“Maloof chuckled. ‘We also pursue glorious goals, such as profit, survival, and the sheer joy of wringing revenue from parsimonious passengers’.”
Jack Vance, Ports of Call, © 1998, Tom Doherty associates, NY
We seek sponsors for a thesis about the causes and conditions of emergence and dissemination of Innovation – hence new knowledge – and of Knowledge generally speaking, which we call their socialization although the phenomenon does not appear to occur more efficiently, in fact apparently rather the contrary, in societies organized by the concept (for instance universalized as ‘socialist’ although this may not solely or entirely recoup political entities so labeled).
In some way this relates and somehow generalizes, to societal and political extent, a previous, doctoral thesis, about the interactions between organizational and market structures [1], at firm level and which was using major references such as Chandler’s seminal “Strategy and Structure” as well as latest industrial economy and strategies discoveries by then.
The new work, in-progress, hereunder presented, uses a diversified accumulated material since then and more recent works in industrial economy, ‘dynamics’ and strategies and a potentially applicable predictive model, to be refined.
Modeling the conditions to reflect enabling as opposed to disabling environments
This question has been introduced in previous blog pages, as the typical epistemological one with for instance a remark of Kuhn’s [2] about the role of Europe in the modern era, yet probably with roots probably as far back as middle-age inception of universities and perhaps even more ancient with the political conditions of universal access to education.
It is here fed by the observation that entities having in effect most disseminated knowledge and innovation throughout recent decades are American and to some extent even Californian and whether for or not-for-profit, but with similar processes, switched to users time measurement unit and through much reactive experience rooted mechanisms.
Considerably more have tried, and many gone far enough, but it has only quite recently appeared to observers that quite all complete successes were born there and not elsewhere, leading to the obvious question: why? And then, how?
As an example recent articles worry that Europe and more specifically France [3] seem to lag behind the United States (U.S.) and that diverse and powerful firms, activities and sectors so far ‘at rest’ now feel threatened by innovative entities such as the “GAFAs [4]“, to which are added an Airbnb and an Uber – from which even a concept of ‘Uberization’ – and possible revolutions in the Entertainment sector, where the U.S. already and again lead the pace.
Arguably everyone wants better shared wealth, shown firstly possible with better disseminated and effective operational knowledge, hence a postulate that has led, in some countries more than others, to the conclusion that this would require more ‘res publica’, which in turn may require more ‘public economy’, finally translated in more ‘state-owned’ or, hence controlled economy as opposed to the type of ‘public’ ownership resulting from scattered capitalism through most diverse intermediating processes, if needed.
The thesis uses cases from several epochs [5] and countries although it gets more in-depth about the cultural and as a result regulatory roots of a critical, most recent difference between France – and to some extent Europe – versus the U.S., even though the diverse set of policies and tools are studied for each case through the complexity of their consequences.
Apart its expected value for general political economy, one purpose of the thesis is to provide mechanisms and even up to predictive tools for decision makers about how to organize knowledge dissemination and innovation entities, whether disruptive, such as emphasized in the thesis for the critical role in the advancement of society and welfare.
Pieces of State of the Art
A Bostonian [6] researcher had concluded, circa 2000, about the leading role of capital risk national industry depth, and more precisely average invested amount, in this American leadership. A conclusion that seems correlated to the size and results of the Silicon Valley venture capital. Several countries, such as France, have reacted by boosting national ‘risk’ funding capacity and focused on measuring the size and progress of fund allocation as compared to other countries.
The present thesis is skeptical about such policy alone and will hopefully be found useful for future political decision makers there or elsewhere and wherever they come from. In fact recent observations from civil servants in charge appear to concur with this analysis, as well papers such as [9], but the goal here is to model and measure the impact of all kinds of factors and actors as the only way to conclude about the extent and sign of their contribution, if any.
Cases used in the thesis are mostly drawn from France versus the U.S. because this is where most experimental material was accumulated, but the model is believed applicable to any Society, about which it ambitions to deliver predictive power. A recent Industrial Policy research paper [7] observes that French manufacturing share of GNP is the lowest of European Union (14 countries apart Luxembourg and before extension eastward), and lowest robotic equipment rate.
This combined lowest equipment rate and conversely highest construction level, seems contradictory with a strong public discourse and action toward innovation, yet already much debated, but as far as we know not so much modeled.
The extent to which the failure is linked to a higher fraction of ‘public’ economy with ‘public’ here taken in the sense of state owned, or directly or indirectly controlled or framed or supported [8], is considered and integrated within the proposed model. This one focuses on the knowledge economy and knowledge disruption but the paper quoted above [7], which scrutinizes manufacturing economies and their policies, already distinguishes several drawbacks that we also observe. In fact the contrary would be surprising since the knowledge of yesterday, applied into innovation today, may result in better, new and more (efficient) equipped factories of tomorrow. Our analysis and as a result model, however, considers its direct counter-effective (from biased to discriminatory, detrimental and even damaging) aspects as only one piece of a wider, organizational, cumulatively regulatory and even cultural problem.
Another correlation comes from economic agents, such as households’ decisions to discard innovative entrepreneurship and prefer other kinds of investments, including non-innovative entrepreneurship. The model concludes that this is less a cause than a consequence of the diversified, but quantifiable, stronger ‘reaction’ of a fiercely opposing environment, more than proportionate to the mass of displaced liquidity – such as Venture Capital amount – in a wake of Archimedes if the phenomenon were so simple, i.e. transitions to crystallizing and otherwise gaseous phases and objects not so prevalent.
Obviously liquidity rivers matter but the economy is only as fluid as its ability to let all kinds of resources, capital and human/knowledge, easily and most swiftly flow and transit from one structure to new ones as opposed to rigid contexts of high viscosity and crystallized blocks, whether regulatory and/or contractually and/or culturally and socially constrained.
For the (growing) portion of central interest for us, i.e. the knowledge economy, with its mostly immaterial value, traditional industrial economies and even dynamics may not apply anymore, or less, requiring new models. The adaptation is more difficult to bigger and more complex structures and some kinds of matrices, hence a possible fierce opposition between a ‘Public’ discourse praising innovation, progress and shared knowledge and a public practice that rather forbids or even kills it from their inertia and set of constraints, through which no disrupter may survive.
Stories
Cases alone obviously don’t make a thesis although their generality appears symptomatic of the disease: about the GAFAs and wider Californian range, with for instance the Space-X, Tesla, Airbnb, Uber etc… disrupters mentioned above, a two-days session in Brussels a few years ago drew a dramatic contrast between about 2 European digital champions to one’s left and about 20 US to the right with the resolution, presented by an E.U. director, that billions appropriately scattered should result in a better balance. The question however came to our mind: is it solely, or even mainly, a matter of funding size, or even, presumably, better combined funding and timing?
In France, among experimented cases, a bunch of known candidates – including our own case – have rambled funding competitions and we detail, among others, the ‘Miloc’ endured case, warned that a sufficient entanglement of public endorsement and strong strategic alliances was a must to expect to become a happy very few winner… a status that he finally did not reach, driving him back to ‘classical’ Venture Capital entities then telling the team that the net of strategic alliances tying them up was to be dismantled as a starter.
A recent survey and research paper [9] comparing results of ‘Independent Venture Capital’ (IVC) versus more ‘Corporate VC’, including more Public (or ‘state-owned) VC and bringing some correlation with U.S. versus European different mixes, corroborates the picture, which participates to a painting and tentative modeling of more independent and fluid or less structured versus more intricate, ‘clusterized’ and integrated societies, that our model precisely investigates.
It seems that the U.S. champions have been able and allowed to focused on simple, easiest, most widely disseminated and least entangled and controlled, disruptive products or services when the ancient world, mostly from organizational and societal brakes as scrutinized and modeled in the thesis, up to a ‘geometrical’ model in progress, were rather busy tying knots presumably thought for the best but in effect rather binding and efficiently destroying potential global stars.
Hints at Industrial Dynamics predictive modeling
Industrial Dynamics, quite recently grown from Industrial Economics or reborn since the 90s [10], suggest images of flows, viscosity, fluid dynamics together its already customary elasticity and the concepts of tissue and structure deformations and ruptures borrowed from physics. A recent article [11] prompts figures about what one may see as black hole or at least giant stars kinds of gravitational impacts when observing the close to duopolistic market share acquired by the Google-Facebook on the French – and probably similarly others – advertising market. Such intuitions inspire directions to get to the quantitative modeling of the deformations of industrial economies and their propagation from single firm, disruption-sourced effects to sector and finally multi-sector waves and global economy shaking.
Modeling and testing
Many models have until recently ever better represented classical industries, now however impacted by more technology-based or even purely high-tech players, breaking barriers. We focus on the kind of digital-based disruptions allowing the rocketing growth of firms such as listed above. We have come to issue a currently still provisional and underdeveloped, by far, quantitative model that needs to be significantly refined and internally tested first, i.e. in mostly retro-dictive a fashion but then on external, real-cases, on which to test predictions of economic and, for the matter, long term financial consequences. The displacement of the dominant value base and unit, and its related complexity and complexity density with linked anthropology, in a comprehensive economy, shakes the dominant measurement axes and explains that even dynamical, apparently adaptive structures in their environment, don’t survive the decisive and disruptive, knowledge-based pressure from neighboring environments. Hence the dismay of regulators and this all the more that they find themselves entangled both downward and widely into the economic landscape.
Conclusion
Our conclusion, tested through a diversity of experiments, including some of our own, and apparently consistent with recent papers, is that, and how much, the explanation by the size of the available Venture Capital is far from sufficient although indeed a part of the comprehensive mechanism through which Societies will lead or follow innovation, and therefore drive global welfare or conversely see their wealth and impact on the world decrease, whether slowly or rapidly depending factors scrutinized and envisioned to be integrated in our model.
To the question “how is innovation possible” the amazing answer is that it is not, in the sense that it is not allowed to disturb existing market structure, which would otherwise and will have to adapt to it, and that the most thought through and eventually generous Keynesian mechanisms, served by most admirable people with the best will to be helpful and to produce the so much praised and so-desired champions, in effect kill them the most surely while the presumably most awful, Schumpeterian and egoist jungle finally lets survive at least some of these ‘disrupters’ through which economy, particularly the most innovative, flexible, even fluid and therefore knowledge-based, leaps into the Future.
One of the key factors comes as follows: while the jungle economy may rely on bets, acknowledged all the more successful that the disruption will eventually prove itself fast, hard and in unexpected ways and places, the planned economy by definition need to assess any potential impacts more rationally and further as a preamble from which, then and therefore, they may never be authorized. To the extent that the NP versus P complexity classes relative powers may here be applied as a measure of speed, the environmental ‘oracles’ will predict the efficiency gap of related economies.
Some economy thermodynamics may contribute to explain surges of knowledge where and when flows come with heterogeneities and changes ups and downs of revenues, fortune and structure, rather than a deadly erasing, but with a difficult understanding as yet of what causes what, hence the always questioned right political, regulatory ‘mix’.
It is therefore a major goal of the thesis to deliver an operational model verifiable through a luxury of available data and hoped to be especially useful for current issues in Europe and in France. At a more general level let’s recall that this is meant to relate to the ‘Comprehensive Universe’ project, about which the question of the dissemination and growth of (a) civilization, or the contrary, and its conditions, matter. One of the side aspects is the growing question of the uniqueness of our (human) civilization in the universe or of its probability, to the extent that this concept might apply.
Current status and call for sponsors
At this time a composite experimental material is gathered, with as much as possible a focus on other cases than our own to minimize the risk of subjective perspective. The predictive model does not very much, as yet, exceed the State of the Art, still under investigation. Its next step, expected to bring a more useful leap, should start to compute the propagation of the deformation of some existing economical structure, amplitude, geometry and speed, but the target is obviously to extend this to the direction and speeds of impacts to neighboring and to remote sectors.
Independence Time and Universality of Access
Last but not least, what is at stake is too important to be concealed or restricted by or to specific private entity when our whole plea, on the contrary, is geared toward knowledge dissemination and widest sharing. Hence the call for pure sponsors even though we don’t despise for-profit organizations at all, but Independence is today and much longer compelling for our Comprehensive Universe purpose.
Therefore experimental, ‘local’ activities or sectors or business ‘fields’ are welcome, upon which we plan to be able to test the model in due time. Obviously this ‘local’ is becoming only infinitesimally spatial in the knowledge economy.
Liquefying versus clustering
The goal of “wringing revenue” to make profit is not much advertised in our days when “survival” is for disrupters the horizon of all their hopes when discovering that their innovation, vector of tension to economic incumbency and much wider inertia, and of reactions from the overall system of forces, will hardly make it as far as market independence.
The question of the causes of innovation is therefore about the model that may minimize its death rate, hence the eventually considerable weight, according to parameters and far exceeding classical transaction costs, born by this combination of forces, knowing however that it reflects a societal and political cumulated reality, not the contrary.
[1] P. Journeau, Interdépendances entre structures de marché et structures organisationnelles. CRG Polytechnique. 1984
[2] T. S. Kuhn, The Structure of Scientific Revolutions, MIT, 1962
[3] Diverse newspapers to be specified, January 2017, about figures for 2016 in trade deficit, unemployment, manufacturing, GNP growth.
[4] Google, Apple, Facebook and Amazon, a set of firms having most drastically shaken practices at global scale within one or a few decades
[5] P. Lévêque, Empire et Barbaries, Augé, Gillon, Hollier-Larousse, Moreaux et Cie, 1968. Excerpts: « provincials only with difficulty cumulate reimbursement of debt with payment of taxes. Profit of Roman bankers are so scandalous that a breakpoint is reached: a crash of unprecedented magnitude marks the end of the Republic.”
[6] Presented in 2002 by the Capitole, Washington DC, exact reference to be recovered: US venture about tenfold the one of a major European country for a similar issue, quite remarkably observed a posteriori in at least one case (microalgae based biofuels).
[7] P-A. Buiges, Quelle politique industrielle pour éviter le décrochage industriel ? GREDEG WP No. 2016-35 http://www.gredeg.cnrs.fr/working-papers.html
[8] ‘Supported’ entities would for instance benefit from some kind of ‘public’ appreciation reaching a level of practical market distortion.
[9] D. Dufour, E. Nasica & D. Torre, Clusters et efficacité du capital-risque: une analyse des stratégies différenciées des fonds indépendants et des fonds industriels, GREDEG Working Paper No. 2016–33
[10] Jackie Krafft. Industrial dynamics. William Lazonick. IEBM Handbook of Economics, Thomson Learning, pp.187-194, 2002.
[11] Le Figaro / B. Ferran / A. Fontelli, Google et Facebook vampirisent le marché publicitaire en ligne, 26 et 27 janvier 2017
Comprehensive Universe 