Markets & Processing
Markets cannot exist without the exchange of supply and demand information – to trade with other people, we must know what they want to sell and buy. This means that you and I must constantly receive, store and analyse (we must process) the supply and demand information of other people.
Our brains are capable of performing this task (of giving our attention to supply and demand information) but our processing capability is limited. Information consumes our attention, making our attention scarce.
Constraints and Distortions
In theory, the ‘free market’ allows billions of people to transact with each other in any way they like. We should be able to trade with anyone because we have global communications and transport infrastructure which connects almost everyone. The reality, however, is quite different – the scarcity of our attention severely constrains and distorts our markets.
Because our attention is scarce, we can’t (and don’t even want to) process the supply and demand information of other people. We don’t walk around asking other people what they want to buy and sell, not even our closest friends and neighbours. We therefore have almost no idea of the supply and demand information of the people in our street, city, country or around the globe. There may be billions of people we could trade with, but in practice we can trade with only the smallest fraction of the global population. Our opportunity to participate in trade (and therefore each market and the economy itself) is constrained by the scarcity of human attention.
In turn, this means that you and I can’t find and trade with the people whose supply is the best match for our demand. Instead, we can trade only with the people who capture our attention and transmit their supply information to us. The rewards of the economy, therefore, go largely to the people who capture or buy our attention through advertising, ‘public relations’, ‘content marketing’ and other means. Our markets are not only constrained by the scarcity of our attention, they’re also distorted.
We shouldn’t be surprised, therefore, that we have demand for external information processing to help us decide what to buy and sell. We use Google, Facebook, Amazon, LinkedIn and many other online services for this purpose. And before them, we gave our attention to the Yellow Pages, newspapers, shopping malls, supermarkets and advertising for same reason. These services are a form of information processing which provide convenience in discovering the supply or demand of other people – they give us new opportunities to trade by overcoming the constraints and distortions of our brains.
What you’ll notice about every single one of these services, however, is that they’re free (or, in some cases, heavily subsidised) to us as ‘consumers’ or ‘users’. That’s because:
- economic profit comes from controlling scarce resources, and
- processing power is no longer scarce, it’s increasingly abundant.
In other words, the path to great riches is not to sell processing services (in competition with other corporations who also have processing power), it’s to give away processing services in order to capture and sell an increasingly scarce resource – our attention. The only competition for each corporation, therefore, is to give away more convenience than their nearest competitor, the winner controlling the lion share of our attention.
This is why shopping malls don’t charge entry to shoppers (even though we find malls to be very convenient) – they give us free entry and sell us to retailers through rents. Google gives away almost everything they create in order to sell us to advertisers. Facebook allows us to access the supply of our friends – their photos, status updates, links and opinions – for the same reason.
This might seem like a good trade – to get all of this free processing in return for putting up with a little advertising – but in reality it’s a spectacularly bad deal for at least three reasons.
Reason #1: Micro-Level constraints & distortions
The first reason is that to sell our attention, this free processing must be constrained and distorted at the micro (per transaction) level.
The free processing provided by for-profit corporations cannot be neutral – it must redirect our attention toward people who pay the corporation to the detriment of people who don’t pay the corporation. There is no other way for corporations to take a significant proportion of the value that buyers and vendors exchange within their marketplaces. This is done in two ways, by either introducing or perpetuating:
- constraints which filter out the supply information of people who don’t pay (e.g. eBay, Amazon Marketplace, Google Shopping, shopping malls, etc.), and/or
- distortions which make the supply information of paying vendors more efficiently available or seemingly more relevant than the information of non-paying vendors (e.g. Google constantly improves the information architecture of AdWords results while leaving the architecture of Search results relatively unchanged, other than to point us toward Google’s other services).
Reason #2: Macro-level constraints and distortions
The second reason that it’s a bad deal is that these corporations induce constraints and distortions at the macro (across the economy) level.
We find external information processes helpful because they allow us to preserve our attention for the set of supply and demand we’re interested in. They do this by:
- filtering out irrelevant information,
- prioritising (ranking) matches according to heuristics, and
- displaying it in a suitable information architecture.
Together, these processes create a map – a representation of supply and demand – which simplifies the mind-boggling complexity of the global economy into something we can understand. We make our buying and selling decisions from these maps – we give them our attention – because they have preprocessed the global economy for us.
Google Search, for instance, helps us find reliable vendors by using a popularity heuristic (the idea that popular vendors must be good vendors) and consistently delivers results in a ranked list architecture (listing the most popular to least popular from the 1st result to the X millionth).
Google’s popularity heuristic obviously creates value for us as users – it’s how Google created a superior search engine back in the mid-90s. The problem, however, is that the converse of this heuristic (i.e. ‘good vendors must be popular vendors’) does not hold – there are many good vendors who do not rank highly on Google for at least two reasons:
- people who are capable, reliable and trustworthy in selling something are not necessarily good at (or even interested in) making websites and gaming Google’s algorithms, and
- the web search model creates extremely broad markets (as many vendors are matches for demand expressed as three or so keywords) while giving us convenient access to only a handful of them.
This is great for Google, as this approach allows them to offer a second form of information processing (Google AdWords) based on a different heuristic, roughly ‘whoever is willing to pay Google the most per click must be a good vendor’. This generates enormous profits for Google which they have used, along with all of the data they collect from us in each search, to increase their efficiency in processing. In turn, this ever-increasing efficiency has allowed them to make their Search and AdWords processing faster, more effective and more convenient than other forms of supply and demand processing, creating a cycle which they repeated countless times to attract the attention of a billion or so people:
What this means, therefore, is that billions of people are all using the same filters, heuristics and architectures – Google’s view of the world – in making their purchase decisions. This strips diversity from the global economy, makes markets overly broad (and therefore overly competitive) and creates a poor distribution of opportunity and wealth in the global economy (a.k.a inequality).
Nor is this a new problem – the older services which processed supply and demand information also had biases which constrained and distorted the economy, for instance:
- Newspapers favoured ‘newsworthy’ vendors over all other vendors (spawning PR to fake newsworthyness) and those who bought expensive ads (filtering out the vendors who could not afford them), and
- The Yellow pages sorted people by alphabetical order (favouring ‘AAAAA Aardvark Plumbing’ over ‘Zebra Plumbing’) and made their profits by obfuscating the supply information of non-paying vendors (so that buyers would choose the vendors who paid for big ads).
Our current economy is the end product of literally trillions of transactions which have been distorted by using only a handful of heuristics in our information processing.
Reason #3: Control
The third reason is control. The convenience which information processors give us is similar to efficiency (which we value greatly) except that it is given without control. When you and I use a website or app, we do not control how it works except within the limited freedoms explicitly granted to us by their owners. As such, when we use this convenience, we are giving a degree of control to the corporation who provides it, over:
- our attention and its direction and redirection (toward paying vendors and the corporations’ other services),
- our data and how it is captured and used (e.g. allowing the corporation greater control over the terms and conditions of their services),
- other people by virtue of our use of their service (e.g. buyer attention gives corporations control over vendors and employees (who are also vendors) – forcing them to pay more for buyer attention, lower the price of their goods (or wages), take on costly tasks the corporation wants to avoid, accept unreasonable conditions and so on), and
- our economy as the corporation uses its profits to extend their businesses into new ‘verticals’ and acquire corporations and intellectual property created by others.
We can therefore fill our the centre of the cycle we saw earlier, to show how control is:
- withheld from their services,
- given to them as we use their services,
- used to extract higher profits and take our data, and
- exerted over vendors and other parties to take efficiency from them:
This cycle explains how a handful of seemingly benign, helpful and anti-corporate start-ups become powerful corporations who wield a significant amount of control over us and our data. Any profit-maximising information processor which currently seems benign, helpful and anti-corporate is merely one that hasn’t aggregated enough control yet.
What the solution looks like
Any solution for these problems must therefore have these characteristics.
To capture the attention of users it must provide them with efficiency (convenience and control) which they prefer in most situations to the convenience (efficiency without control) offered by existing information processors (Google, Facebook, Amazon, etc.). In other words, it’s not enough to create an open system – the web, the semantic web, a knowledge commons, etc. – as open but inefficient systems are the breeding ground of convenience-producing, constraint & distortion-inducing information processors.
To avoid micro-level distortions, information processors must be somehow prevented from selling our attention through the processing that they provide us. If this were successful, it would mean that:
- no information processor could prevent anyone from signalling their supply and demand through their processing (for the purpose of extracting payments from them),
- no information processor could introduce hidden heuristics to their processing or add unsolicited forms of processing which redirect our attention toward people who pay them, and therefore that
- information processors would need to sell us information processing (declaring the price of their processing upfront) rather than give it to us freely (hiding the true price of their processing).
To avoid macro-level distortions and the stripping of diversity from the global economy, the billions of people around the globe need to foster billions of approaches to processing supply and demand information by applying their own combination of filters, heuristics and architectures to their information processing. This means, of course, that they – not third party corporations – must control how their information is processed.
To avoid the problem of control, information processors will need to compete with each other to sell us information processing services that meet our demand (i.e. contain the filters, heuristics and architectures of our choice at a price we’re prepared to pay). This also means that each person must be able to use their existing processing (their computer, tablet or smartphone) to perform their own processing without any programming ability. Additionally, we must be able to store our own data and control how it is shared and the terms by which it is shared.
Perhaps one way of summarising all of this is to say that we need access to a powerful, distributed processing environment which we control, such that each person can safely delegate the processing of the world’s supply and demand information to it.
In the next post, I explain the concept I’m proposing to do just that.