Highlights from all books

Without trade, innovation just does not happen. Exchange is to technology as sex is to evolution. It stimulates novelty.

The history of human prosperity, as Robert Wright has argued, lies in the repeated discovery of non-zero-sum bargains that benefit both sides.

For most people, therefore, the market does not feel like a virtuous place. It feels like an arena in which the consumer does battle with the producer to see who can win.

Like biological evolution, the market is a bottom-up world with nobody in charge.

True enough, but I see these rules and institutions as evolutionary phenomena, too, emerging bottom-up in society rather than being imposed top-down by fortuitously Solomonic rulers. They come through the filter of cultural selection just as surely as do technologies. And if you look at the history of, for instance, merchant law, you find exactly this: merchants make it up as they go along, turning their innovations into customs, ostracising those who break the informal rules and only later do monarchs subsume the rules within the laws of the land.

Human history is driven by a co-evolution of rules and tools. The increasing specialisation of the human species, and the enlarging habit of exchange, are the root cause of innovation in both.

I am not saying fossil fuels are irreplaceable. I can easily envisage a world in 2050 in which fossil fuels have declined in importance relative to other forms of energy. I can envisage plug-in hybrid cars that use cheap off-peak (nuclear) electricity for their first twenty miles; I can imagine vast solar-power farms exporting electricity from sunny deserts in Algeria or Arizona; I can imagine hot-dry-rock geothermal plants; above all, I foresee pebble-bed, passive-safe, modular nuclear reactors everywhere. I can even imagine wind, tide, wave and biomass energy making small contributions, though these should be a last resort because they are so expensive and environmentally destructive. But this I know: we will need the watts from somewhere. They are our slaves. Thomas Edison deserves the last word: ‘I am ashamed at the number of things around my house and shops that are done by animals – human beings, I mean – and ought to be done by a motor without any sense of fatigue or pain. Hereafter a motor must do all the chores.’

The world of things – of pecans or power stations – is indeed often subject to diminishing returns. But the world of ideas is not.

The possibility of new knowledge makes the steady state impossible. Somewhere somebody will have a new idea and that idea will enable him to invent a new combination of atoms both to create and to exploit imperfections in the market.

To explain the modern global economy, then, you have to explain where this perpetual innovation machine came from. What kick-started the increasing returns? They were not planned, directed or ordered: they emerged, evolved, bottom-up, from specialisation and exchange. The accelerated exchange of ideas and people made possible by technology fuelled the accelerating growth of wealth that has characterised the past century. Politicians, capitalists and officials are flotsam bobbing upriver on the tidal bore of invention.

Why must the torch be passed elsewhere at all? As I have argued in the previous three chapters, the answer lies in two phenomena: institutions and population. In the past, when societies gorged on innovation, they soon allowed their babies to grow too numerous for their land, reducing the leisure, wealth and market that inventors needed (in effect, the merchant’s sons became struggling peasants again).

Lewis Mandell discovered that Americans were ‘far more likely to use credit cards than to approve of them’. This nicely captures the paradox of the modern world, that people embrace technological change and hate it at the same time. ‘People don’t like change,’ Michael Crichton once told me, ‘and the notion that technology is exciting is true for only a handful of people. The rest are depressed or annoyed by the changes.’ Pity the inventor’s lot then. He is the source of society’s enrichment and yet nobody likes what he does.

Instead, I am going to try now to persuade you that one word will suffice to explain this conundrum: exchange. It is the ever-increasing exchange of ideas that causes the ever-increasing rate of innovation in the modern world.

As the economist Paul Romer has argued, human progress consists largely in accumulating recipes for rearranging atoms in ways that raise living standards.

The pessimists’ mistake is extrapolationism: assuming that the future is just a bigger version of the past. As Herb Stein once said, ‘If something cannot go on forever, then it will not.’

In this book I have tried to build on both Adam Smith and Charles Darwin: to interpret human society as the product of a long history of what the philosopher Dan Dennett calls ‘bubble-up’ evolution through natural selection among cultural rather than genetic variations, and as an emergent order generated by an invisible hand of individual transactions, not the product of a top-down determinism.

The bottom-up world is to be the great theme of this century.

They exist to learn how to build a sustainable business.

achieving failure: successfully executing a plan that leads nowhere.

I realized that as a startup, we needed a new definition of value. The real progress we had made at IMVU was what we had learned over those first months about what creates value for customers.

The importance of basing strategic decisions on firsthand understanding of customers is one of the core principles that underlies the Toyota Production System. At Toyota, this goes by the Japanese term genchi gembutsu, which is one of the most important phrases in the lean manufacturing vocabulary. In English, it is usually translated as a directive to “go and see for yourself” so that business decisions

Without a formal growth model, many companies get caught in the trap of being satisfied with a small profitable business when a pivot (change in course or strategy) might lead to more significant growth. The only way to know is to have tested the growth model systematically with real customers.

One decision stands out above all others as the most difficult, the most time-consuming, and the biggest source of waste for most startups. We all must face this fundamental

“achieving failure”—successfully executing a flawed plan.

That’s the case because the problems caused by the old system tend to be intangible, whereas the problems of the new system are all too tangible.

Critically, lean manufacturing rediscovered the wisdom and initiative hidden in every factory worker and redirected Taylor’s notion of efficiency away from the individual task and toward the corporate organism as a whole.

We have the capacity to build almost anything we can imagine. The big question of our time is not Can it be built? but Should it be built? This places us in an unusual historical moment: our future prosperity depends on the quality of our collective imaginations.

real goal of innovation: to learn that which is currently unknown.

How can we build a sustainable organization around a new set of products or services?

Throughout our celebration of the success of the Lean Startup movement, a note of caution is essential. We cannot afford to have our success breed a new pseudoscience around pivots, MVPs, and the like. This was the fate of scientific management, and in the end, I believe, that set back its cause by decades. Science came to stand for the victory of routine work over creative work, mechanization over humanity, and plans over agility. Later movements had to be spawned to correct those deficiencies.

You can add sand or take away sand and you still have just sand on the road.

Do the parts together produce an effect that is different from the effect of each part on its own?

You can adjust the drain or faucet of a bathtub—the flows—abruptly, but it is much more difficult to change the level of water—the stock—quickly. Water can’t run out the drain instantly, even if you open the drain all the way. The tub can’t fill up immediately, even with the inflow faucet on full blast. A

Remember—all system diagrams are simplifications of the real world.

mental models we develop from direct, intimate experience of nature, people, and organizations immediately around us.

New light bulbs that give the same light with one-eighth the electricity and that last ten times as long make the GNP go down. GNP is a measure of throughput—flows of stuff made and purchased in a year—rather than capital stocks, the houses and cars and computers and stereos that are the source of real wealth and real pleasure. It could be argued that the best society would be one in which capital stocks can be and used with the lowest possible throughput, rather than the highest. Although there is every reason to want a thriving economy, there is no particular reason to want the GNP to go up. But governments around the world respond to a signal of faltering GNP by taking numerous actions to keep it growing

This idea of leverage points is not unique to systems analysis—it’s embedded in legend: the silver bullet; the trimtab; the miracle cure; the secret passage; the magic password; the single hero who turns the tide of history; the nearly effortless way to cut through or leap over huge obstacles.

“You’re acting as though there is a fine line at which the rent is fair, and at any point above that point the tenant is being screwed and at any point below that you are being screwed. In fact, there is a large gray area in which both you and the tenant are getting a good, or at least a fair, deal. Stop worrying and get on with your life.”

structure is crucial in a system, but is rarely a leverage point, because changing it is rarely quick or simple.

Population and economic growth rates in the World model are leverage points, because slowing them gives the many balancing loops, through technology and markets and other forms of adaptation (all of which have limits and delays), time to function. It’s the same as slowing the car when you’re driving too fast, rather than calling for more responsive brakes or technical advances in steering.

In Chapter Four, we examined the story of the electric meter in a Dutch housing development—in some of the houses the meter was installed in the basement; in others it was installed in the front hall. With no other differences in the houses, electricity consumption was 30 percent lower in the houses where the meter was in the highly visible location in the front hall. I love that story because it’s an example of a high leverage point in the information structure of the system.

Systems modelers say that we change paradigms by building a model of the system, which takes us outside the system and forces us to see it whole. I say that because my own paradigms have been changed that way.

If no paradigm is right, you can choose whatever one will help to achieve your purpose. If you have no idea where to get a purpose, you can listen to the universe.

There are no cheap tickets to mastery. You have to work hard at it, whether that means rigorously analyzing a system or rigorously casting off your own paradigms and throwing yourself into the humility of not-knowing.

We can’t control systems or figure them out. But we can dance with them!

forces you to focus on facts, not theories.

Watching what really happens,

Solution” or “ethnic cleansing,” is speaking what Wendell Berry calls “tyrannese.” My

The first step in respecting language is keeping it as concrete, meaningful, and truthful as possible—part of the job of keeping information streams clear.

Our culture, obsessed with numbers, has given us the idea that what we can measure is more important than what we can’t measure. Think about that for a minute. It means that we make quantity more important than quality. If quantity forms the goals of our feedback loops, if quantity is the center of our attention and language and institutions, if we motivate ourselves, rate ourselves, and reward ourselves on our ability to produce quantity, then quantity will be the result. You can look around and make up your own mind about whether quantity or quality is the outstanding characteristic of the world in which you live.

Human beings have been endowed not only with the ability to count, but also with the ability to assess quality.

If something is ugly, say so. If it is tacky, inappropriate, out of proportion, unsustainable, morally degrading, ecologically impoverishing, or humanly demeaning, don’t let it pass.

Locate Responsibility in the System That’s a guideline both for analysis and design. In analysis, it means looking for the ways the system creates its own behavior. Do pay attention to the triggering events, the outside influences that bring forth one kind of behavior from the system rather than another.

“A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong when it tends otherwise.”

expanding the horizons of caring.

It will not be possible in this integrated world for your heart to succeed if your lungs fail, or for your company to succeed if your workers fail, or for the rich in Los Angeles to succeed if the poor in Los Angeles fail, or for Europe to succeed if Africa fails, or for the global economy to succeed if the global environment fails.

Capitalism is about more than prosperity (measured in features and benefits, dollars and cents); it’s also about progress (measured in quality of life, technological advancements and the ability of the human race to live and work together in peace).

if shareholders really were the owners of the companies in which they invested, that is indeed how they would act. But in reality, they don’t act like owners at all. They act more like renters. Consider how differently we drive a car we own versus one we rent, and all of a sudden it will become clear why shareholders seem more focused on getting to where they want to go with little regard to the vehicle that’s taking them there.

When leaders use process to replace judgment, the conditions for ethical fading persist . . . even in cultures that hold themselves to higher moral and ethical standards. Soldiers, for example, believe they hold themselves to a higher standard of honesty and integrity than the general public. And the general public thinks so too. However, in their paper “Lying to Ourselves: Dishonesty in the Army Profession,” Dr. Wong and his research partner Dr. Stephen Gerras, both retired army officers who now work at U.S Army War College, discovered systemic ethical fading as a result of excessive process, procedure or demands placed on soldiers. Some of the things leadership was asking of their soldiers weren’t unreasonable—they were impossible. Soldiers were required, for example, to complete more days of training than were available in the calendar. As in the corporate world, pressure to complete tasks comes from the top down in

“You make me unbelievably insecure because all of your strengths are all my weaknesses. You can do so well the things that I really struggle to do.” The audience laughed. He looked at me and responded, “The insecurity is mutual.” He went on to identify some of my strengths as areas in which he wished he could improve. In an instant I understood the reason why I felt so competitive with him. The way I saw him had nothing to do with him. It had to do with me. When his name came up, it reminded of me of the areas in which I grappled. Instead of investing my energy on improving myself—overcoming my weaknesses or building on my strengths—it was easier to focus on beating him.

Without identifying our Worthy Rivals, strong players start to falsely believe they can control the direction of the game or the other players. But that’s impossible. The Infinite Game is like a stock market; companies list and delist but no one can control the market.

The term “abstract” is used here according to Hegel’s familiar definition of it as the substitution of a part of the whole for the whole, the whole being “concrete.”

Seriousness always has to do with an established script, an ordering of affairs completed somewhere outside the range of our influence. We are playful when we engage others at the level of choice, when there is no telling in advance where our relationship with them will come out—when, in fact, no one has an outcome to be imposed on the relationship, apart from the decision to continue it.

seriousness is a dread of the unpredictable outcome of open possibility.

abstract past, but one’s own personal past. To be prepared against surprise is to be trained. To be prepared for surprise is to be educated.

life is viewed by a finite player as the award to be won,

Evil arises in the honored belief that history can be tidied up, brought to a sensible conclusion.

both adopted and transformed in its adoption. Properly speaking, a culture does not have a tradition; it is a tradition.

A horizon is a phenomenon of vision. One cannot look at the horizon; it is simply the point beyond which we cannot see. There is nothing in the horizon itself, however, that limits vision, for the horizon opens onto all that lies beyond itself. What limits vision is rather the incompleteness of that vision. One never reaches a horizon. It is not a line; it has no place; it encloses no field; its location is always relative to the view. To move toward a horizon is simply to have a new horizon. One can therefore never be close to one’s horizon, though one may certainly have a short range of vision, a narrow horizon.

Do all the right things to precision and “the score will take care of itself” sums

He told me this addressed his concern that most people simply go through the motions at their jobs, just putting in time—existing—with a “business as usual” attitude. Not if you’re on his team.

Standard of Performance. It was a way of doing things, a leadership philosophy that has as much to do with core values, principles, and ideals as with blocking, tackling, and passing; more to do with the mental than with the physical

Regardless of your specific job, it is vital to our team that you do that job at the highest possible level in all its various aspects, both mental and physical (i.e., good talent with bad attitude equals bad talent).

honor the direct connection between details and improvement, and relentlessly seek the latter;

promote internal communication that is both open and substantive

All of this increasingly demonstrated to others and to ourselves that we were on top of things, neither sloppy nor inattentive,

has a transformative effect. Bonding within the organization takes place as one individual and then another steps up and raises his or her level of commitment, sacrifice, and performance. They demand and expect a lot of one another. That’s extremely important because when you know that your peers—the others in the organization—demand and expect a lot out of you and you, in turn, out of them, that’s when the sky’s the limit.

In continually drawing a distinction between understanding and 'mere' knowing, I do not want to understate the importance of recorded, non-explanatory information. This is of course essential to everything from the reproduction of a micro-organism (which has such information in its DNA molecules) to the most abstract human thinking. So what distinguishes understanding from mere  {10}  knowing?

about what must be so, rather than what merely happens to be so;

reductionist. That is to say, science allegedly explains things reductively - by analysing them into components.

The reason why higher-level subjects can be studied at all is that under special circumstances the stupendously complex behaviour of vast numbers of particles resolves itself into a measure of simplicity and comprehensibility. This is called emergence: high-level simplicity 'emerges' from low-level complexity.

more detailed

is only when the discovery is complete that a fairly sequential argument, in a pattern something like Figure 3.3, can be presented. It

Not only is there constant backtracking, but the many sub-problems all remain simultaneously active and are addressed opportunistically. It is only when the discovery is complete that a fairly sequential argument, in a pattern something like Figure 3.3, can be presented.

There is no simple way of discovering the true nature of planets, given (say) a critique of the celestial-sphere theory and some additional observations, just as there is no simple way of designing the DNA of a koala bear, given the properties of eucalyptus trees. Evolution, or trial and error - especially the focused, purposeful form of trial and error called scientific discovery - are the only ways. For this reason, Popper has called his theory that knowledge can grow only by conjecture and refutation, in the manner of Figure 3.3, an evolutionary epistemology.

As I have said, the Inquisition were realists. Yet their theory has this in common with solipsism: both of them draw an arbitrary boundary beyond which, they claim, human reason has no access - or at least, beyond which problem-solving is no path to understanding.

For we are right to seek solutions to problems rather than sources of ultimate justification.

Anyone can search for it, find it and improve upon it if they take the trouble. They do not need authorization, or initiation, or holy texts. They need only be looking in the right way - with fertile problems and promising theories in mind. This open accessibility, not only of evidence but of the whole mechanism of knowledge acquisition, is a key attribute of Galileo's conception of reality.

Thus reality contains not only evidence, but also the means (such as our minds, and our artefacts) of understanding it.

We realists take the view that reality is out there: objective, physical and independent of what we believe about it. But we never experience that reality directly. Every last scrap of our external experience is of virtual reality. And every last scrap of our knowledge - including our knowledge of the non-physical worlds of logic, mathematics and philosophy, and of imagination, fiction, art and fantasy - is encoded in the form of programs for the rendering of those worlds on our brain's own virtual-reality generator.

Not everything that can be copied is a replicator. A replicator causes its environment to copy it: that is, it contributes causally to its own copying.

let us consider explicitly what the role of the user of virtual reality is. First, it is to kick the rendered environment and to be kicked back in return - in other words, to interact with the environment in an autonomous way. In the biological case, that role is performed by the external habitat. Second, it is to provide the intention behind the rendering. That is to say, it makes little sense to speak of a particular situation as being a virtual-reality rendering if there is no concept of the rendering being accurate or inaccurate. I have said that the accuracy of a rendering is the closeness, as perceived by the user, of the rendered environment to the intended one.

The colour of the Sun ten billion years hence depends on gravity and radiation pressure, on convection and nucleosynthesis. It does not depend at all on the geology of Venus, the chemistry of Jupiter, or the pattern of craters on the Moon. But it does depend on what happens to intelligent life on the planet Earth. It depends on politics and economics and the outcomes of wars. It depends on what  {184}  people do: what decisions they make, what problems they solve, what values they adopt, and on how they behave towards their children.

Life achieves its effects not by being larger, more massive or more energetic than other physical processes, but by being more knowledgeable. In terms of its gross effect on the outcomes of physical processes, knowledge is at least as significant as any other physical quantity.

Now consider some mathematical calculation that is intractable on all classical computers, but suppose that a quantum computer can easily perform it using interference between, say, 10500 universes. To make the point more clearly, let the calculation be such that the answer (unlike the result of a factorization) cannot be tractably verified once we have it. The process of programming a quantum computer to perform such a computation, running the program and obtaining a result, constitutes a proof that the mathematical calculation has that particular result. But now there is no way of keeping a record of everything that happened during the proof process, because most of it happened in other universes, and measuring the computational state would alter the interference properties and so invalidate the proof. So creating an old-fashioned proof object would be infeasible; moreover, there is not remotely enough material in the universe as we know it to make such an object, since there would be vastly more steps in the proof than there are atoms in the known universe. This example shows that because of the possibility of quantum computation, the two notions of proof are not equivalent.

‘He thought,’ as Feynman once put it, ‘that he understood paper.’ But he was mistaken. Real, quantum-mechanical paper is wildly different from the abstract stuff that the Turing machine uses. The Turing machine is entirely classical, and does not allow for the possibility that the paper might have different symbols written on it in different universes, and that those might interfere with one another. Of course, it is impractical to detect interference between different states of a paper tape. But the point is that Turing’s intuition, because it included false assumptions from classical physics, caused him to abstract away some of the computational properties of his hypothetical machine, the very properties he intended to keep. That is why

In the multiverse view, the time traveller who visits Shakespeare has not come from the future of that copy of Shakespeare. He can affect, or perhaps replace, the copy he visits. But he can never visit the copy who existed in the universe he started from. And it is that copy who wrote the plays. So the plays had a genuine author, and there are no paradoxical loops of the kind envisaged in the story. Knowledge and adaptation are, even in the presence of pathways to the past, brought into existence only incrementally, by acts of human creativity or biological evolution, and in no other way.

The popularity of positivism and of an instrumentalist view of science was connected with an apathy, loss of self-confidence and pessimism about genuine explanations at a time when the prestige, usefulness and, indeed, funding for fundamental research were all at an all-time high.

for computation, the computer scientist Tomasso Toffoli has remarked that ‘We never perform a computation ourselves, we just hitch a ride on the great Computation that is going on already.’

If, for instance, we want to understand why the world seems comprehensible, the explanation might be that the world is comprehensible. Such an explanation can, and in fact does, fit in with other explanations in other fields. But the theory that the world is half-comprehensible explains nothing and could not possibly fit in with explanations in other fields unless they explained it. It simply restates the problem and introduces an unexplained constant, one-half.

So far I have really only considered what might be called predictive emergence. For example, we believe that the predictions of the theory of evolution follow logically from the laws of physics, even though proving the connection might be computationally intractable. But the explanations in the theory of evolution are not believed to follow from physics at all. However, a non-hierarchical explanatory structure allows for the possibility of explanatory emergence.

The ends of the universe are, as Popper said, for us to choose.

is that intelligence is not only there to control physical events on the largest scale, it is also there to choose what will happen.

whether or not there is an omega point, wherever there is knowledge in the multiverse (complexity across many universes) there must also be the physical traces of the moral and aesthetic reasoning that determined what sort of problems the knowledge-creating entity chose to solve there.

As the samurai realized, virtues are superior to values, but until that understanding becomes widespread, a lot of companies will continue to have values.

A well-designed cultural interview need not be long. Parametric Technology Corporation (PTC) is a computer-aided-design software company with a legendary sales culture. My head of sales at Opsware, culture-changer Mark Cranney, came from PTC and was always bragging about how good they were at selling. I got annoyed and asked why they were so great. He said, “Well, it started with the interview. I walked into the interview with the senior vice president of sales, John McMahon. He said nothing for what seemed like five minutes, then asked me, ‘What would you do if I punched you in the face right now?’” At this point in Mark’s story, I cried, “What!? He wanted to know what you would do if he punched you in the face? That’s crazy. What did you say?” Mark said, “I asked him, ‘Are you testing my intelligence or my courage?’ And McMahon said, ‘Both.’ So I said, ‘Well, you’d better knock me out.‘ He said, ‘You’re hired.’ Right then I knew that I’d found a home.”

‘I hear you and, quite frankly, I agree with you, but I was overruled by the powers that be.‘ This is absolutely toxic to the culture. Everyone on the team will feel marginalized because they work for someone who’s powerless. This makes them one level less than powerless. They have just been demoted from the bottom of the totem pole to the ground beneath it.

The most powerful common denominator of happiness was simple. Campbell summed it up:   Having a strong sense of controlling one’s life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered.   More than your salary. More than the size of your house. More than the prestige of your job. Control over doing what you want, when you want to, with the people you want to, is the broadest lifestyle variable that makes people happy.

The hardest thing about this was that I loved the work. And I wanted to work hard. But doing something you love on a schedule you can’t control can feel the same as doing something you hate. There is a name for this feeling.

Derek Sivers, a successful entrepreneur, once wrote about a friend who asked him to tell the story about how he got rich:   I had a day job in midtown Manhattan paying $20 k per year—about minimum wage ... I never ate out, and never took a taxi. My cost of living was about $1000/month, and I was earning $1800/month. I did this for two years, and saved up $12,000. I was 22 years old. Once I had $12,000 I could quit my job and become a full-time musician. I knew I could get a few gigs per month to pay my cost of living. So I was free. I quit my job a month later, and never had a job again. When I finished telling my friend this story, he asked for more. I said no, that was it. He said, “No, what about when you sold your company?” I said no, that didn’t make a big difference in my life. That was just more money in the bank. The difference happened when I was 22.

The trick is convincing yourself that the market’s fee is worth it. That’s the only way to properly deal with volatility and uncertainty—not just putting up with it, but realizing that it’s an admission fee worth paying. There’s no guarantee that it will be. Sometimes it rains at Disneyland. But if you view the admission fee as a fine, you’ll never enjoy the magic. Find the price, then pay it.