The Nation’s Dilemma

Summary: Tech is potent and proliferating. It is becoming so powerful that entire nations can be summarized by their sophistication with it. Many nations follow the Innovator’s Dilemma in only pursuing what they have done in the past. This is often not tech related and will not work in the future. What tech exactly is the most promising is hard to say, which country will come out on top and why is even harder to say. It is clear that given economies of scale and especially network effects there will only be a few or one dominant monopoly country that is the first mover. There are going to be lots of factors but a lot of it will come down to how innovative a population is. We need systems to better optimize this (link to China piece). And also figure out how China and the US can get along better because it is probably going to be one of them…


The Innovator’s Dilemma is a famous book amongst the Silicon Valley All Birds Wearing Ethereum Investing startup culture. Written by Harvard Business School titan, Clayton Christensen, it looks at why many of the most successful companies in the world at their peak eventually all decline and collapse in the same generic way. Providing many interesting examples, the book basically argues that all of these companies fail because they continue to do what has worked in the past. They try things at the start, something works, and then the culture, product, and business incentives are set in stone. These incentives trap the company into doing only that which has already worked rather than trying anything new because their existing customers don’t care about new products that will inevitable be inferior on the metrics they care about to begin with. Suddenly, a competing and inferior product which was inferior on existing metrics but better in new ones reaches the point where it becomes good enough on the old metrics in addition to adding new features. At the drop of the CEO’s head, every existing customer jumps ship to the new product leaving the incumbent to die. This continuously occurs because the rate at which the technology accelerates is faster than the rate at which customer demands increase. An example in the book is the disk drive. Take an old disk drive which has been optimized for cost per kilobyte of storage and speed of data transfer. A new portable disk drive is invented which is more expensive on these two existing metrics. While it is lighter and more rugged, there is no demand for these features. First a company finds a niche novel application for the portable hard drive, this allows it to become optimized and gain economies of scale, then suddenly it is cheap enough in storage and speed (the existing value metrics) and simultaneously offers new features of being more lightweight and rugged. It is good enough on the old metrics of value and offers new ones that customers to the old incumbent jump ship. See the diagram below for a helpful visual of this effect.

Here you can see the customer needs on the existing metrics are increasing more slowly than the rate of technological acceleration.

This chart is more complex but I like how the new innovation is put on a different z axis to emphasize its new value propositions. Don’t worry about the rest of the labels on this one.

It struck me that the Innovator’s Dilemma is now coming to nations.

Ideas are recombinant and the more we create, the faster the power on our exponential number increases. Not only do we have more ideas but also the ways these are distributed through the internet further accelerates this process. The Second Machine Age by Andrew McAfee and Erik Brynjolfsson outlines all of this nicely.

An example of exponential growth. Making hockey relevant since … ever.

The more ideas we create the more future ideas we will see. Meanwhile, the faster things move, the more of an advantage there is to being the first mover (Ben Thompson at Stratechery has argued before that this first mover advantage means we should not have patents on many tech products) and with many of our technologies there are now network effects with the aggregation of more users and data.

Peter Thiel is well known for saying that in the long run all companies become either commodities or monopolies (Zero to One).

And as all of these different observations suggest on a more meta level, the inner workings, incentives, and business models of the world we are living in are changing far too fast for our biology, our social systems, and even the long term shelf life of humanity (Superintelligence, Nick Bostrom). Especially for those who have not grown up in the era of AWS, CRISPR-Cas9 and UberEats.

Going back to the idea of Nation’s Dilemma, we are at the point where entire nations, rather than just companies, can begun to be bundled up and summarized as the sum of the industries and people within them, rather than as a plethora of diverse happenings. Most of what a country is working can today be ignored as irrelevant. If they are working on the right few technologies these will see so much growth and power that the nation will experience a bonanza, otherwise, they will be left to grovel. The tendrils of technology are so fast, far reaching, and overall powerful that the lucky few nations with the right minds and technology will be the ones that take over everything, everywhere, leaving every other nation as a mere commodity under the shadow of their monopolies. The Second Machine Age talks about the idea of “superstars”, individuals who, thanks to the internet giving them a potential audience of ~7.6 billion rather than the previous thousands or millions in their physical vicinity, can eat the lunch of every local artist that could previously survive off of local subsistence. They use this to describe how J. K. Rowling was the first billionaire author not because of the quality of her writings but the “superstar” effect of today.

In the longer term, I see the same thing happening with nations.

Nations are just shared ideas held in the minds of those that identify as part of them. They are the sum of their populations activities. The tendrils of tech have crept into lives and economies. Sneaking into facts and figures about the number of hours of the day we spend looking at small glowing squares and what the largest companies in the world are today.

Just think about the power of economies of scale. Now combine them with network effects and watch what you get.

All of this gets at the sheer power and influence of technology. Its potency and proliferation.

So, given that technology is a rocket ship heading in who knows what direction (Superintelligence, Nick Bostrom) carrying entire nations as its payload, what technologies will take us somewhere and what will leave us grounded. I say somewhere, rather than upwards, because of the dangers with so many technologies of the future: Artificial General Intelligence (AGI), nano-tech, nuclear weapons, synthetic biology…

The breakdown really does come between hardware and software or more broadly, ideas and physical tools. It was from conversations with a number of people across Asia that these sentiments arose so this is where they will remain for examples. Japan and Taipei both are good at hardware but this has become commoditized. They lack people with good software skills, they lack a real startup industry, and they lack skill with AI or genetics, which appear to be two of the most promising two new and incredibly powerful frontiers. They were both booming economies back in the day when hardware was the thing. And then have continued doing this like they always have continuing to get better and better but never getting on to what is next in such a way as to make Clayton Christensen proud (Innovator’s Dilemma).

As for other areas other than AI and genetics that seem the most powerful and promising, maybe it is the availability bias or maybe we have an evolutionary inclination to see what is the most technologically sophisticated as the coolest. But quantum computing, parallelized processing, nuclear fusion, nanotech, synthetic biology more broadly, all seem to be the determinants for where things are headed.

There is certainly more to it than just a nation’s willingness to take new risks and start new industries (is this innovative desire due to the nations culture, the genetics of its population, sheer luck? Looking at the origins and development of San Francisco and Silicon Valley should be studied in this regard). The raw resources including brain power and having lots of people also matter of course. However, regardless, the case in seems that all of South America, Africa, most of Europe (maybe a few of the innovative Eastern European countries like Estonia , and most of Asia don’t stand a chance at catching the new waves of technology which are surging and going to create all of our future power. This leaves basically just the US and China as the two main players on the board with a few minnows also operating in a successful way like Singapore(?).

Whoever has the best technology will win. Whoever has the smartest population and the best environment to express and cultivate innovation, harnessing this intelligence, will have the best technology.

It will be very interesting to see where things go and the different sort of factors that may shape how it all pans out (link to chinese education piece).


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