[p2p-research] Building Alliances

[J. Andrew Rogers]

On Fri, Nov 6, 2009 at 10:53 AM, Michel Bauwens <michelsub2004 at gmail.com> wrote:
> While I can see the logic of a surplus funding a creative (and managerial)
> class, as well as the historical evidence for patronage, I think there is a
> golden mean there, indeed, the increased inequality of the neoliberal era
> has slowed down average growth by two-thirds in the West, and the much
> hailed growth in east asia, happened with systems with intensive state
> intervention (korea, china)


Korea and China produce very little innovation in both per capita and
per dollar terms. Growth has nothing to do with innovation,
particularly in the developing world. (I'm not understanding why this
is even relevant.)

I am talking more about the venture capital ecosystem in its various
forms.  Very early stage venture funding has one of the highest
long-term annualized return of any class of investments, and is
significantly funded by private individuals who just happen to be
wealthy. Obviously these concentrations of capital are producing a
considerable amount of value. There is some value in government R&D
investment, but it is much less capital efficient for the result and
more fickle. For example, most Americans do not realize that almost
all Federal R&D funding has been currently suspended for months and is
not expected to start again until 2010; unfortunately, you can't
randomly stop funding projects for several months at a time and expect
the people employed on those projects to stick around. Ironic, because
you would think this would be a priority for "stimulus" funding.

Nonetheless, even for advanced software and computer hardware
innovations, government funding plays an important role (usually
military). Interestingly, it is often because military organizations
are more technically savvy than private venture capital and can
recognize value that the private markets are ignorant of.


> I also suspect, that in an era where capital can be distributed and
> re-aggregrated, these concentrations of wealth may be less and less
> necessary for innovation,


There is no evidence that this is the case. Most really great ideas
are sufficiently obscure and poorly understood at their inception that
you will be lucky to find even a few people willing to provide funds.
The capital intensity of genuine innovation has not waned in any
significant sense. The marginal cost of dissemination of the
innovation after initial development has fallen but is irrelevant at
this stage.

When a brilliant innovative idea is first hatched, it is almost
impossible to find anyone willing to expend the hours of time to even
recognize that fact. In many cases, there are but a handful of people
even qualified to evaluate an innovative idea.  And all of this occurs
in a sea of mediocre  "innovations" clamoring for attention.
Multiplying the expensive level of effort required to develop funding
in the current system by integer factors is not helpful.

It would be a death sentence for the development of many, many
innovations if one had to aggregate funds from a large number of
parties.


> and as Kevin argues, as innovation becomes more and more immaterial, i.e. a
> function of internetworked brains with access to networks, the amount of
> capital needed to fund them decreases dramatically,


What has happened in many cases is that we are merely replacing CapEx
with OpEx. The total R&D costs are the same, just distributed
differently. Yes, some classes of trivial innovation require little
money, but that is usually because they are *trivial*. Non-trivial
innovations usually require designing new tool chains in support of
that innovation. One of the hallmarks of non-trivial innovation is
that there are only a handful of experts competent enough to deliver
the first version.  P2P and crowd-sourcing only works for things
everyone mostly understands.

Even for innovative software (say, something based on some new
computer science), you are still looking at spending a few million
dollars to develop it into a useful innovation that someone can
actually use. And this assumes that you are leveraging open source
software everywhere you can.


-- 
J. Andrew Rogers
realityminer.blogspot.com