Capital Markets in the Information Age: The Advent of Crowd Funding

I believe that the information age will also introduce material changes in the capital markets. And part of such changes may have emerged through crowd funding, which according to the Wikipedia.org,

signifies as the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations.

And social media networks are likely to serve as major platforms for crowd funding with Facebook leading the way.

From the Wall Street Journal,

Facebook Inc., with an eye toward future business relationships, wants to be friends with more social-media start-ups.

So it is going after those start-ups' investors.

Facebook's new fbStart program is open to early-stage business investment groups, also known as "seed funds" and business "accelerators," that have social-media developers in their portfolios. Developers at companies supported by the fbStart partner firms will get an advanced look at new tools and features Facebook is creating for its site. In return, Facebook hopes that some of those start-ups could eventually build a business around its platform.

So far partners in the fbStart program include Seedcamp, sFund, 500 Startups, TechStars, and Y Combinator, among others, a Facebook spokesman said.

In documents filed for its initial public offering last week, part of Facebook's pitch to potential shareholders is that it can serve as a platform for other companies, and ultimately take a percentage of those companies' revenue. Since Facebook first opened up to developers in 2007, a growing number of start-ups, such as social-gaming firm Zynga Inc., have built almost their entire business around the social network. Other examples include BranchOut Inc., a professional network, and Color Labs Inc., which provides live phone-based broadcasts to Facebook friends.

"We've been asking Facebook for ways to get better access and advance information for our companies, and this is their way of doing that," said David Cohen, founder and chief executive of TechStars, a Boulder, Colo., start-up accelerator that has helped nearly 100 new businesses raise more than $125 million since 2007.

About half of TechStars' portfolio of more than 80 active companies are expected to make use of the program, he said, ranging from ventures that develop entire platforms on Facebook, to others that incorporate social-media tools and features from the site.

Most of the 70 start-ups in 500 Startups, a $30 million seed fund and business accelerator in Mountain View, Calif., use the Facebook platform in one way or another, said Christine Tsai, a 500 Startups partner. With fbStart, "they're putting a lot more manpower behind working with us in a more formal way," she added.

As internet based crowd-funding grows, we should expect incumbent financial institutions to integrate them or if not social media networks will likely get a larger slice of the capital markets.

The internet has been validating the great F. A. Hayek’s knowledge revolution through the forces of decentralization.

Online Interactive Learning: Flipped Classrooms

I have been predicting that the information age or digital economy will be driving radical changes in many aspects of social life especially in education.

Peer based instruction seems as another frontier for innovation in education.

From Harvard (bold emphasis mine)

Researchers at Harvard University have launched the Peer Instruction (PI) Network (www.peerinstruction.net), a new global social network for users of interactive teaching methods.

PI, developed by Eric Mazur, Area Dean for Applied Physics and Balkanski Professor of Physics and Applied Physics at the Harvard School of Engineering and Applied Sciences (SEAS), is an innovative evidence-based pedagogy designed to improve student engagement and success.

Mazur, famous for his talk titled "Confessions of a Converted Lecturer," developed the method after realizing in the 1990s that his physics lectures at Harvard, while popular, were not helping students to master the basic concepts.

The PI technique relies on the power of the "flipped classroom." Information transfer (i.e., a teacher transferring knowledge to students) takes place in advance, typically through online lectures. In short, students study before rather than after class.

As a result, the classroom becomes a place for active learning, questions, and discussion. Instructors spend their time addressing students' difficulties rather than lecturing.

While originally developed for Mazur's introductory physics courses, PI is now used across multiple disciplines, from the sciences to the humanities.

The Peer Instruction Network will serve as a hub for educators around the world to connect and share their PI experiences, submit questions, and engage with other PI users.

Most of the changes will gravitate towards personalized or individual based learning rather than from the current mass based ‘classroom’ education. Online education will bridge the geographical distance and competition should drive down costs. Online learning will drive the knowledge revolution.

Sweden’s Free No-Classroom Schools

A private school in Sweden jettisons the conventional classroom based education

From the Businessinisder,

A new school system in Sweden eliminated all of its classrooms in favor of an environment that fosters children's "curiosity and creativity."

Vittra, which runs 30 schools in Sweden, wanted learning to take place everywhere in its schools -- so it threw out the "old-school" thinking of straight desks in a line in a four-walled classroom (via GOOD).

Vittra most-recently opened Telefonplan School, in Stockholm. Architect Rosan Bosch designed the school so children could work independently in opened-spaces while lounging, or go to "the village" to work on group-projects.

All of the furniture in the school, which looks like a lot of squiggles, is meant to aid students in engaging in conversation while working on projects.

The school is non-traditional in every sense: there are no letter grades and students learn in groups at their level, not necessarily by age.

Admission to the school is free, as long as the child has a personal number (like a social security number) and one of the child's parents is a Swedish tax payer.

As I have been continuously pointing out, the information or digital age will radically change the way we live or do things.

And the secular trend will evolve towards the personalization of educational services. And moving away from the classroom model, as the above, is just an example of such transition. Aside, online platforms, and other competition-driven innovations will drive such transformations that will send the current firmament high costs of (industrial era designed) education spiraling down.

Pivotal changes happen at the fringes. As I earlier pointed out the Khan Academy’s P2P collaborative tutoring, free online education as the University of People and Stanford University’s expanding online courses could be representative of the early movers.

And as the cost of education falls, knowledge will surge. Thus, the knowledge revolution will serve as the critical backbone to decentralization trends.

War on the Internet: Freedom Wins Round One

Writes Mac Slavo

Amid significant pressure from tens of thousands of internet users and major web behemoths like Google, Facebook, and Reddit, the Stop Online Piracy Act (SOPA) is, in its current form, Dead on Arrival:

“Misguided efforts to combat online privacy have been threatening to stifle innovation, suppress free speech, and even, in some cases, undermine national security. As of yesterday, though, there’s a lot less to worry about.

“The first sign that the bills’ prospects were dwindling came Friday, when SOPA sponsors agreed to drop a key provision that would have required service providers to block access to international sites accused of piracy.

“The legislation ran into an even more significant problem yesterday when the White House announced its opposition to the bills. Though the administration’s chief technology officials officials acknowledged the problem of online privacy, the White House statement presented a fairly detailed critique of the measures and concluded, “We will not support legislation that reduces freedom of expression, increases cybersecurity risk or undermines the dynamic, innovative global Internet.” It added that any proposed legislation “must not tamper with the technical architecture of the Internet.”

…

“Though the administration did issue a formal veto threat, the White House’s opposition signaled the end of these bills, at least in their current form.

“A few hours later, Congress shelved SOPA, putting off action on the bill indefinitely.

“Sourced From Washington Monthly via The Daily Sheeple

Sponsored primarily by purported free speech advocates that include democrats and republicans alike, the SOPA would have fundamentally transformed the internet as we know it today. As Daisy Luther writes at Inalienably Yours, the bill was nothing short of a direct attack against the first Amendment and the right to free speech:

“On closer inspection, the legalese in the bill has the potential to eviscerate free speech….and like NDAA, without proof…only with suspicion of “wrong-doing”. It’s all about copyright infringement. If you tick off the powers that be, and you’ve quoted someone, somewhere, saying something, you may have infringed on their copyright. As a defendant, you are not even present at the legal proceeding allowing “them” to shut you down until you prove yourself innocent.

“How do they shut you down? Search engines are required to remove you from their listings. Internet Service Providers can be ordered to block access to your site. Advertising networks and payment providers can also be forced to cease doing business with you. This continues until you are proven INNOCENT. Wait – I thought it was innocent until proven guilty….oh….that was “before” the NDAA.

Source: The Internet: The Last Bastion of Free Speech

While this bill of goods was being sold to the American public as a way to reduce online piracy originating on foreign shores, in essence the legislation would have made it possible for any organization (with the financial assets and access to attorneys to do so) to target web sites (foreign or domestic) using excerpts, quotes, and videos without express permission of the authors or producers of such content. Furthermore, any web site linking to suspected copyrighted content would be guilty by association for fascilitating the infringement.

Read the rest here

In the growing realization that political power is being frayed by the ongoing information age revolution or the democratization of knowledge, the 20^th century welfare and warfare state will use anything, like Intellectual Property and copyright arguments, as pretext to rein control over the internet. Earlier they argued that the cyberspace can pose a threat to national security.

Today, Wikipedia and other websites has shut down to express their opposition to proposals over censorship masquerading as ‘foreign Internet Piracy’.

The above is just one of the other being actions undertaken such as Spying of Email and the harassment of Wikileaks

As I previously wrote

These actions represent “resistance to change”, whereby politicians will try to enforce information control or censorship in the way the industrial age used to operate.

The horizontal flow of information threatens the institutional centralized frameworks built upon the industrial age economy.

As I earlier wrote,

“Political and economic ideology latched on a vertical top-bottom flow of power will be on a collision course with horizontal real time flow of democratized knowledge.

“This would likely result to less applicability of ideologies based on centralization, which could substantially erode its support base and shift political capital to decentralized structure of political governance that would conform with the horizontal structure of information flows.

“People will know more therefore control from the top will be less an appealing idea.

But again these attempts to regulate the web are likely to fail.

Nevertheless the war on the internet accounts as part of the adjustment process away from the command and control structure of the industrial ages with the knowledge revolution taking place beyond the reach of politicians. Besides, technological advances will work around regulations.

Signifying the foundation of knowledge, the internet will serve as THE battleground between socialism and free markets, and this will be just one of the many series of skirmishes that are destined to occur. And as previously noted, many internet activists have already been preparing for the worst scenario.

Indexed’s Jessica Hagy has a nice graphical depiction of the ongoing war, which she calls: Dark Ages II: in discussion now!

Indeed, the left and vested interest groups wants us to remain in the Dark ages and as their serfs.

Information Age: How Blogs Transforms Attitudes

From a paper written by David McKenzie and Berk Özler of the World Bank

There is a proliferation of economics blogs, with increasing numbers of economists attracting large numbers of readers, yet little is known about the impact of this new medium. Using a variety of experimental and non-experimental techniques, this study quantifies some of their effects.

First, links from blogs cause a striking increase in the number of abstract views and downloads of economics papers.

Second, blogging raises the profile of the blogger (and his or her institution) and boosts their reputation above economists with similar publication records.

Finally, a blog can transform attitudes about some of the topics it covers

(hat tip Mark Perry)

My take:

Blogs offer alternative channels to access to information and knowledge.

Blogs provide unofficial channels of education.

Blogs challenges the vertical flow of information which mainstream institutions have been based upon.

Blogs democratizes self-expression and the conveyance of information and knowledge.

Blogs are where ideas mate and procreate.

Blogs have signified as instruments of free markets in the realm of idea markets.

How the Information Age Affects Asian Banking

The McKinsey Quarterly writes, (bold emphasis mine)

Banks doing business in Asia face rapidly changing consumer behavior, with big consequences for both local and multinational institutions. Consumers increasingly prefer local banks over multinationals, are less loyal to existing banking relationships, are much more cautious about borrowing, and are more open to Internet and mobile banking. These shifts in the nature of banking relationships, product and service needs, and channels are reflected in a 2011 McKinsey survey of 20,000 consumers in 13 Asian markets...

Asian consumers are being weaned from brick-and-mortar branches: for the first time since McKinsey began conducting the survey, 13 years ago, bank branch usage has dropped, plunging by 27 percent on average across Asia between 2007 and 2011.

This drop has been matched by an uptick in Internet and mobile banking, a trend particularly pronounced in developed Asian markets, such as Hong Kong, South Korea, and Taiwan. There, consumers now use new channels, such as the Internet and mobile devices, for their banking more often than traditional ones, such as telephones and branches: the use of new channels rose to 3.2 times a month in 2011, from 2.35 in 2007, while that of traditional channels dropped to 2.57 times a month, from 3.5. In China, about 18 percent of all people who patronize banks now use Internet banking, compared with only 3 percent in 2007.

That shift arises largely from the increased penetration of remote channels. A growing number of customers across income segments are getting accustomed to and comfortable with them for both sales and service. The multichannel environment has thus become a reality: our research highlights the fact that, on average, Asian consumers are using as many as 5 channels for research and 1.8 channels for maintenance.

Some comments

The rapid shift in the preferences of Asian consumers reveals of the increasing personalization or specialization of markets. This extrapolates to an intensifying trend of de-massification of financial services towards niche markets or a transition from products and services designed for the masses towards decentralization or localization. Providers who cannot cope will this seismic development will perish. This is the forces of creative destruction at work.

And this paradigm shift is being enabled and facilitated by the internet which again exhibits how the web revolution has immensely been affecting people’s lifestyle.

In addition, this is another proof that people are getting to be more sophisticated with an extended reach or access to information.

This also means more value added services for the increasingly discriminate consumers.

The forces of centralization seems to be paving way for reign of the forces of decentralization.

The great F. A. Hayek’s knowledge revolution is underway.

P.S. My computer hasn't normalized yet so my post will remain limited

Asians are World’s Top Blog Readers

That’s according to Comscore.com

Global analysis of the Blog category revealed that Japan led all markets in blog engagement, with the average visitor in Japan spending more than an hour (62.6 minutes) visiting blogs in June. South Korea ranked second with an average of 49.6 minutes on blog sites, followed by Poland at 47.7 minutes.

Japan was also among the top markets for Blog category penetration with 80.5 percent of its online population visiting blogs in June. Taiwan ranked highest globally with 85.5 percent of its online population visiting blogs, followed by Brazil (85.2 percent reach), South Korea (84.9 percent reach) and Turkey (81.9 percent reach).

There could be many interpretations from the above survey.

For one it shows of the deepening extent of web based information acquisition most possibly at the expense of traditional media.

Another, the breadth of readership has been globalized and has not been limited to developed economies.

Next, more and more people are learning to appreciate blogs as one of the principal web based sources of information.

From a marketing point of view, the above represents as high growth markets which any enterprising bloggers could capitalize on.

Lastly, the above dynamics can be seen as increasing manifestations of the democratization of information and knowledge, or of the intensification of the information or knowledge revolution.

As the great Friedrich von Hayek once wrote,

The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

The knowledge revolution should serve as catalysts to the development of transformational ideas that could promote innovation via the ‘Bourgeois revaluation’ or heightened appreciation of the benefits of free market or laissez faire capitalism.

The knowledge revolution and increased social connectivity should also deepen specialization (division of labor) and encourage more voluntary trade and commerce.

And importantly, attune greater number of people towards more decentralized path or way of social interactions, which alternatively means to wean away from the vertical flow (e.g. mass education, mass media) or structures (e.g. centralized bureaucracies, mass production) or lifestyles (e.g. 9-5 work schedules, mass cultures) derived from the industrial age template.

These material changes are hardly appreciated by the public but will persist as the world evolves.

UPDATE: My blog's readership departs from the comscore survey, where most of my readers come from Northern America, UK and the Philippines, as one would observe from the lower right column of this blog. My experience may be shared by many local bloggers too.

Nonetheless my comments above have been mostly premised on the comscore survey.

Quote of the Day: The Limits of Innovation

Advancement is limited only by the extent of individual creativity. A decade or two from now you will enjoy the fruits of someone else’s idea, that you yourself simply could not have imagined prior to its development.

So, while the future is not necessarily picturesque, neither is it as dark as some people suggest it may be. We live in an age that places a premium on knowledge. This represents a giant step forward.

This is from Jonathan M.F. Catalán at the Mises Blog with bold emphasis mine. Mr. Catalán seems to be on a roll with a series of impressive articles as this

Bottom line:

For as long as people are allowed to unleash their creativity on the marketplace, innovation and economic progress will continue in spite of government intrusions

McKinsey Quarterly on the Deepening of the Information Age

In a recent study by McKinsey Quarterly Internet matters: The Net’s sweeping impact on growth, jobs, and prosperity, they find a dramatic surge in the influence of the internet on commerce and the global economy.

Their findings as follows (including charts):

-The Internet accounts for 3.4 percent of overall GDP in the 13 nations studied. More than half of that impact arises from private consumption, primarily online purchases and advertising. An additional 29 percent flows from investments by private-sector companies in servers, software, and communications equipment. The Internet economy, now larger than that of Spain, surpasses global industry sectors such as agriculture and energy.

-The Internet is a critical element of economic progress, pushing a significant portion of economic growth. Both our macroeconomic approach and our statistical approach show that in the mature countries we studied, the Internet accounted for 10 percent of GDP over the 15-year period from 1995 to 2009, and its influence is expanding. Over the last five years of that period, its contribution to GDP growth in these countries doubled, to 21 percent. If we look at the 13 countries in our scope, the Internet contributed 7 percent of growth from 1995 to 2009 and 11 percent from 2004 to 2009. In the global Net's growing ecosystem of suppliers, US companies play leading roles in key sectors. China and India rank among the fast-growing players in the Internet's global supply chain.

-Most of the economic value the Internet creates falls outside of the technology sector: companies in more traditional industries capture 75 percent of the benefits. The Internet is also a catalyst for generating jobs. Among 4,800 small and midsize enterprises surveyed, it created 2.6 of them for each lost to technology-related efficiencies.

Read the complete study here

Bottom line:

The web’s dramatic usage explosion is being reflected on the global economy. Real time connectivity has translated to vastly expanding economic value added and to immense productivity growth.

Increasing specialization could be part of the current dislocations that has led to lofty unemployment levels.

Yet those who see the world in terms of the industrial age will get things so awfully wrong.

As Alvin Toffler writes in the Revolutionary Wealth (p.12),

The developments in capital tools for knowledge expansion are like a rocket in a fueling stage, preparing to launch us toward the next phase of wealth creation. That next phase will spread the new wealth system more widely across the world.

A revolution is under way. And the challenge arising with it will challenge everything we thought we knew about wealth.

Knowledge Revolution: Internet and Freedom

I’ve been writing about how the internet/web has functioned (and will continue to function) as a critical instrument for the widespread dissemination of the principles of freedom based on what I call the Hayekian Knowledge revolution platform—characterized by a decentralized-horizontal flow of information.

You can read my earlier explanations here or here.

And in realizing that the web has been undermining the current political order, governments around the world has, intuitively, resorted to counterbalancing these evolving spontaneous order by attempting to regulate the internet or by imposing censorship. A good example are reports from wikileaks (such as this and this) that has exposed many covert government activities.

Well my observations seem to be getting substantial validations.

Here is the Economist, (bold emphasis mine)

THE number of people with access to the internet has more than doubled in the past five years to over two billion. Many governments have responded with regulation and repression, according to a report published on April 18th by Freedom House, which assigns countries an internet freedom score. Nine of the 15 countries that the Washington-based think-tank assessed in 2009 fared worse this year, among them Iran, Tunisia and China. On the plus side, citizens are growing increasingly adept at sidestepping these threats to their internet freedoms, and the use of social media did much to galvanise political opposition across the Arab world in recent months. Indeed web-users in some countries, such as Georgia and Estonia, have more freedom now than they did two years ago.

Some great charts

The massive growth of Internet Users (Freedom House)

Social media as a widely used application (Internet world stats)

Index of Internet freedom: 37 country score of internet freedom (0 Best, 100 Worst)

A green-colored bar represents a status of “Free,” a yellow-colored one, the status of “Partly Free,” and a purple-colored one, the status of “Not Free” on the Freedom of the Net Index. (Freedom House)

More internet freedom versus less internet freedom (Freedom House)

How Asia has fared.(Freedom House)

Freedom House identifies the typical government’s countermeasures:

(From Freedom House, bold emphasis original)

Key Trends

* Explosion in social-media use met with censorship: In response to the growing popularity of internet-based applications like Facebook, YouTube, and Twitter, many governments have started targeting the new platforms as part of their censorship strategies. In 12 of the 37 countries examined, the authorities consistently or temporarily imposed total bans on these services or their equivalents.

* Bloggers and ordinary users face arrest: Bloggers, online journalists, and human rights activists, as well as ordinary people, increasingly face arrest and imprisonment for their online writings. In 23 of the 37 countries, including several democratic states, at least one blogger or internet user was detained because of online communications.

* Cyberattacks against regime critics intensifying: Governments and their sympathizers are increasingly using technical attacks to disrupt activists’ online networks, eavesdrop on their communications, and cripple their websites. Such attacks were reported in at least 12 of the 37 countries covered.

* Politically motivated censorship and content manipulation growing: A total of 15 of the 37 countries examined were found to engage in substantial online blocking of politically relevant content. In these countries, website blocks are not sporadic, but rather the result of an apparent national policy to restrict users’ access to information, including the websites of independent news outlets and human rights groups.

* Governments exploit centralized internet infrastructure to limit access: Centralized government control over a country’s connection to international internet traffic poses a significant threat to free online expression, particularly at times of political turmoil. In 12 of the 37 countries examined, the authorities used their control over infrastructure to limit widespread access to politically and socially controversial content, and in extreme cases, cut off access to the internet entirely.

The battle rages.

The Tipping Point Of The Industrial Age Political Order

Politics has been shifting along with the evolution in the economy. The problem is that most people’s mindset has still been stuck with archaic models and or of visions of the previous order.

Old One Horse Shay (Wikimedia)

Walter Russell Mead captures neatly this intuitive ‘resistance to change’.

Mr. Mead writes, (bold highlights mine)

Krugman and the Times editorial board are both examples of something important in American life today: left-liberal intellectuals are increasingly able to understand that individual supports of the blue social model are crumbling. But they are still so captivated by the blue model, so profoundly convinced that the Progressive movement’s solutions to America’s social ills in 1910 are still valid today, that they cannot yet look beyond the blue model to imagine a different and brighter future for the United States....

If, as Krugman posits, demand for US workers will be falling in both manufacturing and the professions, how exactly will labor unions get higher wages for their members? Factories will be closing in Krugman’s world and law firms will be turning more and more work over to computers or shipping it overseas. Perhaps stronger unions could make it harder for companies to do this for a while, but ultimately facts speak. Stronger unions making tougher wage demands will not exactly persuade American (and foreign) investors to create new jobs in this country — or to slow down their efforts to reduce their US workforce by outsourcing and automation. When human workers receive rising wages, become harder to fire, and are governed by ever more convoluted and expensive work rules, replacing them with computers becomes more attractive, not less.

Unions tend to flourish when demand for workers is rising (as in China today); they do not and cannot protect the situation of workers as a whole against a background of falling long-term demand for their work.

The problem isn’t that this or that piece of the blue social model is breaking down and needs to be fixed so that the rest of the model can go on working well. It’s not that the university system is broken and that if we fix that the model still works. Ditto the public sector unions or the situation of the labor movement as a whole. Mandating an expensive new set of health care entitlements at a time of looming insolvency won’t help either.

The problem with the blue social model today is systemic. It’s not a problem with one piece or another. The pieces are all falling down and breaking apart at once. It is what happened to the “One Hoss Shay” in Oliver Wendell Holmes’ poem about, they used to teach us back in Pundit High, the breakdown of Calvinist religion in New England.

Read the rest here.

Like the transition of the economic order from agriculture to industry, we are seeing also the same transition from industrial era to the information age. And since the economy drives politics, so will the political structures shift accordingly.

The important point is that these ‘political-economic’ transitions represent a discovery process. It will NOT happen overnight. It will come with painful episodes of trial and errors with many fine tuning along the way.

It will also come with the auto response mechanism known as “resistance to change” especially from entrenched parties that had long benefited from the old order. Walter Mead’s take down of left-liberal intellectuals go along this line of thought.

Labor unions can be compared to current government budget deficits modelled after Bismark’s welfare states. All have been based on the industrial age top-down concept.

And the same top-bottom dynamic goes along with information flows as seen through the previous mainstream media model. But the web has been providing intense competition such that the old force appears to be breaking down. And unlike governments and their apologists, who seem plagued by intellectual stasis, many in the media appear as trying to cope with the changes of the current trends.

While the welfare construct could be seen to have worked earlier, these economically unsustainable platforms have been giving way. In short, the politics of the industrial age may have reached its tipping point.

And as the revolutions in Greece or the MENA, or the standoff in Wisconsin manifests, they operate on a common denominator—the political economic structure of the industrial age has been crumbling.

Many will struggle to maintain the old order, and that’s why transitions are never smooth. But at the end of the day, we are likely to learn how to adjust to these new realities in spite of the conflicts. Alternatively, this extrapolates to "don't fight the trend".

And I close with Mr. Mead’s conclusion...

This is the essence of progress: as we move forward less of our society’s time and energy goes into just staying alive; more of it goes into living better. The key to that now is to move as quickly as possible to reshape these critical professions with the full power of information technology

Amen.

Video: Egypt's Wael Ghonim On The Egyptian People Power Revolt

Egypt's Wael Ghonim in a TED talk says Egypt's revolution is about People, Technology, Knowledge and Freedom. (Hat tip Mises Blog)

"The Power of the People Is Much Stronger than the People In Power"- Wael Ghonim

Knowledge Acquisition: The Importance of Information Sourcing and Quality

“The Pen Is Mightier Than The Sword”- coined by Edward Bulwer-Lytton English author, (also attributed to Dr. Jose P. Rizal)

Any serious or prudent investors in the financial markets would normally try to look for ways to improve on one’s returns. That’s if one recognizes what is workable and what isn’t. Thus, the main task of prudent investors in the financial markets is to screen information and theories and test them, and apply those that would seem as the most cogent, accordingly.

But again this isn’t true for many as returns might seem as a secondary importance. That’s because these economic agents obstinately adhere to biased or selectively chosen data (selective perception) which they interpret as applying to the whole (fallacy of composition), fixate on what is current (survivalship bias) while ignoring the rest, apply misleading definitions and embrace self contradictory and inconsistent theories.

I am just repeating what I said before. Sometimes it takes a deluge of information before the message sinks in.

Ignorance versus foolishness

Ignorance is one thing, foolishness is another. People who fail based on ignorance could be looked upon with compassion. They perhaps hardly knew of the consequences of their actions, which were most likely guided by wrong quality or sources of information.

But it’s different when people lose despite being informed or forewarned. This may be called as doggedness or practising financial religion.

For instance, when people refuse to heed of the inherent risks of conflict of interests that may arise among interacting agents[1], they are likely to fall into the Agency problem trap. Information embellished with statistics and presented as facts could mislead investors. It’s clearly an intangible or unseen risk, that’s because investors are likely to be unaware of the underlying incentives behind these presentations, which may shape or influence the way we think and how we allocate our resources.

And for non-exclusive reasons, boom-bust cycle happens because of information too. Credit fuels greed which impels people to look for information that would confirm on their preconceived notions. Bias, thereby, seeks information or analysis which performs the way dopamine functions, to serve the pleasure centers. So like drugs, misleading information will always have a market.

Also, in as much as price distortions from government policies affect the way people think, these are likewise exhibited through literatures. That’s because the mainstream usually focuses on the symptoms which are read as the cause and transmitted to the public as valid information or facts. This is also because mainstream information caters to short term orientation. In short, boom bust cycles occur also when people gorge on too much of false information.

Stakeholder’s Problem, If Birds Can Write

Most have been unwittingly seduced to the oversimplification of reading current events into market prices, for the reason that being wrong may have little consequence to them. In short, it’s usually a stakeholder’s dilemma or stakeholder’s problem[2]—where the incentives to secure knowledge are driven by the degree of stakeholdings.

Take for instance, a person who dabbles with the stock market, as sideline or for entertainment, will likely have a lesser intensity of incentives to acquire knowledge relative to an individual who lives by the stock market. The latter’s perceived risk factor is greater than the former who has other lines of revenues.

The varying situational incentives, thus, become crucial factors in determining knowledge acquisition.

Yet luck also plays a crucial role. Because no matter how wrong one’s ideas can be, for as long as such errors are made on the side of the general trend where the market is headed, market trends eventually remedies on such errors. And as a result, false ideas could lead to a self-attribution or self serving bias which according to Wikipedia.org[3], people attribute their successes to internal or personal factors but attribute their failures to situational factors beyond their control.

And this also applies even in academics, where wrong models can be seen as “workable”.

Prodigious author of the bestselling book, the Black Swan, Mr. Nassim Taleb writes of a marvellous example of in his forthcoming book[4],

Think of the following event. A collection of priestly persons from Harvard or some such place lecture birds how to fly. The bird flies. They write books, articles, and reports that in fact the bird has obeyed them, an impeccable causal link. They even believe their own theories. Birds write no such books, conceivably because they are birds, so we never get their side of the story. Meanwhile, the priests broadcast theirs.

Behind Media’s Altruisms And Biased Information

And as stated above, the quality and source of information matters.

The most likely source of information are usually the popular ones, such as mainstream media. They cater too our brain’s desire to get fed with visible, emotional, sensational, shocking or graphic linkages.

Take for instance, in the event of a disaster, media routinely appeals to the public to ask for donations. They appeal to the emotions by advocating charity work for the unfortunate victims. Media outfits create an aura where they are seen as doing purely social work. They become instantaneous heroes especially when celebrities lead them.

But this is only half true, what’s not seen is that by connecting to the public’s emotions and wallets they increase viewership on their medium. And the key to their revenues—advertisement—largely depends on the number of audiences. So media’s missives have almost always been attuned towards winning the public’s viewership. It’s like politics in a private format.

Thus for media, intention can be interpreted two ways, social work to help the community or self interests camouflaged by altruism.

In covering political philosophy, this is the same manner why socialism sells, it appeals to emotional center of the brain but are bereft of how “intentions” parlay into reality.

In terms of investment, it’s also the been same. Most people are continually deceived by information aired or disseminated by the media and their cohorts of experts, which for most instances have little value or are irrelevant.

As Rolf Dobelli writes[5],

Out of the approximately 10,000 news stories you have read in the last 12 months, name one that – because you consumed it – allowed you to make a better decision about a serious matter affecting your life, your career, your business – compared to what you would have known if you hadn’t swallowed that morsel of news.

The point is: the consumption of news is irrelevant to the forces that really matter in your life. At its best, it is entertaining, but it is still irrelevant.

Bottom line: information is vital to one’s decision making process, whether applied to the financial markets or in many other vital aspects of life.

The beauty of today’s technological advances is that information is not restricted or centralized but operates from a free market competitive environment.

And I am just part of the multitude of lowly voices here in the cyberspace trying to speak out what I see as true.

And unknown to most, revolutions begins with ideas.

---

[1] See Dealing With Financial Market Information, February 27, 2010

[2] See Philippine Elections: Why I Will Vote For President "None Of The Above”, May 5, 2010

[3] Wikipedia.org, Self-serving bias

[4] Taleb, Nassim Nicolas, Birds Do Not Write Books on Birds, Chapter 8, Anti Fragility

[5] Dobelli Rolf Avoid News, Towards a Healthy News Diet Dobelli.com (hat tip Bryan Caplan)

The Failure Of Centrally Planned Democracies And Of Foreign Aid Dictatorships

GMU Professor Chris Coyne over at the Coordination Problem blog has some valuable insights on the current spontaneous People Power revolutions at the Middle East.

He cites two important lessons: The failure of the foreign policy of imposing ideals (democracy) abroad, and in accessory to the first, the failure of foreign aid to promote democracies via dictatorships.

On imposing western ideals Prof Coyne writes,

what is happening in the Middle East is an indictment of U.S. 'nation building' and more specifically the idea that social change toward freedom must be initiated by outsiders. Consider that the U.S has now been in Afghanistan for nearly 10 years and have been unable to ‘win the hearts and minds’ of Afghan citizens. In Egypt it was a matter of weeks between the initial indigenous uprising and Mubarek’s resignation.

The spontaneous and unexpected events in Egypt, and the Middle East more broadly, highlight the flaws in the planning mentality that underpins most, if not all, U.S. foreign interventions. This view holds that (1) certain societies are unable to move towards freedom without outside assistance and (2) that the complex array of institutions that underpin societies are the result of some ‘grand plan’ which can be engineered by experts.

People’s actions have fundamentally been aimed at achieving the removal of unease. Thus, the political economic conditions have always been evolving as people yearn and strive to attain satisfaction or a better life.

And through trial and error, society has reflected on such perpetual discovery process as seen from the lens of the economy, and subsequently, politics.

And this is why the character of Arab revolutions has shifted from Nationalist to Islamist and now to People Power movements.

The quest for liberty may not be an immediate outcome of the recent spontaneous MENA upheavals, but from signs we see, we can be confident that the appreciation and adaption of the concept of freedom and liberty by Muslims have been gradually deepening.

As Michael Novak writes at the Wall Street Journal,

Yet it took the Jewish and Christian worlds centuries to begin cashing in their own longings for liberty. And so also it took the consciences of nonbelievers from the slave society of Aristotle and Plato until the Universal Declaration of Human Rights. The universal hunger for liberty is not satisfied in any one generation, or in all the generations put together. It is an unlimited desire. (bold highlights mine)

And such endogenous ‘universal’ freedom inspired revolutions has NOT been imposed. The failed foreign policies designed for this has essentially backfired.

And to repeat what Mr. Novak points out, the desire for freedom has also been a long painstaking process mostly accrued from generational experience. I might add that this process will likely become accelerated as the facilities that stimulates these interchanges of experience or ‘emprical’ knowledge via the web or internet will dramatically be improved and whose usage will become widespread.

In addition, the concept of propping up dictators in the name of democracy via foreign aid has also been exposed as a disastrous model.

Again Mr. Coyne, this is

an excellent opportunity to reconsider the longtime U.S. practice of giving foreign aid to the world’s worst dictators...

These are not the only cases of the U.S. providing assistance to the world’s worst governments. Every year Parade magazine compiles a list of the “World’s Worst Dictators.”...

This means that the source of the problem—the predatory state—is tasked with playing a central role in solving the problem of which its very existence is the cause. The result is the well-known pitfalls of aid such as increased corruption and issues of aid effectiveness.” (bold emphasis mine)

At the end day, freedom is a bottom up process which can only be experienced, shared, learned, and assimilated, and not imposed from a top down dynamics especially through the state, or at worst, by dictatorships. As people learn about freedom, vertical structures and power centers are bound to crumble.

Exploding Global Tablet Shipments: More Signs of The Third Wave

More signs of the evolving technology advances that should influence our lives.

From the Economist,

APPLE is due to launch a new version of its popular iPad on March 2nd. The company sold some 15m iPads in 2010, the year in which the device was launched, and according to one forecast it could sell more than 40m of them in 2011. But other tablet computers, in particular those based on Google's Android operating system, are expected to erode its share of a fast-growing market. In 2010 iPads accounted for about 80% of total tablet sales; by 2015 Apple's market share could fall below 40%.

Outside the context of the providers and their market shares, if you look at the forecasts, in 4 years tablet shipments are about to explode by nearly 5 times with the gist of the growth coming from tablets based on mobile technology (as we dealt with here)

The internet based “third wave” knowledge revolution is indeed accelerating.

MENA’s Third Wave-Knowledge Revolts

The Heritage Foundation partly channels Alvin Toffler’s Third Wave and what I have called as the Hayekian knowledge revolution via the web/internet as previously discussed here.

Heritage’s Conn Carroll writes, (bold highlights mine)

The first wave of revolutions in the region came in the middle of the last century and was made up of nationalist revolts against European colonialism. The next wave, the Islamist revolt, came a generation later, upending corrupt monarchies and nationalist regimes set up after the colonial era. Each of these movements—nationalist and Islamist—pretended to be “pan” movements of some kind. But they never caught on because their universal claims were myths, undermined by tribal, religious, and nationalist divisions. The third wave we are witnessing today is completely different. Heritage Foundation Vice President and former Assistant Secretary of State Kim Holmes explains:

“Arab nationalism was largely an elite phenomenon that drove and exploited popular sentiments. Islamism is driven by clerics and political ideologues like the Muslim Brotherhood who likewise exploit peoples’ religious beliefs and social resentments. The current third wave of revolt is truly a bottom-up, people driven movement. It’s driven not by nationalism, Islamism or any other 20th Century “ism,” but by a 21st Century socially linked-up mass movement of people who are sick of corruption, the lack of representative government, and being poor. … Despite the unique national and tribal features of each movement, it is united by the same emotional revulsion to the ruin and corruption created by the first two waves of revolution in the Middle East. The people of Libya are no less disgusted with Qadhafi than the people of Iran are with Ahmadinejad. One may be largely Sunni Arabs and the other Shiite Persians, but both are utterly finished with the ideologies, pretentions, and results of the Middle East’s first two failed revolutions.”

The evolving political order in the Middle East can somewhat be viewed in the context of the developmental stages of the global economy.

The first wave’s “nationalist revolts against European colonialism” can be paralleled to the closure of agriculture based economy, where colonialism signified as the political economy of conquest and plunder.

The second wave’s “Islamist revolt” directed against the “monarchies and nationalist regimes” could be seen in lens of the industrial age, the age of centralization through mass production. Again these revolts perhaps reflected on the evolving desire to see a shift of political ‘centralized’ power from the failed nationalist model to an experiment with theocracies.

And the third wave’s “bottom-up, people driven movement” fundamentally an Étienne de La Boétie paradigm of grassroots based nonviolent revolution appears to represent a non-ideological backlash “sick of corruption, the lack of representative government, and being poor” against centralized institutions. And the internet has been a crucial force in providing the platform for information, inspiration and the spontaneous coordination and mobilization of these grassroots activities.

Of course one may argue that the old order (e.g. military) are the still dominant force and still would resist changes that has benefited them. While this is may be true, as all changes will be met by resistance, this ignores the point about the evolving character of how these revolutions have been taking place, which the Heritage have clearly explained.

As a caveat: since economic development varies from country to country and the timeline for these political transitions cannot be concretely established.

The Heritage Foundation raises the point that foreign policies applied by the US government have been outdated or obsolete.

I don’t think it is just the US government. I think this applies to all governments and to conventional or mainstream insights or analysis as many refuse to see how informational flows, mostly channelled through the social media, have significantly influenced the ongoing revolts against the old centralized political order.

The evolving economic order simply influences the political order. The point is that the current centralized institutions will undergo a flattening process or decentralization, which is what people power revolts have been about.

The presumption that people will simply revert to past models, simply ignores human action or the people’s capacity to LEARN and ADOPT to the changes in the environment and technology as manifested through evolving social interactions.

US Government’s Social Networking Infiltration Strategy

The internet has nearly been a free market for information and knowledge on a global scale.

And it is why as we wrote in The Web As Foundation To The Knowledge Revolution, global governments will continue to find ways to counteract the increasingly horizontal flow of information which they view as threat to their interests. [You see, governments want to keep people gullible]

A recent approach reportedly enlisted by the US government is one of “If you can’t beat them join them”—an infiltration strategy aimed at shaping public opinions.

Here is Darlene Storm of the PCworld.com (bold emphasis mine)

It's recently been revealed that the U.S. government contracted HBGary Federal for the development of software which could create multiple fake social media profiles to manipulate and sway public opinion on controversial issues by promoting propaganda. It could also be used as surveillance to find public opinions with points of view the powers-that-be didn't like. It could then potentially have their "fake" people run smear campaigns against those "real" people. As disturbing as this is, it's not really new for U.S. intelligence or private intelligence firms to do the dirty work behind closed doors.

EFF previously warned that Big Brother wants to be your friend for social media surveillance. While the FBI Intelligence Information Report Handbook (PDF) mentioned using "covert accounts" to access protected information, other government agencies endorsed using security exploits to access protected information.

It's not a big surprise that the U.S. military also wants to use social media to its benefit. Last year, Public Intelligence published the U.S. Air Force social media guide which gave 10 tips for social media such as, "The enemy is engaged in this battlespace and you must engage there as well." Number three was "DON'T LIE. Credibility is critical, without it, no one cares what you have to say...it's also punishable by the UCMJ to give a false statement." The Air Force used the chart below to show how social media influences public opinion.

Read the rest here

This only confirms our earlier observation of the governments broadening engagement against the spread of knowledge and how the web has continued to expose them.