About Feed Das deutsche Innovationsdilemma

Inequality

A desired outcome for corporations is survival. To sustain in today’s volatile environment, corporations innovate1. Therefore as socio-cultural systems, corporations need to internalize information for growth2. Rules thereby define scope, freedom, and boundaries of systems3. Furthermore balancing feedback loops are needed for self-correction as are reinforcing feedback loops as sources of growth and explosion but also erosion and collapse4.

  1. The role of Finance for innovation and economic growth is acknowledged5. Financial Innovation creates new practices and instruments to lessen the financial constraints for corporations as for individuals6.
  2. In recent decades, within economic systems with varying modes of production, inequality has been growing steadily7. This is true for wealth as it is for income 8.
  3. Inequality hurts economic growth9.
  4. CapEx are low10. Yet financial capital is “super abundant”11.

As a matter we are in a time of low innovation. 12 13 Yet fundamental problems are known unknowns (eg. storage technology for sustainable energy sources) or a question of scaling.

Comparing table 1 in Silber’s 1983 paper with the present reveals the low degree of innovation within the financial sector 14. Or as argued elsewhere, for decades innovation within the US credit card industry has been the invention of more complicated and less transparent fee structures15. Just recently The Economist reported two research studies on signals of information sharing between government officials and banks.16

Recent inventions like CDOs or CDS have “promoted excessive financial intermediation by inducing investors to underestimate the risk of investments they were making. As a result, funding flowed in value-destroying activities.”17

The lesson of the 2008 crisis: finance really is a commodity. At its core finance is about time transformation, risk and lot size allocation. Thanks to algorithms, everyone can do that. Amazon does it, Square does it, Paypal does it, AirBnB does it. The reason not everyone is a bank, finance isn’t disrupted, is because it’s protected by the government and it’s supposed relevance to the system. But the system has changed, the arguments of banks against the “social cost” of stricter capital requirements were always neglect able18 19. Today they’re irrelevant especially compared to the social cost of more innovation like CDOs and less innovation because of excessive property rights within the regime of finance20.

Presently, and even more so in the future, growth in productivity requires data21 22 23 24. As a matter it is important to recognize the inequality, not in finance, but data. Income streams should be measured in data flows and data access. The amount of wealth equals the volume of data under ownership. Because politics is looking for the trees in finance, it cannot see the forest of data. The Gini coefficient of data flows and data storage should be measured. The possibilities of access to data, the ownership of data.

The inequality within the regime of finance is more and more a second-order effect of inequality in data25. Inequality in finance is just a matter of politics, knowledge transfer and allocation. Just like worldwide inequality of calories is. Finance isn’t unimportant, yet the abundance of financial capital begets manipulation as long as the inequality in the regime of data isn’t managed well.

The increasing sophistication and depth of financial [data] markets promote economic growth by allocating capital [data] where it can be most productive. The dispersion of risk [value] more broadly across the financial [information] system has, thus far, increased the resilience of the system and the economy to shocks.26

Whereas within the regime of finance humans were known as consumers, they’re now known as users. The hierarchy within society now polarizes along the dominance of data. And because current thinking limits users to data suppliers without property rights, society as a whole suffers the “curse of the resource”27.

Even within the regime of finance the value of data can be measured. Yet because of lacking accountability, misaligned property rights and the externalization of risk as proven by data leaks, feedback loops lead to the wrong attribution of value.

Following the history of oil and gas in the US, the current state resembles extractive anarchy in which actions by individual corporations go unrestrained28. The outcome is mistrust! Even more worryingly, as patents are vaguely formulated the risk of entrepreneurship increases and as matter excess in ownership rights hinders innovation29 30. Patents are important, they should remain31. Yet, for the time being and during the transformation property rights should be reformed and combined with smart regulation of corporate finance. Furthermore, in certain cases the government could mandate – for example – patent pooling or data flows through open interfaces32.

Property rights for data would eventually lead to less invasive products, as corporations would opt for synthetic data33 34 which would raise the value of human (and machine) created data and as a matter reduce inequality.

To summarize, humanity is presently in a transition where finance is a commodity but data not yet commodified35. And because of excesses on part respectively in favor of corporations, inequality is suffered by humans.

A further question could be: should data be commodified? If not, a completely new economic system with new modes of production is essential.

  1. Benner, M. J. and Tushman, M. L. (2003). Exploitation, exploration, and process management: the productivity dilemma revisited. Academy of Management Review, Vol 28, No. 2 (pp. 238–256). Academy of Management.↩︎

  2. Gharajedaghi, J. (2011). Systems Thinking: Managing Chaos and Complexity: A Platform for Designing Business Architecture. 3rd edition. 978-0123859150. Morgan Kaufmann.↩︎

  3. Meadows, D. (2008). Thinking in Systems: A Primer. 978-1603580557. Chelsea Green Pub Co.↩︎

  4. ibid.↩︎

  5. Silber, w. L. (1983). The Process of Financial Innovation. The American Economic Review, Vol. 73, No. 2, Papers and Proceedings of the Ninety-Fifth Annual Meeting of the American Economic Association (pp. 89–95). American Economic Association.↩︎

  6. ibid.↩︎

  7. Streeck, W. (2014). How will capitalism end?. New Left Review 87, May-June 2014.↩︎

  8. ibid.↩︎

  9. Cingano, F. (2014). Trends in Income Inequality and its Impact on Economic Growth. OECD Social, Employment and Migration Working Papers, No. 163. OECD Publishing.↩︎

  10. Denayer, W. (2017). The productivity puzzle explained. Access via http://www.flassbeck-economics.com/the-productivity-puzzle-explained-how-right-wing-policies-and-neoclassical-recipes-destroy-economic-growth/ [Feb 11 2018].↩︎

  11. Mankins, M., Harris, K. and Harding, D. (2017). Strategy in the Age of Superabundant Capital. Access via https://hbr.org/2017/03/strategy-in-the-age-of-superabundant-capital [May 6 2017].↩︎

  12. Kopf, D. (2017). Robots aren’t killing jobs fast enough—and we should be worried. Access via https://qz.com/1146747/robots-arent-killing-jobs-fast-enough-and-we-should-be-worried/ [Dec 8th 2017].↩︎

  13. Bloom, N., Jones, C. I., Van Reenen, J. and Webb, M. (2017). Are Ideas Getting Harder to Find?. Working Paper 23782. NBER.↩︎

  14. Silber, w. L. (1983). The Process of Financial Innovation. The American Economic Review, Vol. 73, No. 2, Papers and Proceedings of the Ninety-Fifth Annual Meeting of the American Economic Association (pp. 89–95). American Economic Association.↩︎

  15. Levitin, A. J. (2006). Payment Wars: The Merchant-Bank Struggle for Control of Consumer Payment Systems. Available at SSRN: https://ssrn.com/abstract=903140.↩︎

  16. The Economist (2018). Insider trading has been rife on Wall Street, academics conclude. Access via https://www.economist.com/news/finance-and-economics/21736561-one-study-suggests-insiders-profited-even-global-financial-crisis-another [Feb 12th 2018].↩︎

  17. Johnson, S. and Kwak, J. (2012). Is Financial Innovation Good for the Economy?. Innovation Policy and the Economy, Vol. 12, Issue 1 (pp. 1–16). NBER.↩︎

  18. Boissay, F. and Collard, F. (2016). Macroeconomics of bank capital and liquidity regulations. BIS Working Papers, No 596. Bank for International Settlements.↩︎

  19. Baker, M. And Wurgler, J. (2013). Do Strict Capital Requirements Raise the Cost of Capital? Banking Regulation and the Low Risk Anomaly. NBER Working Paper No. 19018. NBER.↩︎

  20. Van Dijk, M. A. (2013). The Social Costs of Financial Crises. Available at SSRN: https://ssrn.com/abstract=2278526.↩︎

  21. Drucker, P. F. (1999). Knowledge–Worker Productivity: The Biggest Challenge. California Management Review, Vol. 41, No. 2 (pp. 79–94). University of California.↩︎

  22. Davidson, D. (2015). The Rising Value of Information. Access via https://www.attensa.com/the-rising-value-of-information/ [Feb 2nd 2016].↩︎

  23. Weber, M. and Burkhard, A. (2017). Entscheidungsunterstützung mit Künstlicher Intelligenz. Bitkom e.V.↩︎

  24. Wissner-Gross, A. (2016). Datasets Over Algorithms. Access via https://www.edge.org/response-detail/26587 [Apr 30 2016].↩︎

  25. There more reasons, as outlined by Denayer (2017).↩︎

  26. Johnson, S. and Kwak, J. (2012). Is Financial Innovation Good for the Economy?. Innovation Policy and the Economy, Vol. 12, Issue 1 (pp. 1–16). NBER.↩︎

  27. Patrick, S. M. (2012). Why Natural Resources Are a Curse on Developing Countries and How to Fix It. Access via https://www.theatlantic.com/international/archive/2012/04/why-natural-resources-are-a-curse-on-developing-countries-and-how-to-fix-it/256508/ [May 1 2013].↩︎

  28. Libecap, G. D. and Smith, J. L. (2002). The Economic Evolution of Petroleum Property Rights in the United States. The Journal of Legal Studies Vol. 31, No. S2, The Evolution of Property RightsA Conference Sponsored by the Searle Fund and Northwestern University School of Law (pp. S589–S608). The University of Chicago Press.↩︎

  29. Arinas, I. (2012). How Vague Can Your Patent Be? Vagueness Strategies in U.S. Patents. HERMES - Journal of Language and Communication in Business, No. 48 (pp. 55–74). Royal Danish Library.↩︎

  30. EFF. Stupid Patent of the Month. Access via https://www.eff.org/de/taxonomy/term/11344.↩︎

  31. Moser, P. (2013). Patents and Innovation: Evidence from Economic History. Journal of Economic Perspectives, Vol. 27 No. 1 (pp. 23–44). American Economic Association.↩︎

  32. I think, X2A within the PSD II regulatory initiative serves as guidance for this idea.↩︎

  33. Koperniak, S. (2017). Artificial data give the same results as real data — without compromising privacy. Access via http://news.mit.edu/2017/artificial-data-give-same-results-as-real-data-0303 [Dec 13 2017].↩︎

  34. Wegner, S. (2015). Future Analytics – Fabrication of Synthetic Data. Data Natives 2015.↩︎

  35. Rushkoff, D. (Unknown). Commodified vs. Commoditized. Access via http://www.rushkoff.com/commodified-vs-commoditized/ [Mar 3 2015].↩︎

Tags
Economics The End of Politics
Date
February 14, 2018
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