The disruption obsession
Sunday 26 April 2015 12:05PM
Image: Chicago Taxi Drivers Protest UberX Car Service ((Scott Olson/Getty Images))
'Embrace the disruptors or die'. Disruptive technology is the recurring mantra of recent government and industry reports pushing for economic reform in Australia. Disruptive technologies aren't new phenomena in economic history. In the past 250 years, bursts of disruption have happened every 50 to 60 years. So what's different about digital disruption?
Gordon Stanley Brown: Australia's forgotten computer pioneer
Rear more about the work of Gordon Stanley Brown in a feature article by Stan Correy.
Guest of Honour Gordon S Brown
Stan Correy: Hello, I'm Stan Correy and you're listening to Rear Vision on RN. And this week, extraordinary popular businesses and the madness of digital disruption.
Forrester consultant [archival]: Fast-forward to digital disruption. We're now in an environment where really anyone can bring a product or a service or an idea to the market because it's so cheap to do so. And this results in an explosion, an expansion of products, of services, of experiences available to us as consumers. That's the change in our environment.
[Protest, shouting taxi drivers]
Taxi driver [archival]: There's less people around and Uber come in and they want to cut their fares, make it hard for taxi drivers, and they're not regulated.
Journalist [archival]: It's known as 'digital disruption', and so far it's damaged or at least rattled more than a few traditional business models. Taxis, with the rise of Uber…
Stan Correy: Disruptive technologies aren't new phenomena in economic history. They're always extraordinary, often they're delusions, they burst onto the market and disappear just as fast.
As we'll hear on Rear Vision today, despite the hype cycle, disruption is real, but more complex than its promoters realise. In the past 250 years, bursts of disruption have happened every 50 to 60 years. From 'canal mania', railways, to steel and heavy engineering in the late 19th century, oil and automobiles and mass media, and then the long march into the future of computers.
Author of the Black Box Society: The Secret Algorithms that Control Money and Information is Frank Pasquale, Professor of Law at the University of Maryland.
Frank Pasquale: It's a zombie idea that won't die, in part because it promises so much for so little. So we always hear this mantra of 'we must do more with less'. Everyone wants to do more with less. And the question becomes, well, why? Why must everyone do more with less? I don't see mass scarcity around. And I think that's part of where the faith aspect of disruptive innovation comes in. It's almost as if there are these prophets of innovation and you must have a religious faith that things will be radically restructured according to their dictates. And you combine that ostensibly ascetic zeal to cut out the fat in institutions and do everything as cheaply as possible, as quickly as possible, you combine that with existing economic pressures on the finances of a lot of firms, and health and education institutions in particular, and it's a really powerful combination. It just keeps coming back.
Stan Correy: Disruptive innovation has become the recurring mantra of recent Australian government and industry reports pushing for economic reform.
Ian Harper [archival]: And the new digital environment means that we need to be able to provide a legal framework within which those challenges can serve customers, offer innovative products to customers.
Stan Correy: In this new digital environment, the disruptive companies wanting to get a slice of the action don't usually follow the 'the expected rules of probity'.
Technology writer Luke Dormehl has published books on Apple, and more recently about the disruptive power of algorithms in everything from recruitment to dating services. Disruptive innovation isn't a natural process, it's a concept thought up by a Harvard Business professor in the 1980s.
Via Skype from his home in the UK, here's Luke Dormehl:
Luke Dormehl: So just to give a little bit of background to listeners who are perhaps kind of unfamiliar with this, I think everyone has heard the term 'disruptive technology' but just to put it into context, this was an idea proposed by a business theorist called Clayton Christensen who essentially divided technologies into two different types I suppose: disruptive technologies and sustaining technologies. And the idea of disruptive technologies was the fact that this was something which fundamentally changed the way that a business operated, and the idea of a sustaining technology was something which perhaps made it easier for an existing set-up to continue working.
So this idea of disruptive technology is certainly something which does have fascinating links with the 1960s counter-culture generation because it's all about the idea of saying the status quo is wrong and there is a different way to do things. And that might be a different way to do things in terms of business, this might be a different approach in terms of sustainability, this might be a different idea of technology in terms of how it fits into people's lives. So this was very much something that was connected with that sort of real countercultural ethos, which someone like Steve Jobs very much talked about and in some ways epitomised.
Stan Correy: In the past 40 years that countercultural ethos changed into an entrepreneurial ethos as the hippies of Silicon Valley took advantage of the communication networks created by the US defence industry.
Luke Dormehl: So I think it is kind of fascinating that because you do have that early paradox, and I think that that continues through to the present day where the idea of business models and the idea of whether you're doing this for the betterment of people, whether you're doing this for raising money. All of these kind of paradoxes exist in something like Facebook. On the one hand they're talking about how it's based around users, and the user is the most important thing, whereas on the other hand the idea is, from a business perspective, to really monetise your social graph to work out how to target you with adverts most appropriate to yourself. So really this is something which has always been part of the tech industry.
[Protest, taxi drivers shouting]
Stan Correy: The taxi drivers in Perth complaining about their business being undermined by ride sharing company Uber might be compared to the striking weavers, the Luddites who in the early 1800s smashed the new weaving machines.
The new business ethic is expressed in a recent headline in the Australian Financial Review: 'Embrace the Disruptors or Die'. That's certainly the view of ride sharing entrepreneur, the CEO of Uber, Travis Kalanick in an answer to this question at a conference in 2014:
Owen Thomas [archival]: Owen Thomas from ReadWrite. Travis, you have a lot of dudes and women driving for Uber right now.
Travis Kalanick [archival]: Correct.
Owen Thomas [archival]: They're probably not going to be thrilled to hear that you plan to replace them with robots as soon as you can. How are you going to manage that transition from people-driven cars to driverless cars?
Travis Kalanick [archival]: Look, I think the thing to keep in mind is it's quite a ways off first. So this is not something that's happening anytime in the near future. But if I was talking to one of the drivers we partner with, what would I say? I'd say, look, this is the way the world is going to go and if Uber doesn't go there, it's not going to exist either way. So, that's the world, and the world isn't always great. Sometimes you get in an accident and you didn't cause it, but that's just the way of the world, that's the way of technology and progress. And unfortunately we all have to find ways to change with the world.
Stan Correy: Travis Kalanick, the CEO of Uber.
This perception of technological disruption has a fascinating history. Every generation believes that this time it's different from what went before. But the process of digital disruption is more complex than what the consulting firms who publish endless reports about it make out. Often they're just repurposing old concepts to make work for themselves.
Frank Pasquale: I think that the concept of disruption became a buzzword and lately has become this almost unthinking refrain for a lot of folks, is because it's premised on this idea that there are a lot of companies and institutions that are too rigid to be reformed. And the idea is that rather than trying to reform them from within or rather than trying to reform incrementally, they need to be disrupted, which is often a synonym for destructed. I think whenever I hear 'disruption' I often think about 'destruction' as the real meaning, and that was the meaning economist Joseph Schumpeter had, this idea of creative destruction, that capitalism works best when it would destroy old things and then allow new things to be built in their place.
Stan Correy: Has it taken on a different meaning than it did in the previous dot-com boom, do you think?
Frank Pasquale: I'll think about two areas there. And I think with one area in education, the ideas behind, say, disruptive innovation of education which is largely having massive open online courses or MOOCs sweep away the professors or even high school teachers and just have people watch videos in their homes et cetera. That sort of idea actually has a really long history. It goes well back before the '90s, '80s et cetera. There were lots of people that thought that the TV would totally disrupt education.
Turning to the apps and things like Uber that are more recent, yes, I do think there is a different edge nowadays. I think that before with the promise of productivity there was always an idea that computers were going to complement people, were going to expand the powers of average workers, like in the late '90s, early 2000s. I think now we're moving to a phase where people openly talk about let's just replace workers with robots.
Stan Correy: Frank Pasquale.
Uber, a company always in the news, always mentioned in dispatches about digital disruption. When you look closely at a lot of new sharing companies, it's clear they're not sharing much and they often act like those apocryphal companies in Adam Smith's The Wealth of Nations, getting together to raise prices.
Luke Dormehl: With Uber, it would be difficult to look at their business practices and to argue that there was some sort of benevolent utopian countercultural vision behind it, perhaps counterculture in the sense that they are looking to shake up the existing traditional taxi model of employing drivers. But certainly if you look at some of the business practices and particularly things involving differential pricing, the idea they will ramp up prices for particularly popular routes at particularly popular times, I think that that is certainly far from benevolent.
But no, I think that this idea of the sharing economy is still something which perhaps as it gets rolled out or applied to more and more industries it will have to change. But I do think that it certainly seems to be certainly the kind of entry level at which many of these new industries when they do enter into a new sector, there is this idea that perhaps there is a better way to do things.
Stan Correy: This is Rear Vision on RN, online, by podcast through iTunes, and by mobile on the ABC radio app. Today, a look back at how the rhetoric on disruptive technologies and innovation has changed.
Digital disruption has many children, with catchy names; sharing economy, on-demand economy, cognitive technologies, crowd funding, peer to peer lending, and the gig economy. It's a confusing landscape of language. Covering the tech business for Fast Company magazine is Sarah Kessler, who I spoke to via phone from her New York office.
Sarah Kessler: There's no good term. That's the problem. So if you say 'sharing economy', a lot of people will say that when they mean things like AirBnB or a car sharing service, or you have an asset that you used to only use by yourself but now you rent out. And there are things that…like, when I say the gig economy I mean apps that dole out jobs, like you can have this one cleaning job, or you make this one delivery and we will pay you as an independent contractor, a gig, which obviously there's nothing sharing about that so you wouldn't put it under that term. So it's kind of a confused landscape of language.
Stan Correy: It is, isn't it. There's also this term 'disruptive technology'. I suppose that applies to all the kinds of technology is doing too old economic models.
Sarah Kessler: Yeah, that seems like a pretty broad term that you could really apply to anything new. And so sure, you could call this 'disruptive technology'. You could also call an electric can opener disruptive technology for the manual can opener.
Stan Correy: As an investigative journalist in the tech sector, Sarah Kessler decided to go undercover in the app-driven gig economy to test its greatest claim, that disruption is great for workers, it means more flexibility, more jobs.
Sarah Kessler: So I cover technology companies, and more and more, this is a couple of years ago, I was getting pitched companies that use this labour structure where they didn't actually hire employees, instead they had this massive crowd-sourced labour pool where they pushed out individual jobs and said 'do you want take it or not?' And the pitch was this is going to change labour forever. You're never going to have to have a desk job where you're just making 'the man' really rich and you're just there every day on his schedule, instead you can be your own little business and you can decide when you're going to work and how you're going to work and where you're going to work, and if you're a busy mum, you can do a few tasks during your kid's soccer practice or something. Or if you love to write, you can work on your novel and then take odd jobs on the side.
And that sounded pretty great. So I decided to try it. So I took a month and I signed up for all of the platforms that promised this, as many as I could. And there are many, many of them. There is a platform where you can sign up to babysit dogs and one you can sign up to cook in people's homes, and the car services I couldn't sign up for because I didn't have a car. And basically first of all what I found was it's not easy necessarily to get these jobs. So I think I signed up for 20 platforms and maybe actually got work on three. Part of it was that a lot of them ask you to make a profile and then you're put in this big catalogue of people who have a profile.
So, for instance, there is this thing called Fiverr which started…you know, what will you do for $5? And you say 'I'll do this' and then people pay you $5. And my task was proofreading an essay, I'll proofread your ten-page essay for $5. Here I am, I like working as a journalist, I'm pretty good at grammar. And so you make the profile and then you realise that there are 10,000 other people who've used the exact same headline for their job. So when somebody is searches they get 10,000, they don't pick you. So getting a job was hard.
Stan Correy: According to Sarah Kessler, the gig economy is a great business model for employers because you can get people to work for you as though they are employees but it costs you 30% less. But after such a short existence there are already cracks appearing in the gig economy model. It concerns the legal rights of employees and what the employer can tell them to do.
Sarah Kessler: And the thing that is happening that would be a crack in the model is a battle that is playing out, is whether it's legal or is there a way to deliver an appropriate level of customer service in a legal way. Because often what happens is companies have this fleet of independent contractors but they decide, 'we'd really like it if you wore a uniform', and also 'we'd really like it if you clean in the house this way'. And once you do those sort of things you open yourself up to class action lawsuits that say that you've misclassified employees and owe all sorts of fees and back-pay and compensation for all of the lunchbreaks you didn't deliver them and these kind of things. So that's the biggest threat to the way that that's set up.
Stan Correy: Sarah Kessler. Remember her point about the fuzziness of disruptive technology hype and about how disruptive the electric can opener was for the manual opener. That perspective would have been appreciated by one of the world pioneers of automation and computer technology. Gordon S Brown was Dean of MIT's engineering school in the 1950s and 1960s. For Brown, who died in 1996, people shouldn't be frightened by technological change or be too obsessed with the gadgets it produces.
Brown is almost completely forgotten in his home country of Australia, which he left in the late 1920s. Gordon Brown had studied at the Working Men's College in Melbourne, now known as RMIT. He worked for the State Electricity Commission before leaving Australia to study at MIT. Brown's ideas are very relevant to our contemporary understanding of disruptive technology.
Gordon Brown returned to Australia in July 1956 to visit his family in Sydney. The ABC invited him onto Guest of Honour, then ABC radio's flagship talks program. At that time, the newspapers were full of stories about robots and the impact of automation on employment. There were headlines like 'Here Comes the Robot', 'Robot Efficiency Made Businessmen Gasp', and, from July 1956, these lines, 'How will automation hit us? Will it be a Frankenstein flinging thousands into unemployment?'
There's no actual recording of the Guest of Honour, so here's a reading of an extract of Brown discussing automation.
Reading: The aroused state of mind in the general public on the topic of automation has on several occasions obscured many important issues that today face all industrialised societies. Automation is often presented as both a Dr Jekyll and Mr Hyde, when the truth of the matter it is basically merely a rapidly expanding concept important to you and me.
As to the word itself, it appears to have been coined by the automotive industry in Detroit, especially by the people who designed some of the very large transfer machines, but I like to think of it in terms of the information given in an editorial of the London Times of July last year. In a truly British fashion, the London Times pointed out that since it is merely a Greek prefix attached to a Latin word, it is imaginary, and therefore we can think of it as we like.
The average citizen chooses to think of it as a ghost, and to him of course it is about as tangible as a ghost. But automation the concept and not automation the gadget is what we need to understand. Gadgets are short-lived, but a concept is open-ended and lasting, and bears directly on the problem of change: change in your life and mine, and what is important on the rate of change of change.
Journalist [archival]: In Queensland, the Master Builders Association says it's working to retrain the industry's workforce to deal with impact of automation and robots on the workplace.
Stan Correy: Just like 60 years ago when automation pioneer Gordon Brown visited his home country, the fear of the robots taking over is once again dominating our lives.
Martin Ford thinks this wave of automation is different than in the past. Ford is a computer engineer who's just published a book called Rise of the Robots.
Here's Martin Ford via Skype from his home in Silicon Valley:
Martin Ford: I think that this is actually a new kind of disruption, a much wider, broader-based disruption than what we've seen in the past. Generally when people talk about disruptive innovation, they're talking about particular industries, they're talking about how Microsoft didn't get into mobile devices and they were too focussed on Microsoft Windows and now they might be in trouble in the future. But it's a focus in one particular area.
I think that the advent of robotics and artificial intelligence and the way that those are going to impact the job market, that really has the potential to disrupt our entire system. It's a bigger kind of disruption, it's just everywhere. And I think that ultimately it will call into question the way our system, the way capitalism works. And it will probably have to adapt that system in the future. So it's actually a much bigger thing than simply talking about a particular industry or business that's being wiped out by new technology. This is something that I think will ultimately demand a political response. We'll have to have policies in place to deal with what's happening as a result of the rise of the robots and artificial intelligence.
Stan Correy: It may seem strange that a Silicon Valley entrepreneur steeped in the libertarian tradition of the Valley would think a political response is needed to the rise of robots and artificial intelligence. But Martin Ford as a computer engineer and a businessperson doesn't only look to the future and how to be disruptive.
Martin Ford: It's kind of a dual-edged sword. There's a lot of techno-optimism out there where people just believe that technology is always good and all we have to do is take our hands off and let it progress. I'm a believer in technology; I've worked basically my whole career in technology. I'm not against technology, I just believe we're going have to adapt to the implications of it.
The other thing that's going on with this is there is a lot of scepticism out there, because this idea that machines and technology would displace workers has been raised many times in the past and it's always been a false alarm. That goes all the way back to the Luddite revolution in 1815 in England. Many people have raised that alarm and so far it hasn't come true. But I really believe we're now in an age where the fears are justified, just because of the fact that technology is advancing so rapidly and the fact that it's so broad-based now. It is really like a general purpose technology, it's everywhere and it's impacting everything, whereas in the past the impact of technologies were much more specialised and on a sector by sector basis.
Stan Correy: It's easy to lose perspective when every day a new app or new company is launched and you have to work out is this real or just hype? That's why Luke Dormehl started looking at the history of tech bubbles.
Luke Dormehl: There's a really interesting Venezuelan economist and technology expert called Carlota Perez who's spent much of the last 40 years looking at I suppose tech bubbles and the intersection of technology and society and finance. And she talks about there being really two separate phases to every bubble or paradigm shift, and those are the installation and deployment phases. And the installation period lays down a lot of the new infrastructures and challenges the old way of doing things and creates new sets of winners. And it really promotes that casino-like behaviour which can culminate in a bubble like the one that we saw in 2000 with the dot-com crash.
But after that she talks about the collapse of the installation period and there being a second boom, the deployment period, which is less turbulent and longer lasting and promotes a sharing of the wealth, which is a sharing economy in the best possible way. And she gives examples like the boom of the Victorian era here in England or the sustained growth seen in the United States following the Second World War. And what distinguishes this period is that it's not just defined by one technology but by all industries working together in a kind of a convergent direction.
And with the infrastructure laid and the technology now living up to its promise, there can be shared wealth for a large number of people and you perhaps see something like that with the internet today. Maybe 15 years ago you had the dot-com crash, you had some people getting very, very wealthy and then losing their money. This idea of the tech bubble. But perhaps now, even though there are challenges we do see things like the widespread nature of the internet, the fact that it can be accessed by more people than ever. I do think that this is a really positive move.
Stan Correy: And here's Professor Carlota Perez from the London School of Economics talking earlier this year:
Carlota Perez [archival]: So what you have is this period of installation of the new with unfettered free markets and income polarisation. Guess what? 1%. 99%. That's what happens each time. That happened in the 1920s and it was horrible in the 1930s, but then it changed because what comes after that is the period of production capitalism, aided by government, and that enables the full deployment of the new potential. And now how do we know when that happens? When there is a major bubble collapse that signals the need to swing the pendulum. So it's time for government and civil society to unleash the golden age, which is to change, to tilt the playing field in a very strong way so that things go in this other direction, not the casino finance but actually the good times, the golden age, good for everybody.
Stan Correy: That's Professor Carlota Perez from the London School of Economics. Her book is called Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages.
We also heard on Rear Vision today: technology writer Luke Dormehl; Sarah Kessler, technology reporter for Fast Company magazine; Frank Pasquale, Professor of Law at the University of Maryland; and Martin Ford, Silicon Valley entrepreneur and author of Rise of the Robots.
Luke Purse is the sound engineer for today's Rear Vision. I'm Stan Correy. Thanks for listening and bye for now.
Luke Dormehl
Journalist and filmmaker and author of The Formula- how algorithms solve all our problems and create more.
Professor of Law , University of Maryland and author of The Black Box Society: The Secret Algorithms Behind Money & Information
Sarah Kessler
Technology reporter, Fast Company magazine
Martin Ford
Silicon valley entrepreneur and author of Rise of the Robots
Stan Correy
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