2012/03/13 Tim O’Reilly interviewed by Andrew McAfee, “Creating More Value Than You Capture”, SXSW Interactive

Digest of an interview of @timoreilly by @amcafee below, abstract from schedule.sxsw.com/2012/events/event_IAP100142:

Tim O'Reilly, SXSW 2012

One of the great failures of any company – for that matter of a capitalist economy – is ecosystem failure. Great companies build great ecosystems, one in which value is created not just for a single company or group of industry players, but for partners who didn’t even exist when the product or service was introduced. Many companies start out creating huge value. [….]  Since the cycle of capitalism depends on consumers as well as producers, and consumers are less and less able to find employment, at some point, we’re going to have to start thinking about how to put people to work, rather than how to put them out of work. At O’Reilly, we’ve always tried to live by the slogan “Create more value than you capture.” It’s a great way to build a sustainable business and a sustainable economy.

Andrew McAfee, SXSW 2012

Andrew McAfee, author of “Race Against the Machine,” will engage with Tim about these ideas, and about how rethinking the economy becomes even more urgent in the face of the trend he explores in his book, in which jobs are being outsourced not just to low-wage countries, but increasingly to machines.


[long introduction]

[… skipping ahead to focus on the ideas on policy  …]

[21:40 AM] A lot of what these people did was what you called the Clothesline Paradox.  Can you tell us more about that?

[21:42 TO] … It’s a paper I read in 1975 in Coevolution Quarterly …

[23:30 TO] … We kicked the can down the road …

[….]

[23:40 TO]  Back to this clothesline paradox.  Steve Baer had this insight.  He said, when somebody decides to hang their clothes on a clothesline, instead of putting them into a dryer, we don’t take that little energy savings, and move it from the fossil fuels column into the energy renewable column in our accounting.  It just disappears.

[24:05 AM] So it’s literally a shrinkage in the economy.

[24:07 TO] That’s right.

[24:08 AM] It looks small than it used to.

[24:09 TO] That’s right.  So you can look at a lot of issues — like in the SOPA — it’s a great metaphor for how we think about the Internet economy, when people entertain themselves by watching free Youtube videos, or interact with friends on Facebook, instead of watching Hollywood movies or buying copyrighted content.  The copyright industry says “look at the value that was destroyed, the free Internet is destroying value”.

[24:40 TO] But it’s quite clear.  It’s like the utilities people saying, those people hanging their clothes on clotheslines are destroying value.  They’re not using our product.

[24:52 AM] And by that definition, the open source software movement has shrunk the software industry.

[24:55 TO] Absolutely.

[24:56 AM] And therefore destroyed value.

[24:59 TO] Except, no.  That was exactly what Bob Young, who started Red Hat, said:  my goal is to shrink the share of the operating system market.  And you look at MySQL, shrunk the size of the database market.  But it didn’t really, of course, it actually grew it.

[25:17 TO] What we understand, now, is that when we now have these breakthroughs in generosity, you grow the market.  You grow value for society.

[25:28 AM] But you don’t grow the economy that we know how to measure, that we’re kind of pointing our measurement instruments at.

[25:35 TO] Often you grow it, we just don’t look at the instruments.

[…]  [The book, Race Against the Machine]

[28:35 TO] We really need to think about a new shape of the economy. …

[28:37 AM] And this is actually a great segue, because this is the next set of questions that I wanted to post to Tim.

[28:41 AM] So we have one set of challenges, which are pretty clear and substantial about measuring value in our economy.

[28:47 AM] We have another set of challenges around compensating people for contributing value in this economy.  Because, as Tim says, a lot of the people who are putting value out there, are doing it in ways that don’t immediately lead to recompense or compensation.

[29:02 AM] There’s another problem, which Eric and I dove in on, in the book, which is as technology just races ahead, and continues to demonstrate just weirdly powerful new capabilities and skills, the data are pretty clear that it’s leaving some people, and a larger number of people, behind, in our economy, over time.

[29:25 AM] And the super-shorthand way to talk about that is:  think about what happens when we hook up Siri to Watson, and let both of those technologies improve for a few years.  Cause if they follow the trajectory of Moore’s Law, and they’re going to follow them with at least that much acceleration, they’re going to be about 16 times better than they currently are, in 6 years.

[29:49 AM] Now I think that puts a lot of people who are doing what they are currently doing for a living right in the sights of the automation of the economy.

[… customer self-service …]

[… customers create jobs …]

[32:37 TO]  It’s a situation that’s been, first of all, framed by the race of our economy to take labour costs out.  What we’ve failed to do is to find a way to redistribute those gains.  We have them go disproportionately to a very small number of people.  I find it fairly inconscionable that companies are basically firing workers while paying hundreds of millions of dollars to a few top executives, because “we can’t afford …”  That’s just bullshit.

[33:09 TO] The fact is, we’ve made choices about who we’re going to reward, and they’re ultimately self-destructive choices for our society.

[33:17 AM Okay.

[33:18 TO] But now what we have is the race of technology, with more and more jobs being taken over by machines,

[33:35 AM] You and I had a fascinating conversation, a while back, because I was laying out the things I was saying.  And I found it really easy to find examples of encroaching automation in jobs under threat.  Tim did the best job of pointing me toward examples of job creation, not just among the data scientists and web designers of the world, which I was anticipating, but you’ve given great examples of people putting labour back into our economy.

[33:59 TO] Let me put it this way.  I’m looking for those examples, and I’m starting to find them.

[34:03 TO] The way my mind works, is I kind of have some notion, and then I start looking for some data to support that notion, or to disprove it.  In this case, the notion I came to was, oh, given what I said about if you don’t have any consumers, you don’t have any businesses, we’re going to have to put labour back into the economy.

[34:22 TO] We have to find a way to pay people. Or people will have to find a way to pay each other. Or we’ll have a very new shape to the economy.  That’s really what’s the heart of what I’m trying to talk about, here.

[… some green shoots, use of computers to add value to low-skilled jobs that we’ve been trying to ring out of society …]

[… The Apple Store …]

[… Walgreen … home health care IT people …]

[… Kickstarter, Etsy … examples of putting labour cost back into the economy]

[38:13 TO] Somebody basically took a commodity product, and lovingly added value to it, and then resold it.  I thought, that’s kind of an interesting data point.  I think we’ll be doing more of that added value for each other, in this future economy.

[ … Youtube economy, where artists are starting to make a living, based on an advertising economy]

[… P2P sharing economy … AirBnB …]

[39:25 TO] It seems to me that, when you see a sharing economy, it eventually does get monetized.  The early web, everybody was just equal, we were just doing things each other.  Then, this advertising economy grew up around it.

[39:46 TO] There’s still a huge distance ahead for the advertising economy.  The Internet average share of advertising is still a fraction of television, even though there’s more hours now spent on the Internet, entertaining each other, than there are spent on television.  So there’s a lot of money to come from industry into another.

[40:05 TO] So that kind of leads me to a policy recommendation.  Policy makers need to focus on protecting the future from the past, rather than protecting the past from the future.

[40:18 TO] Most of the policy that we see is oriented towards protecting incumbents, because of course they have the loudest voices …

[40:28 AM] … and the biggest chequebooks.

[40:30 TO] I had this interesting conversation with Nancy Pelosi about SOPA and PIPA.  It was eye-opening.  I was just explaining my experience as a publisher.  We’ve been publishing books DRM-free, and yes, some people steal them, particularly in countries where they weren’t going to pay us anyway.

[…]

[40:56 TO] It does not keep me up at night, because, in fact, our business is growing.  We were selling in markets we could never have sold in, before.  It’s a rapidly growing part of my business.

[41:08 TO] I’m trying to explain, and she says, we have to take into account the concerns of Hollywood.  I said, no you don’t.  You have to find the right answer for society.  Your job is to work for all of us.  It’s not to work for this interest group versus that interest group.

[… open for questions from the audience …]

[44:24 audience]  Do you have an axiom that you would consider for a startup founder who’s trying to make decision between where to create value for the investors, where to cleave the line and say that this should be something that goes into the ecosystem?  How you make that judgement call?

[44:47 TO] I think it should be scientific.  I remember having this argument with Richard Stallman about open source.  I said the difference between free software and open source is that open source should be science, not religion.  In other words, it should work.  The decision you’re making, if you’re looking over time, you should believe that it’s better for the investor, as well as for society.  Because, in fact, short-term thinking is not best for a long-term investor.  So that means, of course, that you also have to find an investor who is thinking in the long term.  Of course, great investors do think longer term.  They’re not looking for the quick exit.  They’re looking to build the great company that survives and grows and serves customers over the long term.  If you’re doing it right, you should, in fact, be looking at building a vibrant ecosystem around your company that creates value for a lot of other people.  You’ll find that’s actually better for your company.  So look fo rthat win-win .   […]  Although these days, win-win seems to mean we win twice for our team.

[more questions, audio ends at 1h01m01s

Audio replay available at “Create More Value Than You Capture” | SXSW Interactive | 2012 at  http://schedule.sxsw.com/2012/events/event_IAP100142

[download audio]

Subsequent blog post, Andrew McAfee, “Tim O’Reilly on Putting Labor Back Into the Economy” | March 2012 at http://andrewmcafee.org/2012/03/mcafee-sxsw-tim-oreilly-labor-automation-race-against-the-machine/

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David Ing blogs at coevolving.com , photoblogs at daviding.com , and microblogs at http://ingbrief.wordpress.com . A profile appears at , and an independent description is on .

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