Generative Economics

I went to a meeting at LSE on Monday. For me, the highlight was a talk by Prof Youngjin Yoo on ‘Digital Innovation, Reversed Semiotics and Generative Economics’. (Slides available here.)

Prof Yoo argues that:
– industrial economics (the last 150 years) involves automation and capital intensive assets and its challenge is to maximise asset utilisation.
– a by-product of industrial economics was information economics: computers began to be used to make logistics (etc) more efficient, and this led to distributed organisations, with out-sourcing, JIT manufacturing, etc.
– then came what he calls ‘generative economics’, in which the information previously created as a side-effect becomes a product in itself. Technology keeps evolving beyond the original design: new products appear. Contents and media become separate (eg music and images can be held on the same digital platform) at the same time as the product becomes more and more a service. (He gave the example of airbnb, which sells the equivalent of hotel accommodation, but actually creates this accommodation out of people’s homes. In other words the ‘service’ – somewhere to sleep for the night – is separate from the bricks and mortar – it does not have to be a dedicated hotel building. Similarly Uber ‘creates’ taxis out of private cars.) The product becomes a ‘delivery platform of contents and service activities’ rather than a complex piece of metal or a building.

He then went on to quote Baudrillard:
“Simulation is no long that of a territory, a referential being or a substance. It is the generation by models of a real without origin or reality”
“the age of simulation thus begins with a liquidation of all referential”
“It is no longer a question of imitation, nor of reduplication, nor even of parody. It is rather a question of substituting signs of the real for the real itself.”

Prof Yoo says that a similar process is taking place in the business world. He showed an example of a printed air ticket and a barcode image on a smart phone, both of which are a ‘ticket’. He also showed examples of 3d printed Oreo biscuits (apparently printed with edible material!)

His conclusions:
– procrastinated binding: “value is created after the product was purchased”. (A chair is not of value till you sit on it!)
– the suggestion that we are creating Moore’s law in the physical world to reduce frictions in economic transactions. (In other words, we are becoming more efficient with using our resources, just as EBay etc provide a more efficient means of recycling unwanted goods.)

To me the most interesting was that we are seeing ‘the rise of algorithmic reality’. For example, businesses used to be classed as B2B (business to business) or B2C (business to consumer.) These days are we becoming more Algorithm2Algorithm or Algorithm2Consumer?

This struck a chord because I’ve been doing a lot of work recently on card payments systems: what happens when I go into a supermarket and present my credit card to pay for goods. My card goes in the POS machine, which talks to an algorithm, which produces a ‘yes/no’ reply. If the reply is ‘yes’, I get my groceries and eat. At the same time, money comes in to my account from satisfied clients, wise investments, etc. But I never handle any of this money going in or out: it only ‘exists’ as numbers on a screen or a piece of paper which I consult from time to time. The ‘signs’ of money have taken over completely. It is rare for me to hold more than a small amount of cash. (On another level, cash itself is of course only a ‘sign’ for value.)

When you book a flight it’s a similar process. You use a card. You ‘talk’ to a web site. You check in on line the day before. You print out a piece of paper, or download an e-ticket to your smart phone, each with a bar code you show to a machine. You get on the flight. Only at this stage does the service become physical: your seat is waiting for you and takes you to Milan or Budapest or wherever. You never handle money, you are just aware that your account value is lower next time you look, which may or not be a concern to you! You can even come back in through an automatic passport gate. It’s much more efficient; it probably takes less time than it used to in the days of travel agents. (Remember them?) Using comparison web sites means you can probably get a much better deal as well.

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