by Don Tapscott
What’s truly powerful, the systems work together—intelligent vehicles operating on an intelligent infrastructure. While there will still be business for drivers of shared vehicles, autonomous vehicles will be able to operate safely on city streets with their built-in navigation and safety systems, often interacting with the intelligent infrastructure to find and pay for an accelerated lane, or parking, or to search for and find a preferred route. The ready availability, affordability, and reliability of the autonomous vehicles will significantly reduce the number of private vehicles that, like the commercial real estate example above, are often just parked waiting and unused.
And it won’t just be technology or car companies that will make this happen. While all of this could, in theory, be developed, owned, operated, and managed by a single civic transportation authority, that is likely not to be the path forward. SUber is more likely to evolve and innovate as an open and shared transportation platform, with various applications developed and introduced by local entrepreneurs, community groups, government, and others in either a profit-making (through revenue earned on a fleet of driverless vans), shared co-op (a neighborhood group invests in ten vehicles to be reserved and shared using the SUber app), public service (maintaining and operating a train or express buses on high-demand routes), or social enterprise (not-for-profits investing in SUber “points,” which their clients can access when they need transportation).
This may emerge first in jurisdictions with relatively advanced infrastructure, already separate transportation corridors (rail, road, bike, pedestrian), significant transportation issues (traffic congestion), and a population with a long tradition of obeying traffic rules. It may also begin in “greenfield” city developments in cooperation with technology companies and car companies looking for test beds for their applications. Any scenario involving driverless vehicles would be less successful, even highly dangerous, when other road users cannot be isolated (on separate corridors), or predicted (animals on the road), or controlled (distracted pedestrians).
The SUber scenario is increasingly feasible. Such applications will likely emerge in the next few years and come to solve our transportation needs over the long term. Already today, local taxi and limousine commissions are battling Uber in many cities. City governments are struggling to balance consumer desire for affordable options with public safety and taxi licensing, even as the new models are seemingly inevitable. Why not look where the transportation sector is going and design solutions that best meet the city’s needs, as Chicago has done in our hypothetical SUber scenario?
HACKING YOUR FUTURE FOR A WORLD OF SMART THINGS
We’ve seen throughout this chapter some mind-boggling opportunities in virtually all aspects of our lives, including—perhaps especially—many areas barely touched by the first wave of the digital revolution. At the same time, these opportunities threaten existing businesses and ways of doing business.
Key Issues: What should you as a manager be doing on both sides of this equation—to realize new opportunities, while minimizing threats? Whether you’re a manager in the public, private, or social sector, do you have un- or underutilized physical assets that can be tapped for greater value? Are you realizing the greatest possible efficiencies and opportunities to develop products and technologies for the IoT itself? Are new entrants into this economy taking your customers and reducing your revenues through innovative new app-based business models that you should be installing first?
New Value: What are your physical assets and how can you enhance them to deliver greater value to your organization or community? Do you have physical spaces, machines, inventory, or other assets that you could tag, monitor, and animate as part of an autonomous network where you establish the operating parameters to drive out costs or add value? Could you embed, upgrade, and program sensors as part of a larger network for greater functionality and value? Could you glean new information from an IoT network to improve your planning and analysis for the future?
New Business Models: What opportunities exist for new products and services based on the new functionality and data you could gather through your network? Could your information and assets earn revenue because of their value to others, for example, renting out that expensive piece of equipment when you’re not using it? Thinking about the value of information is not new (remember Sabre and American Airlines?), but still overlooked.
Opportunities: Could you link your network up with others for even greater value, perhaps as part of an end-to-end supply chain or distribution and sales channel? As an industry, are there shared processes and functions that could be automated by utilizing the blockchain? Are you enabling this interoperability by using technology built on open standards and vetted through international collaboration?
Threats: What lines of business will new entrants attack with their new IoT-based business models to serve markets that you currently serve? For example, rather than a one-time sale of a vehicle, consumer good, or piece of specialized equipment, is there ongoing value for you and your clients in a new service model built upon your ongoing connection to that equipment? Can you capitalize upon your existing expertise, resources, infrastructure, and customer loyalty to design new IoT-based business models that decrease the “space” and, therefore, the likelihood of entry of a disruptive new player?
Business Case: What are the costs and benefits of these opportunities? Where does the real value exist for your organization? Are you solving an actual business problem or need or just leading with the technology? How about developing a proof of concept with a leading client?
Strategic Plan: According to McKinsey, “executives will need to deal with three sets of challenges: organizational misalignment, technological interoperability and analytics hurdles, and heightened cybersecurity risks.”32 We add a fourth major challenge to this list—building in privacy and an incentive plan, including appropriate safeguards, from the beginning. How will IT and business functions have to adapt to the IoT? Which parts of the organization and business leaders should you involve?
CHAPTER 7
SOLVING THE PROSPERITY PARADOX:
ECONOMIC INCLUSION AND ENTREPRENEURSHIP
A PIG IS NOT A PIGGY BANK
The Pacific coast of Nicaragua is one of the most beautiful landscapes in the Americas, where verdant green forest meets endless blue waters. Its rolling hills and stunning beaches make it a top destination for backpackers, sunbathers, and ecotourists alike. Nicaragua is also one of the poorest and least developed countries in the region. Sixty percent of the population lives below the poverty line. Those not employed in its tourism industry survive on near-subsistence-level agriculture and fishing. Nicaragua has the second-lowest nominal gross domestic product in the Americas, with 10 percent of its entire GDP from remittances—money earned overseas and repatriated by the Nicaraguan diaspora. Nineteen percent of Nicaraguans have a formal bank account, but only 14 percent are able to borrow and only 8 percent have formal savings.1 Yet 93 percent have a mobile phone subscription, usually in the form of prepaid access.2
That is the reality that Joyce Kim faced when she took her team down to Nicaragua. Kim is the executive director of the Stellar Development Foundation, a not-for-profit blockchain technology organization (not to be confused with Stellar, the large architecture and construction firm). A Nicaraguan microfinance operation wanted to learn more about Stellar’s financial platform. The woefully underdeveloped banking industry in Nicaragua keeps most people in an inescapable cycle of poverty and exacerbates the plight of would-be entrepreneurs. They struggle to start new businesses, register titles to their land and other assets, and resolve outstanding claims from the Sandinista government’s mass land expropriation in the 1980s.3 Stellar’s platform would enable Nicaraguans to transfer, save, invest, borrow, and lend money.
Kim was both impressed and surprised by the local focus on microcredit. She understood that access to credit was paramount to economic inclusion but believed that savings, the ability to s
tore value reliably and securely, was a prerequisite for almost all other financial services. When Kim asked about savings, she was told, “Oh, savings is not a problem around here. People have pigs.”4
Livestock makes up the vast majority of farmers’ net worth in many agrarian economies because financial services are not widely available and individuals have a tenuous right to their land. In Nicaragua that means people own pigs, and lots of them. Kim was surprised at first, but quickly saw the age-old logic to it. “You walk out of a meeting, and you look around and you see pigs are everywhere.”5 Livestock has long been an accepted, relatively useful form of savings. For those excluded from the digital economy, animals are about as liquid an asset as you can own, even more so if they produce milk, and they pay dividends in piglets, eggs, lambs, calves, and sometimes cheese.
Prosperity is a relative concept. In Kenya, Masai tribesmen who own four to five hundred head of goats are considered prosperous, but their lives can be rough, brutish, and short. Livestock-based wealth is “highly localized, so that you can’t actually transact with anybody unless they’re right there in front of you,” Kim said. “You run the huge risks with your animals running away or getting sick or some blight coming that could actually wipe out all of your savings.”6
Credit was an even tougher nut to crack than savings. Kim got to know a local Nicaraguan fisherman, a member of a cooperative, who explained that no one fisherman ever has access to enough credit to outfit an entire rig. According to Kim, “they form fishermen crews where one person will get a loan for the net, somebody else will get a loan for the bait, somebody else gets a loan for the boat, somebody else a loan for the motor, and then they come together and they form a crew.” No one person is able to float his or her own venture (no pun intended) because access to credit is so tight. The model works, but it involves as many middlemen as there are fishermen.
The lifelong financial struggle of the Nicaraguan fishermen and farmers is the story of most unbanked people, around two billion adults in the world today.7 What they lack—a store of value that won’t get mad cow disease or die of old age, or a payment mechanism that extends beyond the village—we take for granted.
Financial inclusion is a prerequisite for economic inclusion. Its repercussions extend beyond finance. Kim said, “I don’t consider financial access and financial inclusion to be the end goal. It’s a path we all have to walk to get better education, better health care, equal women’s rights, and economic development.”8 In short, financial inclusion is a fundamental right.
This chapter looks at opportunities for mobile and financial service providers and other businesses to use blockchains to unleash the economic potential at the bottom of the pyramid. We’re talking billions of new customers, entrepreneurs, and owners of assets, on the ground and ready to be deployed. Remember, blockchain transactions can be tiny, fractions of pennies, and cost very little to complete. Anyone with the smallest of assets—say, a talent for embroidery or music, spare water pails, a chicken that lays eggs, a mobile phone that records data, audio, and images—could exchange value. The new platform also eliminates the point-of-access barrier. If you can access the Internet on a mobile device, then you can access assets with no forms to fill out and very little literacy. These are seemingly small but incredibly important breakthroughs. If we do this right, blockchain technology could unleash the biggest untapped pool of human capital in history, bringing billions of engaged, prospering entrepreneurs into the global economy.
THE NEW PROSPERITY PARADOX
For the first time in modern history, the global economy is growing but few are benefiting. On one hand, the digital age is bringing limitless possibilities for innovation and economic progress. Corporate profits are ballooning. On the other hand, prosperity has stalled. Throughout modern history, individuals and families at the 51st percentile were on the rise. Despite depressions and upheavals, prosperity for these individuals, and for society as a whole, steadily increased. This is no longer the case. Standards of living are even declining in the developed world. Median wages are stagnating in OECD countries. And, according to the International Labour Organization, youth unemployment in most of the world is stuck at about 20 percent. “Young people [are] nearly three times as likely as adults to be unemployed,” the ILO reported.9 In many developing nations, the numbers are significantly higher. Such unemployment is corrosive to all societies, no matter what their level of development. Most citizens want to contribute to their community. Anyone who has been jobless knows how it erodes self-esteem and well-being. Those with power and wealth are getting ahead, and those without are falling behind.
This new prosperity paradox, not to be confused with the intergenerational “Paradox of Prosperity” coined by economists such as Gilbert Morris, has befuddled every policy maker in the Western world. One of the best-selling business books of 2014, Capital in the Twenty-First Century by Thomas Piketty, became the #1 best seller on the New York Times hardcover nonfiction list in 2014. A tour de force of academic scholarship, Capital explains why inequality is accelerating and will likely continue to do so as long as the return on capital exceeds long-term economic growth. The rich have gotten richer because their money made them more money than their work did. Hence, the proliferation of new millionaires and billionaires. But his solution for how to stem growing social inequality, by imposing a wealth tax on the ones who own most of the world’s wealth, was somewhat less inspiring, if only because we’ve heard it before.10 Indeed, for as long as capitalism has been the primary mode of production, the debate about how to share the fruits more equally has not moved much beyond the redistribution of wealth, usually through taxation of the rich and the provision of public services to the poor. Advocates of our current economic model point to the hundreds of millions of people in the developing world (mostly in Asia) who have been lifted out of abject poverty, but often overlook the asymmetric benefits conferred to the very wealthy and the widening chasm between the superrich and the rest of the population in those same countries. Today, the global 1 percent owns half the world’s wealth while 3.5 billion people earn fewer than two dollars a day.
Defenders of the status quo are quick to point out that most of the world’s superrich got rich by creating companies, not through inheritance. However, behind the successes of a few are some very troubling statistics. The rate of new business formation is down. In the United States, the share of total firms that are younger than one year old fell by nearly half between 1978 and 2011, from 15 percent to 8 percent.11 The millennial generation, oft characterized as entrepreneurial risk takers, is doing little to buck the trend and may be contributing to it. A recent analysis of Federal Reserve data found that only 3.6 percent of American households headed by someone under thirty held a stake in a private company, down from 10.6 percent in 1989.12
In the developing world, the digital revolution has done little to clear the entrepreneurial path of red tape and corruption. Where it costs only 3.4 percent of per-capita income to start a business in OECD countries, it costs 31.4 percent in Latin America and a shocking 56.2 percent in sub-Saharan Africa. In Brazil, an entrepreneur has to wait almost 103 days to incorporate his company versus 4 days in the United States and half a day in New Zealand.13 Exasperated by government bloat and inefficiency, many would-be developing-world entrepreneurs instead choose to operate in the so-called informal economy. “There are a bunch of things taken for granted in the West. Property records are fine-tuned, for example. In the Global South, entrepreneurs would rather the government not know they exist. We need to make identity a profitable proposition,” said Hernando de Soto. For now, staying in the shadows frees these entrepreneurs from meddlesome and corrupt officials, but it also profoundly limits their ability to grow their business, limits rights, and makes “dead capital” of money that could otherwise be deployed more efficiently.14 Moreover, even for those who operate their businesses in the open, laws of many countries do not provide for limited liability. If your business fails
, you’re personally on the hook for all liabilities. If you bounce a business check in many Arab countries, you go straight to jail—“do not pass go” or any other institutions of due process on the way.15
Okay, then, the world has always had haves and have-nots. Today fewer people starve to death, or die from malaria or through violent conflict. Fewer people live in extreme poverty today than in 1990.16 Certain emerging economies have benefited from outsourcing of manufacturing and liberalization of economic policies—China being a prime example of both—and the mean income of citizens in most developed countries increased. On balance, people are better off than they used to be, right? So what if the rich just happen to own significantly more? Shouldn’t they keep what they’ve earned through their efforts? What’s the problem?
Piketty pointed at capitalism. But capitalism, as a system for organizing the economy, is not the problem. In fact, capitalism is a great way to create wealth and prosperity for those who know how to use it. The problem is that most people never get a shot at seeing the benefits of the system because the Rube Goldberg machine of modern finance prevents many from accessing it.
Financial and economic exclusion is the problem. Fifteen percent of the population in OECD countries has no relationship with a financial institution, with countries like Mexico having 73 percent of the population unbanked. In the United States, 15 percent over fifteen years of age, or 37 million Americans, are unbanked.17