Accelerating Returns in The Exponential Age

Accelerating Returns in The Exponential Age

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ED HARRISON: Hi. Ed Harrison here for Real Vision.  I have the distinct pleasure of speaking to Azeem   Azhar, who is a writer, technologist, and he's  also the creator of the acclaimed "Exponential   View" newsletter. Welcome to Real Vision, Azeem. AZEEM AZHAR: Thank you so much for having me,   Ed. I appreciate it. ED HARRISON: You know,   I'm really excited to talk to you. Because you  do have an upcoming book called Exponential.   We're going to get into that in a little bit. And  this is part of a series of interviews that we're  

doing here at Real Vision on the Exponential Age. So you're exactly the right person to talk to,   who's been looking at this. You're looking  at this from a number of different views. I   was saying that you are a writer. You're also a  technologist, and a entrepreneur. Maybe you can   give our audience a little bit of a background  into your technology and journalism stakes.  AZEEM AZHAR: Yeah. Well, thank you. Thank  you so much. In a way, I'm a child of  

the microprocessor revolution. Because I was  born the year after the Intel 4004 processor   was released, which was back in '71. And I grew  up with a computer in the home from the age of   9. So I still have that computer, by the way. And  it still works, just about. So I was one of those   lucky kids who just happened along at the right  period of time, in the right place. I went to a   junior school where there was one guy who bought  us a-- one teacher who brought a computer in one   day. And it stayed in the school. And when I got  to University, I discovered the internet in about  

1991. And that had me absolutely hooked. And so  my journey-- and I talk a little bit about this--   my professional career has followed, in a  way, the growth of the tech industry with the   microprocessor, personal computing, and then the  internet. And the funny thing is that in those   early days, nobody was really on the internet. I  mean, I remember sending emails back and forth to   the people who defined the mail protocol that  everyone's emails runs over, SMTP. And them   replying to me while I was a University student,  because you just did. I emailed a guy called Marc  

Andreessen in '94, because there was a bug in a  web browser he had written. And he replied to me,   really politely, within 10 minutes. And of course,  you don't know. You're just the lucky kid who's   around at the same period of time. And that  is where the bug for all of this bit me.  In those days, it was really primordial. I  don't think people can quite remember. But   when I launched the websites for  the Guardian newspaper in 1996,   I was physically the switch for the internet  cable between our servers. So when the traffic   got too heavy, I would physically disconnect a  cable from one server and plug it into another   server. And that would reboot the other server.  And in 20 minutes, I would do that again.  

And I sat in this equipment room, doing this  for the whole of the afternoon when load was   too high. And that's what you had to do back  then. And I had a chance in the first couple   of chapters of my book to reflect on how rapidly  exponential technologies change, and reflect on   some of the funny experiences I had in my life. ED HARRISON: Wow. That is amazing. I think those   are some great anecdotes. I mean, obviously,  you've seen the Exponential Age, so to speak,   from the beginning of the  internet to where we are today.   I mean, I think technologists in  general have been talking about   exponential things happening for a long time.  How different is what's going on right now   with new technologies converging, with crypto, in  this space, versus, say, the internet bubble? --- RAOUL PAL: Hi, I’m Raoul Pal.  

Sorry to interrupt your video - I know it’s a  pain in the ass, but look, I want to tell you   something important because I can tell that  you really want to learn about what’s going   in financial markets and understand the global  economy in these complicated times. That’s what   we do at Real Vision. So this YouTube channel  is a small fraction of what we actually do.   You should really come over to and see the 20   or so videos a week that we produce  of this kind of quality of content,   the deep analysis and understanding of the  world around us. So, if you click on the link  

below or go to, it costs you $1.  I don’t think you can afford to be without it. ED HARRISON: is what's going on right now  with new technologies converging, with crypto,   in this space, versus, say, the internet bubble?   I worked at Yahoo during the internet bubble. I  know that you were in that space at the same time. AZEEM AZHAR: Right. ED HARRISON: How more   exponential are we today? Is it just hype? AZEEM AZHAR: Well, I think, having lived through   the dot com bubble like you did, and investing at  exactly the wrong time like many other people did,   I know the pain of bubbles. But I spent a lot of  time trying to understand what's really going on  

here. And there are a few reasons why things are  different now, kind of fundamentally different.   The first is that the computer industry  was a harbinger. It was a precedent   for industrial technologies that are very general  purpose, that can improve at exponential rates.   And it demonstrated to us what that exponential  improvement does. What it does is it dramatically   drives down prices. And as prices drive down, we  use much more of the compute. Because we use much  

more of it, complementary businesses emerge  around that. And so the distinction between   where we are today and where we were 20  years ago, let alone 30 years ago when   I first got on the internet, is that there is  an entire stack on which these innovations now   expand and explode. Back at the rate with  which Facebook grew in 2005 to 2006 was   unprecedented. And now if you grew as  fast as that with a new consumer app,   you'd be a bit of a disappointment. Because  you have to grow as fast as TikTok or faster. 

So that has happened, that dynamic, which is that  the core infrastructures of exponentiality have   been laid down. We all have smartphones. There's  unlimited compute in the cloud. There's multi-   megabit and gigabit connections to people's homes.  Means that businesses can grow, no questions   asked. Back in 2000, I invested in an online  real estate business in France called [FRENCH].   And not only did we discover that most of the  buyers-- the consumers, not have PCs or internet   connections, most of the realtors didn't.  So to even get them started on this onramp,   we had to buy them a PC and get them  an internet connection, and teach them   how to use it. So that was difficult. That  problem has gone away. Now, we established that  

idea within the computing industry. Prices come  down, demand goes up, complementary businesses   emerge. The infrastructure gets built. You  now don't have to ask-- buy your realtor   a PC or a mobile phone to deliver them a digital  service. They have one. But now in the Exponential   Age-- and that incidentally is the title of  my book in the US, is The Exponential Age. So if your American viewers look for it on  Amazon, that's what they have to look for.   There are three other technology platforms  that have similar dynamics. The platform of  

synthetic biology, which is bringing genomics  and protein engineering together with   the tools of the technology industry. There is the  general purpose technologies of renewable energy,   like wind and solar, and lithium ion batteries,  which are transforming the energy system.   And then there are the manufacturing  techniques of additive manufacturing,   which are allowing us to print everything  from meat to cement, to lightweight titanium,   to wood. Each of those three general-purpose  technologies are on a similar exponential march--   the one that we saw silicon go on between the  1960s, and it is still going on now. So that's   why I say the computer industry is a harbinger  for all of this. The next three platforms will do  

similar things. And we sort of understand some of  the dynamics. And that's why I think now, we are,   I mean, I argue in the book, that it's between  about 2013 and 2017 that we'd realized this--   entering a new socioeconomic industrial  paradigm which I call the Exponential Age.  ED HARRISON: Yes. I had to take notes  as you were saying that. Because   there is so much to unpack there. AZEEM AZHAR: Yes 

ED HARRISON: But before we move forward with all  of that, let me just go backwards for a second.   Because I think I've seen something where you  talked about technology becoming ever increasing.   Maybe we can-- just to give people a sense of  how different today is versus the past. There  

was something where you were talking about, the  Malthusian problem through to the Industrial   Revolution. And then now it's sort of like a  second, third, fourth Industrial Revolution. Maybe you can walk us through  the history of technology   from a longer-term historical perspective. AZEEM AZHAR: Yeah. No, I'd love to do that.   And I want to apologize to viewers. Because Ed and  I have known each other for a long time. And we   haven't had a chance to speak much. And I've just  finished this book, and I'm really excited. So I'm   put up with the excitement. So if we think  about humans' relationship with technology,  

there are a couple of things that are  important. One is that technology has a purpose.   We have an itch to scratch. And it may be that  we're feeling a bit lazy about having to go out   and, you know, fish with our hands. Go back 50,000  years. So we kind of figure out how to jerry rig a  

net, or a spear, or something. The second is that  technologies tend to be a little bit ecological   and evolutionary. They don't appear from nowhere.  They're not like a gift from the gods. They happen   through an interaction of what's gone before and  what's important in our societies, and in our   cultures. And they have fundamental impacts, then,  in the ways we live. One of my favorite ideas is   that if you look at the length of the digestive  tract of a human, and you compare it to that of   one of our hominid relations, we actually have  a much shorter digestive tract. Because we   outsourced part of our digestion to flint axes.  So when we were on the veldt, in the plains,  

and the rift valley 2 million years ago, whereas  our chimp cousins were chewing bark and plants   and having to digest it within their bodies, we  chopped it up and macerated it with the flint.   And as a consequence, our bodies needed to have a  less robust digestive system. So for a long time--   and I'm not sure if this is what you meant by  history-- technology and humans have had this   relationship where it's connected to a purpose, a  goal we're trying to achieve. It is influenced by   what we need to do and what's around us. And it  fundamentally influences us. And we can take that   forward to technologies like the printing press,  which people think of as a printing press coming   around and increasing literacy. What the printing  press did was it dropped the price of books.   The salaries of professors in Italy rose in the  15th century. Literacy rose. The Reformation  

came along. Science was born. The Catholic Church  lost its power. But the other interesting thing   about the printing press-- and I know viewers of  Real Vision will appreciate this-- is that the   group of men who came around the printing press  represent one of the first for-profit capitalist   enterprises, where people took risk shares in the  success of this project. So the knock-on effects   are very, very powerful in society more widely.  And we've seen that back from 2 million years ago,   through to the 1470s. And we see it through  the Industrial Revolution. We see it through  

the arrival of the car, the telephone, actually  to the the start of the 20th century. And now   we'll see the same thing in the Exponential Age. ED HARRISON: Yeah. That is fascinating. And it   seems that the premise is that we're rising. These  things are coming together in an exponential way,  

meaning that they are coming together in ways  that enhance one another. And let me read to you   how your book is touted on the internet, that's  coming up. This is what they say, Azeem. They say,   in Exponential, Azhar shows how this exponential  gap-- this is a gap that you can explain--   between the power of new technology  and humans' ability to keep up.   He explains how this exponential gap  becomes our society's most pressing problem.  

The gulf between established businesses  and fast-growing digital platforms,   the inability of nation states to deal with  new forms of cyber warfare, and the sclerotic   response of liberal democracies to fast-moving  social problems. So this is where I want   to go. I want to go to, A, what are these  technologies, and then B, that whole paradigm,   from a social perspective. Because people, they're  interested in the whizbang of the technology.

AZEEM AZHAR: Right. ED HARRISON: But we're also interested in,   how do we cope with this? What does it mean for our society? What does it mean for the politics?  AZEEM AZHAR: The challenge is that we tend  to-- we can focus on the breakthroughs that   the technologies can make. Because we can see them  more easily. But we don't necessarily appreciate   how it's going to have its second or third order  effects in society. One interesting example of   this is that when Americans started to buy  iPhones about a decade ago, they bought more   and more of them. And the sales of chewing  gum started to collapse. And the argument   was that when people were at the front of the  checkout, at the gas station, or the mini mart,   they were no longer paying attention and grabbing  the chewing gum from the bin. They were staring   at their phones. And so you have these strange  impacts that you can't predict up ahead. Now,  

what's happening today is that the rate of change  of technology is so fast and the rate of diffusion   of that technology in the industry, and then  into our economies and into our daily lives,   is also very, very fast. And I explain why those  things are related, and why we actually see   the rate with which a new idea comes and spreads  increase. And it's partly because of the internet.   It's partly because of global supply chains.  But essentially, if there's a trend in Shanghai   on Wednesday, it'll be in San Francisco  on Thursday and Stockholm on Friday.  

And we have this universal access device.  That means that we all get access to it. So   what that means is that the disruptive potential  of the technology mirrors that exponential curve   of the underlying capabilities of the technology. But that's only half of the picture. The other   half of the picture is the rest of the world  in which we live. And those are complicated  

institutions. Some of those institutions  are very formal. They're like, the beautiful   Capitol building in Washington, which is not only  a physical institution. It's got people and rules.   And some of them are much more informal.  They're just habits and norms and conventions.  

But social scientists tell us that institutions  adjust slowly at the best of times. And so,   partly because that's why they're designed--  institute sort of has that sense of solidity, of   standing there. And so the exponential gap is what  happens when linear institutions that are used to   not changing quickly, or not changing at all, meet  the reality of technologies and the products and   services that are built on them, that can  move at an exponentially-increasing rate.  ED HARRISON: So let's attack this from one  lens. I want to talk-- you mentioned before,  

capitalism and companies. Maybe we can attack  this via the company. The companies within the   Exponential Age-- how do you look at these  companies? How do they compete? What are   the most salient things that we should take  away from companies, technology companies and   incumbent non-technology companies? AZEEM AZHAR: Yeah. I think that's a   really important and fascinating area. So the  argument about the exponential gap is that the   technologies create new possibilities and new  ways of operating. And really fundamental new  

mechanisms and methods. And so they  break our old institutional thinking.   In the case of economies, and dynamic economies,  one of the traditional forms of thinking is that   you have diminishing marginal returns. That the  nature of running an industrial organization   is that it gets harder to get bigger beyond a  certain point. So you get some scale benefits.  

And then organizational complexity gets  in the way. And then it's just really expensive to mine the 1,000,001th ton of coal  compared to the 1,000,000, or compared to the   100,000th. And so you have this world, which  is governed by the economics of Marshall,   on one hand, and diminishing returns, and Ronald  Coase organizational complexity on the other.   That says that our assumption is  that companies can't really get   too big in terms of their market share. And if  they do, they must have done something dodgy.  ED HARRISON: Right. AZEEM AZHAR:  

Standard Oil, right? ED HARRISON: Right. AZEEM AZHAR: They become monopolies.   And so we then intervene at that point, because  they're misbehaving. My argument is that within   the Exponential Age, companies rely on becoming  platforms. And platforms have network effects.   Network effects, meaning that every additional  customer adds value to all the previous customers   that you've had. They also benefit from the  extensive use of intangible assets. And intangible  

assets are also assets which tend to accrete  disproportionately to anyone who has an early   advantage. And then when you're applying AI, which  is a core exponential technology, to all of this,   AI is an incredible perpetual motion  machine. Because AI depends on data. But in   using that data, it generates more data to get  stronger. So you have platforms, network effects,   intangibles, and the AI data network effect.  And all of these break the force of gravity   of Marshall economics and Coase, to mean that  the standard state of nature for an Exponential   Age company is to grow very large, become a  superstar, and dominate its market sector.   And the exponential gap that exists is  that that's not how we thought competitive   economies would ever work. And so I think that  even if we look at these superstar companies like  

a Facebook or a Google, and we find that there  are bad business behaviors that we might not like,   and they may lose court cases here or there,  I think that their general state of nature,   even if they had been whiter than white and  cleaner than clean, and so on, would have   been to trend to dominant market shares. And that  means that we need new rules if we want to have   vigorous, competitive dynamic markets. ED HARRISON: Right. Yeah. So I mean, that's   right where the institutions and the regulatory  framework meet this new Exponential Age.  

Let's dig a little deeper on that. Because I'm  thinking about it from a valuation perspective.   You mentioned Facebook and Google. But there  are other companies elsewhere. In China,   Tencent, Alibaba, Ant. You know, Salesforce,  Apple. The question for me, from a valuation  

perspective is, Apple's a $2 trillion company.  Based on what you just said, it sounds to me   like they could become a $3 trillion or $5  trillion company. And this whole notion that   the bigger they get-- they can't get  that much bigger, isn't necessarily true. 

So my question is is, $2 trillion, $3 trillion, $5  trillion, what's the impediment to that happening?   I mean, is that the right way to look at it? AZEEM AZHAR: I think it is the right way to   look at it. I think that if you look  at an Apple or a Google, and you say   there's no regulatory intervention at all, the  question is, what would actually get in the way   of them continuing to expand? And the things  that got in the way of companies earlier,   for example, organizational complexity-- we  can't run teams as big as this-- they seem to have really got a handle on. Because they're still  growing at 20%, 25% per annum, even though they're   huge companies. The other thing that gets in  the way is, what are my choices of expansion,   vertically or horizontally? Well, these  companies are proving they're incredibly adept   at vertical expansion. Apple is making its  own chips. And Apple makes its own TV shows.   They're also demonstrating that they can expand  horizontally into adjacent and even far-adjacent   markets. So Apple's a computer company. And  yet its headphones line of business, AirPods,  

is bigger than most other companies in the world.  And it doesn't seem to have problems in expanding   horizontally. And it's as true as we might--  as when we look at a Microsoft or an Amazon,   or a Google. So I think that these  companies have demonstrated that   there is something about the essence of having  that Exponential Age DNA that allows them to   rewrite the traditional rules of business that are  sort of stuck on that linear institutional path. 

ED HARRISON: Right. Yes. And you mentioned  four effects that allow them to get there.   There are two tracks that I want to  talk about. One is the new areas that   you mentioned earlier. You talked about synthetic  biology, renewables, manufacturing technologies.  

Those are three different places that we  can go. But I want to think about, first,   I want to talk about the four things that are  coming together, not just for those areas,   but the existing technological improvements in  the Exponential Age. So first and foremost in my   mind is network effects. When you talk about  that, I'm almost thinking, winner take all.   What is going on with network effects that  means that these companies can grow, and grow,   and grow? Whereas before, they couldn't? AZEEM AZHAR: Yeah. It's a really important   question. So the network effect simply is that  every additional customer adds value to every  

other customer. And so what does that actually  mean? When you turn it around the other way   is that if I'm a customer thinking about  making a choice, and one supplier has   network effects and the other hasn't, by  joining the supplier with network effects,   I will benefit from the existing network  effects and all future success that they have.  And so when I make a customer choice, I will  generally choose the company that has those   network effects. And Microsoft in the '80s was  the sort of great example of that. Because as   they got a bigger user base, more developers  moved on to Microsoft, because there was a   bigger market to sell the software, which meant  they had better software, which choices-- which   brought more users. So that's the dynamic  of the network effect. Now, the question is,  

in order to do that, you have to have a platform  of some sort. A platform essentially is a bit like   a marketplace where people can come and go. If you  want to buy shares in US companies, you're better   off going to the NASDAQ, which is a marketplace  where everybody lives, then coming to my backyard,   where I've got a handful of ETFs that I could sell  you a couple of shares of, right? You go where the   liquidity is. And the funny sort of way-- the  platform business model enables network effects   in industries that we hadn't thought there would  be. So if you think about Uber or Airbnb, there   are network effects existing in the taxi business,  or in the hotel business. But my favorite example  

of how you can create these network effects on a  platform and redefine a traditional business is in   the area of agricultural machinery. Who would have  thought it? But John Deere-- and I'm sure there   are Real Vision viewers who bought John Deere  stock five years ago and are very happy for it--   John Deere, about five or six years ago, said,  we're not just going to make combine harvesters   and tractors. We are going to become a platform.  And by becoming a platform where third parties   can plug into my John Deere, and therefore  farmers can access this array of services,   we will create a new choke-hold, which is access.  And we will enjoy network effects. And they demonstrated that you could deliver those  network effects in a much more traditional   business, provided you became a platform. And the  consequence of that is maybe it's not as strong as   winner take all. Maybe it's more like winner take  most. But if you look at lots and lots of markets,  

you see winner take most, even in online travel,  where the group is the far and away   dominant space there. So across all of these  different industries, you get this winner   take all phenomenon. And a large part of it is  driven by a network effect enabled by a platform. 

ED HARRISON: You mentioned something about AI that  I found very fascinating. I'm thinking about this   from an Amazon perspective. I'll give you the  example, when we're talking about data. So I   go to Amazon. They're the seller that has the  network effects. So I'm thinking this company  

must have this item that I'm looking for, because  that's why I'm going there, because of the network   effects. Then I type in what I'm looking for  and Amazon autocompletes what I type in. When   I click on the autocompletion, it pops up with a  bunch of different stuff for me to look through.   None of those things are actually what I'm looking  for. It's because Amazon knows, because of the AI,  

that people like me are looking for this item. And  that they're more likely to make a sale of items   that they actually have that are similar to this  item. And as a result, they display those items   as opposed to the item that I'm looking for.  They don't display, we don't have this item.   They display a bunch of other items that I  would potentially buy. And lo and behold,  

maybe five times out of 10, I will buy that  item. And so Amazon makes the sale. That's how   I'm thinking about AI. Maybe you can give us the  sort of like macro picture of how that data works.  AZEEM AZHAR: Yeah. I mean, you've put your  finger on a really great example there. I mean,   essentially, what's happening within Amazon is  that as I come and search for things, and then   choose to buy them, or choose not to buy them, it  creates a data stream. As you do the same thing,   it creates a similar data stream. It may notice  that when I search for a 40 pound kettlebell,  

I'm quite likely to go off and then buy a  bunch of protein powder. And so when you   come and search for a 40 pound kettlebell-- in  your case a 48 pound kettlebell, I know, Ed--   it will recommend protein powder. And that's it  in its basic. But you have to think that there are   hundreds of millions of people doing this for over  decades now, in Amazon's case. So their ability to   therefore figure out what you might buy next is  unparalleled. But you've actually touched on one   of the slightly trickier issues of their business,  which speaks to the problem of competitive   markets. And as investors, we need to see  competitive markets because we have to have   choices about where we allocate our capital.  And part of the challenge that is starting to  

emerge is that Amazon is, in a sense, on both  sides of the trade. Because it sees the flow.   These are things that you searched for, and what  choices you make. When you search for batteries   for your TV remote control, it figures out what  words appeal to you in the batteries you buy, and   what price point matters, and what packaging size  matters. And one of the accusations is that Amazon   uses that information to then build its own brand  products. And this has been documented by a number   of the very well-known financial papers in the  United States. And the question is, does that have   a stultifying effect on dynamic markets. Now, of  course, retailers have always done this. They've  

always used that their knowledge of footfall to  figure out what own-brand products to produce,   and own-brand products have got higher margins  than when you go off and you get a name brand.   That tension has always been there. But those  markets have never been as concentrated. They've   never suffered from winner take most, which  these current markets seem to. So I think the Amazon story is a great story about AI. But it's  also a great story about how we might have to have   new ways of thinking about what it means to  operate well and competitively in an economy.  ED HARRISON: Yes, definitely. And I think  that the nuance there is, how do you  

take a regulatory approach there while still  understanding that it's winner take most.   And to me, the question is, is what does  winner take most mean from a data perspective,   an AI perspective? I'll use Google, since we're  talking about surge. How many competitors-- what   percentage of the most that Google should  be able to take? And how should regulators   deal with the fact that Google's seeing all the  flow from search. So their technology, their AI,   should make their search demonstrably better  than others. What percentage of the market  

accretes to Google as a result of that? AZEEM AZHAR: I think that's a really   important question. And that takes us back to an  idea that's a little bit been forgotten about,   which is the idea of a natural monopoly. And  from a natural monopoly, essentially saying that,   how many sewage systems does any one town really  need? Do you really want competition amongst the   sewage networks, or would you rather say, this  is infrastructure, it should be run once, and   therefore it should be, as it's infrastructure,  be considered like an essential provision   to that municipality. And we as regulators  should say, listen. You can't price gouge   with an essential facility. It's just got to be  there. And once you've built it, you've got this   unassailable lead. And so I think that there are  things that we can learn from utility regulation.  

And I'm not saying take utility regulation  and bring it into these markets. I'm saying,   look at utility regulation, be inspired, and  figure out where it makes sense. So the way   that you might then tackle something like Google  search is start to say, some parts of what you've   built are really unassailable. And you've made a  fantastic return for your shareholders from that   over the last 25 years. But increasingly, because  it's creating some stultification in the market,   we need to change your obligations-- your  societal obligations when you provide that   search. And I'll give your viewers an  example of something that's happened in   the UK around this. So of course, broadband  infrastructure is really important to roll out.  

But rolling out broadband and digging up all the  streets and the sidewalks and so on is expensive.   So a few years ago, the telecoms regulator said to  BT, which is our national provider, said, listen.   In order to have a competitive market, we are  going to have to split your business. And the   lower layer, the bit that runs the ducts and  the pipes in the streets, and does the backhaul,   that is going to have to be treated as a utility.  And you're going to have to offer access to that   fairly to all your competitors, and yourself.  But the rest of you can be as aggressive,   and competitive, and capitalistic as you want. And  of course, there was a bit of argument about that.  

But it's actually ended up working quite  well as a kind of a mechanism of saying,   there's some part of your business now that has  become something that is too essential for us,   for our economic vibrancy, and for dynamism. And  we need that to be pegged and treated slightly   differently as the spicier part of your business. ED HARRISON: I want to look at how this works   in some of the newer technology areas, where  exponential activity is happening. The first   area that you mentioned, when we were talking  about this earlier, is the place that people   are thinking about the most right now.  Because you and I, we're in our homes,  

miles away from each other. Who knows-- a year  and a half ago, I would have gotten on a plane and   interviewed you in the UK. But now we're  doing it technologically. And by the way,   I like your background. Because it glows  green every once in a while, which I find really nice. The thing is, is  synthetic biology-- you talked about that  

as an area to watch. Synthetic biology is  something that we care about with the vaccines,   and everything that's going on there. Maybe you  can talk about why this is one of the places to   look for exponential trends in technology. AZEEM AZHAR: Yeah. It's such an incredible,   incredible area, what's going on here.  And obviously, we've enjoyed it from   the vaccine benefits. There are two different  things that we should think about. One is,   what is the demand-side opportunity. And  the second is, can we deliver on it. And  

the demand-side opportunity is absolutely  huge. Because as we decarbonize our economies,   we're going to need to be able to produce a lot  of materials that are currently petro-derivatives.   So a lot of plastics, a lot of pharmaceuticals.  They're all refinery byproducts. And we produce   them by controlled explosions on refineries  around the world. And what we can start to do   in synthetic biology is look at what nature  does, and figure out how to produce those.   So for example, you genetically modify a type of  microorganism, a yeast. And you can get it to brew  

sheets of film that replace plastic on smartphone  covers. And they have higher performance   characteristics, zero carbon footprint. And that's  one area for this new bioeconomy. So the demand   side of that is absolutely enormous. And of  course, we've seen the demand for mRNA vaccines is   going to be 7.5 billion people around the planet,  which is as big as it gets. On the supply side,   why is this happening? It's happening because  there are some biological techniques, the mRNA   platform being one, but also genomic sequencing  being another, that lend themselves to exponential   price improvements. And if you look at genome  sequencing, when we first sequenced the human  

genome, back when you were probably working for  Yahoo about 20 years ago, it cost about between   $300 million and $1 billion to sequence our  first genome. As of the start of this year, BGI,   which is an outfit in China, reckoned it was going  to cost them $100 to sequence the human genome.   And so, genome sequencing pricing has declined  much, much faster than computer chip pricing.   And it's one reason, by the way, why we were able  to sequence the coronavirus very on so quickly,   because we just had sequences everywhere, because  the prices had come down. So you have the same  

dynamic of rapidly, rapidly declining prices. And  essentially, that has meant also that biology has   been turned into information. And so it takes  advantage of all the benefits of Moore's law   and computation, and artificial intelligence. So you combine those dramatic price declines   with the huge demand that we have for novel  drugs and replacing petro-derivatives,   and materials, and so on. And I think  you get one of the most fascinating   industrial sectors over the next 20 years. ED HARRISON: Yes, definitely. And it was   interesting that in that response, almost right  at the start, you sort of moved into yet another   area that I wanted to talk about. I mean,  you talked about manufacturing a case  

that's essentially like plastic, but better.  Because 0 carbon emissions. Suddenly now,   we're going from synthetic biology to renewables.  And that's the second area that you think   that there are exponential trends in place to go  forward. I know that Raoul Pal, who's our CEO,   he talks about renewables. He talks about  how Europe, in particular, from a corporate  

perspective, is perhaps going to really drive  forward on that. What about the technology behind   it, the exponential nature of that drive forward?  Why is it that renewables are exponential at all? AZEEM AZHAR: Yeah. It's so weird. Why would they  be? So the first is that the reason prices decline   is because of learning. So the more an industry  figures out how to do something, every incremental  

unit costs less. Because they embed their  knowledge in more efficient manufacturing.   So this is not because they're buying more inputs.  It's just that they're better at making them. And   that's a kind of critical pulse of exponential  price declines. When you look at solar, for   example, solar panel manufacturing is really all  about a 2D substrate on which you have to array   a set of circuits. And that's a very similar set  of disciplines to making a computer chip, which is   basically a silicon wafer with a bunch of circuits  on there. So we can kind of understand by analogy,   and sometimes by direct transfer, why the things  that worked in Moore's law should also work on   solar panels. And so we've seen solar panel price  declines that are just really out of this world. 

And now, solar contractor utility, solar prices,  are approaching kind of 1 and 1/4, 1 and 1/2   cents per kilowatt hour, which is remarkable.  It's slightly stranger when you think about   wind turbines. Because wind turbines are these  really big, physical things. I mean they're like,   sort of cruise-ship sized. 200 meters high,  and so on and so forth. Why would they have   exponential improvements? So partly, it's because  of these learning effects that I talked about.   But the second is this really nice idea, which is  that the amount of power a wind turbine generates   is related to the area that the blades sweep  through. And the area is a function of the square  

of the radius. So every extra 10% that you get on  the length of a blade, you'll get about 21% extra   generating power. And that is a non-linear  relationship. And it's part of the reason why   as we make these sort of linear improvements  in the kind of underlying capabilities of wind   turbines, we get this nonlinear improvement  in their output. And so even though they're   sort of big and heavy and need lubricants and  so on, we're also seeing wind prices decline   exponentially. And that's pretty remarkable.  It's not the rate of Moore's law. I use the  

definition for exponential technologies as 10%  price performance improvement every year over   a sustained period of time, or better. In wind and solar, it's between about   20% and 30% per year. In computer chips  it's between about 45% and 60% a year.   But they're all still exponential technologies. ED HARRISON: Yeah that is interesting. Now,   the question is, when you said the one,  I was thinking 1.1 times 1.1 is 1.21.  

That's where the 10 becomes 21%. AZEEM AZHAR: Yeah, that's right.  ED HARRISON: Does that mean that you need  to have a bigger and bigger wind turbine, or  how does that work in practice? AZEEM AZHAR: Well, we're already   building bigger wind turbines. And over the  last 20 years, wind turbine sizes have really,   really expanded. I think the largest blades now  are in excess of 80 meters, 88 yards in radius.   So they are getting bigger and bigger. But  actually, I don't think wind is just a game   of huge size of individual turbines, although  that helps. It's also actually just about being   able to leverage the capital and build bigger and  bigger offshore wind farms. And just before we  

came on to do this recording, I read that there's  a contract in South Korea now that is approaching   $40 billion build the world's largest offshore  wind farm. And the thing to think about this   is that once you've installed-- you've put out  that upfront cost, of course, your electricity   roughly speaking runs for free. I mean, there's  mechanical maintenance that has to happen. But it's very, very different to the kind  of maintenance you need and refueling   that you need in a fossil fuel system. ED HARRISON: Yeah. And right at the beginning   of that, when we were talking about the solar  part, you were talking about-- this is similar   to a silicon type of production, in terms of the  exponential part of it. It makes me think about  

manufacturing technologies. That's the third  area that you were saying where we are having   exponential growth technologically. This isn't  just about silicon wafers and solar, but other   manufacturing technologies. What  other manufacturing technologies, and   how is it similar to what we've seen in  Moore's law, which is Gordon Moore of Intel.  AZEEM AZHAR: Yeah. So this final area is often  known as 3D printing, or additive manufacturing.  

And we've got a number of ways of making things.  We can do what Michelangelo did, which is we   can take a big block of marble, and we can chip  away at it. And we're left with whatever's left.   Or we can use a cast or a mold to pour molten  plastic or molten steel into something, and mold   the cup or the knife that we want. Or we can build  something and additively, layer by layer, using   clay, for sake of argument. And additive  manufacturing now is being computer-controlled.   And the power of that additive manufacturing  is that you can actually create structures   that you can't create through casting  and molding, and you can't create   through subtractive manufacturing, that is,  chiseling away, or using a plane or something.  

And the value of that is that you can build  lighter, more flexible, but also stronger   type of components. And so additive manufacturing  has taken off in aerospace and in automotive,   and in medical implants, where you can  afford to pay extra. If you drive the BMW I8,   which was their high-end sports car, it had  a 3D printed part in the retractable roof.   Of course, it's super expensive now. But so were  computers in 1974. But there's a suite of additive   manufacturing technologies. And they are all, on average, improving on a price performance basis   at about 30% per annum. That is, roughly,  performance is-- what we care about is speed  

and accuracy, sort of pixel resolution, or  printing resolution, and the variety of materials   they can use. And there's just some really  impressive breakthroughs. So what we would expect   is the typical exponential pattern, which is slow  and boring for a while. And then at some point,   it'll get cheap enough and diverse enough as a  technology that it will take off. And we've just   seen in the last week or two, Desktop Metal, which  I think is a listed company in the 3D printing   additive manufacturing space, demonstrated  3D printing with wood. And it produces these   incredibly beautiful, organic-looking designs  that would have been impossible to build   just 10 years ago, in any way, shape or form. ED HARRISON: The fascinating thing is the numbers   behind that. Because as you were speaking, I  wasn't thinking about the cost reduction in terms  

of division. I was thinking about multiplication.  Because we went through the example of 10%.   So if you take something and you increase by 10%,  you get to 1.1. Then you get to 1.21. Then you   get to 1.331. But if you take something 30% and  then you exponential that, you go from 1 to 1.3   to 1.69, to 2.197. I mean, the differential over  time is massive in terms of that. Maybe you can  

talk, as someone who's like a technologist  and obviously probably math literate-- I   used to be a math guy back in the day. Just  getting your head wrapped around this whole--   I mean, exponents, it's massive differentials,  just from that little example that I gave. AZEEM AZHAR: It's incredibly hard to get your  head around it. And we started to think about   how difficult it was back in the late 1960s, and  the early 1970s. Albert Bartlett was an energy   professor, physics professor out of the US, who  regularly tried to teach people the difficulty of   the exponential function. And the rough rule  is that if you have a particular growth rate,   and you divide 70 by that number, that's the  number of years it'll take to double. So if  

you've got a growth rate of 7%, which is a little  bit worse than the average stock market return,   that means that 70 divided by 7 is 10. Every 10  years, your thing will double. If your growth rate   or improvement rate is 35%, that means it doubles  every two years. So after two years, it's doubled.   After four years, it's quadrupled. After six  years, it's gone up eightfold. And it very   rapidly gets out of proportion. Our brains are  not wired to contend with this rate of change.   If you can contend with this rate of change,  then you stand a chance of doing really, really   well economically. I'll give you an example. I  was an investor in an AI company back in 2005.   And the numbers were not appealing. Like the  amount of computation they needed was just really  

crazy. And I said to the founder, a guy called  Barney Pell, I said, Barney, just talk to me about   these costs. Because they're really high. Like,  your server costs are really high today. Because   what's going to happen long term? How does this  turn into something? And he just said to me,   three words. Pardon me, four  words. Well, duh. Moore's law.  

Which you referred to earlier. His point being  that he could look at this and every year know   that that line item was going to decline by  50%. Because that was the gift that kept giving,   which was exponential technology improvement. And  as a consequence, investors in this company did   very well. And so I think that grappling with  the exponential function, this rate of change,   is something that we all need to get better at  doing.And the coronavirus pandemic, I think,  

was a great example of this. People looked at  this. I remember saying to people in March,   late February, stay at home. They were going,  but, there are only two cases. And I'm like,   yeah. But virus spread is exponential.  It's going to be a lot of cases.  We find it really hard. Evolutionarily, we're  not wired to see it. Because we've never had to   experience exponential processes in nature. They  don't exist at our scale. And so as a result,  

our brains are not wired to contend with them. ED HARRISON: If our brains aren't wired to contend   with them, then as the touting of your book points  out, the exponential gap can explain our society's   most pressing problems. It just goes right to the  social problems. We're talking about exponential   change in a linear mind, with institutions, as  you said, that are linear. What are the most  

important things to think about in terms of what  that means for our institutions, not just thinking   about regulatory institutions. I'm talking about--  I don't want this. That's the first thing that   someone would say, is that, wait a minute, slow  down. That's too much change. Let's roll this back   in some way. I liked it how it was before. Stop  doing these things. What do we do about that urge?  AZEEM AZHAR: Yeah. It's a really challenging  one. So I think that there are some aspects  

of this underlying process that are hard to  avoid, because they are not top down. It's not   anointed by Silicon Valley tech gods that this has  to happen. It's actually every single one of us,   acting in concert in the market, prefers the  shorter route. They prefer the thing to be   more seamless. And that sends a signal back into  the market to develop in this way. And so we are,   I think, on a path that continues this rapid pace  of development. And in many cases, we want it,   right? We want to avoid the worst parts of climate  change. So we really do want renewables to improve

exponentially. And we really do want synthetic  biology to come on stream at scale, quickly,   in order to protect wealth and livelihoods,  and quality of life, while maintaining our   environment. So we want this exponentiality. I  think the challenge has been that technology has   developed too far away from ordinary society, and  where democracy and decision-making take place.  And part of the reason was that,  actually, it was commercially expedient   for technologists in the '80s and the '90s and  the 2000s to present themselves as special.  

Because that would allow them the headroom to  build these enormous companies without much   oversight. And the thing is that technologies  don't just shape culture. They're shaped by   the culture around it. And so part of my plea is--  and it's a book that can be read by technologists,   and investors, and policy-makers, is to create  that bridge, to give the technologist that sort   of empathetic understanding of the impact of  their technologies in the economy and society,   and to give the rest of us a better understanding  of the underlying processes of the technology. And   to be very clear that while we might struggle to  contain every aspect of the pace of change, we can   certainly play a role in shaping the direction,  and pointing that change in ways that we all think   might be a little bit more beneficial. ED HARRISON: Let me give you some specific   examples. Because I think that's good from  a generic perspective. I'm going to drill  

down. I don't know if you've seen this, but in  the United States, there is a chart that shows   productivity gains going like this over a 50 year  period. You know, and the slope of the line is   pretty constant. When you look at real incomes for  the median wage earner, it also goes like this,   up until, say, the mid '70s. And then  suddenly, it flattens out almost entirely.  

I would posit that a decent amount of that has  to do with network effects, winner take most,   and technological change. I think about,  say, I go to the local grocery store.   And half of the checkouts are automatic. It's  technology that's checking me out. It's not   a grocery store employee. So that person is  therefore not needed, and there's a lot of  

downward wage pressure. Now we're having capital  getting a lot of the benefits of technology.   And labor is not keeping up, as we saw with  productivity. How do you deal with that   from a societal perspective? Because to  me that's where the pitchforks come out. AZEEM AZHAR: Yeah. That's the pitchfork risk.  And it's a real risk, a societal, political risk,  

a risk for every investor. We need stable,  democratic societies. They make better returns   than autocracies or societies riven by civil  strife. And the timing is really fascinating.   I do think it is largely an Exponential  Age dynamic. Because it is between the  

period of about 1970 and about 2015 where  we see an incredible switch in the value of   corporate valuations where it shifts from  tangible assets that humans make into intangible   assets that we can't really put our hands on. And it's related to the declining labor share. And I think that one of the historical  coincidences that as an accident is that   as we started to roll back the regulatory  state in the late '60s and early '70s,   pegged to the ideas of Milton Friedman and the  monetarists, we strangely took the brakes off   technological development, just as technological  development started to go exponential.   And so there was a slight issue. Because that  idea of having no limits is really helpful when   you're dealing with sclerotic industries like  the car industry in the 1970s or '80s. But it's   not what you need when you've got a rocket-powered  tech startup. You actually need the other thing.  

So I think that there is a moment of reckoning,  because we will not want this political risk to   magnify. This risk that essentially, 10 points of  national income has moved from labor to capital   over the last 45 years. It's an enormous amount.  And the bulk of it, really in the last 30. And   so we will, I'm sure see, in a  number of countries, moves to   make that adjustment. And I really view it as an  adjustment. I think of it in terms of reversion   to the mean, in some sense. It's about saying,  at some stage of the journey, we have to swap   our bike for our running shoes. No one expects you  to complete a triathlon on the same mode. And so  

we've enjoyed this moment where we emphasized  innovation and entrepreneurship. And in that,   we've laid the foundations for transforming our  economy on this sort of sustainable, digital,   exponential platform. But that came in a sense, at  the cost of broader equity. And now that we've got   that platform in place, and we can see the massive  pitchfork risk that is emerging, we're going to   move that dial. And I think you see this idea  emerging from other domains. I've come at it from   a technologist domain, but I know that economists  are approaching it with their own theories. And  

we're seeing a sort of similar picture. ED HARRISON: When you mention the pitchfork risk,   and the pendulum swing, I'm thinking about  the Great Depression. Because that's the   perfect example of the pitchfork risk. When you think about, just from a macro   perspective, there was a whole period of what  I would call government intervention that was   dismantled because of the  stagflation of the 1970s. So the pendulum swung the other way. Now we're  at a inflection point where, as I said,  

you have this curve here. But then you have  sort of a flattened curve. And that's creating   this pitchfork risk again, similar to what we saw  100 years ago. The question is, things like UBI,   universal basic income, are those going to be  the answer? How do you deal with this risk shift   that we've had over the last 40 years onto  labor? Is it UBI, or how do you think about it?  AZEEM AZHAR: I would start by trying to  characterize what the problems are and   what's needed. So in a dynamic moment of change,  businesses need flexibility to grow fast, to   shut down quickly if things don't work. I'm going  to ask our business people to take risks. Risks   means not everything will work out. So they  need that flexibility. But on the other hand,   we need to also ensure that the labor pool has  the right level of security. I mean, partly for  

the reasons of political risk, partly because you  want workers earning earnings so they can spend   and keep the economy dynamic and vibrant. And  you also need to ensure that the economy has the   skills it needs from the people who are able to  work. So maybe UBI is something that works in some   countries, or some states, or some cities. I think  what you need is, you need to identify the issues   and figure out the specific prescription. There's  one model that I think has worked well in Western   Europe in Denmark, which is called flexicurity.  So it's the gives and gets. So the employer  

gets flexibility to hire and fire. The worker gets  security. Very, very high unemployment insurance,   provided that they can demonstrate  that they're skilling themselves and   looking for work. Now it costs something,  right. There's no free lunch here. But it's an   interesting balance. And it's a prescription that  works for their political culture. So I think that  

those conversations are going to happen  differently in different places. There's a   group in the US called the Mayors for a Guaranteed  Income. It includes the mayor of Stockton and   a bunch of other cities. And they're running  experiments about UBI. I expect we'll see more   UBI. I'm not sure we will see UBI universally,  because there will be other approaches. But I   think the fundamental thing is we can have some  agreement about what we need for our societies to   function, and for our economies to be vibrant.  And once we have that agreement, we can figure  

out policies that specifically tackle them. ED HARRISON: So I'm going to make a hard shift   here, Azeem, and go back to exponential trends.  And one trend that people talk about a lot, that's   really dominating the airwaves, is crypto. Walk  us through how you're thinking about the crypto  

sector from an exponential view perspective. AZEEM AZHAR: I think there are two really   interesting things about crypto. One is that  for me, it's part of the trend of computation.   That it is developing new classes of methods of  doing computing very, very rapidly. So of course,   there are financial specialists who will talk  about Bitcoin as a gold alternative, and central   bank digital currencies and so on. But the thing  that I find particularly interesting is crypto's   ability to provide a new type of computing fabric,  of a kind that we haven't really seen since the   cloud, and before that, since personal computers.  One of the interesting aspects of that is actually  

crypto's governance capabilities. So when you  get involved in certain types of crypto projects   as a holder of tokens, you end up getting  some kind of governance rights. That is,   you can vote on the direction that that project  takes. And I think that's quite interesting.  

Because one of the exponential trends as a  consequence of all this technology change is   an increasing importance of decentralization of  economic activity and localism. And so there's   a nice concordance between crypto as this  fabric that provides a new way of computing, but has baked into it this notion of governance.  In other words, you and I are not simply customers   of this service. In some sense, by buying  into it, we also get to shape its direction.   And I think it's early to say how that will end  up playing out. But what we've seen in the last   two or three years is that there's real progress  being made outside of the incredible price   appreciation of so many of these crypto assets. ED HARRISON: When you talk about incredible   price appreciation, the first thing that comes to  mind is bubble. Technology, the dot com bubble.  

Let's address the elephant in the room. The Federal Reserve has zero rates. You   have negative interest rates throughout  Europe and in Japan. Is it possible that   we're in the midst of a technology bubble? AZEEM AZHAR: Well, a bubble is expectations   running ahead of reality in that context. And  it's possible. Of course, it's possible that   crypto won't deliver. It's possible that  there will be a huge price collapse. And  

value may disappear. But I think that there  are some really, really deep fundamentals,   particularly around the four general purpose  technologies that I talk about-- computation,   biology, renewables, and manufacturing, that are  deep, deep, deep fundamental trends that stand to   fundamentally change our ways of life. What  happens to assets that are pegged to those trends,   and the rational or irrational exuberance  that goes around them is something that I'm   not best to judge. But is there something  fundamental happening? I would say yes.  ED HARRISON: OK. Great. Because the question I  have is, let's go back to the dot com bubble.   It didn't change the pace of technology. The  fact that we had a bubble and then it crashed.

You know, innovation kept on happening. I mean,  what I'm hearing you say is something fundamental   is happening. And it's going to continue to  happen, irrespective of the valuation attached   to the assets behind that happening. AZEEM AZHAR: Yeah. I think that's right. But also  

the difference between now and the dot com bubble  is where the hell else is the capital going to go?   I mean, there's so much more of it. Because you've  got sovereign wealth, you've got Chinese wealth.   There are no bonds you want to buy. Do you  really want to back a company that doesn't   have an electric vehicle platform? No, you don't.  Do you want to buy a coal field? No, you don't. So   you don't have-- as an investor, you don't have  any other way to get a return on your assets,   really. So that creates,  I think, a natural support  

for prices. Because what am I going to  do? Well, I'll take my money out of Tesla,   and I'll put it in a Swiss bank account where  I'll earn minus 0.1%? That's no trade. I'll   take the risk on Tesla, thank you very much,  you know. So I don't know where the cash goes,   other than banking on this future. ED HARRISON: Yes. Well, I'm going to leave   it there. I think those are good answers.  And give you a chance to tell us. Because  

first of all, when your book is coming  out, and whether there are pre-orders,   and where we can find out more about your book. AZEEM AZHAR: Yeah. No, thank you so much. So the   book is out in September. And you can pre-order it  from Amazon if you just search for The Exponential   Age by Azeem Azhar if you're in the US, or  just Exponential if you're outside of the US.  

And it's available now. It's actually doing  really well. And if you order it from Amazon,   you will get it the day it comes out, so the day  or two after it comes out. And you can always find   me. I write a weekly newsletter, Ed which is on, or just put exponential view  

into Google or Bing, or whatever your search  engine is. And you'll find me that way.  ED HARRISON: Excellent. You have to promise then,  Azeem, that when your book comes out in September,   that we can have a follow-on discussion.  I'm sure that I&

2021-07-30 19:22

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