Noah Smith Interviews Marc Andreessen, Part II

We pick up from where we left off yesterday:


My partner Alex Rampell says that competition between an incumbent and a software-driven startup is “a race, where the startup is trying to get distribution before the incumbent gets innovation”.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

Please listen to that podcast episode about Dominos thinking of itself as a tech company that happens to deliver pizzas. From another episode from that same podcast, this gem of an appropriate example:

In February 2013, Ted Sarandos, Netflix’s chief content officer, told “GQ,” “the goal is to become HBO faster than HBO can become us.”

https://www.delltechnologies.com/en-us/perspectives/podcasts-trailblazers-s01-e01-disruption-entertainment-industry/

As time passes, I am increasingly skeptical that most incumbents can adapt. The culture shift is just too hard. Great software people tend to not want to work at an incumbent where the culture is not optimized to them, where they are not in charge. It is proving easier in many cases to just start a new company than try to retrofit an incumbent. I used to think time would ameliorate this, as the world adapts to software, but the pattern seems to be intensifying.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

I hope he is wrong, for my sake, and for the sake of my alma mater, which is where I have chosen to work. But, um, I increasingly fear that he’s (surprise, surprise) right. Introducing technology has been hard in my workplace, but the fault lies with the culture of the workplace, not with the technology.

But as I pointed out in yesterday’s post, the regulatory capture and the cultural conformity of the higher education space in India means that most students (and their parents, or should it be the other way around) still prefer a “top” college.


A good test for how seriously an incumbent is taking software is the percent of the top 100 executives and managers with computer science degrees. For a typical tech startup, the answer might be 50-70%. For a typical incumbent, the answer may be more like 5-7%. This is a huge gap in software knowledge and skill, and you see it play out every day across many industries.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

Incumbents in higher education in India – the percentage of folks with computer science degrees? Let’s move on.


First, COVID is the ultimate cover for restructuring — what my friend and former CFO Peter Currie used to call “shake and bake”. It’s an opportunity for every CEO to do all the things he/she may have wanted to do in the past to increase efficiency and effectiveness — from fundamental headcount resizing and reorganization, to changing geographic footprint, to exiting stale lines of business — but couldn’t because they would cause too much disruption. The disruption is happening anyway, so you might as well do everything you’ve always wanted to do now

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

75% minimum attendance, or else we reserve the right to say that you haven’t learnt enough to write the semester end examination. All classes in offline mode, only. Rote memorization tests in examination halls, with no textbooks/supplementary materials allowed. Laptops/tables/smartphones may not be used in class.

Here’s my question to those of us who work in higher education in India. Do we expect all these things to come back once the pandemic is behind us, or are we having thoughtful discussions about how the post-covid higher education field will look in India?

Today, because of the pandemic, we are at an extreme end of the spectrum which describes how learning is delivered. Everybody sits at home, and listens to a lecture being delivered (at least in Indian universities, mostly synchronously).
When the pandemic ends, whenever that may be, do we swing back to the other end of the spectrum? Does everybody sit in a classroom once again, and listens to a lecture being delivered in person (and therefore synchronously)?
Or does society begin to ask if we could retain some parts of virtual classrooms? Should the semester than be, say, 60% asynchronous, with the remainder being doubt solving sessions in classroom? Or some other ratio that may work itself out over time? Should the basic organizational unit of the educational institute still be a classroom? Does an educational institute still require the same number of in person professors, still delivering the same number of lectures?
In other words, in the post-pandemic world…
How long before online learning starts to show up in the learning statistics?

https://econforeverybody.com/2021/01/28/the-long-slow-but-inevitable-death-of-the-classroom/

And finally, Marc Andreessen’s response to Noah’s question about what advice he (Marc) would have for a young 23 year old American:

Don’t follow your passion. Seriously. Don’t follow your passion. Your passion is likely more dumb and useless than anything else. Your passion should be your hobby, not your work. Do it in your spare time.
Instead, at work, seek to contribute. Find the hottest, most vibrant part of the economy you can and figure out how you can contribute best and most. Make yourself of value to the people around you, to your customers and coworkers, and try to increase that value every day.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

The last sentence in that excerpt is another way of saying that the world is a non-zero sum game.

And I couldn’t agree more!


Noah Smith Interviews Marc Andreessen

Every now and then (and I wish it was more often), I like reading something so much that I don’t just take notes, I put them down here rather than in Roam. It forces me take more careful, structured notes, and the act of writing it all down allows for more thoughts to bubble up – which is the whole point, no?

Noah Smith’s interview of Marc Andreessen definitely qualifies. It was interesting throughout, and I related with some of the points/concepts more than I would have wanted to1.

Before we begin, a quick aside: most of my thoughts and reactions to the interview are because of what I do, and where I’m located. I am in charge of one course at my University, and am also in charge of placements. This University is located in India. So my excerpts, and my reaction to those excerpts are contingent on these two things.

We’ll follow the usual format: excerpts, and then my thoughts.


Consider the three primary markers of the American Dream, or more generally middle class success — housing, education, and health care. You have written at length on how all three of these success markers seem further and further out of reach for many regular people. I think — and you would agree? — that these three deficits are not only causing problems for how people live and how the economy functions, but are fouling our politics quite dramatically.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

Education, in India at any rate, can either scale, or it can maintain quality. It has never been able to do both. How to increase scale without losing quality, and how to maintain affordable quality without gaining scale – both of these are really, really difficult questions to answer. The impossible trilemma of higher education in India, as it were. The BSc programme at the Gokhale Institute is (in my opinion, and it is of course a biased one) affordable quality. Far from perfect, I’ll be the first one to admit, and could always be a whole lot better, but I genuinely do think we’re doing good work. But scaling is impossible. And we all know of educational institutes that have managed to scale really well, but don’t do so well when it comes to quality.

And when I say quality, it is very much a “you know it when you see it” definition I am going with. Not NAAC reports or percentage of students placed.


Housing, education, and health care are each ferociously complex, but what they have in common is skyrocketing prices in a world where technology is driving down prices of most other products and services.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

Before you begin to read the rest of this post, please do learn more about the Baumol cost disease effect. That is certainly one of the factors at play. This post is the probably the best essay to read about the topic, but be warned: micro, when done right is (also) hard.

This chart from the interview is easier to think about if you’ve studied the Baumol effect well:

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

Software is a lever on the real world.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and (note that the emphasis on “lever” is in the original)

The Archimedes reference is obvious, but that’s not the reason I want to focus so much on just this one sentence. How exactly is software a lever on the entire world? Marc gives the examples of Lyft and Airbnb in the interview, but they’re the outcomes for having deployed software. The inner mechanism (I think) is that software goes a very long way towards reducing transaction costs, search costs and therefore overall friction in economic transactions.

The guy driving the rickshaw, and waiting for a customer at a traffic intersection isn’t aware of the person two blocks away who is outside their apartment building, waiting for a ride. Search costs. These are minimized because of the app.

The whole “bhaiya, xyz jaana hai” – “Itna duur, itna late, double bhada” – “kya bhaiya, itna thodi lagta hai” song and dance is avoided (although not always in a way that is fair to the rickshaw driver). Transaction costs. These are minimized because of the app.

And so more transactions take place than they would have if Uber/Lyft/Ola had not been around. And the same is true for Zomato, or Swiggy, or Airbnb or… you get the picture. This (I think) is the lever at play. More gets done because software is involved.

There are legitimate worries about whether the system is always fair, always perfect – and the short answer is always “no”. A better question to ask is if the world is better for these services being around – and the short answer (I think) is “yes”. The best question to ask is how these services could be made better – and Andreessen has suggestions later on in the interview about this.


Software is alchemy that turns bytes into actions by and on atoms.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

A lovely way to think about what software does, when used well.


Everywhere software touches the real world, the real world gets better, and less expensive, and more efficient, and more adaptable, and better for people. And this is especially true for the real world domains that have been least touched by software until now — such as housing, education, and health care.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

The Baumol effect has some potentially disturbing implications:

When we recognize that all prices are relative prices the following simple yet deep facts follow:
If productivity increases in some industries more than others then, ceteris paribus, some prices must increase.
Over time, all real prices cannot fall.

https://marginalrevolution.com/marginalrevolution/2019/05/the-baumol-effect.html

As a society it appears that with greater wealth we have wanted to consume more of the goods like education and health care that have relatively slow productivity growth. Thus, preferences have magnified the Baumol effect.

https://marginalrevolution.com/marginalrevolution/2019/05/the-baumol-effect.html

But I think what Marc Andreessen is (in effect) saying is this: sure, even accounting for the Baumol effect, are there ways to reduce search and transaction costs in education, healthcare and housing? And if yes, can we drive down prices in these sectors while maintaining (or even increasing!) quality? That’s the power and potential of software.

And yes, each one of us will react with differing levels of skepticism to the proposition. That’s fine, and I’d say desirable. But the idea is worth thinking about, no? (And if you say no, it’s not, I’d love to hear why you think so.)


It’s more the importance of communication as the foundation of everything that people do, and how we open up new ways for people to communicate, collaborate, and coordinate. Like software, communication technology is something that people tend to pooh-pooh, or even scorn — but, when you compare what any one of us can do alone, to what we can do when we are part of a group or a community or a company or a nation, there’s no question that communication forms the backbone of virtually all progress in the world. And so improving our ability to communicate is fundamental.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

Remember the “If you’re the smartest person in the room, you’re in the wrong room” quote2? The potential advantage of Clubhouse, Spaces (or whatever it will be called on all the apps that copy the concept) is that it solves for the geographic constraint when it comes to your menu of rooms to choose from. That’s what makes Twitter so great too – you never have to worry about being the smartest person on Twitter (and I mean that in the nicest way possible!).

It is a great time to be young and angry about the quality of the education system, because the internet can solve some of your problems better than was ever possible in the past.


It’s so striking that in our primarily textual technological world, people are instantly enthusiastic about the opportunity to participate in oral culture online — there is something timeless about talking in groups, whether it’s around a campfire 5,000 years ago or on an app today

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

At the Gokhale Institute, we were lucky enough to listen to a talk by Visvak where he spoke about some of the positive aspects of Clubhouse during the recent elections in Tamil Nadu. The ability to listen to, and possibly chat with, people with skin in the game who are actually Doing The Work, is truly remarkable. And again, what we have isn’t perfect, and it could be better, and there will be problems. The question to ask is if the world is better with Clubhouse (and it’s imitations) or without? And the better question to ask is how to improve upon it. But when I have the opportunity to listen to Krish Ashok talk about food on Twitter Spaces, and I see people just straight up ask Krish Ashok to host a Spaces about chai – well, what a time to be alive. No? (And if you say no, it’s not, I’d love to hear why you think so.)


Substack is causing enormous amounts of new quality writing to come into existence that would never have existed otherwise — raising the level of idea formation and discourse in a world that badly needs it. So much of legacy media, due to the technological limitations of distribution technologies like newspapers and television, makes you stupid. Substack is the profit engine for the stuff that makes you smart.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

I don’t exactly disagree with Marc Andreessen over here; but I have a lot of questions. I’ll list them here:

  • Substack is a substitute for blogs or newsletters, but with the additional ability to charge payments from subscribers for some (or all) of your posts. Is that a good definition of what Substack is?
  • Not all Substack writers will initially get enough paying subscribers. In fact, I think it is safe to say that most will never get (enough) paying subscribers. If the first sentence in the excerpt above is to be agreed with, what other incentive is at play for “enormous amounts of new quality writing” to come through? This is not intended as sarcasm or implied criticism – I really would like to know.
  • Especially in India, I completely agree that legacy media makes you stupid. It is the middle part of that sentence that I am not so sure about: I do not think it is just the technological limitations of distribution technologies that is at play. It’s a much broader question, but what other factors would you think are at play, and how does Substack help mitigate those other problems?
  • Is bundling inevitable on Substack? Shouldn’t it be? How will this play out? Will Revue stand a better chance as a bundle because it can be combined with so many other offerings?

This isn’t a complete list of questions, and I am not sure of the answers. But this is the part of the interview that I understood the least, for sure.


A longish excerpt in a longish post, but a very important one:

M.A.: My “software eats the world” thesis plays out in business in three stages:
1. A product is transformed from non-software to (entirely or mainly) software. Music compact discs become MP3’s and then streams. An alarm clock goes from a physical device on your bedside table to an app on your phone. A car goes from bent metal and glass, to software wrapped in bent metal and glass.
2. The producers of these products are transformed from manufacturing or media or financial services companies to (entirely or mainly) software companies. Their core capability becomes creating and running software. This is, of course, a very different discipline and culture from what they used to do.
3. As software redefines the product, and assuming a competitive market not protected by a monopoly position or regulatory capture, the nature of competition in the industry changes until the best software wins, which means the best software company wins. The best software company may be an incumbent or a startup, whoever makes the best software.

https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and

For a great, and relatively early example of this playing out in practice, please listen to this podcast episode:

One simple viral video drove a pizza company to reinvent itself as a tech company. Walter Isaacson tells the story in this episode of Trailblazers.

https://www.delltechnologies.com/en-us/perspectives/podcasts-trailblazers-s01-e03-fast-food-delivery/

See this, for example, from the transcript:

So this is the part of the Domino’s story that struck me more than anything, when he simply declared for all to hear, we no longer think of ourselves as a pizza company. We think of ourselves as a technology company. I said, excuse me? Well, turns out, they’re headquartered in Ann Arbor, Michigan. They’ve got 800 people working in headquarters. Fully 400 of those, half of their headquarters employees, are engaged in software analytics and big data. They really– once they finally got the product right, they really are, from this point going forward, as much a technology company as they are a food company. And many of the initiatives have to do with making it as easy, as convenient, as kind of natural and impulsive almost to order Domino’s, much more so than any other pizza company.

https://www.delltechnologies.com/en-us/perspectives/podcasts-trailblazers-s01-e03-fast-food-delivery/

But, but, but – and this is where the “what I do and where I’m from part” really comes into play – has higher education in India successfully (or even partially) gone through Marc Andreessen’s three stage transformation?

Short answer, no.

Long answer: because “assuming a competitive market not protected by a monopoly position or regulatory capture” doesn’t apply in the case of higher education in India (yet). See this, this, this, and this from earlier on in EFE.

But especially see this! College, as I’ve written in this post, is a bundle. It sells you the learning (Coursera), the signaling (LinkedIn) and the peer network (Starbucks):

If you want to go up against college as a business, you need to sell the same thing that college is selling. And the college sells you a bundle.
A business that seeks to do better than college must do better on all three counts, not just on learning. All of the online learning businesses – Coursera is just one very good example – aren’t able to fill all of the three vertices just yet.
And that’s why education hasn’t been truly shaken down by the internet just yet:
Because college today is more about signaling than it is about learning, and because when you pay money to a college, you are getting a bundle.

https://econforeverybody.com/2020/03/12/signaling-bundling-and-college/

And partially by regulatory capture (UGC approved degree, yay!) and partly by cultural conformity (Sharmaji ka beta went to IIT. Whaddya mean, you will learn from YouTube. Kuch bhi!) we still celebrate getting into a “top” college.

Since “top” colleges know this, there is no incentive for them to change. And since ed-tech firms in India also know this, they design excellent software that is designed simply to get students into these colleges3.

And so we in the education sector in India continue to wait for the revolution.


Phew! That’s enough for today. I’ll be back tomorrow with Part II of my reflections on this interview.

  1. about which more below[]
  2. Was it really by Confucius? I don’t think so.[]
  3. that is a sweeping generalization, yes. I’m more than happy to be corrected on this. Please tell me more about ed-tech firms that are about learning for its own sake, not about entrance examinations[]

The Everything Play

It was a throwaway line in a post from last week:

Oil, its linkages, its by-products, and its enabling nature is what attracted Dhirubhai to oil as a business. It wasn’t just about oil itself – it was always about all of what oil allowed one to get into as a business. And it is the same now – it’s not about telecommunications and data. That just enables Reliance to get into – well, everything, really.

https://econforeverybody.com/2020/07/23/really-understanding-jio/

…but it deserves deeper analysis.

Software has eaten up the world

We’ll begin by taking a look at what is by now a very old essay, but it remains an eminently readable one: Why Software Is Eating the World,
by Marc Andreessen.

Here’s an excellent excerpt:

More and more major businesses and industries are being run on software and delivered as online services — from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.

https://a16z.com/2011/08/20/why-software-is-eating-the-world/

Remember, this was written in the year 2011. We’re talking Indian winning the World Cup, Obama as the President of the United States of America, and the biggest threat to the global economy was the worry that 2008 would somehow erupt all over again. Or something like that.

And to help you understand quite what this means in practice, let’s talk, um, boogers. It’s bad enough that we’re talking about them, I agree. Imagine having to eat them, and imagine they were not even yours!

When two Domino’s Pizza employees filmed a prank in the restaurant’s kitchen, they decided to post it online. In a few days, thanks to the power of social media, they ended up with felony charges, more than a million disgusted viewers, and a major company facing a public relations crisis.
In videos posted on YouTube and elsewhere this week, a Domino’s employee in Conover, N.C., prepared sandwiches for delivery while putting cheese up his nose, nasal mucus on the sandwiches, and violating other health-code standards while a fellow employee provided narration.

https://www.nytimes.com/2009/04/16/business/media/16dominos.html

As you might imagine, things weren’t looking good for Dominos. So what did they do?

BILL TAYLOR: So this is the part of the Domino’s story that struck me more than anything, when he simply declared for all to hear, we no longer think of ourselves as a pizza company. We think of ourselves as a technology company. I said, excuse me? Well, turns out, they’re headquartered in Ann Arbor, Michigan. They’ve got 800 people working in headquarters. Fully 400 of those, half of their headquarters employees, are engaged in software analytics and big data. They really– once they finally got the product right, they really are, from this point going forward, as much a technology company as they are a food company. And many of the initiatives have to do with making it as easy, as convenient, as kind of natural and impulsive almost to order Domino’s, much more so than any other pizza company.
So it began very early on with the Domino’s smartphone app. They then went to the capacity to order a Domino’s over text messaging. Now you can literally tweet an emoji of a pepperoni pizza, and a pepperoni pizza will appear at your doorstep within 30 minutes. You can order it through Facebook messaging. They’re simply saying to themselves, we understand that a big piece of our customer base are young people, millennials, or what have you. And he knows where those people are and where they’re spending their time, and that capacity while you’re on Facebook to simply go over to Messenger and pop in an order or while you’re sitting there, you know, tweeting out various things to also tweet out a Domino’s emoji, because you’ve pre-registered, it’s really a very powerful thing.

https://www.delltechnologies.com/en-us/perspectives/podcasts-trailblazers-s01-e03-fast-food-delivery/

They decided to become a software company. Yes, that’s right, Dominos is not a pizza company that uses software, it is a software firm that happens to deliver pizzas.

Dominos is one of the best examples I can think of that helps you understand what Andressen was getting at when he said software is eating the world. It was literally eating up a pizza (company, that is)!

Amazon and Jeff Bezos

As you may have heard, Amazon and it’s owner are doing fairly well:

Jeff Bezos added $13 billion to his net worth on Monday, the largest single-day jump for an individual since the Bloomberg Billionaires Index was created in 2012.
Amazon.com Inc. shares surged 7.9%, the most since December 2018 on rising optimism about web shopping trends, and are now up 73% this year.

https://www.bloomberg.com/news/articles/2020-07-20/jeff-bezos-adds-record-13-billion-in-single-day-to-his-fortune

Why are they doing so well? Because the global pandemic has accelerated what was already a very obvious trend: online shopping is here to stay.

Perhaps the single most dramatic example of this phenomenon of software eating a traditional business is the suicide of Borders and corresponding rise of Amazon. In 2001, Borders agreed to hand over its online business to Amazon under the theory that online book sales were non-strategic and unimportant.
Oops.
Today, the world’s largest bookseller, Amazon, is a software company — its core capability is its amazing software engine for selling virtually everything online, no retail stores necessary. On top of that, while Borders was thrashing in the throes of impending bankruptcy, Amazon rearranged its web site to promote its Kindle digital books over physical books for the first time. Now even the books themselves are software.

https://a16z.com/2011/08/20/why-software-is-eating-the-world/

Like Dominos, Amazon is a software company that happens to sell books, and just about everything else you can imagine. The stock market is simply acknowledging in 2020 what Andreessen had predicted in 2011.

What does software allow one to do that one could not earlier?

Andreessen answer the question in his essay by pointing out two factors, the first of which I read as unlocking demand:

Over two billion people now use the broadband Internet, up from perhaps 50 million a decade ago, when I was at Netscape, the company I co-founded. In the next 10 years, I expect at least five billion people worldwide to own smartphones, giving every individual with such a phone instant access to the full power of the Internet, every moment of every day.

https://a16z.com/2011/08/20/why-software-is-eating-the-world/

And the second is the disintermediation of technology. That’s a big word, but it is simply explained: the elimination of the middle man.

Consider this post you’re reading right now. You’re reading it on your device (laptop/tablet/smartphone). Much more impressive is the fact that I was able to put up a website, set up an email subscription service, have a personalized email address – and all of this without paying anybody else a single penny to have all this done for me. Don’t get me wrong, I pay Google and WordPress money every month, but at my end, it was a one man show. No IT department, no IT consultant, nothing.

On the back end, software programming tools and Internet-based services make it easy to launch new global software-powered start-ups in many industries — without the need to invest in new infrastructure and train new employees. In 2000, when my partner Ben Horowitz was CEO of the first cloud computing company, Loudcloud, the cost of a customer running a basic Internet application was approximately $150,000 a month. Running that same application today in Amazon’s cloud costs about $1,500 a month.

https://a16z.com/2011/08/20/why-software-is-eating-the-world/

So whether you want to write a blog (yours truly), order food (Zomato), buy groceries (Bigbasket), learn stuff online (Byju’s), get your leaky faucet fixed (Urban Company) – or anything else you can think of really – it is all enabled by the fact that everybody has a device that enables them to connect to the Internet, and the fact that building out a company is cheaper than ever before.

So Who Are The Winners?

Well, I find it pretty cool that I am able to write a blog that a lot of people choose to read daily, and the local pizza delivery place is quite happy that is is able to compete with somebody like Dominos. And hopefully you are happy that you get to read this post while chomping on a slice of pizza.

But the real winners? The intermediaries.

But wait, you might say. Didn’t the internet enable disintermediation? Well, no, not really. It replaced a lot of inefficient middlemen with a few super efficient ones.

If, in the pre-internet era, I wanted to write a series of essays that people could read, the barriers to entry were quite significant. They could be published as a book, or as a series in a newspaper, or in a magazine. But then would come the difficult job of publicizing the fact that I had written these essays. People would send in their comments (maybe via mail, maybe in conferences/book launches) and I would reply to them, but these would be available for everybody to see.

Today? Hit publish, and people who follow me on Twitter/LinkedIn/Facebook get to not only read the essay, but they also get to work as my marketing team, and they get to comment right away. Said comment can be replied to near instantaneously, and that conversation is also available for everybody to view and ponder on.

What allows this to happen? Well, I pay WordPress money to keep this blog up, and I pay Google so that I have a personalized email ID. Without these two companies (and their competition), this blog is well nigh impossible.

What the intermediaries have done is the following:

Earlier, a select group of people could get in touch with a select group of customers at very high costs. Today, anybody can get in touch with anybody at very low costs

A restaurant (let’s call it Vaishali) can get in touch with a potential customer (let’s call him Ashish) and online delivery of food can happen, even in times such as these. I get my upma and filter coffee, Vaishali gets its money, but in the long run, the real winner is Zomato.

A homeowner in Paris (let’s call her ABC) can get in touch with a potential traveler (let’s call him Ashish) and I and my family can stay in said homeowner’s apartment during our trip to France. The homeowner gets money for a home she isn’t currently occupying, I get a memorable holiday, but the real winner is Airbnb.

And so on.

Uber, Oyo, Swiggy, Urban Company – there’s no end to these examples, and these, as per Andreessen’s essay, are the real winners.

The coup de grace

What if these intermediaries were either owned by one entity? What if that entity, because it knew what you were doing in n separate transactions across n different platforms, could flawlessly predict what you needed next, on the n+1th platform? And could provide you that need at the lowest price possible?

Let’s go back to the beginning of this post:

Oil, its linkages, its by-products, and its enabling nature is what attracted Dhirubhai to oil as a business. It wasn’t just about oil itself – it was always about all of what oil allowed one to get into as a business. And it is the same now – it’s not about telecommunications and data. That just enables Reliance to get into – well, everything, really.

https://econforeverybody.com/2020/07/23/really-understanding-jio/

Notes on “Why Tech Didn’t Save Us From Covid-19”

The MIT Technology Review recently published an interesting, thought-provoking article with the title in quotes above. It was also a little bit one-sided, but we’ll get to that later.

  • The title itself brought to mind Peter Thiel’s quote about being promised flying cars, and being given 140 characters instead. You may want to make a snarky joke about whether 280 characters counts as progress or not, but the point is well taken. And indeed, reinforced by this quote from David Rotman’s article:
    ..
    ..
    “In an age of artificial intelligence, genomic medicine, and self-driving cars, our most effective response to the outbreak has been mass quarantines, a public health technique borrowed from the Middle Ages.”
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  • The article then goes on to highlight at least three separate aspects of why tech has failed us: lesser government support for technology and innovation (particularly in the USA), a sclerotic bureaucracy, and policy-making that is not a) proactive enough b) good at managing risks effectively c) far too focused on short-term issues d) aware of the pitfalls of focusing solely on efficiency.
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    Let’s begin with the last of these points:
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  • ““The pandemic has shone a bright light on just how much US manufacturing capabilities have moved offshore,” says Erica Fuchs, a manufacturing expert at Carnegie Mellon University.”
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    I teach courses in international economics at the Gokhale Institute, and one of the fundamental insights that I think students need to walk away with is the concept of a non-zero sum game. Trade makes both parties better off, and therefore more trade is good, is literally the basic starting block of a course on trade. For an excellent summary of this idea, read this article by Paul Krugman, or watch this TED talk by Matt Ridley.
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    But two basic concepts from economics have come to haunt this rather neat idea. One is scale, and the other is the need to diversify. Both are very closely related.
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  • If, conventional theoretical thinking goes, a firm is able to scale up effectively, it will be able to produce more for cheaper. Yes, it is more complicated than that, but that’s the gist of the benefits of scale. Now, think of all countries as firms, and China is the obvious example of a country that scaled more rapidly than other countries, and was able to produce stuff cheaper than almost anywhere else. And that’s how China became the “manufacturing centre of the world”. The more you import from China, the more they scale (and effectively!). The more they scale, they cheaper they can make stuff. The cheaper stuff gets, the more you have an incentive to import from China. And once the loop is up and running, it becomes difficult to stop.
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  • And that’s a simple explanation for how the world ended up putting all of its eggs in one basket. We failed to diversify, because we focused on efficiency, without worrying about risk. What happens if an increasingly efficient global trading order suddenly breaks down? The price of efficiency is two fold: a) a lack of diversification b) not enough risk mitigation measures that allow one to fall back on domestic production. Which is where most of the world finds itself today. Readjusting global supply chains away from China is necessary, but it will not be easy. Especially because most countries will not want to pursue twin objectives: a) diversification away from China into other potential export powerhouses b) some production to be kept at home, especially in crucial sectors such as healthcare.
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    Scale, and a lack of diversification. There’s a lesson in there for us at the individual level as well, of course. A single minded pursuit of some goal (say money, or career growth) at the cost of other things isn’t necessarily a good idea.
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  • “Why couldn’t the US’s dominant tech industry and large biomedical sector provide these things? It’s tempting to simply blame the Trump administration’s inaction.”
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    The truth is always more complicated than you think, and beware simple explanations, but that being said, you might want to read The Fifth Risk. Here’s a slightly tangential review from The Guardian if you are feeling lazy, and a quote from that article follows:
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    “But we’re actually much more likely to die driving to the shops. The fifth risk is something impossible to conceive of in advance, or to prepare for directly. What matters is having a well-organised government in place to respond to these contingencies when they hit – exactly what the Trump administration has failed to do.”
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    No government, or Big Ol’ Central Planner is perfect, of course (and there’s a very readable book about that topic, or here’s a fascinating review of the same book), but Michael Lewis makes the claim that the Trump administration is rather less than perfect even by our less than exacting standards.
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  • “Any country’s capacity to invent and then deploy the technologies it needs is shaped by public funding and government policies. In the US, public investment in manufacturing, new materials, and vaccines and diagnostics has not been a priority, and there is almost no system of government direction, financial backing, or technical support for many critically important new technologies. Without it, the country was caught flat-footed.”
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    The book to read about this topic, if you ask me, is The Entrepreneurial State, by Mariana Mazzucato. Here’s the Wikipedia link about the book. Governments need to play, she says (and I suspect the author of this article would agree), a more active role in fostering the tech ecosystem in a country. Shades of Studwell, perhaps, but I have a counterargument here:
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  • “Incompetence and a sclerotic bureaucracy” is a phrase David Rotman uses early in the article when speaking about the Center for Disease Control in the USA. I find myself in complete agreement with the adjectives used. Why presume, then, that other government departments are likely any better? The truth, as always, lies somewhere in the middle. You can certainly make the case a la Michael Lewis, that the Trump administration took us to one end of the spectrum – but you should beware equally the other end of it!
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  • “Economists like to measure the impact of innovation in terms of productivity growth, particularly “total factor productivity”—the ability to get more output from the same inputs (such as labor and capital). Productivity growth is what makes advanced nations richer and more prosperous over the long run. For the US as well as most other rich countries, this measure of innovation has been dismal for nearly two decades.”
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    Well, yes, sure. And there is more than a grain of truth to the charge laid above, and not just for America. But keep in mind that measuring TFP is really and truly hard, and I am nowhere close to being convinced that we do a good job of it, even for a country like the USA, forget India. I am writing this post while sitting in my bed, using a laptop that allows me to keep multiple tabs (well over 50 right now) open in a modern browser, while being seamlessly connected to an overwhelming variety of news sources. All this while I listen to a Spotify playlist, and sip on excellent coffee that is made using home delivered Arabic beans. I’ll stop channeling my inner Keynes now, but most of this was not possible, especially at these prices, two decades ago.
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    Progress may not be fast enough for our tastes, sure – but it has been taking place. If you would like to read a book with a take contrarian to mine, try this on for size: The Rise and Fall of American Growth, by Robert Gordon.
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  • “The problem with letting private investment alone drive innovation is that the money is skewed toward the most lucrative markets.”
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    Churchill’s quote about democracy comes to mind!
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  • “In a widely circulated blog post, internet pioneer and Silicon Valley icon Marc Andreessen decried the US’s inability to “build” and produce needed supplies like masks, claiming that “we chose not to have the mechanisms, the factories, the systems to make these things.” The accusation resonated with many: the US, where manufacturing has deteriorated, seemed unable to churn out things like masks and ventilators, while countries with strong and innovative manufacturing sectors, such as China, Japan, Taiwan, and Germany, have fared far better.”
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    Here’s is Andreessen’s post, and also, this is your periodic reminder to read How Asia Works. China, Japan, Taiwan and Germany being up there isn’t a coincidence.
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  • ““The great lesson from the pandemic,” says Suzanne Berger, a political scientist at MIT and an expert on advanced manufacturing, is “how we traded resilience for low-cost and just-in-time production.””
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    Options are easy to teach, but difficult to grasp, and even more difficult to implement. See put, long.
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  • “…they are calling for an immediate ramp-up of public investment in technology, but also for a bigger government role in guiding the direction of technologists’ work. The key will be to spend at least some of the cash in the gigantic US fiscal stimulus bills not just on juicing the economy but on reviving innovation in neglected sectors like advanced manufacturing and boosting the development of promising areas like AI. “We’re going to be spending a great deal of money, so can we use this in a productive way? Without diminishing the enormous suffering that has happened, can we use this as a wake-up call?” asks Harvard’s Henderson.”
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    More participation from the government than is currently happening, but throw also into the mix a more venture-capital-ish approach, and don’t forget prizes! In fact, I found myself wishing midway through the article that the author had explored other options, rather than the government-or-markets binary.
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  • I hope I haven’t comes across as overly critical of the article, and my apologies if I have. That has certainly not been my objective. We rely far too much on the private sector now, that is true – and government can and should play a bigger role than is the case currently. But an extreme position, in either direction, always worries me a little!