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Friction Is Opportunity

One person’s friction is another person’s revenue.

January 25, 2015

Why Technology Matters For Sustainable Development

In his book Zero to One, Silicon Valley entrepreneur Peter Thiel addresses the distinction between globalization and technology. Globalization constitutes “horizontal progress”, he writes, or “taking things that work somewhere and making them work everywhere”; and China is the “paradigmatic example” of growth through globalization.

Technology, on the other hand, enables “vertical progress”, which Thiel argues is harder to imagine because it means “doing something nobody has ever done”. Moreover, while technology has for many come to mean information technology, there’s no reason to restrict its definition in this way, since “any new and better way of doing things” can be called technology.

Since the 2008 financial crisis, there has been an explosion of entrepreneurship around the world. Asian countries, particularly India and China, have demonstrated their ability to create high-growth start-ups. Around the world, there are 70 or so private enterprises valued at above $1 billion, and Asia is home to 15 of them.

But most of these ventures are products of horizontal progress (going “from one to n”, to use Thiel’s expression) and not vertical progress (“from zero to one”). Strictly speaking, even internet giants such as China’s Alibaba Group and India’s Flipkart are not technology pioneers: their well-earned success has been in deploying and scaling a proven business model in their home market.

So far, China, India and other emerging markets have grown by adopting and adapting technologies and business models from advanced economies. But can economic growth be sustained and delivered through the globalization model alone? Large populations in Asia and Africa aspire to join the ranks of the middle class; bringing sustainability to so many people will take innovation across a wide range of industries, which have so far remained relatively untouched by the rapid pace of change affecting information and communications technologies.

There is an enormous amount of latent consumer demand across the developing world that will be difficult to meet without innovation. Consider the challenges in energy, healthcare and financial services, for example. Energy and power requirements are so enormous that meeting them with fossil fuel-based technologies would result in serious environmental degradation, as China’s experience is proving.

In healthcare, large sections of the poor are being priced out of the market for life-saving drugs, and the industry requires a more cost-effective drug development model, as well as new government welfare mechanisms to deliver medicines to the bottom of the pyramid without violating the intellectual property rights of drug innovators.

In finance, tens of millions of people remain without bank accounts and are cut off from the formal financial system. Rapidly evolving crypto-currency technologies such as the Bitcoin (combined with internet-enabled smartphones) can help widen financial access.

The scale of need across these and other industries is such that the globalization approach alone is not sufficient: new technology is urgently required. Entrepreneurs have to deliver innovations in multiple sectors, not just ICT-related industries, to be able to make a large-scale impact.

Finally, it is more difficult for entrepreneurs and investors in advanced economies to deliver such innovations because they are not close to the customer. Increasingly, entrepreneurs in emerging markets will need to take the initiative and attempt to do what nobody has done, because the problems in these markets will be problems that nobody has really solved before. Additionally, these will be problems that advanced economies don’t really have a stake in solving.

In other words, emerging-market entrepreneurs will need to think of how to go “from zero to one” in myriad industries if they are to deliver sustainable and equitable growth for their large domestic populations. It poses a serious risk for global economic growth, but also presents the entrepreneurial opportunity of the century. Innovators who square the circle will not only create substantial wealth; they will also have done a tremendous service to human society by helping millions transition out of poverty.

Originally Published: World Economic Forum

January 18, 2015

Silent Leadership

A leader is best when people barely know he exists, not so good when people obey and acclaim him — worse when they despise him. But of a good leader who talks little when his work is done and his aim is fulfilled, they will say: We did it ourselves.

Link

January 12, 2015

Complex Systems

In any sufficiently complex system, you can consistently assert falsehoods.

Link

January 6, 2015

Beginner’s Mind

In the beginner’s mind there are many possibilities, but in the expert’s there are few.

– Shunryu Suzuki-roshi

December 29, 2014

Planning vs Design

Planning applies established procedures to solve a largely understood problem within an accepted framework. Design inquires into the nature of a problem to conceive a framework for solving that problem. In general, planning is problem solving, while design is problem setting. Where planning focuses on generating a plan—a series of executable actions—design focuses on learning about the nature of an unfamiliar problem.

Link

December 22, 2014

Problem Formulation

A perfect formulation of a problem is already half its solution.

Link

December 16, 2014

Bitcoin and Emerging Markets

In my op-ed for Mint, I write about the potential applications bitcoin could have specifically for emerging markets like India:

India’s banking and financial services industry has incumbents that are inert, sloth-like and highly risk-averse. The banking industry in particular is heavily dominated by public sector undertakings (PSUs). PSU banks still control approximately 80% of all deposits. The industry is rife with corruption and mismanagement, for government banks know that their owner will always bail them out. But this was not always the case—before Indira Gandhi nationalized banks with the stroke of a pen, over 85% of deposits in India were held by private banks. Since the nationalization of banking, all innovation in the industry has come to a standstill.

For 2013-14, 63% of the total number and 35% of the total value of retail transactions was electronic. Average electronic transaction value has nearly tripled in four years, according to data from the Reserve Bank of India (RBI), India’s banking regulator. But Indian banks cartelize and lobby their regulator to punish consumers with outdated usage practices totally out of tune with the needs of mobile transactions and electronic commerce. Instead of prodding the banks to improve their fraud detection and redressal systems, RBI simply makes it harder for consumers to transact and introduces artificial friction by way of two-factor authentication requirements so that banks get away without having to improve themselves.

…

Besides enabling transactions with reduced friction and at lower cost, there are certain applications of the protocol that can enable altogether new use cases. Cryptocurrencies can be used to write “smart contracts”, or contracts that are digitally written and require no third party for enforcement. The value of this application is difficult to overstate in an environment like India, which the World Bank ranks 186 out of 189 countries globally on the enforceability of contracts. Given the slow, dysfunctional judicial system and the paucity of social capital, individuals have historically preferred to do business with people already known to them, or people who are from their own community.

An alternate approach, outside the present broken system, that offers “self-executing”, tamper-proof contracts and does away with the need for third-party intervention for mediation or dispute resolution, could be truly transformational for countries like India by collapsing business risks and transaction costs. Cryptocurrencies like bitcoin could help dramatically improve contract enforcement.

Consider a bank that gives a secured loan to a person wanting to buy a car, on the assumption that the person will pay for the asset in a fixed number of monthly instalments over a period of time. If the person fails to pay the monthly instalment in any month, the bank reserves the right to take back the car. When a person has reneged on such payments, Indian banks have been known to send strongmen and professional bullies as recovery agents to intimidate and threaten customers and even the relatives of such customers. With an integrated software solution built into the car that verifies whether the monthly instalment has been deposited, a self-executing contract could remotely brick the car, making it inoperable by the consumer should he fail to make the payment. The software “key” to activate the car again would lie with the bank, which can then take possession of the asset easily.

Another game-changing application for cryptocurrencies specific to the Indian context is in the area of remittances. In 2013-14, India received nearly $70 billion in remittances from abroad. The volume of intra-country remittances is estimated to be some Rs.75,000 crore annually. In this digital age, anachronistic and expensive modes of money transfer such as the money order persist. Not only would the cryptocurrency protocol applied to a large market such as remittances be lucrative, it would also be a tremendous service to millions of bottom-of-the-pyramid migrant workers, who have been able to get the latest smartphones for a low price, but are still deprived of cheap, efficient and user-friendly banking and money transfer services.

Besides enabling transactions with reduced friction and at lower cost, there are certain applications of the protocol that can enable altogether new use cases. Cryptocurrencies can be used to write “smart contracts”, or contracts that are digitally written and require no third party for enforcement. The value of this application is difficult to overstate in an environment like India, which the World Bank ranks 186 out of 189 countries globally on the enforceability of contracts. Given the slow, dysfunctional judicial system and the paucity of social capital, individuals have historically preferred to do business with people already known to them, or people who are from their own community. An alternate approach, outside the present broken system, that offers “self-executing”, tamper-proof contracts and does away with the need for third-party intervention for mediation or dispute resolution, could be truly transformational for countries like India by collapsing business risks and transaction costs. Cryptocurrencies like bitcoin could help dramatically improve contract enforcement. Consider a bank that gives a secured loan to a person wanting to buy a car, on the assumption that the person will pay for the asset in a fixed number of monthly instalments over a period of time. If the person fails to pay the monthly instalment in any month, the bank reserves the right to take back the car. When a person has reneged on such payments, Indian banks have been known to send strongmen and professional bullies as recovery agents to intimidate and threaten customers and even the relatives of such customers. With an integrated software solution built into the car that verifies whether the monthly instalment has been deposited, a self-executing contract could remotely brick the car, making it inoperable by the consumer should he fail to make the payment. The software “key” to activate the car again would lie with the bank, which can then take possession of the asset easily. Another game-changing application for cryptocurrencies specific to the Indian context is in the area of remittances. In 2013-14, India received nearly $70 billion in remittances from abroad. The volume of intra-country remittances is estimated to be some Rs.75,000 crore annually. In this digital age, anachronistic and expensive modes of money transfer such as the money order persist. Not only would the cryptocurrency protocol applied to a large market such as remittances be lucrative, it would also be a tremendous service to millions of bottom-of-the-pyramid migrant workers, who have been able to get the latest smartphones for a low price, but are still deprived of cheap, efficient and user-friendly banking and money transfer services.

December 10, 2014

Knowing The Other’s Side Argument

I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.

– Charlie Munger

December 2, 2014