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Overview
In Overconnected, Bill Davidow, a former Silicon Valley executive, explains how the almost miraculous success of the Internet has also created a unique set of hazards, in effect overconnecting us, with the direst of consequences for our political, economic, and day-to-day lives.
The practical applications—not least among them the ability to borrow money, invest in the stock market, or buy a new home—have made a great impact in our daily lives. But the luxuries of the connected age have taken on a momentum all of their own, ultimately becoming the root cause of a financial meltdown from which much of the world is now still struggling to recover.
By meticulously and counter-intuitively anatomizing how being overconnected tends to create systems of positive feedback that have largely negative consequences, Davidow explains everything from the subprime-mortgage crisis to the meltdown of Iceland, from the loss of people’s privacy to the spectacular fall of the stock market that forced the Federal Government to rescue institutions supposedly “too big to fail.” All because we were so miraculously wired together!
Explaining how such symptoms of Internet connection as unforeseeable accidents and thought contagions acted to accelerate the downfall and make us permanently vulnerable to catastrophe, Davidow places our recent experience in historical perspective and offers a set of practical steps to minimize similar disasters in the future. Original, commonsensical and historically informed, Overconnected indentifies problems we live with that are now so large, omnipresent and part of our daily lives that few people have even noticed them.
Product Details
| ISBN-13: | 9781453211106 |
|---|---|
| Publisher: | Delphinium Books, Incorporated |
| Publication date: | 01/04/2011 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 240 |
| Sales rank: | 316,259 |
| File size: | 804 KB |
About the Author
Bill Davidow has been a high-technology industry executive and a venture capital investor for more than thirty years, having worked at managerial positions at Intel Corp., Hewlett Packard and General Electric. He is now an active advisor to Mohr Davidow Ventures, a venture capital firm. An electrical engineer by training, he has earned degrees at Dartmouth College, the California Institute of Technology and Stanford University and is the author of Marketing High Technology and a co-author of Total Customer Service and The Virtual Corporation.
Read an Excerpt
Overconnected
The Promise and Threat of the Internet
By William H. Davidow
DELPHINIUM BOOKS
Copyright © 2011 William H. DavidowAll rights reserved.
ISBN: 978-1-4532-1110-6
CHAPTER 1
What the Steam Engine Can Teach Us about the Internet
I grew up in a small Chicago suburb in the 1940s. On cold winter evenings, my mother would drive us to meet my father's train from the city. At the station, she would sit in the warm car with the engine running while I jumped out into the freezing cold and ran along the platform, hoping to spot the headlight of the approaching locomotive. Eventually, it would appear in the distance, growing brighter, the roar of the engine getting louder. Smoke streamed from the train's stack, quickly lost to the darkness. Finally, the massive black locomotive, its iron brakes pressing against giant drive wheels, would screech, then wheeze to a halt a few feet from where I stood. The smell of steam escaping from the locomotive's pistons filled the night air as my father stepped from the passenger coach, his arms open in greeting. Holding his hand as we walked along the platform, I'd hear first one chug and then the next as the train pulled out of the station. Watching the red taillight recede, I'd often wonder, safe in my father's grip, where that red light would stop next.
My father appreciated my infatuation with the railroad, and he used it as an opportunity to teach me a few things. He once pointed out that no rail line actually ran continuously through Chicago itself. Despite the fact that hundreds of trains ran into and out of the city every day, all freight—and passengers—passing through the city from any direction had to stop in Chicago and be transferred from one line to another. Chicago was a choke point. That, my father insisted, was why Chicago was so important.
By the early nineteenth century, Chicago was already rich with interconnections. Even before the railroad, canals, rivers, lakes, and dirt roads linked the city to its local environs and ultimately to distant cities in the United States and around the world, prompting the city's boosters in the 1840s to proclaim Chicago "the most important point in the Great West." All roads west seemed to converge on the city. Over the next fifty years many of these inefficient methods of interconnecting were replaced by the railroad, whose arrival drove the transformation of business and the natural environment of the entire Midwest.
One of my favorite stories about enterprise involves Gustavus Swift, the nineteenth-century Chicago meatpacker who invented the refrigerated railcar. He did so out of sheer necessity. Back then, meat processing was a breathtakingly inefficient business. Cattle were raised on the prairies and driven by cowboys to railheads in places such as Dodge City, Kansas, then shipped to the markets in the Midwest and on the East Coast. The system provided an object lesson in inefficiency. Cattle lost weight during the shipping process, many were injured and died, and much of the animal, the innards, for example, had little or no market value.
Swift decided to try something both radical and risky. He reversed the order of things by first slaughtering and dressing the beef in his slaughterhouses. He put refrigeration in his railcars, then hung the carcasses vertically. The new approach solved a host of problems. Swift reduced his shipping costs because he could fit many more vertical carcasses in a car than he could live head of cattle. What's more, he was shipping only those products that had value on the market.
Swift's strategy transformed the butchering business on the East Coast. The butchers could not compete with Swift's efficient slaughterhouses. Swift's innovative means of shipping, enabled by the rail network, had put the eastern businesses in direct competition with a more efficient competitor a thousand miles away. The local butchers had higher slaughtering costs than Swift. If they shipped live cattle to the East Coast from Chicago, they incurred higher shipping costs as well. The butchers were forced to restructure their business. Many stopped slaughtering their own cattle and cut up Swift's carcasses into steaks and roasts for customers.
Before long, Swift had become the largest meatpacker in the country. Through the use of a new form of connectivity he had restructured the meat-processing industry. So the refrigerated railcar had some effects very similar to those the Internet has had on businesses today. In short, physical connectivity was restructuring business long before the Internet existed. It was changing the role of local butcher shops just as the Internet has reduced the importance of travel agents.
My father died in 1989, long before the Internet exploded into society's collective consciousness. But he definitely knew how to impart lessons that would stick, because it wasn't until I studied the evolution of the railroad that I began to comprehend the speed with which the Internet affected life in the late twentieth century.
By the early 1900s, railroad lines radiated out from Chicago like the spokes of a great wheel. Travel time between New York and Chicago shrank from almost three weeks by stagecoach to two days. Within a few decades, Chicago's reach had widened to encircle the prairies, the northern woods, and the markets on the East Coast, creating an ecosystem that was both driven and supported by the railroad, with Chicago at its center.
Meatpacking was only one industry affected by the railroad. Agriculture was another. Before the arrival of the railroad, farmers sent burlap bags of grain to Chicago warehouses in wagons that traveled on dirt roads. The farmers retained ownership of individual bags full of grain that were stored in the warehouses, which created a logistical and accounting nightmare as the volume of transactions grew.
In response, the city built grain elevators in which to store grain in bulk. As the grain trade expanded, the Chicago Board of Trade established uniform quality standards that made it possible to safely mix the grain from a variety of farms in the storage buildings and offer it for sale. Thus did a railroad become associated with the creation of one of the most important financial derivatives of the twentieth century—commodity futures. Farmers were given receipts for their output, which they could then sell, often to speculators, who would try to turn an additional profit. This speculative buying and selling, streamlined by powerful new ways to interconnect—the railroads and the telegraph—ultimately led to the emergence of a thriving Chicago-based futures market.
In the process, the old ways of doing business vanished, and new, efficient business models better suited to the more connected environment emerged. More effective rail connections made it easier to get grain to the market and cattle to the stockyards. This rail network led to explosive growth in the prairie states and a growing demand for lumber to build homes, barns, and fences. Without forests to meet that demand, prairie farmers turned to their neighbors in the north; indeed, the future of the prairie farmer soon came to depend on the cutting of the northern forests. In short order, Chicago became the hub of a thriving lumber market. Pine from the northern forests was arriving from the north by ship and train, and the railroads carried it to the prairies, filling railcars that once had been empty on their trips west.
The general stores that had served the needs of the prairie farmers and ranchers were now being bypassed and became vulnerable to competition from catalog retailers, whose products could be shipped by rail. Geographically dispersed customers could order a wide variety of low-priced goods from thick catalogs, giving rise to Chicago's great catalog merchandisers, the world's first major "virtual" retailers. The catalogs arrived in prairie towns by train, which served as a nineteenth-century version of high-bandwidth connection. Sears, Roebuck and Montgomery Ward, the Amazon.coms of their day, supplied tools, furniture, and other merchandise, first to farmers and woodsmen and, ultimately, to an entire nation.
As the farmers and those who served and supplied them prospered, so did Chicago as a whole. The city's population mushroomed from fewer than 30,000 in 1850 to more than 1.5 million by the turn of the century. Chicago became a crucible for entrepreneurs and innovators, a major center of manufacturing and commerce. Cyrus McCormick grew wealthy from his mechanical reapers, George Pullman from his sleeping cars.
Also in the nineteenth century, not only did the cost of physical connections fall rapidly, but also the cost of moving information: the expense of printing and shipping catalogs and books decreased and, more crucially, the telegraph system began carrying a greater load of vital information.
Then came some simple synergy. It turned out that when you combined an information link (the telegraph) with a physical link (the railroad), the combination made the physical connection much more powerful. For one thing, the information made the railroads both safer and more efficient. Since many of the rail lines were single tracked, knowing what was coming the other way was of vital importance in avoiding crashes. Also, the telegraph allowed farmers to figure out where the price for certain crops was the highest. Using this information, farmers could ship their products to markets where the demand was greatest. And the rapid transfer of information was critical to managing the railroads efficiently—the telegraph enabled managers to know where the railcars themselves were at any given time, so they could be kept loaded with freight.
At first glance, a massive black steam engine pulling a long chain of railcars on iron tracks does not appear to have much in common with bits chasing one another at the speed of light through fiber-optic cables. But I can assure you it does. The railroad was, in its time, a powerful new form of connectivity. It enabled the creation of new financial products and allowed data-rich catalogs to be shipped to customers. In conjunction with the telegraph, the railroad improved farmers' access to markets and made those markets more efficient—transforming cities and prairies alike.
CHAPTER 2Overconnectivity and Surprises
The changes brought by the railroad happened over several decades. It took a long time to build bridges and lay tracks. It took years to improve the efficiency of steam engines. New materials had to be developed to enable boilers to handle high pressure. New tools were needed to fabricate the boilers from those new materials. Low-cost steel was required to make rails durable enough to bear heavy loads. In the end, rail systems created faster, cheaper connections between distant locations, and transformation followed.
By contrast, the Internet's dramatic effect on interconnectivity seemed to happen in a flash—so fast indeed that we have lost control of it. How did this happen? How did this particular skein of interconnections we are living with now grow so tangled? How is it that the same technology allowing us to pay our bills online makes us fear that our identity will be stolen out from under us? How did the very network that allows families to go online to shop for both a house and a mortgage also become the conduit for a series of transactions that would eventually cause them to lose that house and default on the mortgage? And what are we to do?
To answer such questions, one has to understand the dynamics of networks and connectivity in the postindustrial age, particularly instances of systems that cannot adjust when their level of connectivity reaches a certain threshold—or what might be referred to simply as overconnectivity. Overconnected environments tend to be very unstable and are subject not just to very rapid change but also to accidents, as a paper written in 1958 by Eugene Wigner, the Princeton mathematician, demonstrates. Wigner shows that under certain conditions particular types of large, interconnected physical systems will always be unstable. As a system increases in size and the interconnections strengthen, the probability that instabilities will occur increases. The equations Wigner analyzes are very similar to the ones economists use to analyze economic systems. Wigner's paper is complemented by one written in 1970 by the British cyberneticist W. Ross Ashby, which concludes that "all large complex dynamic systems may be expected to show the property of being stable up to a critical level of connectance, and then, as connectance increases, to go suddenly unstable." Of course, this is precisely what happens if you pull the control rods out too far on a nuclear reactor or bring together a critical mass of uranium in an atom bomb. The reactor melts down, and the bomb explodes.
A rapid increase in interconnectivity has the potential to do two things. First, it can drive change at very rapid rates, so rapid that, as William Ogburn, in defining the term "cultural lag" wrote, "an element of a culture that was in step with its environs changes and the environs are unable to keep up." Technological change, driven in part by the increases in interconnections, has the ability to create new institutions, and the environment frequently lacks the ability to accommodate them. This inability of the environment to keep up with technological change means that overconnectivity has the ability to create a great deal of cultural lag. Second, our environment is composed of the things we are connected to, so if dramatic increases in the levels of connectivity abruptly change the things we are connected to, then our institutions undergo rapid environmental change. Unless the institution is exceedingly nimble, it cannot keep up with changes in its environs. Once again, the result is a great deal of cultural lag.
When it comes to degrees of connectivity, there are four general classifications that can be applied to nations, economic regions, and societies:
1. Underconnected state. Isolated ancient civilizations, primitive cultures, and undeveloped countries are examples of underconnected states. The environment around them might be changing and they wouldn't know it, while endogenous change is extremely slow or nonexistent. When and if these cultures become connected to new environments, they experience a large shock; the resulting cultural lag can be devastating. Primitive aboriginal cultures are destroyed when they come in contact with the modern world. Of course, there are modern societies that are underconnected as well. Iceland, a country I was to become fascinated by, existed in a state of underconnection until well into the twentieth century.
2. Interconnected state. In this state, when the environment changes gradually, businesses, economic systems, and governments are capable of keeping pace. As long as the environment doesn't change too abruptly, these institutions are comfortable and can keep up. On the other hand, if the institutions change first and do so gradually, they will drive changes in the environment. When this happens, the environment has time to change and can accommodate the institutions. There is little or no cultural lag. Chicago before the railroad, for instance, existed in an interconnected state.
3. Highly connected state. This is a critical level of connectivity that appears to make everything go right. In many cases, a high level of connectivity is intimately related to success. In this state, businesses, economic systems, and government institutions are driving change. The environment in which they are embedded might struggle to keep up, but it is able to do so with a minimal level of disruption. The flip side of this state is that the increase in interconnections can cause rapid change in the environment, but if the institutions are flexible they can stay in step. There is a challenging level of cultural lag, but society can still cope and prosper. Silicon Valley in the late twentieth century and Chicago in the early twentieth century are examples of economic areas that prospered in a highly connected state.
4. Overconnected state. In this state, institutions change so quickly that the environment in which they are embedded is unable to cope. Or the reverse happens: with the increase in interconnections, the environment changes so dramatically that the institutions become overwhelmed by cultural lag and are unable to cope. In this book, Iceland is the case I examine most closely apropos of this state.
(Continues...)
Excerpted from Overconnected by William H. Davidow. Copyright © 2011 William H. Davidow. Excerpted by permission of DELPHINIUM BOOKS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Contents
Acknowledgments,Introduction: New Lessons from the Internet,
1. What the Steam Engine Can Teach Us about the Internet,
2. Overconnectivity and Surprises,
3. How Overconnectivity Can Both Make Us and Break Us,
4. Expect More Accidents and Contagions,
5. The Ghost in Our Midst,
6. Why the Internet Is Accident-Prone,
7. From Fishing to Finance,
8. How the Internet Tricked Iceland,
9. Positive Feedback and Horrendous Financial Crashes,
10. How the Internet Supercharged the Subprime Crisis,
11. Positive Feedback and Information Efficiency at Work,
12. How Overconnectivity Stole Your Privacy,
13. Everything is Interconnected—Part I,
14. Everything Is Interconnected—Part II,
15. What Now?,
16. What Now, Continued: Katrina, Social Security, and a Tribe of Aborigines,
Notes,
Bibliography,
Index,
What People are Saying About This
"This book is an engagingly written primer on the impacts of the world's most powerful interconnection technology. Every policy maker, politician, and businessperson should read it to gain a deeper understanding into how the Internet will transform government, our social institutions, the economy, and our lives."--(Former U.S. Senator Bill Bradley)
“Overconnected has the wonderful effect of explaining seemingly unrelated problems in a way that instantly makes sense once it is pointed out, and that also suggests feasible corrections. One of the pioneers of the modern technology shows how the unanticipated effects of the Internet are distorting economics, politics, international relations, and individual lives. This book is clear, original, and worth being widely read.”--(James Fallows—bestselling author and National Correspondent for The Atlantic)
“I don't think I have ever read a book with more "ah hah" moments. Suddenly I get it. I now appreciate the importance and danger of positive feedback for the economy, the role of the computerized trading in the 1987 stock market crash and the role of the internet in the 2008 financial crisis. The book is brilliant, original, sobering and fascinating. It is an extraordinarily important. Read it.” --(John Shoven, Director of the Stanford Institute for Economic Policy Research)
“Bill Davidow artfully employs historical analogies—many of them startlingly novel—to ask some penetrating questions about the Internet revolution and its implications for commerce, finance, politics, and culture. Written with punch and passion, Overconnected invokes examples from the South Sea Bubble and the economic implosion of Iceland to the rise of Chicago and the near-demise of New Orleans to demonstrate the in-built vulnerability of inter-connected systems. Davidow argues compellingly that connectivity without coordination is a formula for chronic instability—and that hyper-connection without coordination is a formula for mega-catastrophe, as recent events have shown. This is a bold and brave book. Its message deserves to go viral.”--(David M. Kennedy, Pulitzer-Prize winning author of Freedom From Fear: The American People in Depression and War, 1929-1945, and Professor of History emeritus at Stanford University)
“As has been his wont in the past, Bill Davidow has once again put his finger squarely on the most salient risk in contemporary economic life. Earlier it was the rise of the virtual corporation (an idea Bill brought to the surface over twenty years ago). Now it is overconnectedness and all the issues of contagion it implies. Many big vision books are bunk. Bill’s is the real deal. Let his thoughtfulness deepen your own.”--(Geoffrey Moore, Author, Crossing the Chasm)