Ladies and gentlemen – we’re back.
This week’s topic is why the dominant understanding of innovation is dogshit. But first, we’re going to have a little local programming for the Canadians and Canada-watchers out there. If that’s not you, then bop on down to the subheader “Your Regularly Scheduled Programming.”
It’s election season in Canada which means that we get to see what phase of the political cycle we find ourselves in today. The Canadian system is, of course, a simple one. We have the Liberal Party and the Conservative Party vying for power while the lesser fare tries to pick up scraps.
Our system revolves around a handful of truths:
1. The Liberals are corrupt,
2. The Conservatives are morons,
3. The NDP are corrupt morons, and,
4. Quebec is organized crime masquerading as a province.
We cycle through the Libs and Cons based on whether we’ve forgotten truth #1 or #2. You see, these parties win mandates based on us remembering the truth about their opponents while forgetting – or overlooking – their own.
For example, let’s say that the Liberals have been in power for a few terms. There’s no way they can hide their true nature, of being well-educated grifters, for multiple mandates. Thus, we remember who they really are. At the same time, the Conservatives have been in opposition long enough for us to forget that, in aggregate, they possess mashed potatoes for brains. Consequentially, we kick out the Grits in favor of the Tories until our memories flip and we figure that Liberal corruption is a thing of the past. And so and so forth.
How come the NDP never gets elected? Well, that’s because they are either corrupt, moronic, or both, at all times. Just when we forget about one of the vices, we remember the other.
For my money, I figure this election is going to be interesting because it’s only been six years of Liberal governance. It hasn’t been enough time for full Liberal scumbaggery to emerge. Plus, there’s the all-important Ontario-Quebec dynamic regarding corruption.
If corruption was an Olympic sport, then Quebecois teams would be consistently vying for gold against the southern Italians. It’s what they do. Thus, in the later stages of Liberal governments, when the grifting gets good, Quebec rewards the behavior. At the same time though, Ontarians begin to find their moral compass and start voting for the Conservatives – who for the moment feign competence. The result is that if an election is called after Quebec hits its corruption promotion ceiling, but before Ontarians garner enough indignation, then the Liberals get another mandate. The question today being whether we are past that point or not. This is what Tru-Daddy and his Liberals have bet the house on.
As for me, I’m a weirdo who doesn’t vote because I’ve yet to meet any clowns in this circus worthy of support. Don’t come at me with that bullshit about how ‘if you don’t vote you don’t get to complain.’ That’s a lazy argument akin to saying that if I hate baseball I don’t get to bemoan the Blue Jays. I absolutely can. The bemoaning is a subset of the general opposition. If the latter is valid, then so too is the former.
Anyways....
Your Regularly Scheduled Programming
At any one time, there is a seemingly endless number of expected futures. Anyone who has an eye towards a time beyond the present has a thesis about what exactly that future will look like. In time, these competing futures are sifted out by reality and developments. You can think back to the era before the internal combustion engine and imagine farriers – the folks who work with horseshoes – looking at industrialization and population growth and thinking “oh buddy, we’re going to be shoeing horses from now till kingdom come.” That was a potential future which lost out in the end.
When we talk about innovation, what we are really talking about is the facilitation of these competing futures. However, the current zeitgeist misses an all too important truth which is that futures evolve into being via competing conceptions. That’s a bit of a mouthful there so how about we dig into it a little?
When was the age of coal? Surely in our minds, we conjure up images of Oliver Twist and chimney sweeps. But the Victorian era was not coal’s heyday. In reality:
“In global terms, coal kept its primacy during the first half of the 20th-century. . . even for the entire 20th-century it delivered slightly more energy than crude oil.”1
Coal kept its dominant position in the world of energy production well after its apparent successor – crude oil, came to the forefront of the popular imagination. A similar phenomenon occurred with wood. Wood remained a dominant source of energy well into the late 19th-century. In Sweden, for example, it wasn’t until the first decade of the 1900s that coal overtook wood.2 The Soviets were late to the coal game, with wood supplying at least 50% of total energy until the 1930s.3 Even in the mighty US of A, wood fell from grace only in the 1870s.4
How come? Why is it that usage of less-advanced materials peaked well after a seemingly superior source of energy became commercially available at scale? Coal was the future. Yet, uptake was relatively slow. Only over the course of decades – if not a century – did people transition. Strange, isn’t it? Or is it?
The best modern analogy I can find to explain this has to do with video game consoles. When is it cheapest to buy a PlayStation 3 at retail? It’s not right before, or immediately after, the launch of the PlayStation 4. Instead, it often occurs 1 or 2 years after the launch of the new console. Why? Because that is when the efficiencies of production are at their highest and competition from the new model drives down prices in order to compete against new offerings and benefits. People continue to purchase the PS3, at ever-declining prices, because the old console can find ways to make up for its apparent obsolesces. In the PlayStation example, the PS3 competes on price whereas the PS4 competes on ‘innovation’ and quality.
What happened with coal is that once crude oil took off, coal producers found efficiencies in terms of price and utilization. It may have been that coal was not going to ever work for vehicles, but it could compete with crude in terms of its efficiency for power generation. Coal got efficient faster than crude could capture market share. That is until a tipping point was reached – which, wasn’t even crude, but rather natural gas, for power generation. The same thing happened with wood. Supply outran demand, prices dropped, which raised demand, and new ways of using wood gave it legs well after ‘the future’ technology had established itself.
As I have written previously, competition is a force and reality that we are all too prone to forget. It is not the case that the new kid on the block shows up and then everyone else goes home. There are vested interests – in the form of existing dominant players – who try to stave off the future as long as possible; if not capture the future for themselves. In doing so, we as consumers benefit because we now have options, savings, and increased performance. Yet, it is common to hear alleged innovators preach about how the future is now. Before the existing players have even started to consider their response.
Let’s take passenger vehicles as an example. What is the future technology? Apparently, it is electrification. So we find ourselves with fanboys yelling about how Tesla is going to wipe the floor with legacy auto manufacturers simply because electric vehicles are the future and Tesla sells them. You get the sense that these morons expect the future to happen today. As though all other vehicles – including my beloved 2010 GMC Canyon – are going to ascend to the giant scrap heap in the sky in a vehicular rapture.
The Tesla-troll mindset is that they look out into the world and see internal combustion engines and electric vehicles. Alongside this dichotomy, they have their axiom of ‘electric is objectively better and is the future.’ Slapping these two together they come to the conclusion that everyone will transition ASAP to electric vehicles as manufactured by current electric producers – i.e. Tesla. The reality though is nothing close to this.
Instead, what we get is an ‘Empire Strikes Back’ situation where legacy auto companies – even if they are to kick the bucket someday – get a say in how vehicle electrification occurs. In this specific instance, we see automakers like GM, Toyota, and VW, lean into their manufacturing prowess for a competitive advantage while Elon’s over here telling us that what these companies do every day is just so stinkin’ difficult.
This leads us to another issue with imagining the future as something that occurs as soon as the relevant technology appears at scale, which is that often we mistake features for technology. In the electric car example, we can see that the technology is the car. The propulsion system is merely a feature of said car. If the falsely labeled technology is in fact merely a feature then incumbent technologies – and those dominant in them – can tack them on to existing offerings. For proof of this you can look at the Buy Now Pay Later (BNPL) phenomenon where Square is buying AfterPay so as to slap the BNPL ability onto existing technology. BNPL might be a part of the future of payments but it is not the future.
Further examples of featurization by dominant firms include the creation of Twitter Spaces against Clubhouse. Long-form, live, audio ‘rooms’ might be the future of social media, but that does not mean that a firm specializing in it will carry the day. Rather, the technology is the social media platform – a voice function is merely a feature to be added.
At a macro-level one can look to the entire ‘green revolution’ as a gaping example of this boneheaded misunderstanding of the future. Again, I’m on the record saying that net-zero pledges and plans are absolutely made-up nonsense. But if we re-examine the matter through the lens of this essay we can gain further insights.
The basic premise of the ‘greening’ of society is that we are going to transition away from fossil fuels and towards renewables in the form of solar, wind, etc... The argument being that these sources of energy are better than what we are currently using. I’m willing to cede that point – even if it ignores the greater utility function of fossil fuels from a user’s perspective. However, the argument says nothing about what happens if fossil fuels themselves evolve. This could take the form of carbon capture and sequestration, improved efficiencies at the point of power generation, or the use of renewables to reduce the net output of existing infrastructure. Each of these categories of improvements would boost the competitiveness of fossil fuels in terms of dollars and emissions for decades to come. Yet, that is not the message that many advocates of a green future espouse.
Instead, what we see is a general desire to completely overhaul the existing system because renewables are seen as ‘the future.’ Again, I agree that the future will be dominated by renewables – with a caveat on my end that nuclear and hydro are the only low to no-emissions baseload capacity technologies we have.
However, to imagine that we are going to transition overnight is laughable. Rather, what is likely to occur is a mimicking of what happened with wood and coal. Fossil fuels use will peak in the decades following the rise of renewables and phase out gradually after that. Want proof? Well, despite the apparent star-spangled awesomeness of solar and wind power, Joey B is asking OPEC+ to boost production. Paris Agreements are neat until Billy Bob has to pay $4.50 a gallon.
As for featurization, that is exactly what carbon capture is. If the feature is reduced emissions, that is what CCS does.
In short, we find ourselves surrounded by the rhetoric of ‘the future’ yet the future is forever lingering in the unknown tomorrow. To imagine that the future will simply occur at the flip of a switch is irrational, ahistorical, and stupendously stupid. In reality, what we get is the future perpetually giving birth to the present through the interaction of competing forces and interests.
Where this comes into play in the market is that the false conception of the future leads us to overvalue firms and products that smell like the inevitable while disproportionately discounting the currently dominant players.
In rhetoric, and often in practice, we see folks who ought to know better write off existing technologies because of this fallacy of the immediately inevitable. Even if a given firm or technology is going the way of the dodo, it still has value until the day it ceases to generate cashflows. Not to mention what happens if it decides to evolve to change with the times. Yet here we stand, expecting tomorrow’s occurrence to be that of future decades.
Photo by Wolfgang Hasselman on Unsplash
Vaclav Smil, Grand Transitions: How The Modern World Was Made, (New York: Oxford University Press, 2021), 120
Ibid, 117.
Ibid.
Ibid.