The Innovation Paradox of Business

I’m crossposting this from the Stratechery forum (which is subscribers only)

In the Uber section of his latest daily update (paywall) Ben Thompson writes the following:

“More broadly, while I generally believe that Uber’s approach has forced changes for the better that wouldn’t have happened otherwise…”

That reminded me of a line of thought I recently had. I want to run it by this community.

I’m with Ben: We are yet to witness the most fundamental changes which technology enables and catalyzes. This will be true in many domains – from business to politics, from education to the economy and many more. All for various reasons; probably most importantly because the internet’s networked nature challenges the core assumptions based on which we traditionally designed our systems and institutions.

I’m pretty convinced of the following: Were we to build a world on a green field, using all the technology available to us, it would look quite differently from what we have today. However, we don’t start on a green field. Instead, there is the world as it is. Hence, the question becomes: Which environment offers the best conditions to build towards the ‘better’ world we assume is possible and ought to be.

Certainly the answer is business. It’s a way more dynamic environment than, say, political institutions. That’s why even a lot of social innovation happens inside the commercial sphere. Another factor of major importance is the access to capital, particularly in the form of risk/venture capital.

I’ve lately been talking to a few people from the so-called platform cooperativism movement. Their idea in simplified terms: they criticize the power centralist platforms achieve and are looking for alternative models with different ownership structures – modern implementations of the co-op model. While I sympathize with some of their ideas, it’s unfathomable – without fathom! – to me how any such entity would ever raise enough capital to scale at the necessary rate to compete with regular companies. After all, the prospect of (huge) profits is what makes investors finance new, risky models.

But – and I believe it’s a topic Ben has recently dealt with more aggressively – there can be a dissonance between what’s desirable from a company’s perspective and for society more broadly. That dissonance gains visibility in markets with strong winner-takes-all effects; i.e. the kind of aggregation-based platform businesses that are all the rage currently. When dealing with critical infrastructure, it’s right out dangerous imho.

Uber is almost a perfect illustration. Of course a future where we have way less cars in cities because of a smart mobility-as-a-service infrastructure is a desirable outcome. Much less so is the prospect of having a single central company in charge of all (or most) of it. I think the downsides of such a scenario are obvious but I’ll name a few: pricing power, little incentive to invest in things like improved infrastructure or security, an enormous accumulation of power in general (because mobility is critical infrastructure). The way Uber already behaves today doesn’t help with building trust.

So here is the paradox: The best environment for desirable innovation to come about and disseminate is business. However, once said innovation prevailed over what was before, it might no longer be in the best interest of societies for the innovators-turned-incumbents to be businesses.

This isn’t necessarily a new observation. But I think the scale and speed at which those actors come to being is unprecedented. And I’m not certain that our old ways of dealing with it – regulation, innovation by startups – will work as well as they used to.

Any thoughts on that?

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