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Creativity
Feel the Singularity
Instead of feeling the Bern, feel the singularity.
Posted May 12, 2016
This year’s political meme is all about “income inequality” – even the “job creators” are decrying the widening divide between the have-not’s and the have-it-all’s. Everyone agrees that opportunity should be equally accessible to all citizens, but there is so much disagreement about how to implement it. The conservatives usually espouse the “trickle down” approach – an unfortunate term that evokes images of incontinent urination by fat cats – whereas liberals suggest a more direct approach of simply taking it away from the rich and giving it to the poor. My suggestion is that there is a radically different approach, if we can get past the extreme polarization that is locking us inexorably into our ideological positions.
There’s a technique in statistics called “normalization” – which means to “reduce or force conformance to a norm or standard”. That’s what the more liberal contingent wishes to do, usually by taxation and entitlements. Wealth normalization means to reduce from those who make the most, give to those who make the least, and thus make everyone conform more closely with the norm. It sounds like a great idea – let’s tax the rich more, they can afford it – the only problem is that it's been almost universally proven that it doesn't work. It didn't work in China and it didn't work in Russia. However, at the same time, allowing wealth to aggregate so much that the wealthy abuse the system is equally untenable. And again, it doesn't work. It didn't work in pre-Communist China and it isn't working in Russia today.
So if you want to inhibit innovation in America, by all means, set up a system like the French, where serious underlying issues hamper growth companies. For example, France’s wealth tax remains an enormous deterrent for successful entrepreneurs. It discourages the wealthy to stay in France as it creates a complex and expensive tax system, with up to 75% tax on all new income. Most of the better entrepreneurs in France simply relocated to Shanghai and Silicon Valley, causing a high tech diaspora and braindrain that has pretty much sucked the entrepreneurial spirit out of the country. As a result, economic growth is weak, fiscal deficits and public debts are sky high, and unemployment is structurally elevated.
The point is this: the extreme extrapolation of "wealth normalization" is just another word for Communism. It means letting the state take everything away from everyone, and then giving it back to everyone in equal shares. As Winston Churchill once said, "Capitalism is the unequal distribution of wealth; Socialism is the equal distribution of poverty." The extreme form of wealth normalization is really a form of slavery – and it will eventually sap the spirit out of any country. On the other hand, there absolutely needs to be a social net that helps all boats to rise - access to education and capital is key.
What may work better is something new - a system that dynamically ensures a safety net and insures greater opportunity for all, but at the same time, encourages people to earn and save and invest and be innovative and invent great products. So how do we chart a middle way that avoids the Scylla of oligarchy and the Charybdis of the nanny state? Is it simply a matter of adjusting the tax rate to that it feels more “fair” to everyone? Is a "flat tax" really more fair? I believe that it is possible to radically innovate, and create a breathtakingly new approach that disrupts the linear thinking that dominates governments today.
Quantum Thinking for Economics
What we need is to borrow a term from quantum mechanics – renormalization. Renormalization is a collection of mathematical techniques used to treat singularities in quantum theory. Renormalization was first developed in quantum electrodynamics to make sense of the problem of infinities posed by point particles like electrons.
In an age of exponential growth that is rapidly approaching a technological “singularity”, what we need to do is a little quantum thinking and move from normalization to renormalization of wealth. This means that what we need to do isn’t just adjust the tax rate to find a less unhappy medium, we need a whole new way of thinking. Something new that would optimize the economy for empowered education, high speed job creation and to insure an even distribution of opportunity.
We can do this by focusing resources and support on nurturing “mini-singularities” – in the form of new ventures that can help achieve critical mass and exponential growth in the form of new markets and undiscovered industries. These are more than just unicorns, they are what I call “giga-shift startups”. With a single mini-singularity-enabling invention, these singular ventures can lift a billion lives, and by enabling an eco-system of innovation around itself, shift an entire economy into a higher gear. A good example of this is the iPhone AppStore – it lifts a billion lives, it enables innovation, and it removes friction from commercialization of mobile application.
The first wave of the Industrial Revolution brought steam power and factories. The second produced railroads and electricity. The third wave, which we now call the Information Revolution, gave us the Internet, digital computers, and the conveniences of the modern world. We are at the cusp of a fourth wave of the Industrial Revolution, which promises even more disruptive change than we’ve seen in the last decade. This fourth wave of change will be delivered via a series of giga-shift startups, that slowly cascade into the next big bang of disruption and dislocation and disintermediation.
However, it won’t be a painless transition to the post-digital world. A study from the John M. Olin School of Business at Washington University estimates that 40 percent of today's F500 companies on the S&P 500 will no longer exist in 10 years. A study by the University of Oxford predicts that growth of automated and computerized services puts 47 percent of all U.S. jobs at risk during the next 20 years. The only hope for both companies and workers is that innovation will create new opportunities and new kinds of (hopefully more fulfilling and better paying) jobs to be the ones replacing, instead of being replaced.
So what’s it going to take to quantum shift our economy into the next energy state?
Again, we can look at what France is doing to solve its innovation slump – they’re finally doing what it takes to kickstart innovation: they reduced taxes by €30 billion, they made it impossible for banks to label failed entrepreneurs as ineligible for credit, they provide a 30% tax credit on R&D expenses – without a cap – to Jeune Entreprise Innovante - “young innovative companies” in France. Unfortunately, the government in France is unable to move from fear to growth, and still audits every company that takes the credit, making startups wary of accepting the program. But it's a step in the right direction.
But we need more than just a single step. We need a vision. We need a plan. We need to encourage the next Google's and next Apple's to incubate in the US, by leveraging new kinds of innovation tax credits for venture investors, and thereby giving birth to a plethora of shift startups… and once those "little singularities" take off, we renormalize their benefits by capturing the growth of tech jobs, retraining, and increasing entrepreneurial spirit. Essentially, we must move beyond the “blaming the other guy” game, and start playing the “let’s work together to turn our entire country into an innovation accelerator that benefits everyone” game.
This is the way to not only survive, but thrive, in the next wave of the Information Revolution. Why argue about redistributing existing wealth when there's so much more new wealth still to create? Instead of feeling the bern, feel the singularity.
