Implications of Our Social Graph

A couple points interest me lately about the social graph.

One:  while it’s old hat now to talk about, I continue to admire the fact that now we are able to keep past friends, acquaintances, and people we’ve met as touchstones by adding them to Facebook.  Life’s relationships hardly seem as ephemeral — I lost touch with a lot of my childhood friends as I left Texas and they stayed within.  But now with Facebook reaching its tendrils into even the older demographics and smaller countries, people I used to spend time with are now becoming visible to me again.  And I will never lose touch with them again as long as we all retain trust in the Facebook system.

How will that affect the way we age, the way we communicate, the way we organize?  Now that we can keep in touch with people from cradle to grave, how will that affect our ability to deal with all of our friends dying or getting sick as they get older?  How will that affect fund-raising when we now can pull favors from our entire life’s social graphs?  If we’re called out for bad behavior, can we use such an extensive social graph to repair our reputations and defend us as good people?

Second point:  what do we do with the people we actively keep out of our Facebook social graphs?  Facebook has finally added the ability to group people so that certain groups can’t see everything about you (i.e. work people can’t see your photos, if you choose to configure it that way).

John Clippinger calls this a negative identity, based on how the immune system works, only exposing itself as much as needed and allowing in anything once it passes basic verification (blood type, usually).

Certainly, many people do not friend their parents.  This is unfortunate but also a coping mechanism.   It might be fixed by Facebook’s new settings.  But there’s that desire to keep one’s parents out of one’s personal life, for individual identity formation.

But what I’m really getting at is what if you meet someone casually, or know someone a long time, and choose to NOT friend them?  That is becoming, now that Facebook is so ubiquitous, quite noticeable to everyone who knows both parties.  Why didn’t he friend me?  It must be because he really has a problem with me.  Now I get messages saying that they don’t want to friend me because they’re trying to limit exposure — they’ll connect with me on LinkedIn, though.  Considering the effort it takes to divide one’s spheres of life like that, it must be a pretty significant psychological issue for people.

Black markets exist because the formal economy does not either recognize the market for those goods as being legal, or because the formal economy is not doing a good enough job providing access to those goods.

How does the negative identity affect a black market for social capital?  Is there a market for those people who are not included in our social graphs?  Does it go beyond social shunning and become a problem in formation of trust and reputation?  If is trying to offer a complete picture of a person in order to formalize a standard for identity and reputation, how does it address the gaps such as distancing oneself from parents and work colleagues, disavowing knowledge of mistresses and affairs, hiding crimes, etc.?

This underground economy of social capital must be expressed in some way to be valuable for accurate reputation calculations.  But how?

Interpreting Your Activities

I was reading this blog post about what makes Twitter so interesting:

The key to Twitter is that it is phatic – full of social gestures that are like apes grooming each other. Both Google and Twitter have little boxes for you to type into, but on Google you’re looking for information, and expecting a machine response, whereas on Twitter you’re declaring an emotion and expecting a human response.

I think it would be kind of cool on if, since will be more data collection and analysis than networking and interaction, it could tell people what it THINKS you’re doing.  So you might not even be updating your status like you would on Facebook or Twitter, but, when your profile page is viewed, might tell the viewer that “Ben Turner seems to be analyzing the relative importance of hours worked against productivity and happiness,” sort of like how Track Your Happiness does based on the results of your survey answers.

It is interesting to me to think of something like Twitter (which as a developer is FAR more fun to work with than Facebook is) as ambient awareness, or lifestreaming, or, as the blog post intimates, social grooming.  The same way we take facial expressions, body language, intonation, etc. as cues in real life, Twitter sort of lets us do (but not fully) through its platform.

What if we could really bring this out in more meaningful ways than just letting you foul up a web page with dumb wallpapers and icons like myspace did?

[Final note:  I thought the phrase ‘tragedy of the comments’ was funny, referring to how useless comments on posts usually are, unless curated/rated.]

Building Out the Network

One of‘s (a socially collaborative family tree) most compelling features is that you can add relatives to your family tree without their having to do it themselves.  This was a feature that probably came from necessity:  you’re not going to “friend” your great-great-great grandfather who’s been dead for a while.

But the upshot of this is that a few power users (since social networking always follows power laws) are empowered to build out most of the network.  People who aren’t as active in the network can verify their own details and maybe fill in a few other details that they may know.  This is more of a Wikipedia model, where a small number of people do most of the work, but anyone has the opportunity to add or just use what others have done.

I just started using Nike+ and the Gmail import function is broken.  So even though I have like 800 contacts, I can’t check against them to see if anyone else is using Nike+ that I know.  The result is that I only have 1 friend on it right now, another guy I chat with regularly about exercising.  How am I supposed to be more engaged?  How are we supposed to build a community?

So will let people add anyone else’s profile to the system.  I already planned to beta test the site within my Georgetown network, but I can already envision myself adding basic profiles for all my closest friends and then inviting them to claim it for their own.

People will also, I imagine, add profile pages for celebrities.  Celebrities will be somewhat forced to defend themselves by claiming their profile and either parking it or (preferably) building it out.

Another side effect might be that human rights groups could document small communities in war-torn/oppressed countries.  That is, they could keep censuses on small towns and update their info so the world can see if a lot of people are disappearing because of political violence or dying of disease/malnutrition.

While the costs of storage, bandwidth, and processing time are dropping like a rock, the human population in the world is going to be leveling out, and thus there is a finite number of people.  As population stabilizes, individuals will each become more valuable and more will be invested in each person.  In developed nations, families have fewer children because they are not as likely to lose the children to disease or war or anything else — the time and resources spent having more children is then put into giving them better educations and improved health, among other factors.

So will be right in the sweet spot for providing a way to document more and more of the stabilizing population…and then allowing them to create value for themselves through public reputation.  Doesn’t that sound beautiful?

Job Hunting

So a lot of my friends and recent graduates are looking for jobs now.  That process is miserable, as I wrote about earlier.

I enjoyed a NYTimes article on how employers should be nice to applicants.  Now, I just got a job and had a wonderful experience, so not all employers are bad.

But many employers vacuum up resumes through non-specific and ridiculously descriptive listings.  It is no wonder that people must sift through hundreds of resumes, because companies have such unreal requirements in their listings that no one believes those requirements are real.

There’s a lot that needs improvement but the easiest thing to fix is being more responsive.  Or, I should say, responsive to begin with.

Most likely you send in a resume and never hear back at all.  How are you supposed to know whether your application was viewed and rejected, or just lost or ignored?  One friend of mine said that they forgot to look at their application-receptacle e-mail address for a few months and they had a huge backlog.  Never even viewed!

Even if it’s some form letter saying you’ve been rejected, you can at least move on with that knowledge instead of wondering.

The NYTimes article makes the case that it’s just more professional, and better business.  I do think it highly unprofessional to never hear back from someone or some firm.  Where else would you get off blowing someone off who expresses professional interest?  If there were a monetary value associated with application relations, most firms would be deeply in the red.

I think there should be a reputation tool that allows job hunters to rate firms.  If they apply for a job, they track when they sent the application in, when they heard back (if ever), and what experience they had with the entire process.  A list of the contacts they had with the firm would also be important.  Then job hunters could rate the firms with the highest quality in applicant relations.  This of course would best be bi-directional, with firms being able to do the same with applicants.

I have a lot of issues with how firms are run these days and this is one of the most visible problems out there.  Anyone want to step up and implement this idea?

Turning Into an Ecosystem

Having finished grad school, I’m now waiting for my job to begin.  In the meantime, I’ve been vacationing and have been able to hunker down and code a bit for  I’ve been working on some rudimentary versions of Facebook’s event updaters and news feed, as well as working on the internal mechanics of building formulas and sharing them with others.  So far it’s been going pretty well, given that I’m not much of a coder.

And as I tinker with the overall structure more, I’ve been coming up with lots of lofty ideas for how I want to ultimately look like.

For example, I would love to extend the Galapagos Islands theme and have different islands for the Galapag.users to play on, in some capacity.  There would be a welcoming island where people have to gather enough social capital and contribute back enough such that they can level up and use the full site.  There would be an island for the role-playing game that I intend to build using each person’s unique profile data.  I haven’t thought about how the islands will work exactly, but I want to layer tribes onto that as well.  One problem/benefit is that people have multiple tribes now, not isolated by geography alone.  Can you tie multiple facets of identity to a geographic location in any meaningful way besides having something as hollow as Facebook groups?

This whole way of thinking about islands allows me to build a sort of cultural map of the islands and layer on different aspects of human and social capital.  I’d love to build atmospherics into the islands such that islands have different weather patterns affected by how many people are using a particular part of the site (congestion, increased heat, dynamism) or how prominent the information on that island has become.  I’m not sure how rainy tropical seasons or perfect beach days could be converted from overall site statistics, but it’s a concept I want to explore in order to make the site a breathing entity.

A couple other ideas I had were to view the site as an ecosystem, and employ the Galapag.users to try to maintain the balance of all the different factors on the island, through incentives.  Was there a typhoon in Indonesia?  Perhaps the charity part of the site would offer more incentives when there are calls for Galapag.user action.  Are the long-time users unhappy with new features?  More attention would go there.  There would be hotspots and coldspots on the islands to direct peoples’ attention.  Obviously there would be multiple constituents and lots of issues, but my approach is to use a collaborative method in which users can help maintain the balance.  I’d like to build in Liz Coleman’s liberal arts education program, focusing students on actionable problems and not just fields of interest.

Another thing I’ve been thinking about is how to gather more data without people having to manually enter it.  A lot of the problem could be mitigated by taking on companies and organizations to enter in aggregate data.  Why should you have to enter what groceries or fast food meals you bought when those companies can do it quickly and easily not just for you but for everyone? (given a good registration system)  What if the government was sharing information about you to the database for its health services, social security, etc.?  Already I am working on allowing people to enter in info about you so they can help you complete your profile (with you having the final say in approving/declining that info, of course).

There are big issues, such as privacy concerns and getting organizations to share data.  These solutions are sort of pie-in-the-sky but perhaps in the future, our deathgrips on any shred of info we possess will become looser.  Perhaps we’ll be willing to share our info in order to benefit from the data that companies already enjoy about us.  Perhaps it will allow us to engage with companies and organizations better, if we can use universal logins and social data across sites.

Yahoo! has some wonderful documentation on building social capital and incentives into social networks.  I’ve thought about how to properly align incentives for users (in the way of points and achievement bonuses) with’s goals.  One thing I hate about most social networking projects is that they award people who spend 24 hours a day playing or people who just collect other friends or objects without any meaning behind them.  So the goal is not necessarily to reward those who have more time to play, but who can build more meaningful and important connections — true social capital.

I would like to reward notable figures on, like Nobel Prize winners…while at the same time building new metrics and fame for genuine networkers and builders of social capital.  Different people find different ways to be successful and any social networking site/human data platform should represent that.

So I’m thinking big here, which can be frustrating because the whole mentality for start-ups now is to do something really simple.  Everyone pushes you to refine an idea down to an essence — but that goes against the complex, generalist, all-encompassing nature of  Everyone’s in search of the next Twitter, a simple platform for messaging asymmetrically.  But who’s going to bring all this data together?

Attention and Time

I’ve been thinking about the actual mechanics underneath a system of limitless personal data inputs.  What relevance do different data fields in your life have with each other?  Take, for instance, the number of hours you’ve spent playing a guitar, and then comparing that against the number of women you’ve dated.  What is the common factor?  Would there ever be any correlation between the two?  Perhaps women like a man who can play a guitar, so therefore you might want to play a guitar in order to get more chicks.  Or perhaps there’s something about the culture of playing a guitar (i.e. being in small groups of friends) that facilitates emotional relationships.

These are interesting (but perhaps statistically untestable) hypotheses that I am more than happy to let Galapag.users play with, experiment upon, and debate with each other about.  While I am interested in providing the tools to let Galapag.users interpret their own data however they want, I also know there must be a ubiquitous economic formula or standardized measure within each of the formulae that Galapag.users will create.

It will include some function of attention and time.  That is, peoples’ attention given towards a certain activity, or towards tracking that activity online (a statistical bias in itself, perhaps), is paramount towards determining what value someone places upon an activity or a subject, but it is not the ONLY measure.  Time perhaps is a more neutral unit of measure.  Despite our very different lives, varying deeply not only from person to person but also from tribe to tribe and country to country , we are all dealt with a hard-coded limit of 24 hours in the day.

A large part of that day is spent sleeping (we cannot track quality of sleep yet, but I’d love to have the ability to), but unlimited permutations of how other activities are mixed into the rest of the day reflect our individual uniqueness and personal interests.  As an example, the average hours of sleep per night in the US seems to be about 6-7 hours, while it is recommended that they get 7-8.  Some people may sleep on average more, around 9-10, while others who have a lot of work to do may get as little as 5-6.  Coders certainly may go on long stints without any sleep at all if they’re in the middle of the coding zone on something they’re engaged in.

But you can extract some fairly accurate time-value pictures of people based on how they compose the activities in their days relative to how long that activity takes.  So therefore if you spend 5 hours a day in the gym and working out, probably because you are an athlete, it goes to say that you exceed the average and value that aspect of your life quite a bit.  It’s also likely that you spend a lot of time also on your eating habits and diet.  But not necessarily.  It could be a symptom of some self-image problem.  Or maybe it’s a short-term program, not indicative of your life-long patterns.  It might be that you spend much of your day doing the wrong thing for you (addiction, bad job, family problems), so in that case your numbers will not represent themselves the same way they would for someone else who doesn’t have those issues.  It might be that the summation of activities you do in a day exceeds 24 hours, because you’re capable of multi-tasking.

Thus this gets complex quickly.  But expecting the amount of time you take versus the average, per day, on certain activities is a rough way to gauge the value you place on those things.  Time, not just over a day, but over years and paying specific attention to how different key events (marriage, divorce, children being born, graduations) affect your patterns would become even more fascinating.

Attention and time belong in a function together.  You might be fully engaged into a hobby, relative to others, but it might be that that doesn’t really eat up a lot of your time.  This would be akin to Malcolm Gladwell’s positing that his 10,000 hours need to be active, fully-focused practice and not just 10,000 hours of hanging out at the tennis court chatting while playing a little bit.

These two data points (attention being harder to quantify) will provide the grounding for the rest of the data within formulae.

I think ultimately that these time-value formulae are akin to productivity calculations, which seem interesting when compared across nations.  Western Europe seems to take a lot of vacation time, while Americans take little at all.  Relatively speaking (compared to, perhaps, GDP/capita), who is more productive?  While we can look at our own personal productivities relative to each other, what will it look like when we compare across nations using the dataset?  Can we tug out interesting observations about the value of time and attention?  Can we employ such data towards strategies for increasing human capital and youth development in developing nations?

Do you have any ideas about how to proceed with these measures of value?

Big, Interesting, Mysterious Pragmatic Problems

I’ve just finished a master’s program full of amazing classmates seeking policy solutions to some of the toughest problems the US and international institutions have to currently deal with.  For my part, I deeply love to spend a lot of my recreational thinking time searching for gaps in solutions to problems — entrepreneurial thinking — looking for where something is grossly inadequate and is in need of a better solution.

Better Left Unsaid?

There are certain wide swathes of areas of study that are ignored — and within them lurk many potential solutions.  I’ve gradually noticed some of these areas over the years of study and experience I’ve gathered in my life.  And I’ve often thought about why they remain ignored, and why the solutions, which some very smart people very clearly understand how to identify and implement, remain unused.

I’m reading The Wisdom of Whores:  Bureaucrats, Brothels and the Business of AIDS right now (thanks Kevin Donovan for lending it to me), and its author, Elizabeth Pisani (see her blog on the subject), talks about why HIV/AIDS continue to thrive.  One of the main problems is that we refuse to talk about sex realistically.  We refuse to talk about, as she says, how certain men dress as women and think of themselves as women, how young unmarried women are often more at risk for HIV/AIDS than young unmarried men, how adultery and multiple sexual partners are fairly common all around the world.  Certainly we have not been helped by Ms. Beetroot in South Africa or by George Bush’s insipid abstinence policy for Africa instead of more condom usage.

What Pisani calls it is a problem of taboos.

Taboos Make Us Act Dumb

There must be some sort of linkage between massive societal problems and taboos, because many of the gaps I’ve come across have, in some part, to do with deep cultural taboos.  Taboos around certain issues, like sex and drugs and economics, cause individuals and their government representatives and their communities to ignore debate — what comes out of that perversity is things like bars in Tokyo where Japanese businessmen go into a mock subway car and feel up girls in schoolgirl outfits, or massive failures in counter-narcotic policies, or the idea in some areas of Africa that condoms actually give you AIDS.

I remember a poignant moment when I went to New York City as part of Georgetown MSFS’s NYC alumni trip.  We went to a bar for my birthday and one of my friends brought a guest, some young girl who didn’t really seem that clued in.  We asked what she did for a living and she snootily said that she worked in “collateralized debt obligations”, spoken in such a way that we were stupid if we didn’t know what they were.  Such a phrase didn’t belong to the person speaking it (which might be a little stereotypical, I know), but as it turns out I’m willing to bet she’s out of a job right now and probably never understood the underlying securities.  I just think of that moment for its essence of cognitive dissonance and how no one understood how real estate was booming without underlying income and assets to support it.

As part of my Yahoo!/ISD research, I proposed an openness/closedness model, wherein the nexus was transparency.  Within the realm of health, a society can choose to be very closed, leading to rampant STD prevalence and incidence and cultures of distrust and adultery and secrecy, or it can choose to be very open, in which case it loses much of the meaning of intimate and long-lasting relationships and is prone to gossip (when those who are very open are criticized by those who aren’t as much so).  A third way is institutional and societal transparency, leading to public health initiatives (i.e. civic responsibility over personal privacy in order to increase general health).

Thinking in this way, here are some other massive existing problems I’ve always wondered about.  Most of them have their own inflection points that are seared into my head for one reason or another.  My spidey sense kicks in and asks, “Why did this person react so strongly to this topic?  Why is a topic very intensely studied EXCEPT for this certain area?”  What are the cultural taboos lurking underneath these large-scale societal issues?

Job Hiring and Human Resources

This one is near and dear to my heart right now, since I’m unemployed and looking for work.

Despite services like headhunters,, et al, the entire job hiring process is completely broken.  Here’s how it generally works.

A job listing is posted on the organization’s web site.  The organization receives maybe hundreds of resumes, cover letters, and all the other junk that recruiters ask for.  The recruiter chooses the most promising candidates for interviews and then after an interview, the recruiter and team picks the best person.  Sounds fine, right?

But what really happens is that some overworked manager at work needs to recruit someone, so he writes up this long listing with completely unrealistic job requirements, like “20 years experience in Swaziland and Indonesia, 15 years executive experience, for free summer internship”.  In fact, someone could probably get a lot of traffic with a blog that tracks the most audacious, ridiculous job listings on the market.

On top of this listing, what one needs to do is apply, and that turns into a whole game unto itself.  If you’re lucky, all you need to do is send your resume to an e-mail address.  The more onerous ones ask for a cover letter, which seems to me to be an exercise in redundancy, since your resume should be enough to warrant interest.  The worst hiring mechanisms are in larger organizations, which ask for short-answer or essay responses.  Or you might upload your resume (which is fine), but then the server software tries to parse your resume and then you have to fill in these laborious form fields so that your data fits in this organization’s database.  The worst system perhaps exists in Avue Digital Services, a contractor’s system used by a lot of government agencies.  You should really check this web site out.  It looks like it’s from 1998.  I applied for one job at USAID and I literally had to click on options about how extensive my experience with “formulating a plan and carrying it out” and THEN had to fill out a textbox fleshing out the details behind it.  And this was repeated for 10 other questions.

Keep in mind that if you want to take this process seriously, it will likely take you several hours to complete.  And also keep in mind that you’re not even likely to get any sort of response for all your work!

That is another peccadillo of mine:  people who don’t have the courtesy to respond, even if just to say “no”.  Obviously people are overworked and busy enough as it is, but how does one know whether to follow up or give up if they don’t even get a form letter denial?  This is professionally lazy.

I have a bunch of unemployed friends right now and they are brilliant.  But there’s no entry path into organizations.  A smart organization would put a lot of money into entry-level pipeline programs for training, because there’s few jobs where someone is actually going to come in and be fully-trained for their job.  (Chemonics International and the World Bank seem to have these sorts of programs — kudos to them.  Anyone else you’ve found?)

Thus you get these ridiculous requirements in job listings, posted by people who don’t really know what their organization needs, sent to people who have to send out more and more resumes just to get one organization that responds to them.  The whole system is burdened and, in short, completely broken.

All that said, smart people know that you don’t really get jobs by going on or through job listings.  The best jobs come through your weak ties and social networks.  But doesn’t this sidestep the great advantages the internet offers in terms of matching up interests and human capital?

It is 2009 and we still don’t have online standardization for job hunting.  LinkedIn has a wonderful system that is essentially an online resume with social networking.  But why doesn’t Reid Hoffman, if he’s so brilliant, push LinkedIn as a standard resume system?  Why do we have these bizarre artifacts like tailored resumes that have to be in Word format?  We do we have artifacts like a resume flood where only a few people are even notified that their resume was acknowledged?  Why isn’t there a system that tracks which places you’ve applied to, when you applied to them, and what the results were in an open system?

The answer is that it’s all taboo.  Companies don’t know what they really need in new hires.  People can’t share salary details because people don’t want to know that they might get fleeced, and companies prefer the information asymmetry.  Those on the job market aren’t quite sure what skills they need to get jobs because they know that in their jobs, the “skills” are often complete nonsense.  Opaqueness is the name of the game — don’t let anyone on to the fact that you have no clue what’s going on.

It really is a wonder that organizations are able to make money.  I dream of the day when I get to do hiring as part of my job as a founder — I would, in a heartbeat, volunteer my company to be part of a network of organizations that agree to use an open, transparent hiring system.

Altruism and Non-GDP Labor

I took a biology class in college which stood out in mind for its professor who was keenly interested in making sure we understood the most sweeping, important ideas within the field.  In particular, he spoke pointedly about the concept of altruism in nature, so much that I think he might have even devoted a whole lecture to it.  He spoke about whether there are examples of altruism in nature and whether that altruism was ultimately self-interest or if it was genuine.

The attention he gave to that topic signified its importance to me.  But having grown up in a fairly mercantilist Dallas, and in particular the ultra-competitive suburb of Plano, and then bearing witness to the high-flying dotcom boom and the era of Greenspan and Reagan and trickle-down economics, altruism has been a topic suspiciously ignored and avoided in much of the literature I’ve read.

Something has changed since the dotcom bubble collapsed.  The massive drop in costs for storage, bandwidth, and processing has made information dissemination and creation go exponential.  Freemium (offering most of your services for free while charging for premium features) is a viable business model, collaborative projects like open source Linux and Wikipedia are a normal part of our innovation ecosystem, and the “gift economy” is no longer fantasy.  Check out this article on the altruism in economics.

Greenspan infamously admitted there were flaws in his theory, and Reaganomics have gone dormant.  Now The Economist is worried about big government (its latest cover signals the magazine’s shift from averting financial collapse to anti-government economic conservatism, as if those are either/or states).  The neo-cons have gone dormant as well.

This is allowing for more integrative economic theories to be debated and explored — the outcome will be some mix of purely economic labor (i.e. going to work and earning a salary) and social capital wealth (fostering your strong and weak ties) and incorporating household labor (cleaning the house, taking care of family) into statistics about overall wealth.

You can see the taboo in this area in how economic growth used to be calculated:  gross domestic product per capita.  This is a crude measurement of overall GDP divided by population, ignorant of massive socio-economic divides or other measures of well-being.

But the Human Development Index has gained traction.  On top of GDP/capita, it also includes statistics on literacy and life expectancy.  This is a closer approximate to tracking a realistic, sustainable snapshot of human life.  In fact, one might even call it an attempt to measure happiness (in the past, happiness was just how much money you earned, according to economists).  Bhutan has taken a radical approach — it’s made happiness a national measurement.

“Specifically, the government has determined that the four pillars of a happy society involve the economy, culture, the environment and good governance. It breaks these into nine domains: psychological well-being, ecology, health, education, culture, living standards, time use, community vitality and good governance, each with its own weighted and unweighted G.N.H. index.”

Economic theory is the real story of the 20th century.  The advent of Marxism and Communism vs. Capitalism, the Keynesian economic school that led to Friedmanism and a collapse of financial institutions in the United States (1929 and eventually 2007).  Why are economists, who are given so much control over policy, unable to break the taboo of non-monetary labor?

For more, read Clive Hamilton’s “Growth Fetish”.  Some choice quotes:

“As Andre Gorz has observed, ‘Socialism may … be understood as the positive response to the disintegration of social bonds ensuing from the commodity and competitive relations characteristic of capitalism.’  Eudemonism too is motivated by an understanding of the corrosive effects of capitalism on social bonds, but it differs in two respects.  First, it attributes this erosion of social bonds not so much to the depredations of the capital-worker relationship but to the social disintegration associated with excessive consumption in the marketing society.  Second the problem of capitalism is not only the disintegration of social bonds but also the loss of self that characterises the marketing society.  We need to recover the security and integration of pre-modern societies, societies ‘in which the unity of work and life, of society and community, of the individual and the collective, of culture and politics, of economy and morality, is re-established; in which the functional requirements of the system coincide with the aims of everyone, and the meaning of each person’s life coincides with the meaning of History.”

“Becker defined marriage as an arrangement to secure the mutual benefit of exchange between two agents of different endowments.  In other words, people marry in order to more efficiently produce ‘household commodities’, including ‘the quality of meals, the quality and quantity of children, prestige, recreation, companionship, love, and health status’.  The marriage decision is therefore based on quantifiable costs and benefits.

“He defined love as ‘a non-marketable household commodity’, noting that more love between potential partners increases the amount of caring and that this in turn reduces the costs of ‘policing’ the marriage.  Policing is needed ‘in any partnership or corporation’ because it ‘reduces the probability that a mate shirks duties or appropriates more output than is mandated by the equilibrium in the marriage market.”

Those organizations and companies that seek to promote the value of activities and social goods other than those goods and services produced and paid for will be the big winners in the next century.  Who is tackling these issues?  Read Kevin Kelly’s latest primer on the subject of the global collectivist society.

Human Capital and Social Capital

Facebook I believe is one of those companies.  While Facebook still has a tinge of triteness in the minds of many, I think what it is doing will help to define our coming networked information economy, to use Yochai Benkler’s “Wealth of Networks” term.

Facebook is building a standardized international system for maintaining our pre-existing social capital and expanding upon it.  Social capital is roughly measured by the number of your contacts, weak or strong (weak ties are acquaintances or co-workers while strong ties are your friends and family), and the level of interaction you have among them and your ability to bring your different nodes of interaction together.  Essentially this is what you are doing on Facebook when you’re having conversations with all your friends in one location (your wall).

Human capital focuses more on things like education level and health care and nutrition, the fundamental building blocks which allow us to achieve more parts of Maslow’s hierarchy of needs (further discussion of Maslow suggest that you don’t need to have all the lower levels on the hierarchy of needs to reach self-actualization — you can have different combinations).

I bring up human and social capital because they are deeply awash in taboo.  People react violently to sharing their data online, because they are terrified of accountability and misuse and the idea that you can game human interaction.  Ask girls you know what they think about Neil Strauss’s “The Game”, a book that describes a community of men who figured out that if they wore attention-grabbing ornamentation to a club and said certain things to ladies at a bar, they could get those ladies to do just about anything they wanted while there, including “number-closing” or getting a girl to give you her number.

No one wants to think of human relationships as so base and simplistic, particularly when it comes to her OWN relationships.  Everyone wants to be complex.  But there are biological and social mechanisms that are intrinsic to how we interact.

The taboo that humans cannot be studied as though they are animals stops us from being able to understand ourselves, and thus we are exploited by reputation thieves, identity crooks, marketing projects, “players” and “hustlers”, et al.  We come up with imperfect systems like eHarmony to try to find us the perfect mate, and we use simplistic hiring systems to find jobs.

Good Governance and Strong Leadership

The international development discipline has gone through many fads in its attempts to systematically reduce worldwide poverty:  economic growth, education initiatives, public health, increased nutrition, food aid, import substitution, infrastructure projects, anti-corruption, institution-building, etc.

Naturally, flooding anything with money will lead to existing power structures siphoning that money away or just plain mismanaging it so that the end result looks nothing like how the project was intended on paper.  What you end up getting are things like warlordism (Somalia), clientelism (South America and much of the world), and simple corruption (everywhere).  Thus, you have people like Bill Easterly and Dambisa Moyo, development economists, who are saying that we’re wasting our money with “aid”, if it’s not accompanied with the proper incentives for all parties, and if it’s not held accountable to the recipients of aid (i.e. poor people and the citizenry) but only to the government.

I’ve just started a very interesting book my brother chose about Tokyo’s fish market, Tsukiji.  In it, the author, Theodore Bestor, has a disclaimer up front that anthropologists should stop being afraid to address power structures and economics — he notes that anthropologists abhor discussion of economics and economic systems, a sentiment I’ve noticed when I listen to my family talk about the two topics.  There is notable distaste between anthropologists and economists, even though I’ve always found both subjects fascinating and inextricably linked.

I studied international development as my concentration in my master’s program and very rarely does any of the literature talk about the importance of strong leaders except in a negative context, primarily for “big men” in Africa who ruled for multiple decades and ran their countries into the ground.  But if we’ve established that aid money is subject to graft, infrastructure projects are steered towards clients of the government, literacy is kept down to stop the citizenry from fighting back, and virtually all development initiatives can be co-opted, doesn’t that leave good governance as an important (but not the only) step?

And that’s where development stands now:  encourage strong institutions and good governance and a country’s government will start performing better for its citizens. But still, the issue of having a strong leader to push these programs through, even knocking down incumbent interests who will resist, is ignored.  It is a taboo topic.

Just look at what the CIA used to be obsessed with:  regime change and propping up friendly rulers.  The most taboo and secret people of all, our clandestine services, used to subvert governments worldwide.  They did it either to keep parts of the world so fractured that they couldn’t challenge the US or to bring in someone who would represent American interests.  And in that context, it worked pretty well.  We didn’t care if that country’s people were disenfranchised and thrown into poverty.  We didn’t care about internal civil societies or human capital.  We just wanted rulers who would do what we wanted them to.  End of story.  The CIA knew what was up.

It doesn’t seem as though there are many ways to birth, train, and promote a great leader like Gandhi or Churchill or Lincoln out of a lab or vacuum.  So how can development practitioners bring this about?  They can’t, really…at least, not that popular literature and research has uncovered.  Have you found anything?  The best thing seems to be leaving countries alone, forcing them to deal with their national identity and to have a natural process of finding leadership.  But this is not something we can spend millions of dollars on.

Perhaps the best thing we can do is to be the best role model country on our own, to exemplify values we hope others have.  This solution does not provide practitioners with jobs.  So perhaps that is why there is a taboo about strong leadership in international development literature.

Personalities & Social Lubricants

One subject that has come to dominate my thoughts more and more over time is the importance of individual personalities.  This is somewhat linked to the strong leadership gap described in the last section, but specifically I am obsessed with the development of very interesting people.  I don’t care as much about how they got to where they are, but am most interested in the conditions and environment those people grew up in, and what decisions those people were faced with at critical junctions in their lives.  This is why I loved Malcolm Gladwell’s “Outliers” so much; he finds that successful people did not appear at a vacuum.  In many cases they were blessed with extraordinary opportunities that seemed mundane at the time but that gave them the time to become experts in their fields.

Richard Branson, Bill Gates, Warren Buffett, Sergei Brin and Larry Page, Jeff Bezos, etc.  These are remarkable human beings but they do not just settle on one thing in their lives.  They are pushing forward on new initiatives.  They’re not one-trick ponies.  They have stunning ability to motivate others to go further.  It’s these personalities that I don’t think get enough credit except for the fact that they are filthy rich.

It’s no secret that personalities sell — I appreciate the tabloids on that basis alone.  But the celebrity world of movies and music seems to be the only real vector for pushing personalities into the forefront.  It is not as though many other professions can hope for that level of fame, no matter how eccentric they are or how interesting their award-winning work is.

As far as I know, there’s really only one organization that seeks to build a network of particularly entrepreneurial individuals:  the Ashoka Foundation.  My impression is that the foundation takes entrepreneurial winners from different countries and then encourages them to become mentors for the next generation of social entrepreneurs from their country.  This talent-centric approach is at odds with venture capital and the public markets, which only care about the ideas, and more recently, only pay attention to entrepreneurship in business models.

I would much rather hire or invest in someone whose mind is abuzz with new ideas than fund one idea and hope that it pans out.  This is why talented individuals are so important.  Hire them, put them in a room together, and they will come up with absolutely brilliant stuff.  Why is this so hard?

Some might blame it on shareholders wanting to see short-term results.  Others see it as protecting an entrepreneur’s future revenue streams.  Both lame explanations.

What is a Taboo-Destroying Entrepreneur?

Part of being a social entrepreneur is helping solve societal problems.  But they are still problems for a reason.  It’s not because no one’s had a brilliant-enough idea.  It’s because of cultural taboos.  It’s because no one’s chosen to shatter a taboo into a bunch of different pieces and force people to see the truth underneath that taboo barrier.  So you could equate social entrepreneurship to shining a spotlight on a culture’s most embarrassing traits, the dirty little secrets that no one talks about regarding sex, drugs, black markets, relationships, bribery, and so on.   Social entrepreneurship is about destroying taboos.

Some more taboos.  Assuming we can just stop everyone from doing drugs or having sex has resulted in a failed abstinence program worldwide and a massively-defunct war on drugs that has turned Mexico and the pipeline countries of the drug trade into a bunch of city-states fighting cartels.  Nintendo crushed its competition by releasing a console, the Wii, that appealed to a bigger pie of people than just hardcore gamers.  What are we doing about our prison system, the costliest and most populace in the world?  Prisoners still manage to get cellphones and all the gear they need into jail, and terrorism and hardening of criminal behavior seem to actually thrive within the prison system that is supposed to rehabilitate them.  Prisoners easily even get drugs in prison!  Michael Lewis’s Moneyball showed how one statistician fought the commonly-held assumptions of how to recruit talent (i.e. hunch) and decided to let statistical analysis do the talking instead, resulting in a revaluation of which players should be signed and, although not yet, eventually a revaluation of salaries versus performance.  There are just so many examples of individuals having to fight the incumbent system to install what everyone should want:  something that more closely models reality.

Is the American Innovation Ecosystem Broken?

I am about done reading Judy Estrin’s “Closing the Innovation Gap:  Reigniting the Spark of Creativity in a Global Economy”, one of the best books talking about innovation out there.  One of the most poignant things Estrin brings up in the book is asking whether the US is not longer innovating as it should.  Estrin argues that even while dotcoms were all the rage and the web 2.0 community lifted off in the first decade of the 21st century, the underlying building blocks of the innovation ecosystem had gone stagnant.  Estrin doesn’t pull any punches for Bush the Younger for not improving education and immigration incentives, not funding the apolitical science foundations enough, etc.  She is worried that while things have the appearance of being good right now, the US is shutting down innovation-wise and countries like China are investing massive amounts of money into general research such that immigrants are no longer as likely to come to the US and stay afterwards to work.  What happens when we become exporters of information workers and not importers?

I’m not high-level enough to know how today’s situation compares to the past, since I’ve only spent limited time with master’s and PhD types and administrators at universities.  Georgetown has a pretty small endowment and even smaller for my program.  I’d like to think I’d be able to rally the alumni to bring money and attention back to MSFS later, but I don’t know how to do that yet.

I’ve read a bit about Harvard’s looming budget crisis for research and Estrin talks a bit about how PhD research is in danger of becoming a beauty pageant tailored towards whichever areas receive the most money and not where people are most interested in researching.

I’ve also had some trouble getting interest in my topic of interest, identity and reputation in the digital world, despite its being the next step for the online networked information economy.  There haven’t been any big IPOs lately and start-ups seem to be mostly dead-on-arrival ideas.  It’s a far cry from what was going on in 1995 online.  All the interesting stuff is lurking under the surface right now — and mainly in collaborative open source projects.  In other words, the internet’s development is back to underground communities because the public and private funding is not there.

Final Words

I just want to close with the sentiment, that despite my attempts to quantify human behavior, I do come from an anthropologist family and so therefore I do passionately enjoy reading about the peculiarities and eccentricities of different cultures and would never want those things to disappear.  What I do think, though, is that many people take advantage of other peoples’ lack of access to information and then they exploit that.  Such exploitation of power and information is substantially different from cultural and social community-level identities.  To make our societies more transparent, I argue, is to embrace our differences fully and bring them out so we can enjoy them.  Without taboos.

Seeing Transparency Everywhere

Seems like everywhere I look, enforcing transparency is the theme and is being touted as the possible solution to today’s problems.

Massive financial crisis?  See Daniel Roth’s Wired article for a plan for radical transparency in the financial markets.  See Toby Segaran and Jesper Andersen of talk about transparent asset rating schemes and database schema.  Or read Umair Haque’s call for Finance 2.0.

Political corruption?  See Transparency International or use Global Integrity‘s corruption assessments.  Or see what tools the Sunlight Foundation is working on.

Our detachment from food production systems?  Read Michael Pollan’s Omnivore’s Dilemma in which he proposes slaughterhouses transparent to the world instead of the immensely secretive systems in place now.

I love it.  It seems like ages since David Brin wrote his book, “The Transparent Society:  Will Technology Force Us to Choose Between Privacy and Freedom?”, which I consider to be one of the most under-rated books out there but which deserves to be cited as often as, say, Hernando de Soto’s “The Mystery of Capital:  Why Capitalism Triumphs in the West and Fails Everywhere Else”.

Brin proposes a world of total transparency, where we give up much of our “privacy” (to exclude within our homes) in public, in exchange for the ability to watch the watchmen, police, government, other organizations, and each other.

Sunlight, it is often quoted, is the best disinfectant.  I agree.  The hand-wringing over Facebook’s privacy controls is necessary, but in the sense that we need to have control over our own data and reputations, but not necessary in that we are moving towards a world of publicly visible reputations.

Secrecy — that is, darkness, and being able to hide what you do to different people — allows for corruption, duplicity, and deceit.  It breaks down trust.  It leads to massive Ponzi schemes if combined with favorable regulatory environments (one of the genius outcomes of a radical free-market ideology to allow organizations to bilk people out of all their money).  It leads to realpolitik and cutthroat realism.  It discourages education (the less you know, the more I can exploit you) and human rights (you may know, but you can’t do anything about it).

Transparency has basically become what I’ve become infatuated with, along with reputation and identity.  The research model behind my work for the Yahoo!/ISD fellowship looks at privacy and openness and finds what could happen through the intersection of both:  transparency.  My model is below:


I get really excited about this stuff.  This is the way we have to go in so many areas — towards transparency and accountability — if we hope to achieve sustainable progress.  And this goes for us, in our own lives, in our own countries, before we even hope to press other “evil” or “secretive” or “authoritarian” countries to open up to the rest of the world and be more democratic.

So if you have any more examples of transparency projects in other sectors (like in education or in voting machines, et al), or projects I could get involved with in that area, please let me know.

As you know, I’m hoping to build a massive, transparent reputation system where people will be able to affect other peoples’ reputations, which they must defend and can respond to, creating feedback mechanisms…all out in the open.  People I’ve bounced this idea off of for usually respond with disgust that they don’t want to have their privacy violated.  But consider the alternatives.  When you can use a reputation to build capital and prove yourself, and not just be afraid of people knowing things about you, wouldn’t those benefits outweigh the drawbacks?  What about all those people you know who get over, and get away with screwing other people over?  What about them?  How do we hold ourselves accountable?

How can I convince you that will be huge?


Today in our international negotiation class, one of the readings we looked at was Robert Axelrod’s highly influential article, “The Evolution of Cooperation”.

In it, he describes a computer simulation he ran based on the game theory game “prisoner’s dilemma”.  Basically, the game assumes two prisoners, speaking to the police separately.  If both stay mum on the crime they both committed, they get the lightest punishment.  But if both tattle on the other, they both get a fairly bad punishment.  If one tells on the other but the other doesn’t do the same, then the traitor gets a lighter punishment and the other gets a really horrible punishment.  So it would seem to be “safest” to confess on the other party, just to be sure.

Instead of analyzing one iteration of the game, he extended it to run multiple iterations, building on past results, to generate the best outcome for both parties.

What Axelrod concluded was that the best strategy for a party in this game is to reciprocate the other’s move, after opening with a cooperation move.  That is, the first thing you should do is cooperate.  But if the other party defects, then you should reciprocate by defecting too and reciprocate every move henceforth.  But your overall strategy should be to want to cooperate and forget past defections.

Basically, as our professor put it, this strategy is “be nice, retaliatory, and forgiving”.

There are flaws in this game, as my brilliant classmates pointed out:  parties are rarely equal in international negotiations (the US vs. Panama), the first defector ultimately has a slight advantage, and sometimes payoffs for cooperating/defecting are different for each party.

But I am interested in the overall message:  reciprocity.

If I am going to try to build a comprehensive reputation system, then it cannot just be a quantitative measure of your life-long statistics.  It must also incorporate social and qualitative measures, such as what other people think about you.  In other words, your reputation as we tend to think of it now.  It is an amalgamation of all the acts that other people know (and suspect) you’ve done.

If you are going to evaluate someone else’s honesty and trustworthiness, you want to know whether they’ve ever pulled a fast one on someone else.  Even then, would you still conduct commerce with them? will allow people to post bad things about other people, something that’s fairly neutered online right now (for obvious reasons).  But what mechanism needs to exist in order to counter this is the ability to reciprocate both by the person aggrieved and by the system itself.

Yes, you can post something negative about me.  But the system will see this as a negative attack that should cost you something, and both my friends and myself will have methods to attack you back.  All done in public.  So it’s a transparent system that holds people accountable to their actions.  It allows for reciprocity.

Says Axelrod:

“Once the word gets out that reciprocity works – among nations or among individuals – it becomes the thing to do. If you expect others to reciprocate your defections as well as your cooperations, you will be wise to avoid starting any trouble. Moreover, you will be wise to respond appropriately after someone else defects, showing that you will not be exploited. Thus you too would be wise to use a strategy based upon reciprocity. So would everyone else. In this manner the appreciation of the value of reciprocity becomes self-reinforcing. Once it gets going, it gets stronger and stronger.  This is the essence of the ratchet effect: Once cooperation based upon reciprocity gets established in a population, it cannot be overcome even by a cluster of individuals who try to exploit the others. The establishment of stable cooperation can take a long time if it is based upon blind forces of evolution, or it can happen rather quickly if its operation can be appreciated by intelligent players.”

It will be interesting to see how different personalities approach this functionality.  Will some people defect more often on others?  Will some really come to value being trustworthy?  Will people become hypersensitive about any sort of negative attack like on eBay’s buyer/seller ratings?  How can facilitate an equitable system.

These won’t be easy questions to answer, but my overall goal is to create a reputation management system that rewards cooperation and social capital while at the same time valuing negative feedback, both in the sense of finding it necessary and important, and in the sense that if you say something bad about someone, it should cost you something to take that course of action.

A last point I want to make is about the value holds:  its permanence.  It establishes a long-term view and accountability upon all users.

Axelrod says, “For cooperation to prove stable, the future must have a sufficiently large shadow. This means that the importance of the next encounter between the same two individuals must be great enough to make defection an unprofitable strategy.”

Clay Shirky, who’s been thinking about reputation a lot lately, talks about the “shadow of the future” as well, based on Axelrod’s reciprocity.  You get a sense that the Ayn Randish selfishness and every man for himself attitude is only a short-term game.  Some might call this social Darwinism or survival of the fittest, or Malthusian or gladiatorial (as Wikipedia says in its article on Axelrod’s “The Evolution of Cooperation”).

But the shadow of the future, the mankind and individual memory we have of the past, allows us to play out into the long-term.  And this is where altruism and “mutual aid” come in.  It might serve our purposes better to work together than to play for ourselves (i.e. the prisoner’s dilemma).  We may need to be competitive to advance, but if we destroy each other in a zero-sum game, then we will all die.  The ecosystem we are all a part of thrives when we’re all there, participating.

So was not born of a cutthroat mentality where every person must compete with everyone else. is that ecosystem, made up of many levels and units and layers of biomass and data, and the more datamass there is, the more information we can learn from it in order to grow more individually.  It is a network of trust and accountability that creates teeming supplies of social capital so that we can conduct better business and social networking and self-awareness.

Mike Neuenschwander wrote a post on how it’s good that social science is coming into the internet security (which feeds off of reputation) discussion, which had been dominated by computer science in the past.  What he says is,

“However, I’d like to add that Axelrod’s work is only a starting point—a portal into the discipline of what I now refer to as “social trust online.” Some of my “Laws of Relation” hark back to Axelrod. But Axelrod’s work on reciprocity isn’t sufficient for developing new pathways to trust on the Internet. In fact, filling in all the other applicable research on trust is the entire purpose of my contributions to this site.”

So with that in humble mind, there’s a lot more to research in order to make the massive all-encompassing trust network for every human and thing on the Earth that I envision it to eventually be.

Reid Hoffman and Micro-Bailouts

Reid Hoffman, founder of LinkedIn, has been getting a lot of press this week.  He was interviewed on Charlie Rose and also had a column published in the Washington Post. (please check them out to understand the context below)

The start-up/entrepreneur community linked the heck out of Hoffman (like at TechCrunch), so his name kept getting more and more traction.

Although Hoffman is right about making the US hospitable to immigrants (immigrants are shown to very positively impact economic growth), I do not agree with much else of what Hoffman does or says.  Why?


Listening to Hoffman peddle LinkedIn on Charlie Rose was kind of sad.  Really?  A popular founder posted a question on a forum on LinkedIn and a bunch of people responded?  Wow, you can post recommendations of people on LinkedIn?  That’s amazing!  Only on LinkedIn can you use forums and post things about people!

This probably works pretty well if you’re popular and have a lot of fans willing not only to read you but also to contribute.  But how does this help individuals with little prominence get a job or promote themselves?

Can anyone not affiliated with LinkedIn honestly say it’s helped them professionally at all?  The more people join LinkedIn, the more their job listings become like Monster or other clearing houses for jobs.  i.e. they’re totally useless.  Naturally a lot of bloodsucking headhunting/recruiting companies leech onto LinkedIn and bulk post listings, diluting the value even more.  Now there’s a 6-figure salary professional networking site, TheLadders, which I’m sure looks upon LinkedIn with disdain but is also pretty much useless to most people.

Hoffman dismisses Facebook as a place mostly for photo-sharing.

Uh, what?  That’s a pretty big red flag that he either was making a small off-the-cuff comment, or he has no clue what he’s talking about when it comes to social networking.  Facebook is massive; it’s vibrant, explains who people are, and allows people to be creative.  LinkedIn is stuffy.

It’s unfortunate, too, because LinkedIn could totally become a standardized resume service so that you don’t need to hand someone a resume, they just go to LinkedIn and find you.  Then your resume never goes out of date.  You know, like how the web is supposed to work…

The Future of Social Networking

LinkedIn is an added layer of redundant social graphs on top of something really useful like Facebook.  I’d be more likely to meet people I want to work with and communicate with through Facebook than on the staid LinkedIn.

Hoffman talks about people in the future needed two social networking sites.  One professional, one personal.  I completely disagree.  I think one thing to come out of this Great Disruption and crashing down of old business models is that personal and professional lives will be combined.

It’s unsustainable to live a dual life of your professional self and your personal self.  One should reinforce the other.  People create value when they’re employed in a way that allows them to self-actualize and be creative.  They are useless as drones.  People aren’t comfortable with this yet (privacy concerns) but it’s the only way a future information/service/networking economy is going to work.

Hoffman’s world of two separated social networks is ridiculous.  Most of us play with the people we work with, or at least socialize to some degree.  Our networks overlap quite a bit even though we try to control the degree of convergence to “protect” our reputations.

Identity layer protocols in production right now like OpenID and OAuth and Facebook Connect and Yahoo! Open Strategy and OpenSocial are going to jailbreak our social graph data.  We will be able to use multiple sites simultaneously.  Likely there will be an aggregator through which we use those other sites (Facebook hopes it will be the aggregator), but each site will cater towards specific hobbies and interests (that is, specialization of Facebook into social networking, Yahoo! into social media, Twitter into micro-messaging).  Our daily internet use will look more like a meshy ecosystem of different sites and brands.  Companies will have to fiercely build their brands so that their data doesn’t get absorbed into a ghoulash you see when you open your browser.

Stimulus Plan

So then Hoffman argues passionately in his WaPo column that the stimulus plan should earmark money for giving micro-loans to small businesses.

There’s a canard that the Republicans love to use that the lifeblood of the economy is in small businesses and start-ups.  Now, as someone who wants to start my own company, you’d think that I’d be all in favor of this talk.  But it’s not really true.

Yes, there are far more small businesses than big businesses.  Duh.  You can start and close a business fairly easy in this country (see the World Bank’s Doing Business report).  Obviously the aggregation of human capital into firms is going to consolidate into larger and larger companies, which will be fewer than small businesses.

But those large firms are also usually fairly successful (to have gotten that far), require massive administrative/financing/etc. support and logistics and clustering and supply chains and their own mini ecosystems.  That is why they generate far more actual productive jobs than a small business with a handful of people could.

Small companies far more often than not fail to make money.  They churn quite a bit.  Hoffman of course would like to boast about Google and Amazon and Microsoft (he cites Microsoft in his article) as examples of how small businesses drive the economy.  But these companies are outliers that actually had different, revolutionary ways of doing business.  They don’t represent the majority of small businesses.

In short, most small businesses are trash and will never make it.  They will barely employ anyone.

So Hoffman recommends giving loans to small businesses.  Is this a government function?  To fund businesses?  No.  What Hoffman seems to be advocating is a lot of mini-bailouts for small businesses that can’t monetize or succeed in an open market.  He seems to want to subsidize failing businesses.  How are these people going to pay back their loans if their businesses fail?  Will they blot out their credit records early with a bankruptcy?  Does this funding come along with better bankruptcy/business exit regulation that’s more conducive to entrepreneurial endeavors?

Hoffman says, “The stimulus finances important development of infrastructure, renewable energy and scientific research, which is great for jobs in the short term but doesn’t guarantee the vibrant economic ecosystem required for sustainability.”

What?  How does research and infrastructure only lead to short-term jobs?  Doesn’t he have it backwards?  Research and infrastructure create long-term ecosystems and new sectors for jobs, while micro-loans create short-term jobs?  I’m confused.

To dispute this, let’s take a look at how some companies came about, through small business loans:

FedEx (from “FedEx History”):

“In 1965, Yale University undergraduate Frederick W. Smith wrote a term paper about the passenger route systems used by most airfreight shippers, which he viewed as economically inadequate. Smith wrote of the need for shippers to have a system designed specifically for airfreight that could accommodate time-sensitive shipments such as medicines, computer parts and electronics.

“In August of 1971 following a stint in the military, Smith bought controlling interest in Arkansas Aviation Sales, located in Little Rock, Ark. While operating his new firm, Smith identified the tremendous difficulty in getting packages and other airfreight delivered within one to two days. This dilemma motivated him to do the necessary research for resolving the inefficient distribution system. Thus, the idea for Federal Express was born: a company that revolutionized global business practices and now defines speed and reliability.”

Burger King:

From “Food Metrics”:

“When you think of McDonald’s in San Bernardino and later Des Plaines, Wendy’s in Columbus, Burger King in Miami, and KFC in Corbin, Ky., the one element that combines all these concepts is food. Colonel Harlan Sanders sells the first KFC fran­chise in 1952. Burger King opens its first restaurant in 1954 in Miami. Ray Kroc sees the success that the McDonald brothers are having in their restaurant in California and immediately starts to sell the brothers on the idea of opening other restaurants, first to sell his Multimixers and then to run them himself. He opens his first McDonald’s in Des Plaines, Ill., in 1955. Along the way, Pizza Hut starts up in Wichita in 1958. The common thread? Food—the American equalizer.

“With the development of the interstate highway system through the 1960s and into the 1970s, we’re on the road, and we find a growing number of meals are being eaten away from home. By using franchise and license systems of development, food vendors are able to develop chains of (continued from page 35) restaurants, thus leveraging purchasing power for all of them and using those franchise and license agreements to leverage standards of operation across franchise net works. McDonald’s is a strong proponent of mandatory standards and leads the way for other chains to develop quickly. McDonald’s targets television advertising to children and drives sales by reaching out to the youngest members of the family. All this occurs at a time when mobility and suburb growth are exponentially expanding.”

I think if you read a lot of histories of successful companies, you will not really read a whole lot on how they got financed.  I mean, some have interesting stories like Charles Ferguson’s company, Vermeer, that he eventually sold to Microsoft.  But mostly these companies were about people, and about ideas.

Hoffman mentions MTV and CNN as start-ups…really?  Too bad he didn’t mention Google and Yahoo!, both started out of a very generous Stanford computer science school that put up with the massive resources they ended up using.

Similar to Malcolm Gladwell’s point in Outliers that people do not just happen to be successful, new firms are very often products of large agglomerations of human capital.  Fast food, as Eric Schlosser discusses in Fast Food Nation, came about after WW2 and the Federal Aid Highway Act of 1956 under Eisenhower, that created a market for food on the go — it is no mystery why all of our greatest fast food chains were created at about the same time in the 50’s-60’s.  FedEx was the product of university research and experience in the military through Fred Smith.  Heck, even Reid Hoffman is a Stanford-born and Berkeley-raised Stanford and Oxford grad, all pillars of human capital agglomeration, a key driver of innovation and growth as Richard Florida describes in his latest book, Who’s Your City?.

Human Capital

Hoffman belittles Obama’s investments into human capital.  Funding university research, private research, improved education systems and schools, technological and logistical infrastructure, these are all keys towards building human capital so that it can continue to innovate.  Green energy research is going to at the same time lower the cost of energy inputs into development and production and consumption, while providing new jobs and new sectors for continued economic growth.  It will also wean us away from having to work long hours to create value, as we transition to a lifestyle where we value living as much or more than working for someone else.

Hoffman’s cute but pithy quote that everyone will be an entrepreneur is quite frankly offensive.  Not everyone has an entrepreneurial spirit.  Certainly most entrepreneurs are not social entrepreneurs, people who seek not just to own a business or make lots of money, but to also (and primarily) to help a lot of people.  Entrepreneurial literature carefully discusses how entrepreneurs are NOT like other people, most of whom just want to earn a comfortable salary and raise a good family.  Far different to take responsibility for your life (as we all should do) than to work on a completely untested, unproven idea (as true social entrepreneurs do).

The money for financing new ideas will always be there.  Forcing investors and financiers to fund bad businesses is just like the Big 3 bailout on a smaller scale.

What we should be doing is investing in people, building their intellectual and creative capacity, while giving them the health and social security to take risks.  Start-ups are most constrained not by lack of funding (except for large capital expenditure ideas like nano or bio research), but by not having the time and living money necessary to dedicate to an idea without having a regular job.

We should invest in training and mentoring people to build their human capital that way, too.  We should encourage people with opportunities to do what they really enjoy to do, to find a way to apply their talents and skills towards something that might be valuable or profitable.  We should invest more into organizations like the National Science Foundation and DARPA and joint partnerships between universities and businesses and government.  We should invest in universities all the way down to K-12, but focus mainly on high school, where most American children fall behind internationally.  We should invest in common areas for knowledge (public centers, co-working, etc.) and internet infrastructure.  We should free companies from having to fund health care for their employees, by universalizing health care.  Why do Republicans support businesses having to pay for health care instead of concentrating on their core businesses and making money?  We should guarantee college for students but also have public schools compete against private schools, as Stanford’s president John Hennessy just told Charlie Rose in a recent interview.

A recent study released by the Information Technology and Innovation Foundation, entitled “The Atlantic Century:  Benchmarking EU and US Innovation and Competitiveness” (PDF file warning), ranked the US #6 overall out of 40 states/groups of states, and dead last (!) out of all 40 in improvement in innovation and competitiveness in the last decade.  The indicators?  Human capital, innovation capacity, entrepreneurship, information technology infrastructure, economic policy, and economic performance.  Vencap and small business creation, two things Hoffman values, are only small parts of the whole picture.  And even in this downturn, privately funding and ease of starting a business is still something the US does really, really well.  So why is he so focused on that stuff when there are deeper structural problems in our government funding and education systems?  Is it because he’s a financier?  Hmm.

Can we just get rid of this idea of “economic incentives” as the only way to spur growth?  Incentives mean distortions at some level, and what Hoffman wants would be tantamount to nationalizing start-ups and innovation.  The government should invest with human capital, not with money.

Money doesn’t lead to ideas…ideas lead to money…please don’t buy into this crap.  At some point, ol’-money-bags-America will run out of ideas and will have nothing worthwhile to fund.  Then it will cease to have money.  That will happen if we don’t invest in human capital.

I think Obama’s stimulus and budget proposals see the value in this and have provided a lot of money to raise human capital.  I have no idea if the amount of money proposed is enough, but the initiative is there.  I want the US to be competitive and innovative, and therefore I must sharply disagree with what Reid Hoffman had to say.  I hope you feel the same way.