Sunday, August 16, 2015

Two cats, two antipodes and the Networked Society Gini

Describing a future scenario is tricky. Time travel is even harder than time management. Any predictions you make seems affected by quantum mechanics in the large scale. Both Heisenberg and Schrödinger are hovering over the keyboard, along with your own thoughts.

But the quantum theories also come to your rescue. Just like the poor cat of Schrödinger, who is neither dead nor alive but both at the same time, the future is in a dual state until the future unfolds and we observe and take part of it. In order to map the future onto the cat we only need to identify the two states the future could have. What is the “dead or alive” equivalent of our future?

The Networked Society
In order to find these states we will look into the core of the Networked Society, of which we are “at the inflection point”.

What is the Networked Society? As it is part of the future that already has begun, we would like to understand what defines it.

It started out as a statement of “50 billion connected devices”, a great business outlook for companies like Ericsson.

As the Networked Society unfolded, marketing took over and told a large number of stories. Stories that showed that the Networked Society was unfolding in a fast pace, and provided benefits for individuals and the society. Access to an all communicating world becomes easier and cheaper, and the flow of data and media become both faster and more enriched.

In short, the marginal cost of communications went down.

At this stage the next level of insight of a networked society strikes.

A networked society is a near zero marginal cost society. And not only in the IT and ICT areas, but in every aspect of the networked humanity.

Read the last paragraph again.

A near zero marginal cost society.
Sounds innocent, but at this stage another cat appears.  The Cheshire cat.

Entering a near zero marginal cost society scenario is like following Alice down the rabbit whole, or through the looking glass. You will recognize what you see, but the logic has changed. Completely changed.

In this strange world of a near zero marginal cost society, what is the “dead or alive” states of the future cat? What extreme endpoints will define a relevant dimension which will describe the potential state of the future?

For this I will not put a cat in a box, but a Gini in a bottle.

The Gini endpoints
Let’s use the endpoints of the Gini coefficient as the antipodes of our scale.
(Actually, I use the Gini term broader than the original one. I project the whole distribution and consumption of resources on the scale, and I also include other nodes than "individuals" in my mental compilation . I realize that this merrits a separate blog post. But that's for the future ;)

The Gini = 1 endpoint
As the transaction cost is included in the overall marginal cost, also the transaction cost will be close to zero. This will not only speed up the evolution, it will also strengthen the forces that powers the Pareto law.

This can lead to a well-known scenario in futuristic literature and movies; one or a few very large entities control everything. The entities could be a foundation, corporations or states.

This is a “Winner takes it all”-scenario. Imagine that as marginal costs gets close to zero, the market forces will bring down the prices. And as transaction costs for information also goes down the information will flow fast, and thus the only way to get a competitive advantage and be able to charge a premium is to establish a monopoly. And as the network effect goes across all industries the monopoly will not be in a niche market, but ultimately across the whole society.

The Gini = 0 endpoint
What about the other end of the scale? This is an "equal distribution" scenario. The same forces; close to zero marginal cost and close to zero transaction costs, could potentially power also this extreme end.

One way to view this is that “as marginal costs are almost zero the prices will be zero, and thus everyone can afford everything”. And the low transaction costs keeps that balance across the whole economic system, very much like the fact that the sea level is constant (well, almost…) across the ocean.

“Dead or alive”? For the cat “dead” is in most cases seen as the bad scenario, and “live” as a god outcome. On the Gini scale, which one of the extremes is the good, and which one is the bad endpoint? The answer for the Gini scale is not that obvious, and depends also on other parameters.

Also, in the case of Schrödinger’s cat the extremes are mutually exclusive. The cat ends up either dead or alive. The Gini scale is a continuous scale. Neither the “most likely outcomes” as nor the “most wanted outcomes” are found at the endpoints (I strongly believe). But where?

Well, we'll see
The future will tell. But we can shape the storyline and create our common future.

Given that the Networked Society is at the inflection point, that a networked society is a near zero marginal cost society and that it is all fuelled by transaction costs closing towards zero – a really interesting and challenging scenario - what shall we do?

As individuals and as part of a networked society we can, we must and we shall take an active part in shaping the future.

The future begins with us. Here and now.

Disclosure and disclaimer: I do work at Ericsson. However this post, and this blog as a whole, are my personal views and opinions, not those of my employer.