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. Therefore, complex systems are difficult to predict and also difficult to control. Agents develop behavior “bottom-up.” Traditionally, however, attempts are made to control a system “top-down” from the outside. Here, both directions must be brought into harmony and fit together.

The economy and human society are examples of complex systems. Traditional politics attempts to steer the economy in the right direction. There are two opposing directions here: more “top-down” control by the state vs. 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 used to organize the distribution of scarce resources with different uses. Alternatives, such as a planned economy, are dictatorial. Markets reflect human preferences.

Data contains information, and this is needed to reduce uncertainty about a system. As a rule, the more information you have, the better decisions you can make. Therefore, data is vital for a functioning society. Data science, Big Data, and Artificial Intelligence itself 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 due to digitalization, networking, and combinatorial innovations. Due to this development, the economy will change significantly in the coming years. Large companies often have difficulty reacting quickly to changes. It is therefore important that startups can be founded as easily as possible to “carry” innovations into the economic system.

In this context, politics should by no means try to stop technical development, but rather create the right framework so that changes occur as optimally as possible for all people.

Conclusions

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 has changed significantly. For example, different rules apply in the digital economy than in the physical one. New “business patterns” have emerged. The heuristics and “rules of thumb” known to humans are no longer valid. One should therefore question previous knowledge and see everything again from the perspective of complex systems, game theory, network theory, and behavioral economics. Such a “reset” is—unlike in a technical system—a process for humans. It may take a little longer until one truly sees the world from a different perspective. Furthermore, as a human being, one cannot make these changes in a single step, but must 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 the headlines in the media and the book titles in bookstores in recent years would actually have to be quite afraid. Famines, plagues and epidemics, mad cow disease, environmental problems, limits to growth, intelligent killer robots, surveillance algorithms, and much more are looming. 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 just don’t know exactly which evil will occur first [TM14]. The German “Angst,” which is famous even abroad, can be clearly seen in the German translation of the book “Big Data at Work” by Thomas H. Davenport [Dav14]. In the English original, the subtitle is “Dispelling the Myths, Uncovering the Opportunities”. In the German version, however, it says “Chancen erkennen, Risiken verstehen” (“Recognizing Opportunities, Understanding Risks”). Here, the legendary and adventurous “myth” became a neutral “opportunity,” and the “possibilities” became “risks.” A positive, adventurous future becomes a fearful, cautious one.

However, those who always expect the worst and do not actively help shape the future will also get a bad future. They block their own path 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. Globally, the standard of living is higher than ever before [Rid10, BA14]. When new technical changes appear on the horizon, one 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 today complain about Google and Facebook, it doesn’t hit the heart of the problem. Google is used so heavily because it offers the best search engine. The problem is actually that there are no good alternatives because other companies have developed inferior products. Does anyone remember the European search engines “Quaero” and “Theseus,” financed with a lot of tax money? In 2006 and 2007, French and German universities and research institutions were supposed to create a search engine using EU and tax funds—a “European search engine”. That was already far too late, as Google had been around since 1998, and as a “late mover” in a market, you can only succeed if you have a significantly better product. And why were they too late? Because in the USA, in Silicon Valley, changes are welcomed and seen positively; people immediately ask what they can do with them and then found companies, try out new possibilities, have many failures, but also a few successes.

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

Accounting for Complexity

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

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

The best way to explore the properties of complex systems and teach them to a broad mass of people is through computer games and simulations. Nowadays, 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 the more agents there are and the more “complex” the model becomes. Therefore, strong simplifications were made in the past. However, the boundaries between computer games and simulations are fluid [BP12]. “Simulations” of complex systems are needed that are also fun and therefore also “games.” Ideally, people could 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 like “a better world is possible” or “anarchy is doable, neighbor.” But so far, various utopias such as socialism, communism, or anarchism have always been limited to being “utopian,” referring to theoretical texts or proving “feasibility on a small scale” by organizing a bicycle shop or farm “alternatively.” However, in complex systems, feasibility on a “small scale” is no “proof” of feasibility on a “large scale.” With ABM, one can “try out” alternative economic systems or societies. One would “simulate” various possibilities through “constructive social design.” Because one thing should be clear after reading this book: if there is ever to be a kind of “socialism,” it will not be by way of 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 one must remember that large parts of society today still believe in the feasibility of a “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 strongly threatened by wrong policies (at least in the EU today), 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 great 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 the side effects when regulating. An example is the planned regulation of “bogus self-employment” (Scheinselbständigkeit) in Germany. In Germany, companies pay social security contributions for their employees, such as pension insurance. It has happened that companies wanted to “save” these contributions and simply turned employees into self-employed individuals, at least on paper. They became “bogus self-employed” while doing the same work. Politics in Germany wants to ban 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 “contestable.”

Today’s world is highly specialized and knowledge-intensive. Therefore, companies cannot hire employees for all purposes. A database specialist is only needed when the system is being converted or expanded. Consequently, there are many freelance and self-employed consultants in knowledge-intensive fields. Now, on paper, many IT specialists look like the bogus self-employed from the outside because they work on the customer’s site, use their computers, communicate a lot with other employees, and a project can easily last one or two years. In the past, it has happened that a tax office then wants 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; it cannot invent everything itself. If an innovative project cannot be carried out in Germany or the EU, it is simply done in California, Texas, or Israel. And the large companies of the German economy have apparently already prepared well for this scenario, as they have increased their investments abroad for years and invested 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 threatening the “tender 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 caused by globalization, urbanization, and demographic shifts. However, today’s politics partly still has a worldview from the 1970s. With a wrong worldview, one cannot design correct regulations. Every regulation makes a complex system even more complex. You cannot regulate a complex system into a simple or a 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, etc., much more precisely.

But it is not only individual companies that suffer; the entire economic system is in danger. And 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]. However, this referred neither to the sovereign debt and financial crisis in Greece nor to the refugee problem 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 well-performing countries include the USA, Singapore, Korea, and Israel. In these countries, internet startups can thrive and globally competitive companies can emerge. However, most European countries are “digitally behind” in their development. They have lost touch. According to the two authors, this also manifests itself in the desire to regulate American companies in particular, as German “intellectuals” also demand in “political debates” [Sch15].

Important: Most European countries have a need to catch up with digitalization, including Germany.

Innovation instead of “political debate”

Today’s politics seems largely to consist of “preserving” certain parts of society and protecting them against changes: 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 should stay as it is. The few politically desired changes, such as green energy, the Euro, education, or immigration, have their causes 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 could mobilize the most “votes” behind it.

A “political decision” is therefore often not the best one. And a “political debate” by so-called “intellectuals” also tends to bring more confusion than clarity, because in politics, arguments are not scientific but emotional and oversimplified. Computer scientists used to be said to think only in zeros and ones and to know only two categories. But that applies more to politics, where opinions are divided into “left” and “right.” Instead of finding solutions for pending problems, one “fights” the other group with slogans and catchphrases. The word “fight” sounds very exaggerated and unscientific here, but that 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 are certainly already the first changes in Germany due to digitalization, such as filing tax returns over the internet, but companies are already much further ahead here. Instead of conducting “political debates,” politicians should consider how state bureaucracies can reap as many benefits as possible from digitalization. This could relieve state budgets, lower taxes, and achieve better services.

As explained in this book, the greatest economic danger from technological development is mass unemployment. But in such a situation, 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 into the future, are curious, try out new things, think about how to make them better, and then possibly 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 of it. The world will change in any case, and the sooner you join in, the more you can help shape it yourself.