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"I agree with him that technology can make us all richer, but I disagree that it necessarily creates greater inequality, even if some startup founders become ve

by bcheung 11y ago

"I agree with him that technology can make us all richer, but I disagree that it necessarily creates greater inequality, even if some startup founders become very rich. It only does that if companies don’t create real value in return for that wealth." Tim provides no justification or evidence for this argument. This makes no sense to me. While there is certainly a difference between making money from rent-seeking vs rendering real value, the statement that lots of wealth can only come from not creating real value seems absurd to me. If providing some value results in some wealth, why wouldn't providing lots of value result in lots of wealth? It is true that some of the highest money makers are from rent seeking activities (banking and finance sectors especially) but to say that lots of wealth can ONLY come from not providing value is absurd. Technology, education, and access to capital all create inequality because they all create leverage. Those who use leverage will always get further ahead than those who don't use leverage. Getting rid of leverage is not the answer though because leverage is the basis for creating more physical wealth in the world and for doing it with less resources. We should ask ourselves, how can this leverage be democratized?

thelock85 11y ago
>> We should ask ourselves, how can this leverage be democratized? Isn't that a bit tautological? Economic outcomes in the U.S. have depended on one or more groups lacking technology, education and access to capital at all times since the nation's founding. I don't disagree with your question/suggestion but in the unicorn scenario where those with powerful technical and economic assets de-leverage themselves or accept social/political forces demanding a democratization of leverage, it seems that 1) leverage as an economic concept would cease to be a major factor in wealth creation or 2) the pendulum swings in the other direction as previously oppressed peoples refuse to democratize their newfound power.
- bcheung 11y ago
  I don't mean democratized in the sense of it being equally distributed, I mean more available for those who can make proper use of it -- not restricted to the elite class. Technology, education, and capital have been increasingly democratized over time and I think this trend will continue. Technology is the primary reason for this because 1) costs become so much lower that it can be provided for virtually free, 2) new business models can be created that were not possible before. Now with an Internet connection anyone can create a business. With things like Coursera, Udacity, Khan Academy, etc education has been more accessible and free. There are also more options for financing, both from traditional banks being more liberal in their lending as well as new routes like Kickstarter style crowd funding and peer-to-peer lending. That being said, the distribution for people who will be motivated to educate themselves, work hard, build a business, will stay the same because human nature doesn't change as fast as technology. If various kinds of human attributes / behaviors / motivation fall on a Gaussian distribution, then any kind of leverage will make it sharper (more inequality). So what I think is going to happen is that inequality will get worse but it will be more fair because it won't be the case that that leverage wasn't available to them, it will increasingly be the case that they just didn't take advantage of it despite having access to it. That being said, it's a generalization and a trend but the opposite has some weight as well. Yes, capital will pool and that creates concentrations of power. But at the same time, disruptive technologies like Internet based education, P2P lending, etc make those concentrations of wealth irrelevant. In the long run, technology disrupts and democratizes everything. Google for the 6 D's for a longer explanation http://bobmorris.biz/the-six-ds-of-exponential-development http://bobmorris.biz/the-six-ds-of-exponential-development
  - thelock85 11y ago
    Eh. I'm more of the opinion that technology amplifies the existing characteristics of social, political and economic structures (http://geekheresy.org/tag/law-of-amplification/ http://geekheresy.org/tag/law-of-amplification/) with the possibility of disrupting and democratizing. But I know I'm on an island in that regard. I understand your point.
    - bcheung 11y ago
      It's not an either or. Debt is a bad amplifier if not used correctly. Racking up huge student loans to get a degree that is not in demand will lead to poverty. The same with excessive credit card debt. Leverage works both ways. Certain people will always have destructive qualities. The percentage of people digging their own graves hasn't changed much. It's just that instead of a shovel, they now have a bulldozer.
nkurz 11y ago
I think you might be misreading his argument. Are you are interpreting it as "Startup founders become very rich only if companies don’t create real value in return for that wealth"? If so, I don't think that's what he intends. I read it as "Technology only creates greater inequality if companies don't create real value". I'm not sure if that's actually true, but that interpretation seems less contentious and more in line with the rest of the piece.
- bcheung 11y ago
  That would make more sense. That's probably what he meant.
danans 11y ago
> the statement that lots of wealth can only come from not creating real value seems absurd to me. I don't think that's what he said. He said that inequality increases when wealth is created for the company's owners/investors while NOT creating value (or even reducing value) for everyone else (customers, the public, employees). There are lots of examples of huge wealth being created at the expense of others without also creating value - for example: bad mortgages being bundled, obfuscated, and upsold. Tim actually proposes that bad startups are somewhat analogous to these sorts of financial instruments - i.e. there's a sucker at the end holding the bag.
- UK-AL 11y ago
  Things that don't create value eventually collapse. I don't think customers/employees would work with company if they weren't getting at least some value out of it.
  - danans 11y ago
    Sure, but things can appear to provide lots of apparent value for customers and employees (i.e. the borrowers and loan-bundlers in the pre-2007 real estate bubble), until as you say, they collapse. Also, just because a small group of people (customers, employees) may derive value from a particular startup company doesn't mean that that particular company, or the overall the ecosystem of startup companies, is creating more value than it consumes. The effect on inequality of the overall ecosystem is what's being debated here, and I'm not sure that anyone has a clear, data-backed understanding of which way it skews.
- bcheung 11y ago
  That would make more sense. Yes, that is definitely a problem. I think he is ignoring / discounting leverage as a component to wealth creation though. Even in a world where it is impossible to make wealth without providing value, inequality will still grow in proportion to available leverage. And technology (leverage) grows at an exponential rate. If we are concerned with inequality, then part of the equation is how do you make that leverage available to those without large pools of wealth or privilege.
rubberstamp 11y ago
What I got from reading article is that "Technology creates greater inequality only if companies don't create proportionate value in return for the wealth founders/executives take away" But if companies are actually creating value at least as much as the founders/executives take away, it isn't creating inequality. The author has given examples later in the article. The good case being google's founders taking away only what is proportionate to the value their company has created. And the bad case being a CEO given $120 million in stock option pay when the company profit was just $150 million.
rorykoehler 11y ago
One thing missing from the 'startups create value' argument is that some startups don't create much new value but simply absorb value from elsewhere by providing a more efficient lower friction way of doing something that was done in a different way before. Before I'm misunderstood, I'm not arguing that it's a negative result in the grand scheme, but it helps to be aware that this can actually lead to greater inequality if many people lose their jobs to a startup that only requires a handful of people to run it, where previously thousands were required.

by bcheung 11y ago

thelock85 11y ago

>> We should ask ourselves, how can this leverage be democratized? Isn't that a bit tautological? Economic outcomes in the U.S. have depended on one or more groups lacking technology, education and access to capital at all times since the nation's founding. I don't disagree with your question/suggestion but in the unicorn scenario where those with powerful technical and economic assets de-leverage themselves or accept social/political forces demanding a democratization of leverage, it seems that 1) leverage as an economic concept would cease to be a major factor in wealth creation or 2) the pendulum swings in the other direction as previously oppressed peoples refuse to democratize their newfound power.

bcheung 11y ago
I don't mean democratized in the sense of it being equally distributed, I mean more available for those who can make proper use of it -- not restricted to the elite class. Technology, education, and capital have been increasingly democratized over time and I think this trend will continue. Technology is the primary reason for this because 1) costs become so much lower that it can be provided for virtually free, 2) new business models can be created that were not possible before. Now with an Internet connection anyone can create a business. With things like Coursera, Udacity, Khan Academy, etc education has been more accessible and free. There are also more options for financing, both from traditional banks being more liberal in their lending as well as new routes like Kickstarter style crowd funding and peer-to-peer lending. That being said, the distribution for people who will be motivated to educate themselves, work hard, build a business, will stay the same because human nature doesn't change as fast as technology. If various kinds of human attributes / behaviors / motivation fall on a Gaussian distribution, then any kind of leverage will make it sharper (more inequality). So what I think is going to happen is that inequality will get worse but it will be more fair because it won't be the case that that leverage wasn't available to them, it will increasingly be the case that they just didn't take advantage of it despite having access to it. That being said, it's a generalization and a trend but the opposite has some weight as well. Yes, capital will pool and that creates concentrations of power. But at the same time, disruptive technologies like Internet based education, P2P lending, etc make those concentrations of wealth irrelevant. In the long run, technology disrupts and democratizes everything. Google for the 6 D's for a longer explanation http://bobmorris.biz/the-six-ds-of-exponential-development http://bobmorris.biz/the-six-ds-of-exponential-development
- thelock85 11y ago
  Eh. I'm more of the opinion that technology amplifies the existing characteristics of social, political and economic structures (http://geekheresy.org/tag/law-of-amplification/ http://geekheresy.org/tag/law-of-amplification/) with the possibility of disrupting and democratizing. But I know I'm on an island in that regard. I understand your point.
  - bcheung 11y ago
    It's not an either or. Debt is a bad amplifier if not used correctly. Racking up huge student loans to get a degree that is not in demand will lead to poverty. The same with excessive credit card debt. Leverage works both ways. Certain people will always have destructive qualities. The percentage of people digging their own graves hasn't changed much. It's just that instead of a shovel, they now have a bulldozer.

nkurz 11y ago

I think you might be misreading his argument. Are you are interpreting it as "Startup founders become very rich only if companies don’t create real value in return for that wealth"? If so, I don't think that's what he intends. I read it as "Technology only creates greater inequality if companies don't create real value". I'm not sure if that's actually true, but that interpretation seems less contentious and more in line with the rest of the piece.

bcheung 11y ago
That would make more sense. That's probably what he meant.

danans 11y ago

> the statement that lots of wealth can only come from not creating real value seems absurd to me. I don't think that's what he said. He said that inequality increases when wealth is created for the company's owners/investors while NOT creating value (or even reducing value) for everyone else (customers, the public, employees). There are lots of examples of huge wealth being created at the expense of others without also creating value - for example: bad mortgages being bundled, obfuscated, and upsold. Tim actually proposes that bad startups are somewhat analogous to these sorts of financial instruments - i.e. there's a sucker at the end holding the bag.

UK-AL 11y ago
Things that don't create value eventually collapse. I don't think customers/employees would work with company if they weren't getting at least some value out of it.
- danans 11y ago
  Sure, but things can appear to provide lots of apparent value for customers and employees (i.e. the borrowers and loan-bundlers in the pre-2007 real estate bubble), until as you say, they collapse. Also, just because a small group of people (customers, employees) may derive value from a particular startup company doesn't mean that that particular company, or the overall the ecosystem of startup companies, is creating more value than it consumes. The effect on inequality of the overall ecosystem is what's being debated here, and I'm not sure that anyone has a clear, data-backed understanding of which way it skews.
bcheung 11y ago
That would make more sense. Yes, that is definitely a problem. I think he is ignoring / discounting leverage as a component to wealth creation though. Even in a world where it is impossible to make wealth without providing value, inequality will still grow in proportion to available leverage. And technology (leverage) grows at an exponential rate. If we are concerned with inequality, then part of the equation is how do you make that leverage available to those without large pools of wealth or privilege.

rubberstamp 11y ago

What I got from reading article is that "Technology creates greater inequality only if companies don't create proportionate value in return for the wealth founders/executives take away" But if companies are actually creating value at least as much as the founders/executives take away, it isn't creating inequality. The author has given examples later in the article. The good case being google's founders taking away only what is proportionate to the value their company has created. And the bad case being a CEO given $120 million in stock option pay when the company profit was just $150 million.

rorykoehler 11y ago

One thing missing from the 'startups create value' argument is that some startups don't create much new value but simply absorb value from elsewhere by providing a more efficient lower friction way of doing something that was done in a different way before. Before I'm misunderstood, I'm not arguing that it's a negative result in the grand scheme, but it helps to be aware that this can actually lead to greater inequality if many people lose their jobs to a startup that only requires a handful of people to run it, where previously thousands were required.