik sadece bugünkü nakit akışlarını algılayabiliyor. Oysa teknoloji şirketlerinin değeri gelecekteki nakit akışlarıyla belirleniyor. TikTok gibi bir şirketin sıfırdan 100 milyar dolar değere erişmesi GSMH’de çok minimal bir etki yaratıyor.

• Dünya Sıralamaları. Sıralamaların artık bir önemi kalmadı. Teknoloji üssel hızda ilerlediği için ekonomik dağılımlara etkisi doğrusal olmuyor. Ardışık ülkeler arasındaki makas hızla açılıyor ve yukarıdakilere yetişmek gittikçe zorlaşıyor. (Artık güçlülerin güçsüzlere karşı savaş açmasına gerek kalmadı. Güçlüler o kadar yüksek hızda ilerliyorlar ki, diğerlerini saçma meselelerle oyalamaları yetiyor.)

Sosyal ve finansal sermayemizi doğru yönetmeliyiz:

• Sosyal Sermaye. Dijital devrime katılabilmemiz için kaliteli gençlere ihtiyacımız var. Parayı basıp teknoloji satın alabiliyorsunuz, ama parayı basıp teknoloji üretemiyorsunuz. Teknolojiyi ancak çok kaliteli insanlarla üretebiliyorsunuz. Bizim gençler ne durumda diye bakarsak, tablo hiç iç açıcı değil. 25-34 yaş aralığındaki gençlerimizin yarısına yakını lise mezunu bile değil. Eğitim sistemimizin genel kalitesi de yerlerde sürünüyor. PISA skorlarımız hala OECD ortalamasının altında seyrediyor.

  Teknoloji çok hızlı evrilen, ucu açık bir sektör. Dolayısıyla öğrenmekten keyif alan, sürekli kendini geliştirebilen, hayal kurabilen, ufku geniş, yaratıcı insanlar gerektiriyor. Bizimki gibi, ezbere dayalı, basma kalıp öğrenci yetiştiren, sanayi devrimi için optimize edilmiş eski eğitim sistemleri yetersiz kalıyor.

• Finansal Sermaye. Türkiye’de eski teknoloji zenginlerinden oluşan bir sermaye sınıfı yok. Sermayenin büyük çoğunluğu sanayi devrimi içinde faaliyet gösteren, klasikleşmiş işlerle uğraşan aile şirketlerinin elinde. Doğal olarak onlar da anlamadıkları işlere yatırım yapmak istemiyorlar. Sürekli ekonomik krizlerle boğuşmak zorunda kaldıkları için de, risk algıları zaman içerisinde (gene doğal olarak) aşırı muhafazakarlaşmış durumda. Tabi bu mentaliteyle teknoloji yatırımı yapamıyorsunuz. Başarısızlığa tahammül edebilmeniz, deneme yanılmalardan korkmamanız gerekiyor.

  Kısa vadede en mantıklı çözüm devletin mevcut teknoloji yatırımcılarına sahip çıkması, yatırım kararlarını bu kişilere bırakıp onların da ellerini taşın altına koymasını bekleyerek finansman sağlaması.

Her iki konuda da dışarı sızıntıları mümkün mertebe azaltmalıyız:

• Sosyal Sermaye. Türkiye’de iyi liseler, üniversiteler yok mu? Var tabii ki, ama yetiştirdiğimiz en iyi beyinleri maalesef devamlı yurtdışına kaybediyoruz, özellikle de kodcularımızı. Hatta dijital dünyada yurtdışına çalışmanız için artık yurtdışına taşınmanıza gerek yok. Gençler tatil beldelerine taşınıp, keyifli hayatlar sürüp, bir yandan da oturdukları yerden Amerika’ya, Avrupa’ya çalışıp dolar üzerinden maaşlar alıyorlar. Kurlar da çok kötü olduğu için yurtiçindeki şirketler bu maaşlarla rekabet edemiyorlar.

  Ülkemizin genel anlamda cazibesini yitirdiği de bir gerçek. İfade özgürlüğü ve adalet konularındaki sıkıntılar, bitmek bilmeyen politik gerginlikler ve ekonomik çalkantılar en vatansever çocukları bile hayattan bezdirdi. (Anketlere göre gençlerimizin yarısı yurtdışına kapak atmak istiyor.) Bunlar hemencecik düzelecek meseleler değil tabii ki, ama beyin göçünü durduramazsak havanda su dövmekten ileri gidemeyiz. Zehir gibi çocuklarımız var. Bir sürü emek verip, masraf yapıp onları tespit ediyor ve eğitiyoruz, sonra da başka ülkelere kaptırıyoruz. Bir yandan Batı’ya yetişmeye çalışıyoruz, bir yandan da Batı’ya bedava kaliteli insan kaynağı sağlıyoruz. Çılgınlık gerçekten…

  Bu arada Orta Doğu’da hala biraz karizmamız var. En azından savaştan kaçan çocuklar için iyi bir destinasyon sayılırız. Bu bölgelerden iyi yetenekleri kapmalı, onları ülkemizde tutmak için elimizden geleni yapmalıyız.

• Finansal Sermaye. Sadece genç yetenekleri değil, teknolojide başarı sağlayan girişimcilerimizi de sürekli yurtdışına kaybediyoruz. Bir kısmı, burada işlerini biraz büyüttükten sonra daha büyük finansal sermayelere erişebilmek için gidiyor. Bir kısmı da şirketlerini satıp (“exit edip”) köşeyi döndükten sonra daha kaliteli yaşam koşulları için gidiyor. Oysa ekosistemimizin gelişebilmesi için bu başarılı kişilerin hem deneyimsel anlamda, hem de finansal anlamda yeni girişimcilere destek olması gerekiyor. Silikon Vadisi’ni Silikon Vadisi yapan faktör bu geribesleme döngüsüdür.

  Tabi ülkemizi yurtdışındaki yabancı yatırımcılar için de cazibeli hale getirmemiz şart. Esas deneyim ve sermaye onlarda. Bizi çok hızlandırabilirler, fakat şu an ülkemize dokunmak dahi istemiyorlar.

Bir yandan dünya dijitalleşiyor, dijitalleştikçe soyutlaşıyor ve elle dokunulabilen (toprak gibi) faktörlerin önemi azalıyor. Bir yandan da bizim gibi ülkeler hala vatanı toprakla özdeşleştiriyor, beton ekonomisinden medet umuyor, yer altından çıkacak süprizleri bekliyor. (Bor? Petrol?) Turizm sevdamızı bile doğal kaynakların pazarlaması olarak yorumlayabilirsiniz.

İnanması güç ama, üzerinde bulunduğumuz toprakların boş değeri hala bu topraklar üzerinde gerçekleşen ekonomik aktivitenin toplam değerinden kat ve kat daha fazla. Bugün dünya politikasında birazcık sözümüz geçiyorsa, o da gene coğrafyamızdan, fiziki konumumuzun bize sağladığı stratejik önemden kaynaklanıyor. Özetle hala Atatürk’ün ekmeğini yiyoruz, bize bıraktığı mirası sağmaya devam ediyoruz.

Aslında biz hala Atatürk’ün yaşadığı dönemlerde, yani 20. yüzyılın başlarında yaşıyoruz. Siz bakmayın takvimin 2020 yılını gösterdiğine. Toplumların esasta hangi tarihte yaşadığı takvimin ne gösterdiğinden değil, insanların ne ürettiğinden belli olur. Elinde iPhone ile gezen bir çok vatandaşımız aslında zihnen hala 20. yüzyıl, hatta 19. yüzyılda dolanıyor.

Üçüncü lige düşmek istemiyorsak artık insana yatırım yapmamız, insana değer vermemiz, onu yüceltmemiz gerekiyor.

Bu sonuca ekonomik paradigma değişiklikleriyle varıyor olmamız da üzücü gerçekten. Yunus Emre gibilerinin yeşerdiği bu topraklarda hala insana gereken değerin verilmiyor olması şaşkınlık verici. Kültürel anlamda özümüze dönsek zaten her şey yoluna girecek herhalde, ne dersiniz?

digital vs physical businesses

In the first part, I will analyze how digital businesses and physical businesses are complementary to each other via the following dualities:

1. Risk of Death vs Potential for Growth

2. Controlling Demand vs Controlling Supply

3. Network Effects vs Scale Effects

4. Mind vs Body

5. Borrowing Space vs Borrowing Time

In the second part, I will analyze how the rise of digital businesses against physical businesses is triggering the following trends:

1. Culture is Shifting from Space to Time

2. Progress is Accelerating

3. Science is Becoming More Data-Driven

4. Economy is Getting Lighter

5. Power is Shifting from West to East

Duality 1: Risk of Death vs Potential for Growth

Since information is frictionless, every digital startup has a potential for fast growth. But since the same fact holds for every other startup as well, there is also a potential for a sudden downfall. That is why defensibility (i.e. ability to survive after reaching success) is often mentioned as the number one criterion by the investors of such companies.

Physical businesses face the inverse reality: They are harder to grow but easier to defend, due to factors like high barriers to entry, limited real estate space, hard-to-set-up distribution networks etc. That is why competitive landscape is the most scrutinized issue by the investors of such companies.

Duality 2: Controlling Supply vs Controlling Demand

In the physical world, limited by scarcity, economic power comes from controlling supply; in the digital world, overwhelmed by abundance, economic power comes from controlling demand.
- Ben Thompson - Ends, Means and Antitrust

Although Ben’s point is quite clear, it is worth expanding it a little bit.

In the physical world, supply is much more limited than demand and therefore whoever controls the supply wins.

• Demand. Physical consumption is about hoarding in space which is for all practical purposes infinite. Since money is digital in its nature, I can buy any object in any part of the world at the speed of light and that object will immediately become mine.

• Supply. Extracting new materials and nurturing new talents take a lot of time. In other words, in the short run, supply of physical goods is severely limited.

In the digital world, demand is much more limited than supply and therefore whoever controls the demand wins:

• Demand. Digital consumption is information based and therefore cognitive in nature. Since one can pay attention to only so many things at once, it is restricted mainly to the time dimension. For instance, for visual information, daily screen time is the limiting factor on how much can be consumed.

• Supply. Since information travels at the speed of light, every bit in the world is only a touch away from you. Hence, in the short run, supply is literally unlimited.

Duality 3: Scale Effects vs Network Effects

Physical economy is dominated by geometric dynamics since distances matter. (Keyword here is space.) Digital economy on the other hand is information based and information travels at the speed of light, which is for all practical purposes infinite. Hence distances do not matter, only connectivities do. In other words, the dynamics is topological, not geometric. (Keyword here is network.)

Side Note: Our memories too work topologically. We remember the order of events (i.e. temporal connectivity) easily but have hard time situating them in absolute time. (Often we just remember the dates of significant events and then try to date everything else relative to them.) But while we are living, we focus on the continuous duration (i.e. the temporal distance), not the discrete events themselves. That is why the greater the number of things we are pre-occupied with and the less we can feel the duration, the more quickly time seems to pass. In memory though, the reverse happens: Since the focus is on events (everything else is cleared out!), the greater the number of events, the less quickly time seems to have passed.

This nicely ties back to the previous discussion about defensibility. Physical businesses are harder to grow because that is precisely how they protect themselves. They reside in space and scale effects help them make better use of time through efficiency gains. Digital businesses on the other hand reside in time and network effects help them make better use of space through connectivity gains. Building protection is what is hard and also what is valuable in each case.

Side Note: Just as economic value continuously trickles down to the space owners (i.e. land owners) in the physical economy, it trickles down to “time owners” in the digital economy (i.e. companies who control your attention through out the day).

Scale does not correlate with defensible value in the digital world, just as connectivity does not correlate with defensible value in the physical world. Investors are perennially confused about this since scale is so easy to see and our reptilian brains are so susceptible to be impressed by it.

Of course, at the end of the day, all digital businesses thrive on physical infrastructures and all physical businesses thrive on digital infrastructures. This leads to an interesting mixture.

• As a structure grows, it suffers from internal complexities which arise from increased interdependencies between increased number of parts.

• Similarly, greater connectivity requires greater internal scale. In fact, scalability is a huge challenge for fast-growing digital businesses.

Hence, physical businesses thrive on scale effects but suffer from negative internal network effects (which are basically software problems), and digital businesses thrive on network effects but suffer from negative internal scale effects (which are basically hardware problems). In other words, these two types of businesses are dependent on each other to be able to generate more value.

• As physical businesses get better at leveraging software solutions to manage their complexity issues, they will break scalability records.

• As digital businesses get better at leveraging hardware solutions to manage their scalability issues, they will break connectivity records.

Note that we have now ventured beyond the world of economics and entered the much more general world of evolutionary dynamics. Time has two directional arrows:

• Complexity. Correlates closely with size. Increases over time, as in plants being more complex than cells.

• Connectivity. Manifests itself as “entropy” at the lowest complexity level (i.e. physics). Increases over time, as evolutionary entities become more interlinked.

Evolution always pushes for greater scale and connectivity.

Side Note: "The larger the brain, the larger the fraction of resources devoted to communications compared to computation." says Sejnowski. Many scientists think that evolution has already reached an efficiency limit for the size of the biological brain. A great example of a digital entity (i.e. the computing mind) whose growing size is limited by the accompanying growing internal complexity which manifests itself in the form of internal communication problems.

Duality 4: Mind vs Body

All governments desire to increase the value of their economies but also feel threatened by the evolutionary inclination of the economic units to push for greater scale and connectivity. Western governments (e.g. US) tend to be more sensitive about size. They monitor and explicitly break up physical businesses that cross a certain size threshold. Eastern governments (e.g. China) on the other hand tend to be more sensitive about connectivity. They monitor and implicitly take over digital businesses that cross a certain connectivity threshold. (Think of the strict control of social media in China versus the supreme freedom of all digital networks in US.)

Generally speaking, the Western world falls on the right-hand side of the mind-body duality, while the Eastern world falls on the left-hand side.

• As mentioned above, Western governments care more about the physical aspects of reality (like size) while Eastern governments care more about the mental aspects of reality (like connectivity).

• Western sciences equate the mind with the brain, and thereby treats software as hardware. Eastern philosophies are infused with panpsychic ideas, ascribing consciousness (i.e. mind-like properties) to the entirety of universe, and thereby treats hardware as software.

We can think of the duality between digital and physical businesses as the social version of the mind-body duality. When you die, your body gets recycled back into the ecosystem. (This is no different than the machinery inside a bankrupt factory getting recycled back into the economy.) Your mind on the other hand simply disappears. What survive are the impressions you made on other minds. Similarly, when digital businesses die, they leave behind only memories in the form of broken links and cached pages, and therefore need “tombstones” to be remembered. Physical businesses on the other hand leave behind items which continue to circulate in the second-hand markets and buildings which change hands to serve new purposes.

Duality 5: Borrowing Space vs Borrowing Time

Banking too is moving from space to time dimension, and this is happening in a very subtle way. Yes, banks are becoming increasingly more digital, but this is not what I am talking about at all. Digitalized banks are more efficient at delivering the same exact services, continuing to serve the old banking needs of the physical economy. What I am talking about is the unique banking needs of the new digital economy. What do I mean by this?

Remember, physical businesses reside in space and scale effects help them make better use of time through efficiency gains. Digital businesses on the other hand reside in time and network effects help them make better use of space through connectivity gains. Hence, their borrowing needs are polar opposite: Physical businesses need to borrow time to accelerate their defensibility in space, while digital businesses need to borrow space to accelerate their defensibility in time. (What matters in the long run is only defensibility!)

But what does it mean to borrow time or space?

• Lending time is exactly what regular banks do. They give you money and charge you an interest rate, which can be viewed as the cost of moving (discounting) the money you will be making in the future to now. In other words, banks are in the business of creating contractions in the time dimension, not unlike creating wormholes through time.

• Definition of space for a digital company depends on the network it resides in. This could be a specific network of people, businesses etc. A digital company does not defend itself by scale effects, it defends itself by network effects. Hence its primary goal is to increase the connectivity of its network. In other words, a digital company needs creation of wormholes through space, not through time. Whatever facilitates further stitching of its network satisfies its “banking needs”.

Bankers of the digital economy are the existing deeply-penetrated networks like Alibaba, WeChat, LinkedIn, Facebook, Amazon etc. What masquerades as a marketing expense for a digital company to rent the connectivity of these platforms is actually in part a “banking” expense, not unlike the interest payments made to a regular bank.

Trend 1: Culture is Shifting from Space to Time

Culturally we are moving from geometry to topology, more often deploying topological rather than geometric language while narrating our lives. We meet our friends in online networks rather than physical spaces.

Correlation between the rise of the digital economy and the rise of the experience economy (and its associated cultural offshoots like hipster movement and decluttering movement) is not a coincidence. Experiential goods (not just those that are information-based) exhibit the same dynamics as digital goods. They are completely mental and reside in time dimension.

Our sense of privacy too is shifting from space dimension to time dimension. We are growing less sensitive about sharing objects and more sensitive about sharing experiences. We are participating in a myriad of sharing economies, but also becoming more ruthless about time optimization. (What is interpreted as a general decline in attention span is actually a protective measure erected by the digital natives, forcing everyone to cut their narratives short.) Increasingly we are spending less time with people although we look more social from outside since we share so many objects with each other.

Our sense of aesthetics has started to incorporate time rather than banish it. We leave surfaces unfinished and prefer using raw and natural-looking rather than polished and new-looking materials. Everyone has become wabi-sabi fans, preferring to buy stuff that time has taken (or seems to have taken) its toll on them.

Even physics is caught in the Zeitgeist. Latest theories are all claiming that time is fundamental and space is emergent. Popular opinion among the physicists used to be the opposite. Einstein had put the final nail on the coffin by completely spatializing time into what is called spacetime, an unchanging four-dimensional block universe. He famously had said “the distinction between past, present, and future is only a stubbornly persistent illusion.”

Trend 2: Progress is Accelerating

As economies and consumption patterns shift to time dimension, we feel more overwhelmed by the demands on our time, and life seems to progress at a faster rate.

Let us dig deeper into this seemingly trivial observation. First recall the following two facts:

1. In a previous blog post, I had talked about the effect of aging on perception of time. As you accumulate more experience and your library of cognitive models grows, you become more adept at chunking experience and shifting into an automatic mode. What was used to be processed consciously now starts getting processed unconsciously. (This is no different than stable software patterns eventually trickling down and hardening to become hardware patterns.)

2. In a previous blog post, I had talked about how the goal of education is to learn how not to think, not how to think. In other words, “chunking” is the essence of learning.

Combining these two facts we deduce the following:

• Learning accelerates perception of time.

This observation in turn is intimately related to the following fact:

• Social progress accelerates over time.

What exactly is this relation?

Remember, at micro-level, both learning and progress suffer from the diminishing returns of S-curves. However, at the macro-level, both overcome these limits via sheer creativity and manage to stack S-curves on top of each other to form a (composite) exponential curve that literally shoots to infinity.

This structural similarity is not a coincidence: Progress is simply the social version of learning. However, progress happens out in the open, while learning takes place internally within each of our minds and therefore can not be seen. That is why we can not see learning in time, but nevertheless can feel its acceleration by reflecting it off time.

Side Note: For those of you who know about Ken Wilber’s Integral Theory, what we found here is that “learning” belongs to the upper-left quadrant while “progress” belongs to the lower-right quadrant. The infinitary limiting point is often called Nirvana in personal learning and Singularity in social progress.

Recall how we framed the duality between digital and physical businesses as the social version of the mind-body duality. True, from the individual’s perspective, progress seems to happen out in the open. However, from the perspective of the mind of the society (represented by the aggregation of all things digital), progress “feels” like learning.

Hence, going back to the beginning of this discussion, your perception of time accelerates for two dual reasons:

1. Your data processing efficiency increases as you learn more.

2. Data you need to process increases as society learns more.

Time is about change. Perception of time is about processed change, and how much change your mind can process is a function of both your data processing efficiency (which defines your bandwidth) and the speed of data flow. (You can visualize bandwidth as the diameter of a pipe.) As society learns more (i.e. progresses further), you become bombarded with more change. Thankfully, as you learn more, you also become more capable of keeping up with change.

There is an important caveat here though.

1. Your mind loses its plasticity over time.

2. The type of change you need to process changes over time.

The combination of these two facts is very problematic. Data processing efficiency is sustained by the cognitive models you develop through experience, based on past data sets. Hence, their continued efficiency is guaranteed only if the future is similar to the past, which of course is increasingly not the case.

As mentioned previously, the exponential character of progress stems from the stacking of S-curves on top of each other. Each new S-curve represents a discontinuous creative jump, a paradigm shift that requires a significant revision of existing cognitive models. As progress becomes faster and life expectancy increases, individuals encounter a greater number of such challenges within their lifetimes. This means that they are increasingly at risk of being left behind due to the plasticity of their minds decreasing over time.

This is exactly why the elderly enjoy nostalgia and wrap themselves inside time capsules like retirement villages. Their desire to stop time creates a demographic tension that will become increasingly more palpable in the future, as the elderly become increasingly more irrelevant while still clinging onto their positions of power and keeping the young at bay.

Trend 3: Science is Becoming More Data-Driven

Rise of the digital economy can be thought of as the maturation of the social mind. The society as a whole is aging, not just us. You can tell this also from how science is shifting from being hypothesis-driven to being data-driven, thanks to digital technologies. (Take a look at the blog post I have written on this subject.) Social mind is moving from conscious thinking to unconscious thinking, becoming more intuitive and getting wiser in the process.

Trend 4: Economy is Getting Lighter

As software is taking over the world, information is being infused into everything and our use of matter is getting smarter.

Automobiles weigh less than they once did and yet perform better. Industrial materials have been replaced by nearly weightless high-tech know-how in the form of plastics and composite fiber materials. Stationary objects are gaining information and losing mass, too. Because of improved materials, high-tech construction methods, and smarter office equipment, new buildings today weigh less than comparable ones from the 1950s. So it isn’t only your radio that is shrinking, the entire economy is losing weight too.

Kevin Kelly - New Rules for the New Economy (Pages 73-74)

Energy use in US has stayed flat despite enormous growth. We now make less use of atoms, and the share of tangibles in total equity value is continuously decreasing. As R. Buckminster Fuller said, our economies are being ephemeralized thanks to the technological advances which are allowing us to do "more and more with less and less until eventually [we] can do everything with nothing."

This trend will probably, in a rather unexpected way, ease the global warming problem. (Remember, it is the sheer mass of what is being excavated and moved around, that is responsible for the generation of greenhouse gases.)

Trend 5: Power is Shifting from West to East

Now I will venture far further and bring religion into the picture. There are some amazing historical dynamics at work that can be recognized only by elevating ourselves and looking at the big picture.

First, let us take a look at the Western world.

• Becoming. West chose a pragmatic, action-oriented attitude towards Becoming and did not directly philosophize about it.

• Being. Western religions are built on the notion of Being. Time is deemed to be an illusion and God is thought of as a static all-encompassing Being, not too different from the entirety of Mathematics. There is believed to be an order behind the messy unfolding of Becoming, an order that is waiting to be discovered by us. It is with this deep conviction that Newton managed to discover the first mathematical formalism to predict natural phenomena. There is nothing in the history of science that is comparable to this achievement. Only a religious zeal could have generated the sort of tenacity that is needed to tackle a challenge of this magnitude.

This combination of applying intuition to Becoming and reason to Being eventually led to a meteoric rise in technology and economy.

Side Note: Although an Abrahamic religion itself, Islam did not fuel a similar meteoric rise, because it was practiced more dogmatically. Christianity on the other hand self-reformed itself into a myriad of sub-religions. Although not too great, there was enough intellectual freedom to allow people to seek unchanging patterns in reality, signs of Being within Becoming. Islam on the other hand persecuted any such aspirations. Even allegorical paintings about Being was not allowed.

East did the opposite and applied reason to Becoming and intuition to Being.

• Becoming. East based its religion in Becoming and this instilled a fundamental suspicion against any attempts to mathematically model the unfolding reality or seek absolute knowledge. Of course, reasoning about Becoming without an implicit belief in unchanging absolutes is not an easy task. In fact, it is so hard that one has no choice but to be imprecise and poetic, and of course that is exactly what Eastern religions did. (Think of Taoism.)

• Being. How about applying intuition to Being? How can you go about experiencing Being directly, through the “heart” so to speak? Well, through non-verbal silent meditation of course! That is exactly what Eastern religions did. (Think of Buddhism.)

Why could not East reason directly about Becoming in a formal fashion, like West reasoned directly about Being using mathematics? Remember Galileo saying "Mathematics is the language in which God has written the universe." What would have been the corresponding statement for the East? In other words, what is the formal language of Becoming? It is computer science of course, which was born out of Mathematics in the West around 1930s.

Now you understand why West was so lucky. Even if East had managed to discover computer science first, it would have been useless in understanding Becoming, because without the actual hardware to run simulations, you can not create computational models. A model needs to be run on something. It is not like a math theory in a book, waiting for you to play with it. Historically speaking, mathematics had to come first, because it is the cheaper, more basic technology. All you need is literally a pen, a paper and a trash bin.

Side Note: Here is a nerdy joke for you… The dean asks the head of the physics department to see him. “Why are you using so many resources? All those labs and experiments and whatnot; this is getting expensive! Why can’t you be more like mathematicians – they only need pens, paper, and a trash bin. Or philosophers – they only need pens and paper!”

But now is different. We have tremendous amounts of cheap computation and storage at our disposal, allowing us to finally crack the language of Becoming. Our entire economy is shifting from physical to digital, and our entire culture is shifting from space to time. An extraordinary period indeed!

It was never a coincidence that Chinese mathematicians chose to work in (and subsequently dominated) statistics, the most practical fields within mathematics. (They are culturally oriented toward Becoming.) Now all these statisticians are turning into artificial intelligence experts while West is still being paranoid about the oncoming Singularity, the exponential rise of AI.

Why have the Japanese always loved robots while the West has always been afraid of them? Why is the adoption of digital technologies happening faster in the East? Why are the kids and their parents in the East less worried about being locked into digital screens? As we elaborated above, the answer is metaphysical. Differences in metaphysical frameworks (often inherited from religions) are akin to the hard-to-notice (but exceptionally consequential) differences in the low-level code sitting right above the hardware.

Now guess who will dominate the new digital era? Think of the big picture. Do not extrapolate from recent past, think of the vast historical patterns.

I believe that people are made equal everywhere and in the long-run whoever is more zealous wins. East is more zealous about Becoming than the West, and therefore will sooner or later dominate the digital era. Our kids will learn their languages and find their religious practices more attractive. (Meditation is already spreading like wildfire.) What is “cool” will change and all these things will happen effortlessly in a mindless fashion, due to the fundamental shift in Zeitgeist and the strong structural forces of economics.

Side Note: Remember, in Duality 4, we had said that the East has an intrinsic tendency to regulate digital businesses rather than physical businesses. And here we just claimed that the East has an intrinsic passion for building digital businesses rather than physical businesses. Combining these two observations, we can predict that the East will unleash both greater energy and greater restrain in the digital domain. This actually makes a lot of sense, and is in line with the famous marketing slogan of the tyre manufacturing company Pirelli: “Power is Nothing Without Control”

Will the pendulum eventually swing back? Will the cover pages again feature physical businesses as they used to do a decade ago? The answer is no. Virtualization is one of the main trends in evolution. Units of evolution are getting smarter and becoming increasingly more governed by information dynamics rather than energy dynamics. (Information is substrate independent. Hence the term “virtualization”.) Nothing can stop this trend, barring some temporary setbacks here and there.

It seems like West has only two choices in the long run:

1. It can go through a major religious overhaul and adopt a Becoming-oriented interpretation of Christianity, like that of Teilhard de Chardin.

2. It can continue as is, and be remembered as the civilization that dominated the short intermediary period which begun with the birth of mathematical modeling and ended with the birth of computational modeling. (Equivalently, one could say that West dominated the industrial revolution and East will dominate the digital revolution.)

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If you liked this post, you will probably enjoy the older post Innovative vs Classical Businesses as well. (Note that digital does not mean innovative and physical does not mean classical. You can have a classical digital or an innovative physical business.)

covid-19 as an agent of progress

Crises are periods of acceleration. The reason why all of us feel so overwhelmed today is simply because time is progressing at a much faster rate than it used to.

It may seem improper for me to use the word “progress” here. After all we are going through a massive health crisis with equally massive economic, social and psychological consequences. What is so progressive about this?

Well. If we leave our anthropomorphic framework and for a moment stop thinking about ourselves and instead focus on the evolution of life in general, what looks like a regression is indeed a progression. In other words, we as humans may be regressing, but nature itself is progressing. In fact, nature never ever regresses. What seems like a step backwards always eventually turns out to be a precursor to a bigger step forwards. To see this, all we need to do is zoom out in time.

So what happens when we zoom out? We see that the entire evolutionary history is characterized by a series of dialectic progressions through differentiation and integration, an alternating sequence of creation and synthesis of dualities.

Here, the word “synthesis” is very important. Nature does not break and asymmetrically choose one side of the dualities it creates, it transcends them instead, and this transcendence step requires the dualities to stay unbroken and functioning. In other words, nature stands on the shoulders of old dualities to build entirely new, higher-level ones.

What has all this got to do with SARS-CoV-2?

Long story short, SARS-CoV-2 came out of nowhere, dealt a heavy blow to many fault lines and is now responsible for directly (or indirectly) restoring (or accelerating the formation of) the following six dualities. (Dominant sides are placed on the left. We will delve into each topic later on in the post.)

But how come a small virus do all these? It is not even alive, right? Besides, why should we care about such metaphysical interpretations?

First of all, SARS-CoV-2 too is a life form and deserves the respect that every other life form commands. True, in its inert form, it looks like a simple encapsulation of 30,000 letters, but in action, its complexity is utterly mind-boggling. (Thousands of research papers are published to date.) Remember, a tree is a seed-in-action. Life is all about information, but information itself can only be recognized when it is in action. (Same thing can be said for computer programs.) A virus is no different than a seed. It just grows within you rather than out in the open.

Secondly, SARS-CoV-2 is not sadistically killing for fun. (As far as I know, only humans do that.) Like every other living being, it just wants to replicate. Death is a collateral damage. It is currently mutating and trying to adapt itself to its new host after crossing to a new species. (Such viruses are called zoonotic viruses.) Over time, it will increase in virality and decrease in lethality, and eventually join the harmless community of human coronaviruses that have been co-evolving with us for thousands of years. (Yes, there are lots of viruses that have been co-evolving with us. In fact, some of the technologies in our bodies have direct viral origins, the most dramatic example being the placenta.)

Thirdly, SARS-CoV-2 is of course just minding its own business. The duality restorations themselves are happening because the virus is stressing our systems (biological, sociological, political, economic) to their limits and exposing all the underlying weaknesses. (Generally speaking, malfunctioning of a duality becomes immediately apparent upon a test of robustness.) To think of this crisis solely in terms of its health effects is dangerously naive, and not deriving the right lessons from a crisis of this magnitude is a massive waste. What is at stake is the survival of humanity. We need to stop being so myopic and start thinking about far future rather than the next electoral cycle.

You may say that it is still too early to think in big-picture terms. (As the Chinese premier Zhou Enlai famously remarked, it is still too early to draw final conclusions from the French Revolution.) But in matters of life and death it is always better to be early than late.

Before we delve into the dualities, since there is a lot of misinformation in circulation, I want to first make sure that we are on the same page with respect to a few important background items.

We will inevitably be touching some controversial topics. So now is a great time to drop the legal disclaimer:

All postings on this site, including this one, are my own and do not necessarily represent the strategies or opinions of the organizations I am affiliated with.

We Could Have Been a Lot More Prepared

In Turkey, we say earthquakes do not kill people, bad buildings do. There is a lot of wisdom in this.

Was SARS-CoV-2 an entirely unique, unanticipatable event? Did it catch everyone by surprise? Of course not. Even Bill Gates has been shouting for years that it is only a matter of time that we get hit by another big pandemic and that we are utterly unprepared for it.

Currently, we are suffering from three major bottlenecks:

1. Hospital Beds. This is particularly easy to solve. China built a 1,000 bed-capacity pre-fabric hospital in a month. May be you can not do it today in such a short period of time, but you definitely could have if you had thought about it well in advance.

2. Medical Ventilators. These machines do not require rocket science to build. We could have easily stocked hundreds of thousands in a decentralized fashion.

3. Trained Critical-Care Personelle. We could have pre-trained people beforehand just in case the need arises, focusing on the processes for handling severe pneumonia and assuming that such trainees will always be supervised by doctors who will manage the tricky cases.

If this is indeed a “war”, then why are we so ill-prepared for it? We routinely allocate trillions of dollars to military defense budgets. Why did we not channel a minuscule amount of that against the risk of a pandemic?

What we have is a case of bad leadership, not some kind of bad misfortune. We even had an opportunity to lay the scientific foundations for the current frantic vaccine development efforts well in advance, but missed it due to bad risk management practices. (Remember, technology can be developed in a frantic fashion, as we do during wartime, but science can not be rushed.)

The best-case scenario, as Schwartz sees it, is the one in which this vaccine development happens far too late to make a difference for the current outbreak. The real problem is that preparedness for this outbreak should have been happening for the past decade, ever since SARS. “Had we not set the SARS-vaccine-research program aside, we would have had a lot more of this foundational work that we could apply to this new, closely related virus, ” he said. But, as with Ebola, government funding and pharmaceutical-industry development evaporated once the sense of emergency lifted.

James Hamblin - You’re Likely to Get the Coronavirus

We Will Probably Be Unable to Stop This Pandemic

Now that the genie is out of the bottle and the outbreak has reached a pandemic status, we are very unlikely to be able to fully contain this virus. (Asymptomatic "silent spreaders" have made the job particularly hard.)

Since COVID-19 is now so widespread, within countries and around the world, the Imperial model suggests that epidemics would return within a few weeks of the restrictions being lifted. To avoid this, countries must suppress the disease each time it resurfaces, spending at least half their time in lockdown. This on-off cycle must be repeated until either the disease has worked through the population or there is a vaccine which could be months away, if one works at all.

The Economist - Paying to Stop the Pandemic

It seems like, unless the highly speculative mRNA technologies with very fast development cycles miraculously pay off, there will not be a vaccine around for at least another year or two. Remember, even if something works in the lab, the chances are it will very likely fail in the real world and not pass the necessary efficacy and toxicity tests. (The average success rate of new infectious disease medicines starting clinical trials is just 20 percent.)

If we are lucky, the virus will mutate into a more infectious but less lethal form. (It has already branched into several strains, but the mutations so far seem to be trivial.) However the structural mutations of the sort needed for such a change may render any herd immunity built up against the old version of the virus meaningless and unleash brand new waves of contagion.

There are also question marks about duration of immunity. In other words, even if we manage to develop a vaccine, it may not be a permanent solution.

OK. Now that we are in sync we can go back to the dualities.

Duality 1: Old vs Young

SARS-CoV-2 miraculously does not kill any children, except in very rare cases. We should be grateful for this. Although we do not currently have a full grasp of the underlying causal mechanisms, the general patterns of lethality are clear. One obvious correlation is between lethality and age. Risk of death increases exponentially with age.

On the other hand, if you look at who is getting most screwed by the measures taken by governments, it is disproportionally the young people.

• Universities and schools got closed the first.

• Many low-paying entry-level jobs (populated mostly by the young) were eliminated the first.

• In times of uncertainty, people fall back on existing connections and trust networks. (In other words, those who have not had any time to build up social capital have nothing to fall back on.)

• “All generations suffer during an economic crisis. But the consequences last longer for the young. Economic misery has a tendency to compound. Low wages now beget low wages later, and meagre pensions after that.” (Source)

• Governments may be freely dispensing money today in order to ease the economic pain, but it will be the young who will need to pay off the accumulated government debt in the future.

So, the damage caused by the threat is mostly absorbed by the old, while the damage caused by the reaction against the threat is mostly absorbed by the young. This is clearly not sustainable, but also not that surprising since the decision makers themselves are mostly old people as well.

Prestige, wealth and power have always been concentrated in the hands of the old, but the recycling frequency of this concentration has significantly slowed down thanks to the advances in life expectancy. As our leaders are getting increasingly older, in literally all spheres of life, including academics, politics and business, our society is losing its evolutionary dynamism. This is a dangerous situation since, as technology advances and accelerates the pace of progress, we will need even more cognitive plasticity, not less.

Remember, what stands in the way of progress eventually gets wiped out. Humanity itself owes its own existence to a series of mass extinctions. Evolution is a cold-hearted ruthless bastard.

Will we be able to deal with the catastrophes waiting for us? The answer hinges on how fast we can develop the right (hard and soft) technologies.

Duality 2: Men vs Women

Countries who handled the first wave of infections in the best fashion are mostly led by women. And who are putting their lives at stake, fighting on the front lines of this outbreak? The health workers of course, the substantial majority of whom are again women. And who bears more of the burden when preschools and schools stay closed, and nannies and maids can no longer show up to work? Women of course.

SARS-CoV-2 on the other hand has a clear preference for men. (Same was true for SARS-CoV-1.) At first, everyone thought that this was due to the greater prevalence of smoking among males, but now it looks like smoking actually decreases the risk of infection. (Apparently nicotine also binds to ACE2, the same cell-membrane protein that the virus binds to in the lungs.) Some say that the gender difference could be related to differences in estrogen levels. (We are now injecting estrogen into male patients.) Others say that it could be related to the differences in ACE2 expression levels. Science is still unsettled.

In any case, what is clear is that this virus hits old men the hardest. This is a particularly interesting group since it happens to contain the substantial majority of the most powerful people on earth. Look around you. Who is running your country? Who is currently competing to run US, the most powerful country in the world? (Hint: Males over 70.) Have you ever wondered who sits on the boards of the S&P 500 companies? (80 percent male. Average age over 60.)

Modern women have some breathing room, yes. But there are glass ceilings everywhere. We have nowhere near enough feminine (empathy-driven, “mother nature” focused) thinking in our power nodes. Our world is still very much a masculine world and we are clearly suffering from this imbalance.

Duality 3: Humanity vs (Rest of the) Environment

Historically speaking we used to die a lot more often from viruses. Over time we learned how to develop vaccines and keep the outbreaks at bay, but recently, largely due to the emergence of zoonotic viruses, the frequency of outbreaks started to pick up again.

Remember, avian influenza jumped to us from birds, HIV from chimpanzees, Ebola from bats, MERS (which is also a coronavirus) from camels and SARS-CoV-2 (to the best of our knowledge) from pangolins. There are many new, potentially a lot more severe zoonotic events waiting for us in the future.

Deforestation is bringing us more in contact with wild animals. Giant industrial poultry farms are triggering avian influenza outbreaks on an annual basis. Are these really necessary in this age of quantum computers? Do we really need to systematically massacre tens of billions of animals in slaughter houses while there are so many other dietary options open to us? (I personally prefer pescatarianism which is basically vegetarianism plus seafood, dairy products and eggs. It is very easy to transition to.)

And what about the exotic animal markets around the world catering to the rich folks who want to spice up their boring lives? Remember, pangolin is an endangered animal, in fact the most illegally traded mammal in the world.

It is almost as if we brought this crisis onto ourselves. Left unchecked, our disregard for the environment and boundless appetite for indulgence is going to destroy us. In order to prevent another outbreak, we need to restrain ourselves and reduce what is called the attack surface in cyber security. In other words, we should just stay away from living beings with whom we share so much of our DNA, and therefore so much of our diseases. Thankfully, this has already started happening in the form of closures of animal markets and meat processing plants, most of whom suffer from extremely unhygienic working conditions. (Yes, meat prices are going up and there will be shortages, but meat should have never been cheap anyway.)

Duality 4: West vs East

It is easy to forget the fact that we shape our world largely after our ideas. Something as tangible as the maltreatment of environment can be directly traced back to the sharp object-subject separation promoted by the currently dominant Western worldview. We treat nature as if it is meant to serve our needs, as if it is an object, not a subject. This attitude is actually encouraged in an explicit form by all Abrahamic religions like Christianity, as in the biblical instruction “Subdue the earth and have dominion over the fish of the sea, and over the fowl of the air, and over every living thing.” (Meanwhile, on the contrary, almost all Eastern philosophies are infused with panpsychic ideas, ascribing consciousness to the entirety of universe.)

Recent world history can basically be characterized as the rise of the West in all its aspects. This has generally played out well for a while. Technology increased both our productive (and destructive) capabilities, and we have become rich beyond belief. However, this exponential rise in living standards have come at the cost of massive externalities in the form of environmental disasters and social inequalities. Overall, our societies have become overly individualist and distrusting, our economies have become overly competitive and efficiency-oriented, and (perhaps most importantly) our worldview has become overly analytical and reductionist.

Clearly, our lopsided philosophy is not sustainable. (This will become even more evident in the next section when we discuss the global nature of the challenges waiting for us.) But how can you balance the mainstream culture? After all, cultural evolution occurs at a very high level and is not independent of the more fundamental, tangible levels of social dynamics lying underneath it. (This was one of the most important observations of Karl Marx.) Long story short, cultural influence requires political and economic influence. In other words, a major cultural shift necessitates a major power shift first.

A magnificent (and potentially very dangerous) power shift has been taking place in front of our eyes for a while. It acquired its most legible form in Donald Trump’s popular campaign slogan “Make America Great Again” and his dramatic fight against the Chinese technology company Huawei. Then SARS-CoV-2 came out of nowhere and accelerated this power shift further.

People are blaming China for all sorts of things today, most of them being quite unjust. Yes, it made some big mistakes during the first few weeks of the outbreak. But look at the situation in US today. Do you think that the world would have been better off if the outbreak had started off in US instead?

China’s centralized government (once realizing the gravity of the situation) swiftly sealed itself off from the world and took draconian social measures (that would be unimaginable in the Western world) in a very short period of time. As a result it managed to significantly slow down the virus at its source and earn the world at least 2-3 months to prepare. What did the rest of the world do during this time? Nothing. More importantly, thanks to the data shared about the structure, virality and lethality of the virus, the rest of the world never had to operate in complete darkness. This data played a vital role in the formation of initial policy decisions in the Western world.

People are angry at China today, essentially because they feel that they are bearing a disproportionate amount of the suffering. But is it really China’s fault that it has managed to bounce back in such a short period of time, that it is enjoying significant structural advantages in handling a crisis of this sort?

• Cultural differences matter. It is not a coincidence that Eastern countries (China, South Korea, Singapore, Taiwan) have all handled the crisis well, while Western countries where people have low trust in each other and their governments are all having a hard time containing the panic and mobilizing a harmonious front against the virus.

• Generally speaking, under stressful conditions centralized systems always perform better, and under relaxed conditions decentralized systems always perform better. I do not know if you have realized but the world have turned completely communist in a matter of weeks. Big corporations are begging for help, governments are postponing taxes, indiscriminately extending credit-lines to everybody, guaranteeing bank loans and even helicoptering money around. While the federal government in US is failing to establish coordination across states, China’s centralized government can at any time instantly mobilize even its tiniest capillaries.

• Privacy is a huge issue in individualist Western countries. Meanwhile China is reaping the rewards of its years of investment in surveillance technologies, tracking everyone and collecting all relevant data in one place where it becomes actionable. It can instantly detect and isolate any new local outbreaks. I know, China is bad, in the sense that there is no freedom of speech there. But US is bad too. Nearly 1 out of every 100 American is in prison or jail, an incredibly high ratio by world standards. Being a superpower seems to correlate with tyrannical internal control, either in a “preventive” form (as in China) or in a “therapeutic” form (as in US).

• China has become a world onto itself with its giant interconnected population and diminishing reliance on external demand to prop up its economy. Remember, US emerged as the world leader after World War II primarily because it has managed to stay away from the mayhem that ravaged everyone else. China seems to be in the same exact position today with its ability to seal itself off from the pandemic. At some point, it will no doubt think of deploying something similar to the Marshall Plan. In fact this has already started happening in some form with the high-profile deliveries of medical equipment.

The most important thing that China has demonstrated to the world is that there is an alternative way of becoming a superpower based on a radically different philosophy of governance. This is exactly what is scaring the shit out of Western leaders and what has shocked me on a personal level as well. When someone shatters your worldview and wakes you up to the dual nature of truth, it really hurts. You feel enlightened, but also duped and angry.

“The opposite of a fact is falsehood, but the opposite of one profound truth may very well be another profound truth.”
- Niels Bohr

China has lifted a billion people out of poverty in a spectacular growth story, and is today making colossal bets on revolutionary technologies like AI and blockchain, while US is pathetically cutting back its R&D spending. China’s super-efficient bureaucracy run by the top brains in the country in a meritocratic tradition is exhibiting a long-term planning of the kind that we desperately need, while US can no longer think beyond the next election cycle and has proven itself to be utterly incapable of leading us in global challenges like climate change.

Duality 5: Local vs Global

Thanks to the unstoppable march of globalization, the world has now become interconnected in so many different ways. Ideas quickly spread thanks to the vast social media platforms with billions of users. Viruses quickly spread thanks to vast number of flights between hundreds of cities. I mean, think about it. One person eating an exotic animal in China eventually causes the stock market in US to collapse. How amazing is that? (It is also interesting how social media is playing a non-trivial role in this drama.)

So, in some sense, globalization reinforces itself by quickly amplifying local problems to a scale that requires a global approach which in turn requires better global governance. Today we have a pandemic in our hands, but the world has completely failed to act in unison. This means that we have a lot more work to do, which of course is not a surprise to anybody. We have already seen a slow version of the same film. It was called the Climate Change Fiasco.

Remember, the West did not even move a finger while China was crumbling for two months. No pharmaceutical company was willing to develop a vaccine back then. Look how many are racing today. World’s novel drug development capacity is almost entirely concentrated in US and Europe, and vaccine manufacturing know-how is concentrated in just four companies. Should we feel lucky that Americans and Europeans are dying along with the rest of us?

Even developed countries among themselves can not agree on what actions need to be taken. Not only do the responses of each country differ, but their timings do so as well, causing the virus to slow down here and accelerate there. This lack of uniformity and synchrony implies that even China’s own declaration of victory was premature. As long as the virus is still circulating around the globe, it will eventually find its way back into every single country.

I hope wealthy nations include poorer ones in these preparations, especially by devoting more foreign aid to building up their primary health-care systems. Even the most self-interested person—or isolationist government—should agree with this by now. This pandemic has shown us that viruses don’t obey border laws and that we are all connected biologically by a network of microscopic germs, whether we like it or not. If a novel virus appears in a poor country, we want its doctors to have the ability to spot it and contain it as soon as possible.

The Economist - Bill Gates on How to Fight Future Pandemics

Of course, it is ridiculously naive to expect a global coordination in an unequal world. Developing countries with barely functional health systems and already fragile economies can not afford to take the radical actions taken by developed countries. The inequality is drastic. For instance, Italy has 41 doctors per 10,000 people while Africa has only 2. (Source) Millions will die in Africa and get probably less global media coverage than Italy alone received.

Similar coordination issues had popped up during the climate change debate. A substantial portion of the carbon dioxide stock that is causing global warming today is due to the past economic activities of the developed countries. Putting a cap on this stock literally amounts to asking the developing countries to stop developing simply because they are late in the game. Of course they can not comply, what do we expect?

Lesson is simple: If you ignore inequality, it will eventually bite you back, because everything is interconnected. We are living on the same goddamn globe, breathing the same goddamn air, drinking the same goddamn water.

Of course, there is inequality not just among the countries, but also within the countries. Poor people everywhere are a lot more likely to suffer from obesity, malnutrition, poor hygiene, air pollution and high population density, all of which increase the risk of death by Covid-19. They are also affected the most by the drastic measures taken by the governments, since they often have no savings, no safety nets, no access to proper healthcare, no private cars, no spaces to self-isolate and no jobs that can be done remotely.

Duality 6: Physical vs Digital

Do you know what is truly global, by birth? Digital businesses. (That is why they find it difficult to localize themselves and why governments find it difficult to regulate them.)

Do you know which businesses are completely unaffected by and even benefiting from the current crisis? Again, digital businesses. They effortlessly adjusted to work-from-home conditions and consumption of all things digital has skyrocketed. Microsoft, Apple, Amazon, Alphabet and Facebook alone now account for more than 20 percent of the market capitalization of S&P 500.

We have been witnessing the rise of the digital for a while now. (A topic very dear to my heart!) This trend was best articulated by Marc Andreessen who presciently observed that software is eating the world. We are infusing information into everything we use and using more bits less atoms. Matter is getting smarter and products are getting lighter. Our entire economy is slowly being virtualized and ephemeralized.

A higher level of complexity is emerging above us, a higher level of life forms so to speak, based on silicon + light rather than carbon + water. (Silicon is the new abundant element facilitating construction and light is the new fluid environment facilitating communication.) This is the next step in the grand narrative of life which is evolving towards an enigmatic singularity. We are collectively giving birth to something whose complexity will be categorically beyond our comprehension, and just like every other birth, the process itself will be full of trauma and pain. In this particular case, it will require a social reform and a restoration of all the dualities we have been talking about.

Again, as we pointed out at the very beginning of this post, nature does not create dualities for no reason. The newly emerging one between digital businesses and physical businesses is no exception. (Think of it as the society-level version of the mind-body duality where the mind is maturing late in the game just as it matured late in the evolution of biology.) Time unfolds through the dynamisms unleashed by such dualities and nature progresses to higher level complexities by synthesizing these dualities in a dialectical fashion. (You are the synthesis of your mind and body.)

So what exactly is SARS-CoV-2?

• If you really zoom in, it is a simple string of 30,000 letters wrapped inside a spiky sphere less than 100 nanometers in diameter.

• If you really zoom out, it is a dialectical agent, speeding up a traumatic birth process, inflicting pain but also pushing in the right direction.

In other words, the answer depends on how you want to look at the question.

complexity and failure

Complex structures that are built slowly over time via evolutionary processes (e.g. economies, companies, buildings, species, reputations, software) tend to be robust, but when they collapse, they do so instantly.

In the literature, this asymmetry is called the Seneca Effect, after the ancient Roman Stoic Philosopher Lucius Annaeus Seneca who said "Fortune is of sluggish growth, but ruin is rapid".

Some remarks:

• That is why only highly educated people can be spectacularly wrong. Only with education can one construct contrived highly complex arguments of the type which can fail on several different levels and lead to a spectacular failure. (Remember, the most outrageous crimes in history were carried out in the name of complex ideologies.)

• That is also why good product designers think hard before beginning a design process that is sure to complexify over time. Complex designs collapse in entirety and are very difficult to salvage or undo. Similarly, good businessmen think hard before opening a new business since the decision to close one later is a much harder process.

• Once entrepreneurs start building a business, they immediately start to suffer from sunk cost and negativity biases, which are specific manifestations of the much more general asymmetry between construction and destruction. We tend to be conservative with respect to complex structures because they are hard to build but easy to destruct. (Unsurprisingly, these psychological biases look surprising to the theoretical economists who have never really built anything complex and prone-to-failure in their lives.)

waves of decentralizations

Evolutionary dynamics always start off well-defined and centralized, but overtime (without any exception) mature and decentralize. Our own history is full of beautiful exemplifications of this fact. In historical order, we went through the following decentralization waves:

• Science decentralized Truth away from the hegemony of Church.

• Democracy decentralized Power.

• Capitalism decentralized Wealth.

• Social Media decentralized Fame away from the media barons.

Today, if you are not powerful, wealthy or famous, there is no one but to blame yourself. If you do not know the truth, there is not one but to blame yourself. Everything is accessible, at least in theory. This of course inflicts an immense amount of stress on the modern citizen. In a sense, life was a lot easier when there was not so much decentralization.

Note how important social media revolution really was. Most people do not recognize the magnitude of change that has taken place in such a short period of time. In terms of structural importance, it is on the same scale as the emergence of democracy. We no longer distinguish a sophisticated judgment from an unsophisticated one. Along with “Every Vote Counts”, now we also have “Every Like Counts”.

Of course, the social media wave was built on another, even more fundamental decentralization wave, which is the internet itself. Together with the rise of internet, communication became completely decentralized. Today, in a similar fashion, we are witnessing the emergence of blockchain technology which is trying to decentralize trust by creating neutral trust nodes with no centralized authority behind them. For instance, you no longer need to be a central bank with a stamp of approval from the government to a launch a currency. (Both internet and blockchain undermine political authority and in particular render national boundaries increasingly more irrelevant.)

Internet itself is an example of a design, where robustness to communication problems was a primary consideration (for those who don't remember, Arpanet was designed by DARPA to be a communication network resistant to nuclear attack). In that sense the Internet is extremely robust. But today we are being introduced to many other instances of that technology, many of which do not follow the decentralized principles that guided the early Internet, but are rather highly concentrated and centralized. Centralized solutions are almost by definition fragile, since they depend on the health of a single concentrated entity. No matter how well protected such central entity is, there are always ways for it to be hacked or destroyed.

Filip Piekniewski - Optimality, Technology and Fragility

As pointed out by Filip, evolution favors progression from centralization to decentralization because it functionally corresponds to a progression from fragility to robustness.

Also, notice that all of these decentralization waves initially overshoot due to the excitement caused by their novelty. That is why they are always criticized at first for good reasons. Eventually they all shed off their lawlessness, structurally stabilize, go completely mainstream and institutionalize themselves.

dire need for social reform

Look at the history of all mass social traumas. (Rise and fall of feudalism etc.) You will see that they are all preceded by transformative technological and economic disruptions and followed by transformative social and spiritual reforms.

We are going through a similar trauma at the moment. These structural changes can be hard to see while you are inside them since they manifest themselves in myriad of details. However when you go back to evaluate what happened, the picture is always crystal clear. (This evaluation can not be conducted right after the dust settles. You literally need some distance to see what really happened.)

Today we have entered into a new phase in the development of the next layer of complexity within the grand narrative of life. (To understand what I mean, read Emergence of Life post.) This new technological wave is slowly unfolding, but it is probably on par with the industrial revolution, perhaps even a couple of magnitudes more powerful. Long story short, our centralized digital brain has finally emerged. (i.e. The multi-cloud layer linking up all cloud-based computation and storage resources.) This development has already started to have massive effects on our psyches via the infiltration of social media and the penetration of artificial intelligence into our everyday lives. Artists and writers have felt the zeitgeist and are responding to it by writing books and shooting movies to raise social awareness about the oncoming possible consequences of the new technologies.

Clearly, the emergence of the next life forms is a vastly complicated, non-linear process. Nature is giving birth to something new through us and naturally we are the ones who are most affected by this traumatic unfolding.

Today, society as we know it is literally falling apart:

• Friendship has evolved into an unrecognizable form.

• Our lives have become so complex (a natural side effect of the emergence) and we expect so much from our life partners that the notion of marriage has morphed into an all-or-nothing form. Divorce rates are skyrocketing, and the whole institution is crumbling under immense weight.

• Our schools are extremely out-of-date and nobody seems to have the balls, persistence and the vision to reform them. (Hint: Handing out more screens will not solve the problem.) We are not preparing our kids for the challenges they will be facing when they grow up. In fact, we are not even preparing them for today’s challenges. The situation is so ridiculous that I sincerely believe that we would be better off by turning the entire thing off.

• Our economic and social safety nets are insufficient to cope with the oncoming technological wave. People are feeling left-behind and depressed, especially since our current macro structures are implicitly asking them to derive the meaning of life from their jobs. (Hint: Handing out more money will not solve the problem.) Only after the epic rise of China (with its top-down, long-term-thinking, centralized, globally-optimized decision making mechanisms) have the business elites in United States recognized that they actually have social obligations, beyond maximizing shareholder value.

And the list goes on…

We need to speed up, otherwise our social reforms will not be able catch up with the increasing speed and magnitude of technological changes. Make no mistake, technology will not slow down for us. Emergence of the next level of life forms is an unstoppable process. If this process collapses, we, as humanity, will collapse along with it. In other words, if we can not give rise to these new life forms, evolution will promptly get rid of us and try again. (Human-level minds will re-emerge somehow, somewhen, somewhere.)

So what are we doing now? Are we reforming?

No.

What type of leaders do you need for preaching social progress and propagating social reform? You need liberal leaders. What have our liberal leader done? They fucked up badly, really really badly. Now conservatism is coming back with full force everywhere. People are fleeing back to safety, falling back onto old notions, closing down on themselves, against each other and towards new ideas. And they have every right to do so, because they feel betrayed. They can not pinpoint exactly what went wrong, but they feel that the elites have not done their jobs. And they are absolutely right. Elites chose to mind their own business and think of their own pockets. Most still feel no sense of duty towards the society. If they felt any, we would not be in this shit situation today, regressing back in time while technology is marching ahead with no stop in sight.

It will probably take another 20 years before the society gives another chance to liberal progressives and opens up to new social reforms. Again, make no mistake, liberals have done this to themselves. They can not cry it out. They need to change. In a world where a substantial majority of the graduates of the most revered university (Harvard College) chooses to pursue careers in investment banking and consulting, in a world where the most revered technology leader (Elon Musk) sees salvation of humanity through a fantasy colonization of Mars, common people will obviously feel betrayed. Our best brains need to be socially conscious. Our best leaders need to be morally sensible. If they will not do the job, society will look elsewhere, just as they are doing now.

There is an immense psychological distress at the moment. People who are supposed to save us are clueless. They do not have any spiritual strength to deal with this new (self-induced) massive attack on our social infrastructures and well-beings.

• Most define their lives through their work, which will soon mostly be rendered irrelevant by artificial intelligence. These ones are hopeless.

• Some define their lives through their children. These ones will be sacrificing the spiritual health of the children to salvage their own, by making the children serve their own psychological needs.

• Some, as expected, seek help from science. But the psychologists are clueless about questions of meaning. They have even less of an idea about the deep structural evolutionary causative factors that have led to this mess.

As I said at the beginning, all technological shocks have to be followed by spiritual transformations. We literally need to ask again to ourselves what it means to be a human being. To do this at scale, we need a new set of spiritual leaders who can guide us through this new mess we created. Religion should evolve to stay relevant. Our educated elite is no longer governed by any higher values simply because they can not find any religious doctrines they can resonate with. (Doctrines meant to be addressed to uneducated masses living two thousand years ago will not do the job.)

What may be salvaging us today is a few glitters of basic humanistic instincts, here and there, a few good people with good common sense in some high level offices. But this is clearly not enough. You can not solve the greater social challenges we are facing today simply by throwing more love at them. Of course, empathy is necessary for revising and building the superstructures we need, but it is not enough by itself. (It is not even enough in quantity at the moment.)

Salvation will not happen by going to Mars. It will happen through a deep understanding of how evolution works, and through a guided progressive social reform that is not out-of-touch with the new challenges of our times.

My biggest worry is that we are slowing down too much today. Do you know what happens when spiritual guidance and principles of social self-governance fail to keep up with technological progress? Bad decisions and eventually wars! Darkness takes over, and humanity gets hammered until it realigns its values and understands its real priorities.

“The saddest aspect of life right now is that science gathers knowledge faster than society gathers wisdom.”

- Isaac Asimov

Why do we always have to go through the hard way? We need to understand that this game is getting exponentially more dangerous. We are not playing with swords any more. After the next world war, there may not be another “phoenix rising from its ashes” story. Of course, as I said before, nature will always rise from its ashes and keep constructing greater complexities and autonomies, but that does not necessarily have to involve us.

genius vs wisdom

Genius maxes out upon birth and gradually diminishes. Wisdom displays the opposite dynamics. It is nonexistent at birth and gradually builds up until death. That is why genius is often seen as a potentiality and wisdom as an actuality. (Youth have potentiality, not the old.)

Midlife crises tend to occur around the time when wisdom surpasses genius. That is why earlier maturation correlates with earlier “mid” life crisis. (On the other hand, greater innate genius does not result in a delayed crisis since it entails faster accumulation of wisdom.)

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"Every child is an artist. The problem is how to remain an artist once we grow up."
- Pablo Picasso

Here Picasso is actually asking you to maintain your genius at the expense of gaining less wisdom. That is why creative folks tend to be quite unwise folks (and require the assistance of experienced talent managers to succeed in the real world). They methodologically wrap themselves inside protective environments that allow them to pause or postpone their maturation.

Generally speaking, the greater control you have over your environment, the less wisdom you need to survive. That is why wisest people originate from low survival-rate tough conditions, and rich families have hard time raising unspoiled kids without simulating artificial scarcities. (Poor folks have the opposite problem and therefore simulate artificial abundances by displaying more love, empathy etc.)

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"Young man knows the rules and the old man knows the exceptions."
- Oliver Wendell Holmes Sr.

Genius is hypothesis-driven and wisdom is data-driven. That is why mature people tend to prefer experimental (and historical) disciplines, young people tend to dominate theoretical (and ahistorical) disciplines etc.

The old man can be rigid but he can also display tremendous cognitive fluidity because he can transcend the rules, improvise and dance around the set of exceptions. In fact, he no longer thinks of the exceptions as "exceptions" since an exception can only be defined with respect to a certain collection of rules. He directly intuits them as unique data points and thus is not subject to the false positives generated by operational definitions. (The young man on the other hand has not explored the full territory of possibilities yet and thus needs a practical guide no matter how crude.)

Notice that the old man can not transfer his knowledge of exceptions to the young man because that knowledge is in the form of an ineffable complex neural network that has been trained on tons of data. (Apprentice-master relationships are based on mimetic learning.) Rules on the other hand are much more transferable since they are of linguistic nature. (They are not only transferable but also a lot more compact in size, compared to the set of exceptions.) Of course, the fact that rules are transferable does not mean that the transfers actually occur! (Trivial things are deemed unworthy by the old man and important things get ignored by the young man. It is only the stuff in the middle that gets successfully transferred.)

Why is it much harder for old people to change their minds? Because wisdom is data-driven, and in a data-driven world, bugs (and biases) are buried inside large data sets and therefore much harder to find and fix. (In a hypothesis driven world, all you need to do is to go through the much shorter list of rules, hypotheses etc.)

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The Hypothesis-Data duality highlighted in the previous section can be recast as young people being driven more by rational thinking vs. old people being driven more by intuitional thinking. (In an older blog post, we had discussed how education should focus on cultivating intuition, which leads to a superior form of thinking.)

We all start out life with a purely intuitive mindset. As we learn we come up with certain heuristics and rules, resulting in an adulthood that is dominated by rationality. Once we accumulate enough experience (i.e. data), we get rid of these rules and revert back to an intuitive mindset, although at a higher level than before. (That is why the old get along very well with kids.)

Artistic types (e.g. Picasso) tend to associate genius with the tabula-rasa intuitive fluidity of the newborn. Scientific types tend to associate it with the rationalistic peak of adulthood. (That is why they start to display insecurities after they themselves pass through this peak.)

As mentioned in the previous section, rules are easily transferable across individuals. Results of intuitive thinking on the other hand are non-transferable. From a societal point of view, this is a serious operational problem and the way it is overcome is through a mechanism called “trust”. Since intuition is a black box (like all machine learning models are), the only way you can transfer it is through a wholesome imitation of the observed input-outputs. (i.e. mimetic learning) In other words, you can not understand black box models, you can only have faith in them.

As we age and become more intuition-driven, our trust in trust increases. (Of course, children are dangerously trustworthy to begin with.) Adulthood on the other hand is dominated by rational thinking and therefore corresponds to the period when we are most distrustful of each other. (No wonder why economists are such distrustful folks. They always model humans as ultra-rationalistic machines.)

Today we vastly overvalue the individual over the society, and the rational over the intuitional. (Just look at how we structure school curriculums.) We decentralized society and trivialized the social fabric by centralizing trust. (Read the older blogpost Blockchain and Decentralization) We no longer trust each other because we simply do not have to. Instead we trust the institutions that we collectively created. Our analytical frameworks have reached an individualist zenith in Physics which is currently incapable of guaranteeing the reality of other peoples’ points of view. (Read the older blogpost Reality and Analytical Inquiry) We banished faith completely from public discourse and have even demanded God to be verifiable.

In short, we seem to be heading to the peak adulthood phase of humanity, facing a massive mid-life crisis. Our collective genius has become too great for our own good.

In this context, the current rise of data-driven technological paradigms is not surprising. Humanity is entering a new intuitive post-midlife-crisis phase. Our collective wisdom is now being encoded in the form of disembodied black-box machine-learning models which will keep getting more and more sophisticated over time. (At some point, we may dispense with our analytical models altogether.) Social fabric on the other hand will keep being stretched as more types of universally-trusted centralized nodes emerge and enable new forms of indirect intuition transfer.

Marx was too early. He viewed socialism in a human way as a rationalistic inevitability, but it will probably arrive in an inhuman fashion via intuitionistic technologies. (Calling such a system still as socialism will be vastly ironic since it will be resting on complete absence of trust among individuals.) Of course, not every decision making will be centralized. Remember that the human mind itself emerged for addressing non-local problems. (There is still a lot of local decision making going on within our cells etc.) The “hive” mind will be no different, and as usual, deciding whether a problem in the gray zone is local or non-local will be determined through a tug-of-war.

The central problem of ruler-ship, as Scott sees it, is what he calls legibility. To extract resources from a population the state must be able to understand that population. The state needs to make the people and things it rules legible to agents of the government. Legibility means uniformity. States dream up uniform weights and measures, impress national languages and ID numbers on their people, and divvy the country up into land plots and administrative districts, all to make the realm legible to the powers that be. The problem is that not all important things can be made legible. Much of what makes a society successful is knowledge of the tacit sort: rarely articulated, messy, and from the outside looking in, purposeless. These are the first things lost in the quest for legibility. Traditions, small cultural differences, odd and distinctive lifeways … are all swept aside by a rationalizing state that preserves (or in many cases, imposes) only what it can be understood and manipulated from the 2,000 foot view. The result, as Scott chronicles with example after example, are many of the greatest catastrophes of human history.

Tanner Greer - Tradition is Smarter Than You

connectivity and cultural diversity

Intergenerational cultural meme transfer mechanisms have all broken down. Instead of asking our own grand parents about their child rearing practices, we all go to the same search engine and click on the same links. We all watch the same movies, read the same books. Greater connectivity has brought us lesser diversity. We seem to be heading towards a single monoculture as social trends propagate at the speed of light through the fiber optic cables.

Why should we worry? Just scroll back in time and look at the rise and fall of civilizations. Why have certain cultures prevailed during certain periods? When brute force worked, the brute won. When ideas became important, the cerebral won. There are of course many reasons why developing countries have hard time catching up, but one important aspect is cultural. Some cultures are just not meant to be successful in today’s environment and this is normal. (Inspect those countries that did indeed catch up, you will find cultural discontinuity, widespread debasement and confusion of values.)

Tomorrow conditions will change. We need to maintain diversity to be able to cope with those upcoming changes which we can not fathom today.

Postmodernists are right in the sense that no culture is superior to another in an absolute sense. However, this does not mean that all cultures are equal. Relative to a certain context or problem, we can objectively talk about some cultures being fitter than others. (Remove the context, any comparison becomes impossible.)

Note that, when one culture assimilates another, it selfishly hedges itself against the future possibility of losing the evolutionary upper hand. In other words, it prolongs its own survival at the expense of decreasing the adaptivity of the whole.

politics, economics and naturality

Combination of liberalism and capitalism forms a nice balance. Former fights against nature in the political domain and destroys outliers by eliminating actual differences in a discrete fashion. Latter fights for nature in the economic domain and creates outliers by amplifying potential differences in a continuous fashion. (Fighting against nature results in discrete as opposed to continuous change.)

Similarly, combination of conservatism (fighting for nature in the political domain) and communism (fighting against nature in the economic domain) forms a nice balance as well. But both combinations are hard to maintain due to their conflictual nature.

classical vs innovative businesses

As you move away from zero-to-one processes, economic activities become more and more sensitive to macroeconomic dynamics.

Think of the economy as a universe. Innovative startups correspond to quantum mechanical phenomena rendering something from nothing. The rest of the economy works classically within the general relativity framework where everything is tightly bound to everything else. To predict your future you need to predict the evolution of everything else as well. This of course is an extremely stressful thing to do. It is much easier to exist outside the tightly bound system and create something from scratch. For instance, you can build a productivity software that will help companies increase their profit margins. In some sense such a software will exist outside time. It will sell whether there is an economic downturn or an upturn.

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In classical businesses, forecasting near future is extremely hard. Noise clears out when you look a little further out into the future. But far future is again quite hard to talk about since you start feeling the long term effects of innovation being made today. So difficulty hierarchy looks as follows:

near future > far future > mid future

In innovative businesses, forecasting near future is quite easy. In the long run, everyone agrees that transformation is inevitable. So forecasting far future is hard but still possible. However what is going to happen in mid term is extremely hard to predict. In other words, the above hierarchy gets flipped:

mid future > far future > near future

Notice that what is mid future is actually quite hard to define. It can move around with the wind, so to speak, just as intended by the goddesses of fate in Greek mythology.

In Greek mythology the Moirae were the three Fates, usually depicted as dour spinsters. One Moira spun the thread of a newborn's life. The other Moira counted out the thread’s length. And the third Moira cut the thread at death. A person’s beginning and end were predetermined. But what happened in between was not inevitable. Humans and gods could work within the confines of one's ultimate destiny.

Kevin Kelly - What Technology Wants

I personally find it much more natural to just hold onto near future and far future, and let the middle inflection point dangle around. In other words I prefer working with innovative businesses.

Middle zones are generally speaking always ill-defined, presenting another high level justification for the barbell strategy popularized by Nassim Nicholas Taleb. Mid-term behavior of complex systems is tough to crack. For instance, short-term weather forecasts are highly accurate and long-term climate changes are also quite foreseeable, but what is going to happen in mid-term is anybody’s guess.

Far future always involves “structural” change. Things will definitely change but the change is not of statistical nature. As mentioned earlier, innovative businesses are not affected by the short term statistical (environmental / macro economic) noise. Instead they suffer from mid term statistical noise of the type that phase-transition states exhibit in physics. (Think of turbulence phenomenon.) So the above two difficulty hierarchies can be seen as particular manifestations of the following master hierarchy:

statistical unpredictability > structural unpredictability > predictability

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Potential entrepreneurs jumping straight into tech without building any experience in traditional domains are akin to physics students jumping straight into quantum mechanics without learning classical mechanics first. This jump is possible, but also pedagogically problematic. It is much more natural to learn things in the historical order that they were discovered. (Venture capital is a very recent phenomenon.) Understanding the idiosyncrasies and complexities of innovative businesses requires knowledge of how the usual, classical businesses operate.

Moreover, just like quantum states decohere into classical states, innovative businesses behave more and more like classical businesses as they get older and bigger. The word “classical” just means the “new” that has passed the test of time. Similarly, decoherence happens via entanglements, which is basically how time progresses at quantum level.

By the way, this transition is very interesting from an intellectual point of view. For instance, innovative businesses are valued using a revenue multiple, while classical businesses are valued using a profit multiple. When exactly do we start to value a mature innovative business using a profit multiple? How can we tell apart its maturity? When exactly a blue ocean becomes a red one? With the first blood spilled by the death of competitors? Is that an objective measure? After all, it is the investor’s expectations themselves which sustain innovative businesses who burn tons of cash all the time.

Also, notice that, just as all classical businesses were once innovative businesses, all innovative businesses are built upon the stable foundations provided by classical businesses. So we should not think of the relationship as one way. Quantum may become classical, but quantum states are always prepared by classical actors in the first place.

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What happens to classical businesses as they get older and bigger? They either evolve or die. Combining this observation with the conclusions of the previous two sections, we deduce that the combined predictability-type timeline of an innovative business becoming a classical one looks as follows:

1
(Innovative) Near Future
Predictability

2
(Innovative) Mid Future
Statistical Unpredictability
(Buckle up. You are about to go through some serious turbulence!)

3
(Innovative) Far Future
Structural Unpredictability
(Congratulations! You successfully landed. Older guys need to evolve or die.)

4
(Classical) Near Future
Statistical Unpredictability
(Wear your suit. There seems to be radiation everywhere on this planet!)

5
(Classical) Mid Future
Predictability

6
(Classical) Far Future
Structural Unpredictability
(New forms of competition landed. You are outdated. Will you evolve or die?)

Notice the alteration between structural and statistical forms of unpredictability over time. Is it coincidental?

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Industrial firms thrive on reducing variation (manufacturing errors); creative firms thrive on increasing variation (innovation).
- Patty McCord - How Netflix Reinvented HR

Here Patty’s observation is in line with our analogy. He is basically restating the disparity between the deterministic nature of classical mechanics and the statistical nature of quantum mechanics.

Employees in classical businesses feel like cogs in the wheel, because what needs to be done is already known with great precision and there is nothing preventing the operations to be run with utmost efficiency and predictability. They are (again just like cogs in the wheel) utterly dispensable and replaceable. (Operating in red oceans, these businesses primarily focus on cost minimization rather than revenue maximization.)

Employees in innovative businesses, on the other hand, are given a lot more space to maneuver because they are the driving force behind an evolutionary product-market fit process that is not yet complete (and in some cases will never be complete).

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Investment pitches too have quite opposite dynamics for innovative and classical businesses.

• Innovative businesses raise money from venture capital investors, while classical businesses raise money from private equity investors who belong to a completely different culture.

• If an entrepreneur prepares a 10 megabyte Excel document for a venture capital, then he will be perceived as delusional and naive. If he does not do the same for a private equity, then he will be perceived as entitled and preposterous.

• Private equity investors look at data about the past and run statistical, blackbox models. Venture capital investors listen to stories about the future and think in causal, structural models. Remember, classical businesses are at the mercy of macroeconomy and a healthy macroeconomy displays maximum unpredictability. (All predictabilities are arbitraged away.) Whatever remnants of causal thinking left in private equity are mostly about fixing internal operational inefficiencies.

• The number of reasons for rejecting a private equity investment is more or less equal to the number of reasons for accepting one. In the venture capital world, rejection reasons far outnumber the acceptance reasons.

• Experienced venture capital investors do not prepare before a pitch. The reason is not that they have a mastery over the subject matter of the entrepreneur’s work, but that there are far too many subject-matter-independent reasons for not making an investment. Private equity investors on the other hand do not have this luxury. They need to be prepared before a pitch because the devil is in the details.

• For the venture capital investors, it is very hard to tell which company will achieve phenomenal success, but very easy to spot which one will fail miserably. Private equity investors have the opposite problem. They look at companies that have survived for a long time. Hence future-miserable-failures are statistically rare and hard to tell apart.

• In innovative businesses, founders are (and should be) irreplaceable. In classical businesses, founders are (and should be) replaceable. (Similarly, professionals can successfully turn around failing classical companies, but can never pivot failing innovative companies.)

• Private equity investors with balls do not shy away from turn-around situations. Venture capital investors with balls do not shy away from pivot situations.