The Next Big Thing? (Techonomy Detroit)

Last week I was in Detroit to speak at Techonomy’s one day conference there. I had never been to the city before and enjoyed meeting Mike Duggan, the mayor, Beth Niblock, CIO, and many other people working hard to turn things around. It is a fascinating window into challenges I believe we will face more broadly going forward.

Here are the video, the slides and a transcript of the talk.

(Transcription by RA Fisher Ink)

Kirkpatrick: Good job, thanks so much. You know, like I said before, in the morning, we do believe in diversity of views, and our next session is a very optimistic way of looking at how technology is changing everything. I was telling Albert Wenger backstage, you know, maybe he should call his session, “The Internet Is the Answer,” but in any case—he probably would be better off not doing that—but he’s a venture capitalist with Union Square Ventures, which is probably the most well-known venture capital firm in New York. He has personally been an early investor in Etsy and Tumblr, and he’s got a great way of presenting a really interesting point of view, so Albert, please—oh, there you are already. So, thank you so much.

Wenger: Thank you, David.

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Wenger: Hi there. Thank you. This is actually my first time in Detroit. I’ve met a lot of wonderful people here, and I’m definitely planning to be back. What’s the next big thing? It’s a question I get asked a lot, as a VC, and so thought, since we’re in Detroit, it might be kind of fun to go back and say, well, what did people say about this in the past, about cars? And this is a slide, an illustration I found from 1974. In 1974, people thought well, we’re going to have these really futuristic highways and really futuristic buildings, and of course, self-driving cars.

Well, this is what it looked like when I went to the airport yesterday, in New York. So, you know, four decades later, we still mostly get this. There’s a strange and funny thing, though—it’s 2014, and we also, do, in fact, have self-driving cars. And I think it’s super-important—and I’m going to come back to this several times—it’s no longer a speculation. It’s a real thing. The Google cars have driven hundreds of thousands of miles on the highway, completely autonomously. We also have this: we have a machine that’s beat a bunch of really smart people at a game that’s not that easy. Like, I always yell out the answers and don’t remember that it’s supposed to be a question. So we have that, and we have this: we have cheap 3-D printers that can print almost arbitrarily complex shapes without any assistance from humans. 

So if we have all of these technologies, and they’re actually here—they’re not science fiction, they’re science fact—what, then, is the next big thing? Well, here’s what I suggest is the next big thing. No, it’s not a lever with the word economy on it. It’s the idea that our existing economy is sort of kind of like a rusty, cranky, old machine, and is somehow going to get very severely disrupted by all these new technologies which are no longer fiction but fact. And there’s a great quote, which I love a lot, by a science fiction writer named William Gibson, and the quote is, “The future’s already here. It’s just not yet evenly distributed.” And I think this is super-important here. These things, they are reality, they are here, and the only thing we’re now arguing about—or should be arguing about, or should be thinking about—is what will their impact be on the economy? 

And in order to think through this, I want to suggest that the existing economy is actually quite simple. I know it’s incredibly complex, but at some level it’s quite simple. For the vast majority of people, the way they make a living is that they sell their labor. They sell their labor, and they receive a wage. And they then turn around a take that wage, and they do this. They go buy stuff. And that stuff—or services—is made by other people, who also receive a wage. And that gets us to this loop, it’s a loop where you sell your labor, you buy stuff, the stuff is being made by people who sell their labor, they buy more stuff—and it’s been an incredibly powerful loop. It’s brought us all these fancy things that we talk about. It’s brought us these smartphones, these amazing screens, because we’ve had a system in which we’ve let entrepreneurs decide what the things are that should be made, instead of top-down planning and then we’ve had labor that could move around and work on the things that seemed like the most promising things. 

But this loop is coming to an end. I’m going to start with the labor side of things. This is Baxter, the friendly robot. Baxter is unlike previous robots. Baxter doesn’t need to be programmed. You just show Baxter what to do, and Baxter learns how to do it. So we are reaching a completely new level of automation. We have, as I said before, we actually have the self-driving car. We actually have artificial intelligence that can answer customer support queries. So we’re reducing the number of people we need to do things. We’re also globalizing. Anything that’s information-related, you can do anywhere in the world. You bring the information there, you let people work on it, you bring the end result back. So we’re reducing the demand for labor, we’re increasing, in a way, the supply. 

And then we have another effect, which is very, very important, which is the winner-take-all effect. If you go back to the economy before industrialization, let’s say, and you were a cobbler, you were making shoes. You were competing with a few other cobblers in your city. You weren’t competing with a cobbler 100 miles away, let alone 1,000 miles away. If you’re making an app for this phone, you’re competing with anybody in the world making a similar app for this phone. And now, how many navigation apps, for instance, do you need on your phone? 

So when you put all three of these together, we’re having these trends that are putting huge, unimaginable pressure on labor, and I think a lot of the things that we’re talking about how to stop that, I think are completely, entirely inadequate. So that’s one side of the equation, that’s really breaking down. 

Let’s take a look at the other side of the equation. There, I think, we know what some of the breakdowns are, more obviously. This is the most obvious one. CO₂ levels in the atmosphere are at 400 parts per million, there’s a garbage patch in the Pacific Ocean almost the size of a continent, so we know that as places like India and China are trying to catch up with material consumption—we already know we’re doing too much. We can’t say we’re going to get out of that job crunch by making more stuff. That’s a pretty bad way to try and fix this problem, when we’re having this problem, which is sort of at a global level, a species level of problem. So too much of some stuff, this is negative externalities, and not enough of other stuff. 

This is Sal Khan, founder of Kahn Academy. In this age that we live in, where people all around the world have these devices with access to the internet, education should be free. Most content should be free. We want it to be free. We want there to be as much free content as possible, because it’s good. You never know who that person on the margins, who’s going to learn something, who will turn out to actually figure out how to solve the entire environmental mess that we’re making. So that’s a positive externality, and we’re not getting enough of that. 

And finally in a reference for any fans of “Hitchhiker’s Guide to the Galaxy,” the one thing we’ve learned is that beyond a certain amount of consumption—beyond being able to clothe yourself and feed yourself and have shelter, and these days, have access to the internet—more stuff doesn’t mean more meaning or more happiness. So where we’re finding ourselves is where this loop is breaking down. 

But there is good news. It’s not all bad. David said I was going to give a good talk, so here’s the good news. There’s a new loop that’s coming, and that loop looks something like this. People create something, maybe in their room. They share it, maybe through a bird that tweets, let’s somebody else discover it, and then after you’ve discovered it, you get to enjoy it. And I’m using the word enjoy because, for most information goods, it’s non-rival. If I’m listening to a Sal Kahn lecture, it has no impact on you listening to that lecture. It’s not taking away from your ability to listen to the lecture. 

And so we have a new loop, and it’s a very, very powerful loop. And I would posit we want as much of that loop as we can get. I went to the breakout session on farming, and one of the things I kept thinking is, all this stuff about vertical farming and new farming technologies, etcetera, we would like that to be in this loop. Seeds, the development of seeds—we want seeds to be developed in this loop, not in an industrial loop by Monsanto. So how do we get more of this loop? What are the things that we should be building? I’m going to give some example about what we should be building from the Union Square Ventures portfolio. 

There is a singer named Lorde. She released her songs, her tracks, when she was 16, 17, on a platform called SoundCloud. SoundCloud is for music what YouTube is for videos. It has that loop, loop of create, share, discover, enjoy. This is a woman named Anna Todd. You’ve not heard of Anna Todd yet, probably. She wrote a novel on a platform called Wattpad. That’s to writing, to fiction, what SoundCloud is to music and what YouTube is to videos. She wrote a book that’s been read by millions of people. 

But there’s a catch. As I was discussing this loop, I wasn’t talking about anybody getting paid anywhere. And so one of the things we need to double-down on, and we need to figure out more is, how are people going to get paid in that world? And I would suggest one way they are going to get paid is through crowdfunding. We’re just at the beginning of this, but it can be so much bigger, whether that’s Kickstarter or Indiegogo. It’s also companies, new companies that are focusing on specific categories. Beacon Reader, for instance, focusing on crowdfunded journalism. Or Experiement.com focusing on crowdfunded science. It feels small today, and it feels small relative to the amounts that the foundations are talking about, but if we all chip in, there are way more of us then there are foundations, and in the end it will be a distributed process of deciding what gets funded, that’s bottom-up, what people are really interested in. So I would posit crowdfunding is essential to making that new loop work to our advantage. 

Crowdfunding is something we already have; I also want to throw something up that we don’t really have. So in these systems, in these new systems, your identity is to some degree controlled by the platform. And what I would suggest is if we really want that loop to be powerful for all of us everywhere in the world, we don’t want our identity entirely controlled by a Facebook or a Twitter, or a SoundCloud or a Wattpad for that matter. So one of the things that we need to work on is decentralized identity. And fortunately, there are people working on that, including some very interesting stuff that’s being done to use the Bitcoin technology, the Blockchain, to allow people to really take control of their own identity on the internet. 

The other question we should be asking ourselves is, how should we regulate all this? And the entrepreneurs in the audience might go, “Oh my God, no, no, no regulation. The last thing we need is regulation.” But I would say, actually, the most important thing we need is regulation, just smart regulation. Why do I say that? Well, again, let’s go back to Detroit. Detroit had stagecoach manufacturers—this is how we all used to get around, or walk or ride the horse, but stagecoaches—and then, along came the car. Well, there were two possible regulatory responses. One is the regulatory response that says, “No, this is very bad. This is going to put the stagecoach manufacturers out of business, and it’s also dangerous. These cars are fast, there’s accidents. It’s just—let’s regulate cars, cars can’t go faster than stagecoaches. Or there’s gotta be somebody with a red flag walking in front of the car, waving it, so that everybody’s alert that a car’s coming.” And those were actual pieces of legislation, not only considered, but passed in some places. 

So that’s one possible regulatory response, and that’s the one that the entrepreneurs are worried about, rightly worried about, and I think we’re seeing a lot of regulation right now that’s trying to hang on to that loop of sell your labor, buy stuff. It’s true, however, that cars hugely benefitted from the right kind of regulation. We would never have had this much personal transportation if we didn’t agree on some rules of the road, and we wouldn’t have that much personal transportation if we hadn’t invested in roads, which was a public investment. So the right kind of regulation will actually give us more of this loop, so we should be thinking about what’s the right kind of regulation. 

And as we think about that, one of the things to keep in mind is that Detroit, in a way, has been kind of a microcosm of what can happen in this kind of shift—in that kind of shift where you have increased automation, because we’ve had robots in car manufacturing for quite some time; where you have globalization, because we’ve had global competition for quite some time; where you maybe have demand shocks, like we had with the ‘70s and the oil crisis. So Detroit has been a microcosm of this, and what are some of the things we’ve seen in Detroit? Well, this is the Packard Plant, which has looked like this for decades. And this is a street in a poor part of Detroit, where this set off a downward spiral. This, by contrast, is a house in an upscale suburb that I pulled off a real estate website just two days ago, when I was preparing this talk, this is a $2 million dollar home. So there was this pulling apart of what was happening in one part of town, versus other parts of town. 

And we’re seeing that again today, where we’re seeing a massive increase—even though we’re lifting, globally we’re lifting a lot of people out of poverty, we’re also seeing simultaneously a huge divergence in how the well-off are doing versus how people who are struggling to get by are doing. And so I think as we think about regulation, we need to think about things that are more forward-thinking than trying to stabilize the existing loop. We really need to think about how do we get this other loop working? And here is an idea that’s a slightly more radical idea. It’s not a new idea, actually—Milton Friedman was one of the people that came up with this idea, which was, let’s just actually give everybody some money. And that may sort of sound crazy, and the experiments that people ran in the ‘70s kind of didn’t work because inflation came along and whatever amount of money you would give people was, like, not enough, but it turns out we’re now living in a deflationary world mostly, and so it’s a good time to revisit this. And I actually think that Detroit would be a great place to run an experiment, and I’m going to try and talk the foundation guys into sort of funding that. 

But the basic idea is, if you have this loop of creating and sharing and discovering and enjoying, but nobody’s making any money, and if you believe that crowdfunding is a mechanism to let people get some money, well, you’ve got to start out with some people having some positive balance, and right now in the U.S. way too few people have any kind of positive balance to contribute to such a system. And this is one idea—I’m not saying it’s the only idea—but it’s one idea for how to address this. 

And here’s another regulatory idea that’s a different idea from the ones that are currently being floated, which is, if you worry—which I think is a legitimate worry—that systems like Facebook might have too much power—or if you’re a cab driver, that a company like Uber might have too much power, ultimately, in the future. And you’re worried about that because of fundamental asymmetry, which is that Facebook has everybody’s information, but you just have your own information, your own interactions with Facebook—and a lot of the concerns that are being voiced about privacy or concerns are being voiced about is this a fair bargain, here? I think instead of trying to address those through piecemeal regulation, we could think about regulation that puts people on more even footing with the platforms. So if I could have a right to an API key—that’s a very technical expression, but think of it as, I have a right to be represented by a system on my behalf—then instead of having lots of piecemeal regulation that’s trying to say, “Well a car can’t go faster than a horse-drawn carriage,” or, “You, company, have to do this very specific thing with this piece of data,” if we empowered individuals, we would actually reinstitute the forces of the market, and then if the company said, “Well, we’re trying to do all sorts of crazy things with your data,” the individuals could say, “Well, then I’ll take my data elsewhere, because I can do it algorithmically.” Or if I’m a driver who’s driving a car, I can have somebody decide for me whether I should be driving for Uber or Lyft or Sidecar, or not driving at all, maybe. 

So I think we need bigger and bolder, both entrepreneurial activity, and bigger and bolder experiments on the regulatory side, if we want to make this loop a success. And as I said before, I do think the internet matters tremendously, and that loop on the internet matters tremendously, and it can provide huge gains for all of humanity across many, many different fields, if we let it. 

And as we think about this, it’s always good to keep in mind that we’re on a little spaceship in an otherwise pretty empty universe. Thank you.

[APPLAUSE]