In any market environment, you have to be careful not to take current events and extrapolate
, assuming that nothing else will change. I distinctly remember being in
a meeting of a university student organization with its board, hearing one of the senior
board members say "We can safely assume we'll make no less than 8% on this money in the
future." To be fair, interest rates at the time were north of 12%, and a drop of that
magnitude seemed outrageous. That was 25 years ago, but the lesson stuck with me: don't
extrapolate, and don't assume conditions are fixed.
So Paul Farrell's running inanity on CBS's MarketWatch site deserves a closer look. How can anyone predict
100 years into the future, when nobody could have predicted the Internet, wireless communications, touch
screen personal devices, or the convulsions in the financial markets only a quarter century ago?
At the time I was hearing interest rate assurance, Sony's Akio Morita was writing The Japan That Can Say No, largely
based on the premise that the world would be dependent on Japanese DRAM supplies. Morita missed the rise
of Korea. Ten years before that, those of us in the Tri-State area watched with trepidation as
New York City flirted with
bankruptcy, only bailed out (then) through Big Macs of a different notional type and amount that
you see advertised today.
Here are three potential disruptions that violate the extrapolation premises that seem to
crowd out rational thought in the financial press:
1. Transportation efficiency. Electric, hybrid, fuel cell, alternative fuel
cars, improved public transportation, more efficient transportation modes, and simply
utilizing less transportation all add up. Example of a more efficient mode: Google's
commuter van, complete with WiFi. I'm betting that true breakthroughs in automobile
transportation come from outside the US -- most likely from countries with no natural
oil resources of their own. But the drive for efficiency -- not just alternatives -- also
means that the transportation consumer will have choices and be able to participate
in a market of available providers. Felix Rohatyn, orchestrator of the Big Apple's
recovery in the 70s,
sees an alternative energy economy in a New Deal vein.
2. Micro finance on a macro scale. Organizations like Kiva
match micro loans to micro-scale businesses that use the cash to bootstrap themselves. There's no
reason this has to be restricted to business loans - why not create a market for making small
scale investments in mortgages? Not everybody can be a real estate magnate, but if you get
visibility, aggregation of demand, and broad participation, you can create some powerful
investment vehicles. I'll go so far as to argue that giving US citizens a tax credit for funding shares of
mortgages is a significantly more efficient mechanism than taxing them, using the tax revenue
to bail out banks who are then restructing mortgages, all the while borrowing ever-increasing
sums to float the mortgage market. Direct, local involvement is always more efficient.
If there are micro exchanges for professional athletes,
why not one for regional pools of mortgages? It represents an immense deleveraging of the
big money players by leveraging immense numbers of small money players.
3. Patient-centric health care. I'll skip the saga of my health care claim that's
been open for 5 months, while Sun's provider argues over the doctor's address, then
a missing code, then the wrong modifier for the code, all the while happily paying
one of the two doctors involved but not the other. Bottom line is that to an increasing
extent, the drug business is a mash up of biology, chemistry and telemetry data, putting
the health care consumer right in the middle of situation, rather than as an often-ignored
Cory Doctorow put things very well in his 2008
calendar closing thought:
But I just keep on remembering that we live in the best time in the
history of the world to have a worst time: the time when collective
action is cheaper and easier than ever, the time when more information
and better access to tools, ideas and communities are at our fingertips
than they’ve ever been.
Recent events have given us less trust in "big" anything - government, business,
power, money. Recent financial market events
have demonstrated, clearly, that "financial engineering" is neither financial
nor engineering. Engineering implies an understanding of failure modes and
how to recover from them; Financial implies a well understood market with
risk, futures, and market agents in specific roles. Right now, I'm less
inclined to trust opaque institutions claiming to be watching out for my
lies with the people who, in the words of
Mark Cuban, "do the work" -- engineers -- the people who brought you
iPods, Google, Java, Amazon.com, the internet, wireless networks, and really
cool digital cameras. And those people -- people who build things, things
you can use and touch and not just enter into a spreadsheet -- benefit
from the widespread diffusion of intellectual property. That was going
to be my "fourth disruption," but I don't think it's a prediction -- it's
already happening. When that community driven view of intellectual property
spills over from the software (and hardware) world into pharmaceuticals,
financial products, and transportation engineering, we'll see true disruption
in those arenas as well.
The common thread in all three areas above is that the user is at the center
of the effort, not marginalized. And "user" means a direct consumer of
or beneficiary of a product or service. User also doesn't mean a person
in isolation, an island cut off from all other data in the torrents; a "user"
is someone who makes choices, set priorities and allocates resources as
part of a myriad, intersecting set of social networks - friends, co-workers,
co-risk sharers, communities (real, virtual, local, global) and strangers
Why am I optimistic - cautious, but optimistic - enough to
smile going into 2009? First, because all of the above requires significant
network infrastructure, more in a highly virtualized, "cloud like"
data center -- and that's a nutshell summary of Sun's business. Second,
technology has helped engineer recovery in tough economic times, whether it
was New Deal era investments in public infrastructure or the dot com boom
fueling growth in the mid-90s (and what I hope the Obama administration will
stimulate). Finally, increased networking (social or otherwise), finer grain
economic participation and diffusion of intellectual property all
drive increased transparency - you simply get to see how the pieces fit
together. That drives trust, and trust recreates confidence in
institutions - new or old - that we count on for shepharding global economies
through this mess.