A Deficit of Idealism: Tim O’Reilly on the Next Economy

“The obligation, and the self‑interest of every company is to build a robust society.”

John Battelle
Jul 20, 2016 · 21 min read

Tim O’Reilly has made studying the near future his full-time job, despite the fact he’s also in charge of a major technology publishing business, a venture investment firm, and countless conferences and events, all of which bear his name. All of his endeavors spring from a relentless curiosity around what the “alpha geeks” are doing — he’s something of a technological dowser, always looking for the next spring of fresh thinking. I was honored to be Tim’s partner in the Web 2.0 Summit conference for nearly ten years, and during that time I came to not only appreciate his unique brand of thinking, but also his desire to truly push the tech industry forward.

Given that tech is now driving change across all sectors of the economy, it’s in no way surprising that over the past few years, Tim has turned his attention to a scope larger than technology itself — to government, policy, and the global economy. His Next:Economy Summit explores all these issues and more each Fall. For the third edition of the Shift Dialogs, Tim stopped by the Nasdaq studios and we riffed for nearly an hour. Below is an edited transcript of our conversation — you can watch the video, which is edited down for length, here as well.

You recently told me that technology is in a crisis of trust. Can you unpack that for me?

Tim O’Reilly: If you look at the news today, you’ll see a lot of alarm about the economy. It’s an alarm that’s given rise to Donald Trump, that’s fueled Bernie’s campaign. People are saying the economy is getting worse. In situations like that, people look for someone to blame.

What I’ve noticed is people increasingly blame technology, whether it’s gentrification in San Francisco, or the fear of rogue AI, or the working conditions of the on-demand economy. Tech is increasingly being painted as a villain.

I have a deep belief that technology is a force for good. Technology can create jobs. It can make a difference in this world. There are choices that we have to make as a society and as an industry. Those choices can make a huge difference. I’ve been framing things up around this concept of today’s economy as the “WTF economy” — how do we get from the WTF economy to the Next Economy that we want?

WTF is a great phrase, because it can be an expression of wonder, or it can be an expression of dismay or disgust. That is really a lot of what we see. If you look at a company like Uber, you hear the wonder and you hear the disgust, paired together.

It doesn’t have to be that way. Along comes Uber, with this absolute magical app, and people start going “What an amazing experience that I can call a driver at any point, any place, get picked up anywhere.” It’s a so much better user experience than what came before.

As a result, Uber takes off like crazy, it’s grown the industry, it’s grown jobs.

But all of a sudden, the WTF turns and we are in the bad WTF, and we are seeing Uber treating these drivers as disposable, cranking down on their earnings. Tech has gone from the wonder of WTF to the dismay.

Uber reflects that even more dramatically, because its CEO has not made a secret of the fact that he thinks that most drivers will be unnecessary within five to ten years.

Can you use technologies to augment workers to do something that was previously impossible? When you do that, you actually create opportunity and you create new jobs.

Take Uber and driverless cars. There is very, very simple positive Next:Economy vision there. If I were Uber, I would have said: “We will be getting rid of drivers, but think about all the other things we are going to able to make on demand. In fact, we have already been running experiments on them. Remember when we delivered flu shots? We could have doctors making house calls, we could have all kinds of services coming to your home. We could be restructuring society in positive ways.”

The Next:Economy principle is to do things that were previously impossible by augmenting workers. It’s amazing opportunity — but when companies don’t really understand what is the source of their advantage, they can make big missteps.

I don’t want to put too fine a point on it, but is your opinion that Uber is right now making such a misstep, in terms of how it’s communicating its services?

Some of it is a misstep, in terms of the way it’s communicating, and some of it is really a more fundamental misstep. They do seem to have a deficit of idealism.

A deficit of idealism?

When I say that, I mean it’s really important for all of us in tech and in business to understand that we are part of a system, and the entire system has to work. One of the great geniuses of Google in the last revolution was that they really were devoted to creating value as a whole.

Pretty early on they started doing their economic impact report, really looking at how they are making other people better. There’s been some drift from that over time, but (there was a) really good run where Google was really focused on being an enabler for so many other people, and being an enabler as a platform.

Uber went through that pretty quickly. What happened was the demands of the financial industry and the investors, “You’ve got to go big, you’ve got to win it all.” That’s problematic, because it forces you to do things that are ultimately uneconomic.

There’s really a scale problem and a mismatch in how people are thinking about business and society. We got caught up in this idea that the only players that should be benefitting from innovation are the entrepreneurs and their capital …

The shareholders, the investors.

The shareholders, the investors. In fact, all of society has to benefit or the whole system falls down.

Rana Foroohar’s book is essentially about this — we have a system that seems rigged to do one thing, which is to increase the share price and put capital in shareholders’ pockets.

That’s exactly right.

In order to do that, you need to grow. In order to grow profits, you need to reduce costs and increase revenue. It’s this cycle that keeps driving a growth imperative, which is, of course, Douglas Rushkoff’s point, which is maybe we don’t need a growth imperative in our economy. Do you see a time where we get to equilibrium in the economy as opposed to this growth imperative?

I see two things. First of all, it’s clear that we have a problem. I see two things that save us from that problem. The first one is wrapped up in a great quote from Nick Hanauer: “Technology is the solution to problems.” Technology is what he referred to, but I would also apply it to business.

We’re not going to run out of work till we run out of problems. You look around, there’s a lot that needs doing. We have to understand that there’s so much opportunity when we focus on work as opposed to on jobs.

Define that difference for me.

If you think about the way the political discussion goes, (it’s always) “We need jobs.” It’s this magical thinking that the market will supply jobs. Yet, the market is incentivized to not create jobs — it’s incentivized to cut costs.

Joseph Stiglitz wrote this great book called Rewriting the Rules, reminding us that the current financial system is not like a natural system. It is something that we constructed and we actually could and should change the rules because it is not working as well as it should.

Where is it going awry is, as Rana described so well in her book, it is optimized for financial returns and not for returns for society. If we had a different allocation between consumer surplus, investor profits, and earner profits, worker wages, we would end up in a much more stable equilibrium.

If we had that, then what we would do? First we would actually start focusing on some of the things that we collectively need to do, rebuild our crumbling infrastructure, deal with the energy transition that we’re all needing to go through, deal with water.

It could either be the killer for the economy…

… or the impetus to actually the change we need.

That’s right. It could either take us down the path towards Venezuela or it could take us down the path to really reinventing ourselves.

That’s actually going to be a big part of the jobs crisis (driven by tech). We’re going to need every bit of technology that we can call on to help us with some of those problems. That’s one area where we’ll do well.

If we actually create an economy where the fruits of productivity are allocated more fairly, we end up with a much richer society.

The other is, if we actually create an economy where the fruits of productivity are allocated more fairly, we end up with a much richer society. When you think about, there’s this worry that all the jobs will go away. I say, “If the machines did every bit of work in which productivity is the key to advancement, what would be left?” It would be the creative economy.

All that can be automated will be automated.

Let’s assume that all that can be automated will be automated. Everybody says, “Well, everybody will be out of work.” I say, “Well, what would happen if everybody were out of work?” We already know what happens when people have enough. They compete on the basis of added value that is creativity, that is caring.

People in that abundance make a new economy of things that nobody needs, but that are things that people want. We start shifting the economy there.

You’re asking for the tech industry to start leading here, to hear the voices of the founders and the entrepreneurs behind some of these companies talking about these ideas?

Absolutely. Tech can and should play a leadership role and there are a number of ways that they can do that. One is by understanding the future shape of the economy and that building a business is based on the principles that will produce a more robust circular economy.

That would mean, “Oh, wait, we can’t just give it all to consumers in the form of lower prices. We have to find a different equilibrium.”

When you have a marketplace algorithm in an on‑demand company like Uber and Lyft, they should be making their algorithm richer in the same way that Google started out — with a relatively simple algorithm and it got more and more complex, smarter and smarter.

They should be saying, “OK, in our marketplace algorithm, we’re not just trying to solve for speed of pickup time. We are also trying to solve for driver wages. Because we don’t want to have it be a race to the bottom. If we go there, eventually the whole system falls down.”

We see there’s some competition that’s getting there. Lyft has been gaining on Uber partly, because they their treat their drivers better.

Uber is starting to respond. In general, this is a key Next:Economy principle, because if you don’t realize that the people who work for you are not just a cost, they are also a customer, you end up undermining your own business.

This begs a question. Doesn’t this sound like a typically liberal point of view about redistribution of wealth? We should tax either companies and/or wealthy individuals at a higher level and redistribute it so that wages are higher. What’s different here?

Well, it’s really a self‑interest argument. For a long time, the unionization argument, for example, was framed as a fairness issue. And it’s really important that we start framing it as a survival issue. This is what makes the system work. If you don’t tackle this problem, you will eventually be out of business.

The question is can you get people to think long‑term enough that they start thinking that way. Again, what I am trying to do with the Next:Economy summit is to actually find companies that are thinking that way and show how it is helping them to succeed, because understanding the map of the future is super‑important.

Getting back to the role of government, one of the things that is now in vogue is the concept of universal basic income. It was really not much discussed even three years ago. It is now on everybody’s lips, it seems. What’s your point of view about universal basic income?

I think there may be a time when it really is the appropriate response. I actually was talking with Paul Buchheit, creator of Gmail, who has commented about this recently. He said, “We should really call this the citizen’s dividend,” which apparently was a term that originally was framed by Thomas Paine and, of course, goes back even before that. They had something of that concept back in ancient Greece, but this notion that the fruits, the bounty of nature should be shared equally.

Here, the fruits of machine productivity should be shared in a more robust way. It’s quite obvious if you have an elite that takes all the value for itself and creates an underclass, that’s not a stable system.

Any self‑interested plutocrat should be trying to build a more stable society with a robust middle class.

Any self‑interested plutocrat should be trying to actually fix that by building a more stable society with a robust middle class as opposed to the ultra‑rich and the underclass. We have to actually diagnose why we have built a society that is creating that unstable situation and what are we going to do about it.

The main argument against UBI is if you give everybody a decent income, they’re not going to work.

There’s plenty of evidence that this is not the case. In addition to the Manitoba Study that people have talked about, there’s actually a bunch of research about the Great Smoky Mountains Study of income in casinos in that area. People actually worked and they continue to work. They work differently.

Raising wages is probably a better system. This sort of free‑market ideology that says, “Oh, whatever people are willing to pay or willing to work for is the right wage,” is counterproductive.

We’re spending way too much time on the financialization aspect of it. It is, in fact, part of the problem. Silicon Valley is going to get a bit of a black eye over UBI.

Why?

Because the fundamental underlying message of UBI, when embraced by the tech industry, is going to come across as, “Hey, you rubes, we’re going to destroy all your jobs, so there’s going to be nothing for you to do, and we’re going to give you this amount of money to live on, because you’re just not smart enough to participate in our economy.”

Instead, we should be asking, “How do we actually put these people to work, doing stuff that needs doing.” I look at someone like Seth Sternberg at Honor, he is saying, “OK, we’re going to try to actually create a better system for elder care or home health care.”

This is a problem that needs solving — society is not doing a good job of this, and we could do much better. There are thousands of things like this: education, healthcare.

AltSchool is an example.

AltSchool, a great example. How do you start identifying the work that needs doing, which is opportunity and how do you figure out how to get people to value and pay for the things that work.

I love Hal Varian’s observation that if you want to understand the future, just look at what rich people do today. It seems like very callous, but you think back a few years, rich people had cellphones, now everybody has cellphones. Going back even further, rich people had televisions, now everybody has televisions. Rich people used to be the people who did vacation travel, now soccer hooligans do it. Of course, there are still people who can’t afford to do any of those things.

If you look at what Max Roser has done with Our World in Data, there is actually a wonderful uplifting of the poorest people around the world, at the same time as we’ve been making people in this country poorer. The difference between what is and what could be is not that great.

We have a set of parasites in our system that we need to flush out, for sure. We also need this visionary role, where people are saying, “Oh, my gosh, I could do something that’s really valuable to people.” Back to Hal Varian, what do rich people do? They send their kids to private schools with better, richer experiences.

What do rich people do? They have all kinds of personal services that they really value. They eat better food. Why aren’t we trying to actually democratize those things? In fact, we are. Rich people used to have a private driver, and you remember Uber’s original positioning, Everybody’s Private Driver.

That was, in fact, a democratization of something that was previously available only to the rich. Still, even though I’m not sure, it’s not all the way down there, but could we in fact say, “How are we going to take that technology all the way down so that people in underserved areas have access to transit, access to getting a job. How would we solve for that problem?

Let’s talk about this class of companies. We identified them as NewCos. You called them Next:Economy companies. When you think about how that company is structured and the why of that company, what sets them apart for you from what you might call a traditional, old version of a capitalistic company?

What I would say is they’re very similar to the traditional, old version of a capitalist company. They’re very dissimilar from the ruthless, profit‑above‑all capitalist company of today. A touchstone for me is a conversation with my sister, who’s married into an old manufacturing firm from Chicago. (Her husband is) third generation.

She described how her husband’s dad, who still runs the company, always thought of the output of his company as profit for the company, but it was also jobs, good jobs for people. He still thinks that way. He’s trying to make jobs.

I had a wonderful conversation with Tom Kartsotis recently, who was the founder and chairman of Fossil, the watch company, and he started a new watch company, Shinola, in Detroit.

He said, “We’re trying to cut costs so we can create more jobs.” He didn’t say, “We’re trying to cut costs so we can make more money.”

Just the way he talked about it, the way he thinks about it. Now of course, he’s become very successful. He’s building a competitive, really value‑add company. When you talk about the creative premium, part of his creative premium is his Made in America story.

Is one of the things that creates a Next:Economy company is that core mission? Is that part of it?

I’m trying to define a set of characteristics. The first one I talked about earlier. Next:Economy companies augment people to do things that were previously impossible. This theme of human augmentation rather than human replacement is central to Next:Economy companies.

Secondly, they tackle the world’s largest problems before they tackle us.

Third, they create great experiences for consumers, but they also create great experiences for the people who are delivering their services to consumers.

For the people who actually work at the companies?

That’s right. You’re seeing this tension fighting itself out in the on-demand economy. I hope that we will come down on the side of there being a competitive advantage from treating people better. To the extent that we can articulate that and actually prove that point, we can encourage people to act that way.

There are definitely some other pieces that I’m still noodling on, but those are definitely three key principles. I wrote a post back in January called “Six Characteristics of Next:Economy Companies”…

It strikes me that there aren’t that many companies that check all those boxes.

No.

Are you hoping that there’s going to be far more companies that do?

Much as we saw with Web 2.0, there were only a few companies doing what Google was doing, what Amazon was doing, back when we said, “Hey, the dot‑com bust was not the end. It was just the beginning. There’s a second coming of the Web, Web 2.0.” Sure enough, more companies went and tried to follow in their footsteps. I do think that identifying what is important in these companies and telling a story about it is one way to get people to start changing how they operate.

You need to identify them, celebrate them and hopefully accelerate the whole thing. Let me step back and ask you what you think the role of government is in all of this. You’ve been very involved in government. You’ve started one of the first govtech conferences and platforms. What’s the role of government in furthering the Next:Economy?

First off, I do think that government has a role, and it’s been undersold over the last few decades, where there’s been hostility to government. That hostility in some ways has been deserved because government has not kept up with technology. It has not kept up with society in a lot of ways.

The gap between what government could do and what the rest of the society could do is getting bigger and bigger. Everybody goes, “Well, I’m giving my money in taxes, and a lot of it is wasted.”

Part of what we’ve been trying to do over the last seven or eight, nine years, since I started my Gov 2.0 Summit as an offshoot of Web 2.0 — we started this movement to try to bring more technology expertise in the government.

That led to the foundation of Code for America, which worked with cities. Code for America was then copied by the White House innovation fellows. My wife, Jen Pahlka, was recruited to come to the White House. She started something called United States Digital Service.

We’ve really seen this wonderful influx of technology talent in the government. We’re starting to see the results of that. Clearly, the healthcare.gov rescue was a big part of that. Here’s the signature policy initiative of the Obama administration that came very close to failing. It was rescued by an elite team from Silicon Valley.

We’ve had amazing work going on at the Veterans Administration, which is starting to come out. We’re actually making a real impact there. We’re seeing great innovations in cities around the country. We’re starting to get real progress on government getting a little bit more of a clue about tech.

That will help, but there’s still a long way to go. There are two or three things that are needed. One, government at its best operates like a platform. We see that with something like GPS. You wouldn’t have Google Maps. You wouldn’t have self‑driving cars. You wouldn’t have Uber if some guys in the Navy and the Army and the Air Force back 45, 50 years ago hadn’t had this crazy‑ass idea that they worked on for decades, and then intelligent policy decisions to open this up for civilian use.

This was an amazing gift to the world. Going back before that, the work on computing in World War II, which was put into the public domain, is astonishing.

The fact that people in the tech industry — who are the beneficiaries of so much government largess — are hostile to government beggars the imagination.

The fact that people in the tech industry — who are the beneficiaries of so much government largess — are libertarian and hostile to government beggars the imagination. They have no sense of history. They’re living in an industry that was created by government investment.

There is a strong streak of libertarianism in the Valley. Peter Thiel is associated with it. Travis Kalanick has been associated with it. There is a strong sense that the government needs to stay out of our business.

The idea that government needs to stay out of our business is a good one because it’s rooted in an idea of how government regulates that needs to be blown up. I definitely agree with that. Too often, government tries to micromanage. The best interventions by government are focused on outcomes.

I wrote a paper some five or six years ago called “Open Data and Algorithmic Regulation.” The notion was we accept regulation all the time. We think nothing of it. We actually applaud it. You think about spam detection. That’s a regulatory system. You think about Google search quality. That’s a regulatory system.

You think about credit card fraud detection. That’s a regulatory system. They’re imposed by the private sector. They’re focused on are we getting an outcome as opposed to we’re giving a list of rules.

Credit card fraud detection is a great example of the interplay between a good government regulation and that actually innovative data‑driven algorithmic regulation, which is then supplied by the private sector.

Government made a really interesting intervention, which was to say, you can only pass on $50 worth of fraud through a credit card consumer. All of a sudden, it’s the industry’s problem to deal with fraud.

That’s a really good model for how we need to be thinking about a lot of these regulatory issues. We need to move government away from micromanaging with a bunch of ideas that might or might not solve the problem because that’s what happens typically with government. You need to come up with minimal interventions that cause the private sector to then actually own the problem.

Then they’re going to keep analyzing, keep doing data‑driven work. For example, one of the ones I’ve been noodling on, I’m not sure if this would work, but how would you enforce a minimum wage on an on‑demand driving company like Uber or Lyft?

It would be possible. Basically, there are lots and lots of data. You can set your rates below X as determined by data. Periodically, we’re going to audit. There was one example that’s stuck in my head. I believe it was reported that Uber was doing 30 cents a mile in Detroit.

You can do some back‑of‑the‑napkin math on that. You go, “Well, let’s assume that the average speed is 30 miles an hour.” You go, “Well, that’s basically nine bucks an hour for the perpetual ride,” that Travis has talked about. Then Uber is going to take 30 percent of that. That’s six bucks an hour before expenses.

That’s a non‑starter, guys. It’s knowable what the income can be. We could basically say, “You can’t go below a certain level.” That would be an interesting intervention.

Earlier we were talking about exemplary companies, Next:Economy companies that have more than profit at the heart of their model. They have a societal benefit. There is a structure that exists — the B Corporation or the public benefit corporation. Do you have a point of view about them?

I do. I admire companies like Etsy and Kickstarter that have taken that route, but there’s something that sticks in my craw about B Corps. It is the acceptance of the assumption that the normal corporate form does not do those things and does not have an obligation to do those things.

B Corps is a capitulation to the notion that a corporation is fundamentally hostile to society and hostile to humans and only cares about profit. We have to get away from that. We have to make it clear that the obligation and the self‑interest of every company is to build a robust society that works over the long term.

We have to make it clear that the obligation and the self‑interest of every company is to build a robust society that works over the long term.

We should not have a ghetto where the good companies are and canonize the practices of the other companies as not being beneficial to society.

That’s right. The biggest thing that we need to do is reset this, what Lynn Stout calls The Shareholder Value Myth. It’s a great book from 2012 where she points out that there’s actually no basis in law for the idea that the primary duty of a corporation is to enrich its shareholders.

In fact, corporate law gives wide discretion to boards of directors to actually manage for all kinds of other objectives and that’s the notion that we have to have a special kind of corporation to do that. It needs to be blown up, however noble it is.

We need to reset so that C Corps, and S Corps, and LLCs, and partnerships all get that they have an obligation to society and to their workers.

You’ve railed against a particular Silicon Valley disease that has to do with magical thinking or unicorn thinking — that we need to make these companies so extraordinary that they become outsized winners. You’ve argued that sometimes good enough is just that.

Well, there are a couple of different things about unicorns versus good enough. Maybe these two concepts are not necessarily the same, at least in my thinking, so let me tackle the good enough first. We’ve all watched a really interesting dynamic around, actually several times, around how good enough can be really great. The latest is Amazon’s Alexa.

If you look at the AI capabilities of Google, for example, or even Microsoft, they probably are far greater than the capabilities in that regard at Amazon, though they are working hard.

Amazon had a brilliant insight into a device, and a use case, and a design for the architecture of participation in that ecosystem. That has made the Echo with Alexa a real player and a real game changer in the marketplace.

It’s super important to remember that it isn’t all about who has the best technology that wins. Over the long term, I’m not counting Google out. They have amazing capabilities and amazing vision for what they’re trying to do with their AI. The simple focus on execution, and user experience, and market opportunity, Amazon came at this with fresh thinking and has done a great job there.

On the other question of unicorns on the financial side, I mainly just tried to focus on the notion of a unicorn as being defined by evaluation is a big mistake. A unicorn is defined by wonder. Uber was a unicorn, not because they achieved this great valuation.

They were a unicorn the first day they appeared. People said, “Whoa, that’s amazing.” Google Maps was a unicorn even though it never had that separate valuation.

I still remember walking around, watching the little blue dot following me back when it first came out on the phone, and people who haven’t seen it, I had an experience on a bus with an old man who was saying, “What are you doing?” I was looking at my phone figuring out what stop to get off of. World Wide Web was a unicorn even though Tim Berners‑Lee never became a billionaire off of it.

We need to reset our sense of unicorns away from the dollar value and to the magic, because magic actually transforms society in the end.

NewCo Shift

Covering the biggest shift in business and society since the industrial revolution

John Battelle

Written by

A Founder of NewCo, Federated Media, sovrn Holdings, Web 2 Summit, Wired, Industry Standard; writer on Media, Technology, Culture, Business

NewCo Shift

Covering the biggest shift in business and society since the industrial revolution