We are close. Close, that is, to having done sufficient exploration into the role and operations of economic organizations (such as the corporations or nation-states we love and hate) to start solving some of these organizational problems– to attempt to invent the future.
My role now, in analyzing the organization, is to watch for The Shark. Creative divergence is fun, but at some point, convergence becomes necessary. One needs to make a coherent whole– to solve the problems one has set forth. This can be brutally difficult to do. It’s why the sixth and seventh books of the Harry Potter series are so long and complex, and why some doubt that any person (even a clearly strong storyteller like George R. R. Martin) can handle the monstrous convergence task existing after the first 5 books of A Song of Ice and Fire. To his credit, I think Martin has the right idea– to put the continuing world exploration into a companion book, and finish the damn story in the next two books. Divergence is the fun, playful, erotic part: branching. Convergence is the difficult, thanatoptic pruning task. Writers refer to it as “killing your darlings”. Steve Jobs said it succinctly, for consumer technology: real artists ship. If you diverge for too long without tying everything back into a coherent whole, you Jump The Shark. That’s not something that happens when people are “out of ideas”, as if there were a finite pool of them. When a narrative reaches The Shark, changing writers and hiring an untapped, relief writer won’t help. Shark-jumping occurs when further new stuff (e.g. new characters, motifs, and ideas) can be added, but there’s no good place to put them without loss of clarity. After the shark is jumped, more neat stuff can be added, but the whole (degrading in quality) no longer provides its own reason to care about that stuff.
This isn’t just “meta” wankery. I wouldn’t pollute this series (already tens of thousands of words) with my own problems as a writer. Creative divergence and convergence are at the core of the topics I intend to discuss today. This is the fun topic. It’s why work can, if conditions are right, not suck. I discussed, in Part 9, the role of the organization of a computation problem for an optimization problem, while the “fitness landscape” grows increasingly complicated. In Part 12, I tackled chaos and risk. Financial risk has been commoditized and can generally be measured, sold and bought. Performance risks, at concave labor, tend to be normalized by the Central Limit Theorem when there is a large team of people. Companies want to be able to do this with all kinds of risk, but creative and chaotic risks are harder to manage. The concept involved is separability.
If I had an asset (a security) that, in one hour, would either be worth $10 million or zero based on a coin flip, I’d be inclined to sell it for a middling value. As I alluded in Part 12, this is identical to having $5 million (expected value, my financial wealth) and a zero-mean random variable: 50% chance of +5 million, 50% chance of -5 million. I’d do best to keep the former but have the latter risk off my books.
I might find a wealthy, risk-neutral person and sell him the security. Since it’s not worth it for him to buy it at its expected value, I’d probably sell around $4.99 million, the other $10,000 being a risk premium I pay to him to have that coin-flip out of my portfolio. That’s a case of separable risk. In that scenario, I have financial wealth of $5 million and pay $10,000 to cancel out a risk source threatening a sudden (and possibly catastrophic) swing in income. Here, my making the trade has no effect on the outcome of the coin flip. Risks can be moved around (and, from a cynical perspective, hidden) when they are separable.
Let’s change the game. I’m building a company, or writing a novel, or engaging in some creative effort that involves a lot of work. Let’s keep the same payoff structure, 50/50 chance, $10 million but include individual performance. If I’m diligent, it might be higher than 50%. If I’m lackadaisical, it will be less. If I’m noncompliant (don’t do it at all) then it’s zero. It would no longer be wise for someone to buy at the “expected value” of $5 million. If I get all the risk off my books, I have no incentive to perform. I might be able to sell that “chance at $10 million” for $100,000 if I’m lucky, in which case, I’m an employee.
There’s a partial solution, which would be to sell some of my risk. I might reach an agreement with a counterparty where I take a $2 million advance and offer him 50% of my upside. He loses $2 million (paid to me, either way) if I fail, and nets $3 million if I succeed. From my perspective, I’m paying a risk premium of $500,000– hefty, but the fact that I’m selling my own performance risk (read: hedging against myself) doesn’t entitle me to the best terms. From his perspective, he’s making a winning deal so long as he believes that, even with my reduced incentive, there’s better than a 40% chance that I succeed. This seems like a win-win.
Here’s the problem: let’s say I make two deals of that sort, getting $4 million with no risk, then I don’t perform. That’s fraudulent and undesirable. I could potentially go further and make twenty such deals. I collect $40 million but am negatively exposed to my own performance (with $10 million coming in, and $100 million owed to counterparties). Not only would that leave me without incentive to perform, but I’d be unable to afford success. So I don’t perform and rob my counterparties blind (and, one hopes, end up in jail). Sold in these large, incentive-affecting blocks, my performance risk isn’t commoditizable.
Clearly, financial markets have regulations in place to prevent those types of abuses: for an obvious starter, executives can’t short-sell their own companies. With commoditized risk, the corrupt cases are few enough that laws can be written to preclude abuses. “Insider trading” can be defined and banned because the set of people who have privileged information is sparse and that set of people isn’t hard to define. Creative and chaotic risks don’t work that way; information asymmetries and incentive effects are much more brutal and fairness is impossible to define. A sane, just regime of risk commoditization is hard to put in place for chaotic risk. It’s an unsolved problem.
Why is risk commoditization so important? It keeps society and the economy fresh. Left to their own devices, economies will converge to a “power law” arrangement where a few have the bulk of the wealth and most have none. It’s not about talent, nor is it about intentional malice or greed. It’s just the result of a mixture of random drift and the feedback cycle of wealth that exists when its many forms (social status, financial capital, access to jobs) are transferrable. It becomes pathological because elites tend toward entrenchment. Then, the executive nerve center (of an organization, or a society) is characterized by complacent mediocrity. Talent desires to break through, but is increasingly far from the resources (capital) needed to put it to use. Risk commoditization is the only mechanism that will connect talent and resources, which are often far away from each other due to the tendency of both to have lopsided (non-democratic) distributions. With commoditized risk, talent (traits that confer favorable odds regarding chaotic and performance risks) and capital (put at risk for mutual benefit) can find each other.
This has always been a hard thing to get right. How is good-faith business failure separated from negligence, incompetence, or outright fraud? It’s not as easy problem to solve at scale. Additionally, talent often has no collateral. Bank loans require personal liability and some capital investment, as such deals probably require, but that limits access in a major way. One needs money to play, and can’t go into high-risk sectors. Venture capital doesn’t require personal financial liability, but views its (otherwise benighted, and somewhat illegal because of the collusion) small-town reputation economy as the machinery that keeps entrepreneurs honest. All of these mechanisms have scaling limitations. They’re only available to a small set of talented people who are in access to some resources; the financial transfer just gets them more. They can connect resources with talent but in a limited, much-to-few, way. A small number gold-stamped “worthy individuals” get the credibility and right to some risk. The rest of the talent is seen as unneeded and, therefore, not developed. Such people are consigned to implement the ideas of others with more social access and credibility. This could be tolerated in a time when most of the work that society needed to be done, and done by humans because there was no alternative, was rote, mechanical, and uninspiring. That was the case for thousands of years, and isn’t anymore. Let’s focus on the history of work– and, later, its purported opposite, play.
Some people fetishize the hunter-gatherer existence, whether they’re talking about prehistoric humans, nomads who coexisted with (or parasitized) agrarian societies, or even contemporary cultures of that kind. One good thing about such lifestyles is that the toxic separation of work and play doesn’t seem exist. People do, and the things they do to subsist don’t seem painful. They enjoy hunting, gathering fruit, teaching others how to do these things, and learning about the natural world. People in such societies seem to spend about 50 hours per week on productive or resource-gathering activity, but without the clock-punching, mind-numbing monoculture of activity, or the required unhealthy arrangements (10-hour block, ass-in-chair, constant visibility). I don’t mean to imply that the more primal lifestyle is superior. It ended for many reasons. It terms of the ability to support a large population, it’s not nearly as fit as agriculture. There’s no way the Earth could support even a tenth of its current population as hunter-gatherers. A stable hunter-gatherer world would entail control of population growth, which requires the dominance of some humans over others. Since it’s mostly subordination (and not productive activity, which humans seem to enjoy) that makes Work such a life-ruining, millennia-long, species-wide clusterfuck, I don’t see primality as any solution. The evidence is strong that Work sucks not because agriculture or technology are unnatural, but because of who we are. The dreamed-of primal utopia is quite flimsy against the same greed that ruins work.
If primal humanity can be described in moral terms, it’s sociopathic– certainly in the MacLeod sense, and often in the truer sense. Lives were nasty, brutish, and short. Positional violence among men, in order to increase social status, was common, with a per-year death rate of men in violence being comparable to those experienced by modern gang members, prisoners, and soldiers. Female sexuality was under male control, with the strongest men having exclusive sexual rights to tens of women– their consent being irrelevant– and the shut-out men angry and tempted toward positional murder. This was the state of affairs in which psychopathy conferred an individual advantage. Most modern people wouldn’t consider it desirable. Yet, there was a way in which the primal and nomadic people were, for lack of a better phrase, more alive than the sedentary, often servile, and often less healthy agricultural people. I’m going to crib the some observations from Paul Graham, in “You Weren’t Meant To Have a Boss“:
I was in Africa last year and saw a lot of animals in the wild that I’d only seen in zoos before. It was remarkable how different they seemed. Particularly lions. Lions in the wild seem about ten times more alive. They’re like different animals. I suspect that working for oneself feels better to humans in much the same way that living in the wild must feel better to a wide-ranging predator like a lion. Life in a zoo is easier, but it isn’t the life they were designed for.
Having seen that happen so many times is one of the things that convinces me that working for oneself, or at least for a small group, is the natural way for programmers to live. Founders arriving at Y Combinator often have the downtrodden air of refugees. Three months later they’re transformed: they have so much more confidence that they seem as if they’ve grown several inches taller. Strange as this sounds, they seem both more worried and happier at the same time. Which is exactly how I’d describe the way lions seem in the wild.
“More worried and happier” is a great observation. The YC founders left their corporate factory farms for the MacLeod-Sociopathic world of business formation, and found that it’s more fun out there. It’s also much harder, much higher in risk, and much more chaotic than the monoculture of bare-minimum subordinate busywork. Is it better than corporate junk work? That depends.
First, longevity is a problem. Almost no one can commit a 480-month block of time (with no departure longer than 2-3 weeks) to that kind of intense work, or even one-fifth of that amount without a break. Second, it would be unwise for most of us 99-percenter poors to bet our incomes on that kind of work, when we need fairly regular paychecks. Even people who have enough savings to last a few months need to worry about their resumes. Paul Graham’s thesis is that neither of these concerns is in force anymore. With the returns available from technology startups (rapid generators of value) being what they are, longevity isn’t an issue (cash-out, travel the world, come back fresh) and neither is the day-job economically competitive. That’s the theory.
There’s much truth in Paul Graham’s ideological commitment to the technology startup as the organization of the future. The uncertainty pertains to the timeframe and also the logistics– it would be good for society for the world’s smartest 10 million (or more) people to have implicit autonomy over their own time, but who will pay for that? It will pay for itself over time, but who takes the initial risk? An investment model (with returns enriching the backers) is obviously requisite, but how is that going to be set up at scale? VC-istan takes a much-to-few model: a lot of resources go to a small number of in-crowd-approved, people deemed actually to have the right to be founders. The advantage it gets out of a much-to-few topology is that it generates a reputation economy discouraging defection. Founders are kept in check by the investors’ ability to lock them out of ever again receiving investment (which is also used for extortion).
VC-istan, in 2013, has met congestion, as seen in the sobering market performance of the genuine concerns (e.g. Facebook) and the proliferation of batty, nonsensical operations (e.g. “Groupon for pets”). VC-istan is now a big company, bereft of real vision, as high-profile investors have congealed into one executive suite. It will be obsoleted by a fleet of smaller, long-term-oriented lifestyle businesses not focused on get-huge-or-die gambits in deep-red oceans. How this will be funded– i.e. what process will discover and enable the relevant talent, and connect it with appropriate risk and capital allocations– is a completely open question. Perhaps that is the problem of the early 21st century. It’s clear that work and money require redefinition, as machines take over the grunt work to which semi-coercive labor was originally directed.
Returning to the primal world in which the evil of institutionalized, subordinate Work had not been invented, we see that it was still sociopathic. Positional violence and warfare among men were common, for one thing. The primal state had its appeals– living under the sun, not caring whether it’s a Tuesday or a Saturday– but people had strong reasons to move away from it as they discovered agriculture (a process that, in truth, occurred gradually over thousands of years) and, later on, writing, law, and the division of labor. There was one inherent problem with this new world. Something horrible became possible: slavery.
When the idea of slavery emerged, it was probably seen as merciful and humane. A fully primal tribe, if victorious in war, would be inclined to kill off the defeated group– at least the men, and probably the women, who were also quite capable of being deadly– to avoid retribution. Primal societies couldn’t use captives as slaves, because they engaged in work activities (such as hunting) that were dangerous, as a defector could murder his masters out in the wild. Agricultural societies, however, could delegate work that was undesirable and free of risk to the superior to a class of permanent subordinates. Primal and agricultural societies both began partaking in one of the most profitable, yet morally rancid, businesses ever devised: the capture and sale of humans.
This created a stratification of work. Most slave-owning societies had multiple tiers of slave. Above them were a class of servants given the work that could only be trusted to free people, followed by financially independent yeomen, and finally the slave-owning leisure class. With productive activities being intertwined with social class– some being desirable, others being dishonorable– and therefore often divorced from intrinsic motivation, it was necessary to separate work from leisure.
As the agricultural era evolved into the industrial one, slavery fell in favor of semi-coercive wage labor. Conditions like morale mattered enough in the industrial context that such economies could not make use of enslaved people. Companies needed to provide financial risk reduction and uniformity in working conditions, setting up the MacLeod Loser trade (facilitated by the Clueless) with people who had a very limited ability to refuse. The industrial era’s sunset will see the semi-coercive model go into obsolescence, pulling society toward fully non-coercive self-executive labor. That, however, is still in the future for most.
Even for high-status people, work became a psychological monoculture (making it unhealthy and, worse yet, boring) in the agrarian and industrial eras. Slave sellers had to run auctions, keep books, and haggle. Monarchs had to hear petitions and pay attention to castle intrigue. Low-status people were subsumed in painful and rote physical labor, while high-status people found their lives devoured by a 24/7 job of social maintenance and posturing. At all levels of society, there emerged a common and unifying thought: I kinda hate this shit. So what did people do when they got away from it? Something that is often called play.
I can’t do justice to play in a few thousand words. As a game designer in addition to the other stuff I do, I know better. It’s emergent activity that is not generally oriented toward production, although there are often echoes of productive activity within it. For most of our history, the ultimate form of upper-class play was hunting– work, in a primal context; play, in one where the activity was irrelevant to the lord’s soul-destroying job of maintaining social position. Play is work-like, but helps people escape into something real that provides a genuine sense of accomplishment.
Indeed, for a lot of people, their play is more like work– open-source software, altruistic travel, amateur art– than the subordinate junk activity that they’re paid to do. Play seems frivolous and indulgent, but it actually leads somewhere. It goes into (as I defined the concept in the last essay) chaos. I mentioned in the previous essay that chaos can be viewed as a creative emptiness. In the vacuum, something new emerges. Play is the chaos that exists when extrinsic direction is removed form activity, often enabling creation that would never occur in a subordinate or mercenary context. Sometimes, that creation is much greater value than anything produced in typical “work”.
Heading into chaos is not profitable, most of the time, but when something novel and useful is discovered, the rewards are immense because so few people can navigate any specific neighborhood of chaos. In this metaphor of chaos as “like” a physical space, we can get a physical sense of the divergent and convergent aspects of the creative process. Divergent creativity (branching) is heading deep into chaos. The issue is that most paths “into chaos” don’t lead anywhere. One needs, at some point, to pop back out and explore a new path. Convergent creativity (pruning) is an anchoring process that extends order and refines the understanding of what kinds of chaos are potentially desirable. Convergence kills off the explored but useless branches, and it reminds us why “chaos” is viewed as a desolate void by most. With divergence only, one will explore limitlessly without return. But if convergence is over-emphasized, one will not go far enough into chaos to find anything that is of value.
Large organizations eventually get to a point where they view their role as keeping chaos out. Law and order are the business of business. Salaries must be paid, deliverables must be met, and work must be defined to leave as little room for variation as is possible. This might induce a psychological monoculture that is unhealthy, bizarre, and probably causative of early cognitive decline, but that’s what the money’s for. This variance reduction serves these firms well in a concave world. Reining in slackers and incompetents compensates for the management’s (counterproductive) interference with the stars, who might only be 1.25 times more productive than the average. To be competitive and functional, organizations in concave labor must drive out variance as much as they can. That means they push away chaos, and drive out play.
Divergent creativity might be called free play. That’s Calvinball. The rules don’t exist yet. Things should be explored. At some point, however, limitless divergence fails to satisfy certain needs. Players want feedback on performance and, often, direction and rules. This necessitates structure that kills off some of the less beneficial or important fruits of chaos. Convergent creativity is discipline. It directs play and makes it more beneficial and focused. The “darling killing” convergence of the novelist produces a coherent story instead of an orderless array of ideas, characters, and settings. Convergence is less “fun” than the divergent part of creativity– it’s demanding and feels more like work– but it’s equally important.
Organizations typically allocated the iota of divergently creative work that they needed done to the caste of people called executives. A very limited role in the convergence process (related to trimming away pesky human chaos, but involving no real control or creative input) went to managers. Workers got no room for risk, no play, no creative control. That model worked for more than 200 years, and it took something radical (widespread, commoditized, and extremely cheap computing) to kill it.
In the concave world, risks are separable and can be commoditized. The top executives can bicker over who gets how much risk to play with, and manage accordingly. The convex world’s risks are non-separable. Move the rewards to one party, the idea generation to another, implementation to a third, and responsibility to a fourth, and you’ll get deceit and dysfunction. If anything worthwhile is being done, there’s just too much chaotic risk that can’t be moved around. People need the right to risk, and they need to be trusted with their own time, or what they produce will be of so low value as to render the enterprise unable to compete. Convexity mandates that people become more self-executive, and that their companies let them do so. The semi-coercive wage labor of the industrial world is dying out. What’s replacing it is fully non-coercive work: disciplined play.
If disciplined play and self-executive, well-treated labor shall carry us forward, then what is the role of the organization? Given how exceedingly difficult it seems to be for a corporate organization to avoid falling into dysfunction, are they desirable in the first place? Why not have some utopian “market state” of self-executive free agents, with no need for these stodgy and often corrupt corporate employers? The answer is that it won’t work. So long as people need an income to survive– and a high one, thanks to corrupt influences on the housing market, a transportation regime that stopped improving in the 1960s, the 9/11 every 24 days that we call our healthcare system, and the expensiveness and exclusivity of the educational institutions that can still place children decently in this imploded economy– they live in a tough-culture reality. The 99%, out of panic, make disadvantageous Loser/Clueless trades that hurt not only them but, in a convex world, society by depriving the world of talent’s proper applications.
The obvious solution to that is a guaranteed basic income. One major advantage of the technological era is that autonomy with one’s own time is often enough “capital” to build something great, computing costs being minimal. But we’re about as likely to see a basic income in the U.S. as we are to change the weather with complaint. Europe’s recent economic crises also show us that, while such states have desirable features, the bigger problem remains unsolved. Europeans have a far better healthcare system and humane vacation allotments (20 days, generous by U.S. standards, is an EU minimum) but their work life isn’t exactly a self-executive paradise. The ideal of a welfare state, to me, is not that it enables people not to work, but it that liberates them to work.
Europe’s systems, with harsher personal bankruptcy laws and more resistance to business formation, haven’t achieved self-executivity much better than we have. With sweeping social reforms (such as basic income) off the table– not impossible, and certainly not unreasonable ideas, but far out of my power– we need to focus on what technocratic individuals can actually do. We can harness individual, mostly localistic, energies. We have one source in those who are starting companies and genuinely want to build great organizations: companies actually worth caring about. That may be a “selfish” motive, and it’s certainly a pragmatically localistic one, but it’s what will save us: people who (for a mix of selfish and altruistic reasons) want to build excellent businesses.
Most of VC-istan, in my mind, doesn’t qualify. These build-to-flip gambits are mostly marketing experiments designed to exploit existing technological trends. Since most of them aren’t building real technology (which requires investment) and measure their own health by “virality”, the get-big-or-die mentality is appropriate for them. We can preach the virtues of open allocation, but cultural health just isn’t important to executives of a company who plan to sell it in 3 years. We need to talk to the people building lifestyle businesses expecting to last 20 years or more. Even if the material ambitions of such firms seem lower– a steady few million per year, instead of corporate Big Swinging Dickery– it’s from a fleet of some 50,000 (plus or minus) small technology companies that we’ll probably get the first successful approach to convexity. In technology, there aren’t as many of those. No one is funding lifestyle businesses yet. One of the biggest financial questions of the 21st century is how to get money into that market. Now that securities markets have been shown to be vulnerable to manipulation, with the housing market continually exposed to execrable corruption, is there really a good reason not to find a way for a much larger pool of capital (not only venture) to connect with talent? While an individual business is certainly too risky for less sophisticated, middle-class investors (hence, the regulations pertaining to accredited investors) there should be a broad-based, relatively de-risked way for them to put money into independent talent.
Financial risk is, of course, one of the foremost problems with the concept of a “self-executive utopia”. There’s another important issue to address, however. While self-executive disciplined play can handle convexity, where does that discipline come from? When and where do people learn the skills necessary to perform convex work at a level even close to what people will pay for? A fully self-executive world still leaves unanswered the question of progress. Who pays people to learn how to become great at things?
Concave labor seems dull; convexity seems sexy and exciting. There is, however, one virtue in concavity. It favors equality. If the best people are only 1.5 times as productive as the mediocre, there’s benefit in bringing the laggards up to speed and giving the competent less attention. The contemporary Theory-Z cult of teamism makes a lot of sense. Convexity, however, seems to reward doubling down on successes and discarding failures. In the short term, that’s correct. That’s exactly what one should do, if optimizing for immediate payoff. Having the best and oldest people mentor the new and young inflicts an opportunity cost– a loss. Guild cultures (lawful good) tolerated that, expecting to be repaid in loyalty from developed talent, but self-executive cultures (chaotic good) struggle with it.
Becoming great at something requires a balance of law and chaos. For example, there’s no educational program in existence that can train someone to be at the forefront of technology. It requires a lot of independent learning (self-execution; disciplined play). Such a person needs enough fluency with law (and humility) to stand on the shoulders of giants, but enough chaotic capability to get out there into chaos where no one will tell a person to go.
There are a number of interesting subproblems that come out of this understanding of convexity. How do we get the desired productivity out of disciplined play? How do we get the right kind of play? Where does the discipline come from? Finally, from a manager’s standpoint, how do we handle convexity’s risks, given the innate non-separability that hasn’t been seen at such scale before? After 13 very long essays, it looks like we finally have the tools to solve some of these problems and, one hopes, the insights necessary to make it possible for business organizations not to suck.