New Economy vs. Old Economy - Creative Destruction

My last post on this the New Vs. Old triggered a far to brief conversation at work about creative destruction and when it's "right" for creative destruction to occur. I felt that this was an interesting tact for approaching this sort of conversation. My colleague pointed out that when new businesses challenge laws that are in place just because you have to question if that's "right" or not.

First, what is creative destruction? I wrote about this over two years ago, so I'll forgive you not remembering. Essentially, it's whenever new businesses figure out new innovative ways to provide a service or technology that causes the previous service to be obsolete. Today, it's more popularly described as "disrupting a market."

So, looking at creative destruction and the laws that spring up around a given industry I believe that on the extreme there are only two types of laws. Those that protect the consumer/public/end user/employee and those that protect the industry. That's not to say that this isn't a gradient where the impact of a given law flows from protecting the public to the industry or in fact does both.

For example, Copyright used to protect both the people that produce music and the public. It did this by guaranteeing a state sanctioned monopoly for a short time period and upon expiration the public would then own the work. This enable the creation of the music industry and helped artists grow and make money. It wasn't perfect for either party, but it worked fairly well. We all know of stories of starving artists that died and then their works became popular. Well, currently those works still make someone money and that isn't good for the public. Now copyright lasts as long as 70 years past the death of the original artist. This clearly is no longer protecting the public but is protecting the industry. I would argue that with how far the pendulum has shifted it'd be moral to try to push the boundaries of these laws and creatively destroy the industry. This is currently happening with the copyleft movement.

In the last blog I wrote about AirBnB and discussed Uber in the one before that. These are very different than the music industry. Most cab companies have something called a medallion, which is something like a certification of quality for the vehicle and the cab driver. These are very expensive and have essentially a dual function of protecting both the public and the taxi industry. Uber is challenging these laws because it is a "ride sharing" program where you hail a person going in the direction you are, pay them some money and move on. The purpose of the company is to reduce expense of moving around a big city like San Francisco, increase the competition of the market, reduce the number of cars on the road, and to make money a different way. Depending on your point of view it's breaking the law. It's being sued and will likely continue to be sued.

Is it "right" for this company to operate this way? Well, there's the argument that you don't have to use Uber at all, so if you're concerned about the safety aspect you're mostly covered. Since it's a personal vehicle the general public is at no more risk than if the car was driving around with one person rather than two. The person is already on the road and likely would have been anyway, so if they suck at driving you're no more or less safe. However, it's still possibly in conflict with the law. It's a new way to hail a "cab" and the taxi companies are having problems adapting to the competition. So is it right or wrong? In this case, I don't really know. I think that it's "Right" that a company is forcing taxi companies to evaluate how they do business and to challenge the laws that are in place to protect the taxi industry. I think there could be risks to the public, but they aren't huge.

There's another aspect that I haven't talked about in this model though. A company like Yellow cab has subsidiaries in many different cities. While Uber is an application and it's "cabs" are in any city where a person is a member. There's a huge network effect benefit for Uber, they need to do little to no extra work and they can grow into new markets. Uber doesn't control which markets they enter to some extent or how quickly they grow in a given market, they can grow as fast as the market can support the growth. Yellow Cab has a much different growth potential and can't enter new markets as easily. If Uber is able to service an under serviced area shouldn't we support that? Isn't that "right." Furthermore, with this rapid growth model it's nearly impossible to know what laws they are going to be in conflict with until it's already in the market. Ignorance of course is no defense, but it removes some of the intentional aspects of the creative destruction.

I think that there are certainly moral questions that need to be asked around new businesses and business models. We should continue to ask them and work to make sure that if a new company is disrupting and industry the result is equal or greater protection to the public and a balance between changing laws that protect incumbent industry and the new entrant.

NSA and Edward Snowden

Today saw the unveiling of the NSA leaker, Edward Snowden, a highschool dropout that worked his way through sheer capabilities as a programmer. To me this guy is pretty amazing. He cares about the people that he could have put in harms way, he made sure that he did not release any information that would put anyone in harms way, even though he had the capabilities. He learned from Bradley Manning and worked to ensure there would be no risks of physical injury. He felt that these actions violated the constitution and decided to expose these deeds to the public even though he knew his life was over. He believes he's likely to be targeted by the US government or an agent, such as a member of the Triad gang (he's in Hong Kong), to be executed.

Not only he is clearly concerned, but the media seems to think that this is also true. My roommate was watching ABC news with Diane Sawyer and during one segue she mentioned that he may have left because he feared for his life and was likely in danger. Think about it. It's publicly acknowledged by our press, that it's likely a whistleblower might be killed by the US government. This is a US citizen that has a family history of serving (father a member of the coast guard and mother a legal clerk) the US government. He is afraid for his life because he believes that the US government would murder him. If he dies and his body is found the blame will automatically fall upon the government. Edward will not be able to answer phone calls, call anyone, and is essentially on his own to make it to a country that has no extradition treaty with the US. This is a travesty - the fact that many people believe this man is going to die within the next few weeks - killed by his own government without his right to a trial.

Why does what he said matter? A lot of people are talking about it being only Metadata - here's an excellent article explaining what would have happened if the British had meta data during the revolutionary war. It would have ID'd Paul Revere as a likely revolutionary based on his association. Knowing nothing else about him other than a few clubs he and 254 other people in Boston were members of it was possible to deduce the entire social network and who was at the center of the networks.

As I mentioned in my last blog post this network analysis would have caused the changes in my Facebook network to raise some red flags. I suddenly move to Europe (I didn't list Eindhoven has my city of residence it would have been inferred from my friends), some of my first connects in Europe on Facebook were 2 Colombians, 2 Pakistanis, an Iranian, and a Turk. These changes represented a major shift in my circle of friends. I had few non-americans as friends and no Iranians or Pakistanis in my network. Using the full history of my data they wouldn't have found much except that I liked to drink and wrote drunk posts on Facebook while in college. However, it's likely I would have remained someone to keep an eye on, and since then I've written numerous posts about Anonymous, LulzSec and other controversial topics.

Anyway, it's important to keep this in mind when selecting the companies you decide to store your information with, even if it's "only" metadata. Where you go, who you talk to, and what you do online are all representations of you and a lot of information can be gleaned from that.

What can we do? Vote all the bums out of office next go around for one. Start companies that only hand over encrypted data that the end users are the only ones that can decrypt it. Educate your friends, family, co-workers, and anyone politically minded you know. We need to drive change otherwise this will continue and will only get worse. At what point do we need to start worrying that the NSA/US Government will start killing your friends because of who they talk to and what they believe?

Trust and Networks

At work today, my team and I went through training on something called the "Speed of Trust" which essentially argues that the more trust an organization has the less costs there are associated with doing business. Not only are things cheaper, but they happen faster. I was actually pleasantly surprised, I'm typically pretty skeptical of things like this as a rule because I feel that they compress extremely complicated ideas down to a single scale to be measured on. However, with the facilitator's contribution of how the different types of powers interact with trust it became a lot more meaningful, even if there were so many platitudes provided by the author of the book during the videos that were shown.

I think that there's one area that was definitely missing from this topic that was only moderately touched on - Networks. There are plenty of network theories that discuss the obvious cost savings and accumulation of social capital in better ways than was covered in this discussion.

Social Capital is a way of measuring how much influence you have in a network. Unfortunately, the only networks that were recognized in this method are the formal networks that are created simply by being an organization. There was no discussion of how people can create informal networks that can have more influence on the organization than the actual formal network structures. For instance, if I want to change the direction of some project and I'm struggling within the project itself, I may try to use my formal structure of going up through my manager over to one of the managers of the people on the team. However, this is typically considered poor form, another option would be to discuss the topic with someone else that is influential and spend some social capital and have the problem resolved informally. These networks can influence the structure of organizations because people that are managers may not be the thought leaders in the organizations. When striving for change in an organization it is crucial to expend social capital on the most influential people - titlewise or otherwise.

Furthermore, these networks can enable anyone to generate more powerful ideas. As you discuss issues or ideas with many different people in the organization and include their suggestions or comments around the idea/issue it's possible to create significantly better ideas. Then whenever you've come to the point where you'd like to enact your idea, you've already built a coalition of support through your conversations and will have more successful ideas.

The Speed of Trust course was pretty useful to help determine how to address trust issues in an organization. It's important to identify where and how things are going wrong. However, I think it's important to keep in mind network theory to maximize the benefit of trust.