Silicon-Valley investor and legend, Bill Davidow, has big plans for the Web. Not that the co-founder of Mohr Davidow Partners, which is regarded on Sand Hill Road as the Daddy Warbucks of Internet startups, is planning on another shrewd investment like Form Factor, MIPS, Vitesse and others. No, this time he is seeking to start a global discussion about the perils of being OVERconnected, the title of his new book published by Delphinium.
Partly a cogent history of the Web, useful in its analogies to other technological developments, and partly an advocacy piece for greater safeguards against its perils, OVERconnected brings all of Davidow's considerable wisdom and a particular skepticism honed by years of overhyped, startup pitches. What's intriguing, and who better to present it, is the book's central theme: that the recent financial crisis was caused as much by the Web itself as by the collective greed and corruption of individual financial players and companies.
The Web, by creating on the one hand an overwhelming sense of urgency ("if we don't do it, somebody else will"), and on the other global, cultural access combined with concurrent cultural lag, is no less a partner in crime than AIG, Bear Sterns and all the others who assumed that the financial bubble was impregnable. An engineer by training, Davidow understands the power of undiminished "positive feedback," of the kind that accelerated the writing of bad loans and underwriting of shaky investments when there was instant, 24/7 information available to confirm the immediate value of these deals (and where, by way of contrast, accountability seemed far in the future.) Positive feedback fueled the notion of "too big to fail," as well as too complex to manage.
In two entertaining chapters on Iceland, where Davidow got to know some of the locals personally, he looks at how a tiny, isolated country that yearned for years to connect to the wider world was offered a great and lucrative opportunity to be a major player on the world financial scene, largely by leveraging low, global interest rates and reinvesting in the higher rates offered in Iceland. But in his description of "how the internet tricked Iceland," Davidow points to the soulless malevolence of a force that both promised and took away a chance for the tiny nation to end its solitary cultural existence. Worse, in a poignant account at the end of this chapter, Davidow recounts how a former-fisherman-turned-banker is unable to go back to his life on the sea. "Kristjan is, like so many of us, a product of the twenty-first century's cult of connectivity and a paradigm of how we cannot return to the past."
Turbo-charged positive-feedback remains a potential culprit, and like other "weapons of mass destruction," or in another example provided by Davidow, nuclear power plants, they require vigilant and fully-developed governance. This was the topic of our discussion last week. "Our governance was designed for one level of connectivity but doesn't work at this level," advises Davidow. When a lender on one side the of the world can destroy the stock portfolio of some other individual half-way round the globle, the Internet itself supplants the kind of connection that might once have fostered trust. No longer can we, as a global community, where the Internet creates and fosters anonymity, depend on the kind of assumed "off-line" connectivity that was the safeguard for Adam Smith's "invisible hand," for example.
Davidow is vague on specific regulations that would be needed, preferring instead to simply "start a dialogue," but agrees with no less than Blackstone's Stephen Schwarzman, who in a recent op-ed called for a new, international conversation on financial regulation. "The scope of the problem and the domain of the governance.... It's no good to have a global system solved with national initiatives. You can't solve these problems with small tweaks. You've got to think of these problems with international solutions. You've got to cede some control to an international body. Stephen Schwarzman talks about this."
What about social media? Could the "power of weak ties" mitigate against that geographical distance?
"There is overconnectivity that occurs in an institutional world and there is overconnectivity that occurs in our lives and personal worlds." According to Davidow, "The institutional is about government and regulation. The overconnectivity in our personal lives is about sociology, neurology and psychology.... What I worry about is the affect that the Internet is having on our brains."
That could be the sequel to this fine treatise, and I'm looking forward to reading how this visionary will continue to point to the ptifalls as well as the opportunities in an overconnected world.