Published June 6, 2017

Growth and progress: a venture investor’s perspective

Writer
Partner, Union Square Ventures
Albert Wenger is a partner at Union Square Ventures. Before joining USV, Albert was the president of del.icio.us through the company’s sale to Yahoo and an angel investor (Etsy, Tumblr). He previously founded or co-founded several companies, including a management consulting firm and an early hosted data analytics company. Albert graduated from Harvard College in economics and computer science and holds a Ph.D. in Information Technology from MIT.

To get to what we might call “the knowledge age”, we need to reaffirm our commitment to knowledge as the source of progress and revise our understanding of growth.

As a venture investor, I am an optimist. It would be difficult to ever make an investment as a pessimist because one would be paralysed by all the ways in which a start-up can fail. But my optimism extends beyond my immediate profession. It is also a fundamental belief in the possibility of progress.

Significantly improved healthcare, including vaccines and antibiotics, is one of the major accomplishments of the industrial age. But the industrial age has also created new problems, of which climate change is by far the largest and most urgent. I am confident that with enough knowledge we can figure out how to overcome this challenge. And venture-backed start-ups, whether they be in the field of clean energy or electric vehicles, can and will play a role in turning this knowledge into tangible solutions.

But as much as I believe in start-ups and markets, not all problems can be solved by them because prices do not and cannot exist for some of the most important things that humanity should be concentrating on. For instance, take a really long-tail event such as a comet hitting Earth. This is so rare that there cannot be a market or price to guide how much attention we as humanity should pay to looking for such comets and to figuring out what we should do, should one happen to be on a collision course with Earth.

In fact, the situation is worse. Because of a fundamental misunderstanding about the nature of growth and its relationship to progress, a lot of capital (and attention) is currently given to companies and systems that make us less rather than more likely to pay attention to such issues.

Humanity has the opportunity to get past the industrial age and into the knowledge age thanks to the unique characteristics of digital technologies: zero marginal cost and universality

However, humanity has the opportunity to get past the industrial age and into the knowledge age thanks to the unique characteristics of digital technologies: zero marginal cost and universality. These are a complete and radical break from the analogue technologies that preceded them on which we established the industrial soci

Zero marginal cost allows systems to grow exponentially resulting in power laws of outcomes: the most watched video on YouTube has been watched several billion times, which is several orders of magnitude larger than the average number of views (in a normal distribution the extremes are much closer to the average). Zero marginal cost also means that we should make the systems accessible to everyone in the world. There is a loss to society if we exclude people from access to the world’s knowledge (which we can provide to them at zero marginal cost).

Universality is the ability of computers to compute anything that can be computed at all. Much of what humans do today is an act of computation. Take the medical word diagnosis, which comes from Greek and means to distinguish or tell apart. It is an act of computation which establishes the probabilities of possible diseases based on symptoms and test results. And because it is computational, we know that a digital machine can carry it out. Once you begin to analyse human activities in this way, the power of the universality of computation is revealed.

Once we have built a medical diagnosis computer we can make diagnosis available for free!

What is even more extraordinary though is that we can have universality at zero marginal cost. Once we have built a medical diagnosis computer we can make diagnosis available for free! And anyone in the world who needs a diagnosis should receive one. And in the knowledge age that is exactly what we will be able to deliver.

But growing into this requires a dramatically different measure of growth from the industrial age. The scarce factor following the industrial revolution was establishing productive capital: equipment, buildings and transport infrastructure. GDP became the dominant measure of economic activity and GDP per capita was how we measured progress. The combination of relatively free markets with entrepreneurial activity – including venture capital-backed start-ups – turned out to be amazingly successful at accumulating productive capital and giving us GDP and GDP per capita growth.

Today we still cling to GDP as our measurement. We are dismayed when it is growing more slowly than we would like and are left scratching our heads when productivity as measured by GDP per capita seems to be stagnant. All the while we ignore the dematerialisation of the economy that takes place as we make the transition to the knowledge age. Think about going from the Encyclopaedia Britannica to Wikipedia. The encyclopaedia cost a lot of money and people earned a living making it, selling it or even just transporting it. Wikipedia by contrast is free. Very few people earn a living contributing to it and yet all of a sudden everyone in the world has access to a huge treasure trove of human knowledge. The benefits are vast but do not show up anywhere in GDP.

In addition to GDP we have become fixated on another industrial age measure: the value of companies as reflected by the stock market. This is why we are excited about companies such as Facebook that command a huge valuation on the stock market. But the valuation of Facebook goes up the more human attention Facebook captures, as it can then resell some of that attention to advertisers.

How to make the transition from the industrial age to the knowledge age?

Rather than thinking about the scarcity of capital and obsessing about GDP and stock markets we need to shift to thinking about the scarcity of human attention.

We need to increase the people’s power to pay attention to what matters much more freely than today. We can do so by enhancing three freedoms: economic freedom, informational freedom and psychological freedom.

Economic freedom is nearly synonymous with universal basic income.

In my opinion, economic freedom is nearly synonymous with universal basic income. As a venture investor, I sometimes think about this as seed money for everyone. Instead of having to sell one’s labour to survive, everyone can be free to allocate their time as they see fit, including undertaking entrepreneurial activities.

Informational freedom is about who controls information and computation in the world. At present, much of this is concentrated inside a few large corporations. Those companies that are in a position of market power can extract rents. That’s bad for near-term outcomes and even worse for long-term innovation. Instead of applying industrial age anti-trust policies we need new regulation, such as giving end users much broader rights over the information and computation available on their devices.

Finally, psychological freedom is about our ability as humans to control our attentiveness in a world that is overflowing with information. Our brains didn’t evolve in such an environment and it is easy for our attention to be hijacked by our lower-level processes. These take many forms, including endlessly refreshing our Twitter, Facebook or Instagram feeds or yelling at others online in capital letters. Psychological freedom can be attained through practices such as breathing and meditation.

If we choose to, we can make a proactive transition from the industrial age to the knowledge age. Doing so will require us to remember that all progress comes from an increase in knowledge and that the growth of knowledge requires us to allocate our attention to those things that actually matter.

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