China Club Discussion February 7, 2018
Digital intermediation
As a conceptual ‘lens’ through which to foresee fundamental changes…or is the future pretty random?
This is to be, hopefully, a ‘beyond Trump’ discussion about the future in the conviction that our country is resilient enough to survive the horror of his presidency...not to digress into the political, of course.
So for our purposes tonight, I want to mean by ‘digital intermediation’: the supplanting of the role of the middleman in economic and social transactions by some form of new digital entity.
‘Middlemen’ were the necessary economic innovation to overcome limitations to interactions created by physical distances, the span of control between business and customer and citizen and government, and perhaps a general philosophical bias toward decentralization. Examples of middlemen are: The local drug store is a traditional middleman between you and the drug manufacturer. Online Internet-based websites offer mail order drugs and disintermediate the local drug store and the local pharmacist.
These ‘necessary’ intermediate entities, while a solution at the time, have often become the sources of additional cost and inertia...they naturally resist change and slow adaptation to disruptive technologies… while, at the same time, often offering convenience and diversity.
But the overwhelming cost and convenience advantages of new digital technology has powered a momentum that often overcomes the inertia of intermediates...hence the advent of ‘disintermediation’ which, in the opinion of most writers that I read, is a positive, technological, innovation, not a ‘luddite’ curse.
But ‘cutting out the middleman’ by automated digital processes often results in uniformity and commoditization. Counterintuitively, digital disintermediation often increases the personalization of a service or product, for example, the website digital process is able to check a new prescription easily against all of a customer's prescriptions to determine if one interferes with another.
I propose this ‘lens’ of dis- and re-intermediation’ as an analytic tool, but I do not pretend that it is some ‘silver bullet’ or ‘fundamental principle’ that explains all and solves all… rather it's a concept that might enable interpretation of the technological trends that profoundly influences the future…
and the idea of intermediation as a tool is not original...the subject is written about widely.
Plus to make such a claim would ignore the wisdom of the old aphorism: “If the only tool is a hammer, then every problem is a nail.”...attributed to Abraham Maslow and sometimes to Mark Twain who often is assigned credit for pithy sayings that he never made.
A classic...and current... example of the ‘removal of the middleman’ or ‘disintermediation’ is Tesla which sells its cars via the internet directly to customers negating any requirement for local sales showrooms. But local dealers also service cars and resell used ones...so Tesla will offer regional service centers supplemented by mobile service vans. Resale will be via the Internet...an example of substitution of intermediaries.
Netflix now produces movies and streams them directly bypassing movie theaters.
Geico and Progressive have made the life of local insurance salesman miserable and often obsolete.
An example of substitution of one intermediary for another is Amazon which offers, famously, its digital commerce Internet-based platform as an alternative to local bookstores and, of course, similarly, for many...maybe most... other products…
ATM’s disintermediated bank branches.
Quicken Loans has disintermediated local mortgage brokers.
Amtrak disintermediates its own ticket counters in train stations through its website.
MOOCs ...massive online courses...... disintermediate campus college courses. However, colleges face a supply and demand problem.
FundRise…...a local DC digital web-based platform, created by a son of Herb Miller, who developed Georgetown Park, facilitates small investments in residential real estate...thus disintermediating REITs.
The ‘Cloud’ is the disintermediation of in-house computer capability...Ross Perot started this trend of computing as a 'service' as early as the 1970s.
Even book publishing has been democratized by disintermediating self-publishing services such as are offered by Amazon.
I’m sure you can think of many more examples. It's hard to think of a collective activity that has not been impacted by ‘digital disintermediation.’
Middlemen who have not been disintermediated might be restaurants...although even restaurants are under attack by disintermediating competitors like Blue Apron, and hyper-locally by, for example in Washington, Via Umbria or Stachowski's or any PIzza deliverer.
And writers, athletes, lawyers, scientists, actors,...although animated films seem to me to be a threat..., stuntmen, physicians, ministers, rabbis, priests, and emans...TV evangelists are maybe an exception, and, of course, many people don’t want access to a higher being in any form …
Although many doctors and lawyers are at risk to AI which already reads x-ray images more reliably than a radiologist and certain surgical procedures performed more accurately than surgeons…
and Members of Congress and State Legislatures are intermediaries... perhaps desirable ones... to calm passions and to bring practicality to bear...perhaps not...although State level referenda are becoming a principal means of expressing popular will, prevalent especially in California.
Direct Internet-based voting would be the ultimate political disintermediation.
To create a context for our discussion maybe a paraphrase and shortening of the famous opening sentence of Tale of Two Cities by Charles Dickens might work: “today..this year...2018.. is the best of times and the worst of times….”
The best of times:
“Every day, the number of people around the world living in extreme poverty (less than about $2 a day) goes down by 217,000, according to calculations by Max Roser, an Oxford University economist who runs a website called Our World in Data. Every day, 325,000 more people gain access to electricity. And 300,000 more gain access to clean drinking water…...”
Why 2017 Was the Best Year in Human History
Nicholas Kristof in the New York Times
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Yuval Noah Harari
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“If I could give each of you a graduation present, it would be this—the most inspiring book I've ever read."
—Bill Gates (May, 2017)
“Steven Pinker's point is that over the last thousand years, violence has gone down and people have gotten nicer. He sketches out possible causes for this but without ever going as far as saying violence has been conquered or that this or that institution will guarantee peace. Quite the contrary. Violence might return, and it would be foolish to be blind to that possibility. Nevertheless, it would be equally foolish to deny that things really are much better today than they were 100 years ago.“
The Better Angels of Our Nature
Steven Pinker
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So the question must be asked: Is intermediation a factor in these ‘best of times?’
Quickly, the answer might be yes, while not digital so much but in general: Increased food production may be attributed to the disintermediation of small farmers and the improvement in world health to the disintermediation that resulted from formation of large agents such as drug companies (Pfizer), University Laboratories (Johns Hopkins), and centralized government support (NIH) and health care ‘insurance’ organizations such as Social Security.
And the worst of times...
Poverty... extreme poverty persists......in a capitalist economy ...is there really any alternative economic system today even contemplated..so don’t we have to deal with capitalism?
A potential advance toward a solution to extreme poverty in a capitalist system is the empowerment... by technology... of every human being in the world as an economic entity and the identification and credible recordation of each human being’s assets as well as liabilities….
Such a scheme is possible using BlockChain technology that disintermediates bureaucracies at all levels and smart cell phones as mobile depositories of identity as well as communication.
Inequality of income and wealth...maybe the creation of a ‘birthright’...proportional ownership of the world’s net worth by each individual human being...
maybe something like a small value added tax on an economic activity such as financial transactions that funds ‘birthrights’ in the form of baby bonds that can be accessed at age 18 and used for a limited number of economic activities...to pay for education...a business start-up...a home…’Baby Bonds’ would disintermediate traditional social support programs…
(Baby Bonds are the name given to small denomination bonds that are exchange-traded and often have attractive yields..for example...at 5% yield a baby bond for each child born in the US would require the investment of ~$19K to create a fund of $50K at the end of 18 years.
About 4M babies are born each year in the US…$84B would be required to fund a baby bond for each child born in America that invested at 5% would be valued at $50K for each child in 18 years…$84B is about 2% of the $4T federal budget.
~130 Million babies are born in the world…$2.6T would be required each year to fund 130 Million baby bonds at ~$20K each year. The world’s wealth..that is its net worth... is estimated at $281 Trillion. A value-added tax of 2.6% on the world’s GDP of roughly $100T collected easily by taxing money transfers would fund a baby bond for all children born in the world each year.
Perhaps ‘birthrights’ are utopian...requiring political will never before exerted..but less utopian, maybe, when actual numbers are considered and means of funding identified..then the idea becomes at least ‘contemplate-able.’
Various universal basic income schemes are being tested around the world and it is technology and in particular, disintermediation that makes such schemes practically feasible, if not, in fact, politically adoptable. Practical, feasible implementation of a scheme is, I would argue, a ‘necessary’, if not sufficient, prerequisite to change...hence digital, technological, disintermediation plays a ‘huge’ ‘enabling’ role.
Global warming...the only solution may be a disintermediated global agreement between entities other than or in addition to national governments... when the US refuses to participate. Global warming, a transnational threat, is a classic example of a free ‘market failure,’
Food availability.. Inadequate food availability has always been mostly a matter of distribution, not availability, but the creation of economic identifies for every person embodied in each individual’s smart cell phone can cause markets to come into being that reduces the distribution problem..
Healthcare….remote sensing and remote diagnosis and remote treatment plans implemented on smart cell phones disintermediates the lack of critical intermediary effects such as government health care support, physicians, and hospitals. Economic identities for individuals enable markets to be created to distribute drugs at affordable prices.
Infrastructure...public-private partnerships..as Trump via Cohen wants to do have some merit. Such a scheme leverages cheap federal money with private incentive schemes ... disintermediates the federal/state bureaucracies but more importantly the Congress...digital mediation enables taxing the revenue or capturing part of the revenue for the public so as to not enrich private companies, but gain the efficiency of private construction and profit incentives to manage well...best when there is a revenue stream earned from infrastructures like toll roads, air and sea ports and intercity train...water and sewer systems ..even schools.
Factory animal farming...The substitution of alternatives to animals as sources of food such as synthetic biology may triumph when compassion for animals has failed. Technology will create synthetic biology's that can be created from readily available local materials. This synthetic food will disintermediate the current system that relies upon ‘factory’ efficiencies to enable cheap food from animals.
Incarceration...the most pernicious of policies...recent data in states indicates crime rates decoupled from incarceration rates...phone apps would enable parolees to be monitored... disintermediating prisons...happy days
Guns...universal registration is easily done technologically..maybe universal gun management education is a more realistic achievable objective..
Syria/Yemen...both of these conflicts have... and will most likely to a greater extent.. become proxy wars...mediated by drones, cyberwar tactics, disinformation...all disintermediating ‘troops-on-the-ground’.
Cyber...all the intermediate computer-based systems that manage activities are vulnerable to criminals, accident, negligence, and state action
AI….the ultimate technology that has the potential to disintermediate humans
Nuclear War...remediation may be in order here..some mechanism between Trump and the trigger.
Gambling…NBA proposing a new federal law permitting gambling which will quickly migrate to the Internet disintermediating bookies etc, generating huge revenues, and enabling easy taxation..a tempting opportunity.
Drugs…If marijuana legalization extends rapidly to more states, interstate marketing of cannabis-based products will occur...already marijuana is packaged in so many forms and other drugs will soon follow. Already ‘Canadian’ pharmacies are disintermediating US controls. But Internet-based marketing is also a technological basis for regulating and taxing the sale of drugs.
National referenda...the ultimate disintermediation...Here’s a discussion. Internet voting which has many advantages is impossible, however, without a means of unequivocally establishing identity. Read this discussion of how a free-to-use universal identity protocol could be created along with existing public protocols.
So I would argue that intermediation..dis and re... may be such a pervasive trend fueled by technology that it can serve as a lens through which we can imagine the future and predict how we, as a species, might confront the ‘worst of times’ as, at the same time, we preserve the benefits of ‘technological progress’ that make 2018 the ‘best of times.’
Some salient realities to consider:
Many private corporations and even individuals have resources greater than many countries…read Roger Cohen on the disintermediation of nation-states by private companies.
The IOS economy.. which is entrepreneurial independent developers of apps for the iPhone... earned $25B last year greater revenue than McDonald's.
Blackrock manages 5.7 Trillion dollars of assets or 2% of the world’s assets...Besos’ fortune has been over $100 Billion...Entities other than governmental are major ‘factors.’
Oxfam says 82% of all wealth created in the last year went to the top 1%, while the bottom 50% saw no increase at all.
The net worth of the world is estimated to be $281 trillion...the population of the world is 7.8 Billion...the NW/person is $36K…..
in the US its $94 Trillion of net worth or $290K/person man, women, and child. These numbers often estimate asset values at book value or original cost rather than current market value...so net worth may be higher at the market.
Public entities don’t use double entry bookkeeping so we never see their net worth..that is assets minus liabilities when assets are often enormous but undervalued. The large unfunded debt that so concerns many pales into insignificance when compared to the value of the assets of the US…
For example, the US has about $150 Trillion in assets both private and public or for 340 million population so that’s $441K/capita....a 4% return on those assets would earn ~$18K/year.
So potential solutions via disintermediation and in some case re-intermediation.
Of course, the fundamental, essential, all-encompassing technology that enables disintermediation is the Internet...
But here’s the rub…
“Once the inspiration for utopian dreams of infinite libraries and global connectivity, the internet has seemingly become, over the past year, a universal scapegoat: the cause of almost every social ill that confronts us. Russian trolls destroy the democratic system with fake news on Facebook; hate speech flourishes on Twitter and Reddit; the vast fortunes of the geek elite worsen income equality. For many of us who participated in the early days of the web, the last few years have felt almost postlapsarian. The web had promised a new kind of egalitarian media, populated by small magazines, bloggers and self-organizing encyclopedias; the information titans that dominated mass culture in the 20th century would give way to a more decentralized system, defined by collaborative networks, not hierarchies and broadcast channels. The wider culture would come to mirror the peer-to-peer architecture of the internet itself. The web in those days was hardly a utopia — there were financial bubbles and spammers and a thousand other problems — but beneath those flaws, we assumed, there was an underlying story of progress.
Last year marked the point at which that narrative finally collapsed. The existence of internet skeptics is nothing new, of course; the difference now is that the critical voices increasingly belong to former enthusiasts. “We have to fix the internet,” Walter Isaacson, Steve Jobs’s biographer, wrote in an essay published a few weeks after Donald Trump was elected president. “After 40 years, it has begun to corrode, both itself and us.” The former Google strategist James Williams told The Guardian: “The dynamics of the attention economy are structurally set up to undermine the human will.” In a blog post, Brad Burnham, a managing partner at Union Square Ventures, a top New York venture-capital firm, bemoaned the collateral damage from the quasi-monopolies of the digital age: “Publishers find themselves becoming commodity content suppliers in a sea of undifferentiated content in the Facebook news feed. Websites see their fortunes upended by small changes in Google’s search algorithms. And manufacturers watch helplessly as sales dwindle when Amazon decides to source products directly in China and redirect demand to their own products.” (Full disclosure: Burnham’s firm invested in a company I started in 2006; we have had no financial relationship since it sold in 2011.) Even Berners-Lee, the inventor of the web itself, wrote a blog post voicing his concerns that the advertising-based model of social media and search engines creates a climate where “misinformation, or ‘fake news,’ which is surprising, shocking or designed to appeal to our biases, can spread like wildfire.”
If you have the patience to read about and the interest in what I think is the most profound change in technology, read this article in the New York Times Magazine section for January 21st. It’s worth the time...it's the best exposition... that I’ve read... of the issue.
If you would be interested in a little more detail about the fact that while ‘free’ public protocols developed before the 90s are the basis for Internet connectivity, and that these protocols did not include a ‘user identity’ protocol and therefore encouraged the advertising-supported business models that dominate services offered via the Internet today, then read this. These models have enabled the creation of monster companies that profit from accumulated user data. The user is compensated by free services, but the value of the free services is not proportional to the profit from the data. Read here about an idea for remedying this state of affairs.
So the topic of tonight’s conversation is ‘digital intermediation’...is it a useful tool, and, if so, what predictions does it allow us to make with greater confidence, and if not, is there another way of thinking about the impact of technology in the future…..in addition to, of course, Evolutionary Psychology.
see also this discussion of Digital Identity Management
see also this discussion of Digital Identity Management
It is clear that I did not succeed fully in making at least 4 topics absolutely clear to everyone's satisfaction. I'll make another attempt by recommending 4 articles:
1. The history and extent and current funding of the Internet... Here is an excellent presentation by VOX
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2. Bitcoin....most were convinced that Bitcoin and other cryptocurrencies are nothing but scams... they may be, or, if not scams, simply fail, as new innovations often do, but the ideas...anonymity, transparency, security, decentralization... underlying Bitcoin, I predict, will survive in some form...again a good piece by VOX
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3. Blockchain...this is the public ledger technology that underlies Bitcoin and I think will become the next great innovation that is adopted widely...Take a look here.
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4. How would a company like Goldman Sachs use blockchain.....and what is this crazy-sounding idea of 'zero-knowledge proof' ...well read this
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