Summary and Conclusion

Summary

Many natural and artificial systems are complex systems because they exhibit emergent behavior generated by the interactions of individual agents. These agents adapt to changes in the system. Complex systems are therefore difficult to predict and difficult to control. Agents develop behavior “bottom-up.” Traditionally, however, attempts are made to control a system “top-down” from the outside. Both directions have to be brought into harmony and made to fit together.

The economy and human society are examples of complex systems. Traditional politics tries to steer the economy in the right direction. There are two opposing directions here: more “top-down” control by the state versus more “bottom-up” processes through the market. Insights from complex systems have not yet been transferred to politics and economics. Markets are a “grassroots democratic” algorithm for organizing the distribution of scarce resources among competing uses. Alternatives, such as a planned economy, are dictatorial. Markets reflect human preferences.

Data contains information, and information is needed to reduce uncertainty about a system. As a rule, the more information we have, the better the decisions we can make. Data is therefore vital for a functioning society. Data science, Big Data, and artificial intelligence themselves are not dangerous; the intelligence lies in the people who use or create these systems.

Technological development will continue to accelerate because human productivity is rising. “Collective intelligence” is growing through digitalization, networking, and combinatorial innovations. Because of this development, the economy will change significantly in the coming years. Large companies often have difficulty reacting quickly to change. It is therefore important that startups can be founded as easily as possible and can “carry” innovations into the economic system.

In this context, politics should by no means try to stop technical development. Instead, it should create the right framework so that change can unfold as well as possible for everyone.

Implications

The world is facing major changes. People must now learn to adapt to the new situation. The following tips are recommended:

1. “Reset” and complete reassessment
2. See the future positively: optimism instead of fear and panic
3. See changes positively, welcome them, and help shape them
4. Account for complexity
5. Progress is fragile
6. Innovation instead of “political debate”

Reset and Reassessment

The world is a complex system, and it has changed significantly. In the digital economy, for example, different rules apply than in the physical economy. New “business patterns” have emerged. The heuristics and “rules of thumb” familiar to human beings no longer apply. We should therefore question our previous knowledge and look at everything again from the perspective of complex systems, game theory, network theory, and behavioral economics. Unlike a reset in a technical system, however, such a “reset” is a process for human beings. It may take some time before one truly sees the world from a different perspective. Nor can people make these changes in a single step; they have to make them in many very small steps. But if you turn your perspective by 0.5 degrees for 360 days, you will be looking in the opposite direction after a year.

Seeing the Future Positively

Anyone who has read media headlines and bookstore titles in recent years would almost have to be afraid. Famines, plagues and epidemics, mad cow disease, environmental problems, limits to growth, intelligent killer robots, surveillance algorithms, and much more are said to threaten us. Are these warnings realistic, or do the media simply sell better according to the motto “Good news is no news”?

According to Peter Thiel, people in Europe are pessimistic about the future; they simply do not yet know exactly which evil will arrive first [TM14]. The German “Angst,” famous even abroad, can be seen clearly in the German translation of Thomas H. Davenport’s book “Big Data at Work” [Dav14]. In the English original, the subtitle is “Dispelling the Myths, Uncovering the Opportunities.” In the German version, however, it became “Chancen erkennen, Risiken verstehen” (“Recognizing Opportunities, Understanding Risks”). The legendary, adventurous “myth” thus became a neutral “opportunity,” while the “possibilities” became “risks.” A positive, adventurous future becomes an anxious, cautious one.

Those who always expect the worst and do not actively help shape the future, however, will also get a bad future. They obstruct their own future through self-fulfilling prophecies. In his book “The Rational Optimist,” Matt Ridley argues that it is rational to be optimistic when considering human history. There have always been pessimists, and so far they have mostly been wrong [Rid10].

Seeing Changes Positively

Most technological inventions have had positive consequences for humanity. Seen globally, the standard of living is higher than ever before [Rid10, BA14]. When new technical changes appear on the horizon, we should welcome them, take an interest in them, and ask how they could be used and how they could be made even better.

When many critics in Germany complain about Google and Facebook today, they miss the heart of the problem. Google is used so heavily because it offers the best search engine. The real problem is that there are no good alternatives because other companies have developed worse products. Does anyone still remember the European search engines “Quaero” and “Theseus,” financed with large amounts of tax money? In 2006 and 2007, French and German universities and research institutions were supposed to use EU and taxpayer funds to create a search engine, a “European search engine.” That was already much too late, because Google had existed since 1998, and a “late mover” in a market can succeed only by offering a substantially better product. And why were they too late? Because in the United States, in Silicon Valley, change is welcomed and viewed positively; people immediately ask what could be done with it, found companies, try out new possibilities, have many failures, and also achieve a few successes.

Moreover, state bureaucracy, a hierarchical research landscape, a 40-hour week, and civil servants with a later guaranteed pension cannot catch up with a profit-oriented company, let alone a public corporation where high profits beckon. One advantage often cited for such projects is that professors and research institutions were able to publish good scientific articles within them. But these advocates forget that the whole is more than the sum of its parts. These scientific articles are only very small pieces of a large whole. As long as no one in such projects works on constructing and operating the whole, they may promote individual scientific careers, but they do not create economic relevance for society.

Accounting for Complexity

In economic policy, there are traditionally two directions: “more state” versus “more market.” With “complex politics,” these previously opposing directions can be combined, as discussed in section 11.5.

Of course, complex systems and agent-based modeling (ABM) should also be used more extensively in the sciences, as explained for example in section 2.4. But because of the “Twin Peaks” problem, it will take a while before the new methods truly become established.

The best way to explore the properties of complex systems and teach them to a broad audience is through computer games and simulations. Today, simulations are very often “top-down,” and the player can build cities or states from a god-like position. An ABM simulation can become very computationally intensive as the number of agents grows and the model becomes more “complex.” Strong simplifications were therefore made in the past. The boundaries between computer games and simulations, however, are fluid [BP12]. We need “simulations” of complex systems that are also fun and therefore also “games.” Ideally, people could use them to discover the properties of complex systems playfully.

Complex systems and ABM will play an important role in clarifying what a better society could look like. Everyone knows slogans such as “a better world is possible” or “anarchy is doable, neighbor.” So far, however, various utopias such as socialism, communism, or anarchism have always remained limited to being “utopian,” referring to theoretical texts, or proving “feasibility on a small scale” by organizing a bicycle shop or farm “alternatively.” In complex systems, however, feasibility on a “small scale” is no “proof” of feasibility on a “large scale.” With ABM, alternative economic systems or societies can be “tried out.” Different possibilities could be “simulated” through “constructive social design.” One thing should be clear after reading this book: if there is ever to be a kind of “socialism,” it will not come through nationalizing the means of production and centralizing the economy. “Socialism” would certainly have to look very different from the attempts planned and carried out so far, as discussed in Chapters 5 and 11. And here we must remember that large parts of society today still believe in the feasibility of “democratic socialism” [SPD07].

Progress Is Fragile

The three pillars of progress are digitalization and networking, exponential growth, and combinatorial innovations (section 9.1). While the first two are more technical in nature and are not, at least in the EU today, strongly threatened by wrong policies, combinatorial innovations are fragile. Combinatorial innovations arise through “trial and error” and require a market-economy framework with free markets, legal certainty, and entrepreneurship. It is therefore not surprising that many startups come from countries with a high degree of economic freedom. Wrong political regulations can severely restrict the ability to innovate.

In complex systems, actions always have side effects, as explained in section 2.6. Often, however, politicians are not aware of these side effects when they regulate. One example is the planned regulation of “bogus self-employment” (Scheinselbständigkeit) in Germany. In Germany, companies pay social security contributions for their employees, for example to pension insurance. It has happened that companies wanted to “save” these contributions and simply turned employees into self-employed workers, at least on paper. They became “bogus self-employed,” while still doing the same work. German politics wants to prohibit this “bogus self-employment,” which is why the Ministry of Labor and Social Affairs is working on a “Law to Prevent the Abuse of Service Contracts.” The draft law presented in 2015, however, also makes freelance IT work impossible, or at least very easy to challenge legally.

Today’s world is highly specialized and knowledge-intensive. The degree of specialization is very high. Companies therefore cannot hire employees for every purpose. A database specialist is needed only when the system is being converted or expanded. Consequently, there are many freelance and self-employed consultants in knowledge-intensive fields. On paper, however, many IT specialists look from the outside like the bogus self-employed, because they work on the customer’s premises, use the customer’s computers, communicate extensively with other employees, and a project can easily last one or two years. In the past, tax offices have tried to legally “force” the self-employed person and the company into an employment relationship. There is currently no legal certainty in Germany regarding this¹.

Without such flexible working relationships, however, the economy loses its ability to innovate. Innovations usually enter a company from the outside; a company cannot invent everything itself. If an innovative project cannot be carried out in Germany or in the EU, it will simply be done in California, Texas, or Israel. The large companies of the German economy have apparently already prepared well for this scenario, because for years they have invested more abroad and little in Germany. “Many German industrial companies would now not have to do much more than virtually turn down the dials here and turn them up in other places in the world,” writes journalist Olaf Gersemann [Ger14].

There are, of course, other dangers that threaten the “delicate plant” of progress. In the coming years, the economy will have enough to do integrating new technical developments, such as the Internet of Things, and adapting to the changes described in section 10.2, including globalization, urbanization, and demographic shifts. Parts of today’s politics, however, still have a worldview from the 1970s. The wrong worldview cannot produce the right regulations. Every regulation makes a complex system even more complex. A complex system cannot be regulated into a simple or merely complicated one. Regulations are generally harder for small and medium-sized enterprises to implement than for larger ones. Large companies have large legal departments. Google, for example, is prepared for legal disputes [SC13].

Important: If a company in one country is not allowed to collect data for data-protection reasons, but a company in another country is, the latter company has a competitive advantage because it can get to know its customers, markets, and so on much more precisely.

But it is not only individual companies that suffer; the entire economic system is put at risk. The dangerous thing is that this cannot be seen in the metrics used so far, such as gross domestic product (GDP), as described in section 9.9. In October 2015, Bhaskar Chakravorti and Ravi Shankar Chaturvedi wrote in the Harvard Business Review about the “crisis in Europe” [CC15]. They did not mean the sovereign debt and financial crisis in Greece, nor the refugee situation of the summer of 2015. Europe is in a “digital recession.” The two economists studied 50 countries and created a “Digital Evolution Index” for comparison. Of the 23 participating European countries, only Switzerland, Ireland, and Estonia performed well. Other high-performing countries include the United States, Singapore, Korea, and Israel. In these countries, internet startups can thrive and globally competitive companies can emerge. Most European countries, however, are “digitally behind” in their development. They have lost touch. According to the two authors, this also shows itself in the desire to regulate American companies in particular, as German “intellectuals” also demand in “political debates” [Sch15].

Important: Most European countries, including Germany, need to catch up in digitalization.

Innovation Instead of “Political Debate”

Today’s politics seems largely to consist of “preserving” certain parts of society and protecting them from change: conservatives want to “preserve” moral values and institutions, the Greens nature, Social Democrats jobs and large industry, the Left the bureaucratic state, and Liberals the privileges of certain companies or industries. Everything is supposed to stay as it is. The few politically desired changes, such as green energy, the euro, education, or immigration, have their roots in lobbying and are also discussed very critically by economists.

Important: In politics, it is not the best solution that prevails in the end, but the interest group that can mobilize the most “votes.”

A “political decision” is therefore often not the best one. And a “political debate” among so-called “intellectuals” tends to bring more confusion than clarity, because political arguments are not scientific but emotional and oversimplified. Computer scientists used to be accused of thinking only in zeros and ones and knowing only two categories. But that applies more to politics, where opinions are divided into “left” and “right.” Instead of finding solutions to the problems ahead, people “fight” the other group with slogans and catchphrases. The word “fight” sounds very exaggerated and unscientific here, but it is exactly the word Martin Schulz (SPD) used in his article “Why we must fight now” [Sch15].

Yet politics would have much more important things to do. The major technological and social changes have, for the most part, not yet reached the state apparatus and the authorities. There have certainly already been initial changes in Germany through digitalization, such as filing tax returns over the internet, but companies are much further ahead. Instead of conducting “political debates,” politicians should consider how state bureaucracies can draw as many benefits as possible from digitalization. This could relieve public budgets, lower taxes, and provide better services.

As this book explains, the greatest economic danger from technological development is mass unemployment. In such a situation, however, regulating or banning technology is not helpful, because local companies would then be worse off in the competition of the “red oceans.” The best solution would be to increase the productivity of unemployed people by supporting or “augmenting” their work with the help of computers and robots.

For this, however, we need people who are interested in new things, who look optimistically toward the future, who are curious, try out new things, think about how to improve them, and then perhaps found a company. This can also be a “for-benefit” company.

The solution to today’s problems is not less technology, internet, and digitalization, but more technology, more internet, and more digitalization. The world will change in any case, and the sooner you join in, the more you can help shape it yourself.