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Read Intervention by Denise Caruso, Executive Director of the Hybrid Vigor
Silver Award Winner, 2007 Independent Publisher Book Awards; Best Business Books 2007, Strategy+Business Magazine
Hy'brid vi'gor The increase of a hybrid's intelligence, vitality and other characters over those of its parents. Subscribe to HVNEWS: UNCERTAINTY IS NOT A FACTOR INSYNTHETIC BIOLOGY — IT’S THE FACTOR by Denise Caruso ~ November 20, 2008 Earlier this week, I got a phone call from Steve Aldrich and Jim Newcomb, respectively CEO and director of research for Bio Economic Research Associates, a private research and advisory firm.They’d read my paper on risk and synthetic biology and thought my characterization of their report on synthetic biology, “Genome Synthesis and Design Futures: Implications for the U.S. Economy,” was unfair.The larger issue that our disagreement is based on — that is, how to pay proper fealty to scientific uncertainty — is at the core of my discontent with how technology innovations are assessed for risk and benefit.So I told them I would write about our disagreement here. This way, they have an opportunity to respond, and maybe we can get a discussion going on the subject.Here is what I wrote:Of the most concern in the context of risk and governance are the reports that uncritically support synthetic biology, as they encourage development and commercial release with little or no acknowledgment of the degree of scientific uncertainty that surrounds the endeavor. A 174-page report on synthetic biology published by Bio-Economic Research Associates in 2007 and funded by the Department of Energy (which itself has invested heavily in synthetic biology research), contained but a single, three-quarter-page discussion of the limitations of the engineering paradigm as applied to living systems. Giving such short shrift to a topic that is still under deep consideration in the broader scientific community lends an air of certainty to a highly uncertain endeavor. Such under-representation has real significance from the perspective of investment and economic risk, as well as from that of health and the environment.[Italics added by me; they aren’t in the paper.]Aldrich and Newcomb said it was “flatly unfair” to say their report doesn’t touch those issues, and objected to the implication that they were “apologists” for the paradigm of synthetic biology.They mention the report’s final chapter, “Scenarios for the Future,” about how the synthetic biology future might play out. One of the “major uncertainties” (a key scenario element) is posed as, “How quickly will biological engineering advance?” And they note that in one of these scenarios, “technical challenges impede applications” outside the lab.But this is precisely my issue. The idea that “technical challenges” are the only issues synthetic biology faces today is flat wrong. The engineering paradigm that synthetic bio is based on — that genetic components are like electronic circuits, with independent, clearly defined functions — simply does not apply to living systems.Geneticists have known for years that genes and other biological components — the same components bio-engineers are using to snap together their synthetic creations — do not operate independently, like electronic circuits. They have long observed that in addition to whatever their primary function might seem to be, these components appear to operate in some kind of a network, that they interact and overlap with each other in ways that are not yet understood at all.(The ENCODE study was most recent public acknowledgment of this fact.)Yet the field of synthetic biology is pretending as though this gaping chasm of knowledge — a chasm that pretty much negates its entire raison d’etre — has no impact whatever upon the viability of its work. I’ve never known a synthetic biologist to proactively address the issue. If confronted with it directly, the most I’ve heard is the equivalent of, “Yes, it’s complicated. But we’ll figure it out.”At the same time, investors are sinking hundreds of millions of dollars into developing products based on a fundamentally flawed scientific premise masquerading as a technology with predictable, “engineered” outcomes.OK, back to Aldrich and Newcomb. In fact, I do not think they are apologists for synthetic biology. As far as I know they have no direct investments or interests in any synthetic biology companies. And they explicitly state at the beginning of the report that they did not intend to address issues of safety, unintended consequences, or ethical, legal and social questions.Still, there is an inside the tent, it’s-a-done-deal orientation to the report that is discomfiting under such highly uncertain circumstances.With its sections on “Enabling Technology,” “Economic Dimensions of the Biological Engineering Revolution,” and discussions of “Applications of Genome Synthesis and Design” that specifically target the energy, chemical and vaccine industries — and whether it means to or not — the report presents a de facto case that synthetic biology is already a viable investment.And while it concurs that there may be some technical speed bumps, it simply does not acknowledge the deep, fundamental scientific uncertainties about the very premise on which synthetic biology is based.From my perspective, this lack of acknowledgment is misleading to investors and anyone else who is trying to understand what a synthetic biology future might mean.So, all of that to say: Respectfully, I stand by my story.But as I started out saying, I do think that the much bigger, critical issue here is about uncertainty itself, and that concern goes beyond any individual report or technology, particularly as private investment is driving science-based innovations to market much more quickly than ever before.As a society, we have got to find a way to talk more honestly about and have a strategy to anticipate the impact of uncertainty on innovation. That’s the only way regulators will be able to safely bring new technologies like synthetic biology to market without endangering either investors or the public’s health and welfare.This is the driving force behind much of the work and thinking that I’m doing now, and I’ll be posting more about it as time goes on. Permalink | Filed under: Hybrid Vigor, 21st Century Risk, Policy and Decisions, Planetary Life | Discuss » SYNTHETIC BIOLOGY:FIVE DAYS, FOUR CONVERSATIONS by Denise Caruso ~ November 20, 2008 I don’t know what kind of planetary alignment took place over the past week with regards to synthetic biology, but whatever it was, I like it.Over the course of five days in November, from Thursday the 13th to Monday the 17th, four conversations about synthetic biology took place. They involved everyone from non-profit leaders to engineers, social scientists, biologists and government regulators. We need more open-minded, smart people from many sectors thinking and talking about this technology, and pronto.What on earth am I talking about? If you’ve never heard of synthetic biology, you aren’t alone. According to the Project on Emerging Nanotechnologies, less than one in 10 (9%) Americans say they have heard some or a lot about synthetic biology — and a whopping 67% have heard nothing at all. [Edited in response to first comment. Never let it be said that I do not listen to my critics.]But venture capitalists, multinational chemical, energy and “life science” companies, and just about every government agency you can name are already investing millions of dollars to develop commercial synthetic biology applications. According to one report, the research market in 2006 was already $600 million, and “the potential for growth in the next 10 years is projected to expand this market to over $3.5B.”Proponents and opponents and everyone in-between agree these applications will have a direct and significant effect on our lives and on the planet. (I’ve put links to good/accessible background reading at the end of this post.)The first event was on Thursday the 13th, a day-long “teach-in” in San Francisco, held by and for civil society groups and NGOs, which as far as I can tell was organized by the ETC Group in Montreal. It was private, so there’s not much else to say about it — I found a link about it on the Food First site. If you want more information, contact Jim Thomas at the ETC Group.The second, on Friday the 14th, was hosted by the Wilson Center’s Project on Emerging Nanotechnologies, which was a conversation with — well, it was with me, actually, and Rick Weiss, senior fellow at the Center for American Progress (you may know him from his previous incarnation as the Washington Post science writer). The occasion was the publication of my paper on synthetic biology, which you can read or download here. The audience was terrific, with representatives from the biotech industry, government regulators and academics from a variety of fields.The event is archived here.The third was a Sunday morning panel on synthetic biology at Convergence 08 in Mountain View, CA, billed as a place where “the world’s most dangerous ideas will collide.” Moderated by Christine Peterson of the Foresight Institute, the first organization to educate society about the benefits and risks of nanotechnology, the panel included Chris Anderson of UC Berkeley’s Department of Bioengineering, the physicist, novelist and life-extension proponent Greg Benford, Andrew Hessel, a supporter of and activist for open-source synthetic biology, and me.You can read one commentary about the conference, including our panel, here. Our panel is specifically discussed here.And finally, on Monday night, the Long Now Foundation hosted a conversation in San Francisco, between synthetic biology pioneer Drew Endy of Stanford and critic Jim Thomas of ETC. You can read Long Now founder Stewart Brand’s succinct blog post on the event here.Steven Levy (most recently of WIRED) was there; he called the event “well-argued, excruciatingly civil debate about the wonderful/dreadful future” of synthetic bio. (At least one synthetic biologist is recommending that his peers read Levy’s first and classic book, Hackers, for a reality check on their perceptions of some of the issues on the table. I would concur that this is a splendid idea.)I hope that all of us who were involved in these civil and civic-minded conversations can find ways to keep them going. And I hope that those of you who don’t know much if anything about synthetic biology will take the time to learn a bit more about it. To that end, I’ve dug up a few overviewy-type things that I hope will be helpful.It’s hard to find explanations that aren’t technical, or that don’t take one point of view or another (or both), so keep that in mind as you explore the references below:• YouTube video of Drew Endy defining synthetic biology. Drew is one of the founders of the field. This is a wee bit technical but entertaining enough that it doesn’t really matter. I suspect you’ll get the drift.• “Backgrounder: Open Letter on Synthetic Biology“, by the ETC Group, a Montreal NGO “dedicated to the conservation and sustainable advancement of cultural and ecological diversity and human rights.”• My paper: “Synthetic Biology: An Overview and Recommendations for Anticipating and Addressing Emerging Risks,” published by Center for American Progress and funded by the Wilson Center.• A paper published in Public Library of Science about intellectual property, one of the most critical non-science issues facing synbio: “Synthetic Biology: Caught between Property Rights, the Public Domain, and the Commons,” by Artie Rai and James Boyle• A useful essay by Andrew Maynard, the chief science advisor for the Wilson Center’s Project on Emerging Nanotechnologies, about the parallels between synthetic biology and synthetic chemistry, is here. Maynard is also the author of the exceptional PEN publication, “Nanotechnology: A Research Strategy for Addressing Risk.”Feel free to send me links to other good papers, or post them in comments. Permalink | Filed under: Hybrid Vigor, Collaboration and Sensemaking, 21st Century Risk, Policy and Decisions | 2 Comments » NOTE TO OBAMA’S SCIENCE POLICY TEAM:DON’T LEAVE OUT THE SOCIAL SCIENCES! by Denise Caruso ~ November 17, 2008 My next column in Strategy+Business (coming out in Winter 2009) will be about the need to rewrite our innovation policies from scratch. I strongly believe that we need to move beyond simplistic “greasing of the wheels” for corporations via tax credits and patent reform, and look more closely at how to create a whole new ecosystem in which innovation — and particularly, scientific and technological innovation — can flourish to everyone’s benefit.In that regard, Barack Obama’s call for a return to scientific integrity is cause for tremendous hope for those who have spent eight long years battling the anti-science, anti-innovation era of the outgoing administration.The very first item on the Obama campaign’s science fact sheet, which was published in September 2008, states that Obama’s science-friendly science policy will ensure that “decisions that can be informed by science are made on the basis of the strongest possible evidence.”It goes on to say that the Obama administration will (among many other things):Appoint individuals with strong science and technology backgrounds to key positions;Take advantage of the work of the National Academies to identify the federal government positions that require a strong science and technology background;Ensure independent, non-ideological, expert science and technology advisory committees; and (last but certainly not least from Hybrid Vigor’s perspective);Actively encourage multidisciplinary research and education, noting that “innovation often arises from combining the tools, techniques, and insights from researchers in different fields.”Yes! That’s what I’m talkin’ about! That last one even takes a page straight out of Hybrid Vigor’s mission statement.But … I’m concerned that social scientists are not specifically mentioned anywhere in the policy fact sheet, either in spirit or in fact, not even in the last item. This is a serious omission as well as risky one, and unfortunately it is all too common in discussions of interdisciplinary, multidisciplinary or cross-disciplinary research.Social scientists can — and should — provide a critical bridge between innovation and the people that the products of innovation purport to serve. They can help policy makers think about the social and cultural context for research priorities and decisions in a way that technologists cannot, making sure that the “strongest possible evidence” that scientists provide is also the evidence that is most relevant to the decision at hand.As consumers become more concerned about the contemporary, industrialized food chain, for example, some economists have made the case that social scientists need to be intimately involved with both technological development and technology policy. That way, they will be able to help both companies and governments understand what consumers will require from a sustainable food chain, both in terms of both transparency about the basic science behind food innovations and the choices that they will demand.Similarly, social science also informs decision makers how to communicate most effectively during pandemics, natural disasters or terrorist attacks. As one group said during Congressional testimony, “While new tools and technologies have improved the prediction of many natural hazards, complete preparedness and response also requires an understanding of human behavior, particularly in emergency situations. This is the domain of the social sciences.”Not doing so has, at least on one notable occasion (I’m sure there are many others), led to unnecessary disaster. It was social science researchers that explained, in forensic analyses after the Three Mile Island meltdown, why nuclear power plant engineers needed to include human factors in both their designs and their risk analyses — something which the engineers failed to do until it was too late.But this position has been rejected by biologists, physicists, engineers and the like — practitioners of the “hard” sciences of the laboratory and the work bench. They see the research and the data of social scientists as inferior and, as a result, the two camps of science have long since been at war.Some scholars believe that the schism is artificial, and their arguments make a lot of sense to me. One of them, Bent Vlyvbjerg at Aalborg University, has developed a concept of social science based on Aristotle’s concept of phronesis. In an excerpt from his book “Making Social Science Matter,” Flyvbjerg writes,In Aristotle’s words, phronesis … goes beyond both analytical, scientific knowledge (episteme) and technical knowledge or know-how (techne) and involves judgments and decisions made in the manner of a virtuoso social and political actor. … [In this role], the social sciences are strongest where the natural sciences are weakest: Just as the social sciences have not contributed much to explanatory and predictive theory, neither have the natural sciences contributed to the reflexive analysis and discussion of values and interests, which is the prerequisite for an enlightened political, economic, and cultural development in any society.I don’t entirely agree; I think social science has contributed quite a lot to explanatory and predictive theory — maybe not about the workings of matter, but certainly about how groups (including scientists) think and how they will act, and how those behaviors affect outcomes (including scientific outcomes). Nevertheless, I think he is on the right track.From what I’ve heard so far, I can’t imagine that the Obama administration is striving for anything less than “enlightened political, economic and cultural development” in these difficult times. So I hope that President Obama and his new team, whoever they are, won’t let old, outmoded and short-sighted prejudices stop them from doing what promises the best results — for innovation, for industry, for the country, and for the rest of the world …Bring on the social scientists! Permalink | Filed under: Hybrid Vigor, Collaboration and Sensemaking, 21st Century Risk, Policy and Decisions | Discuss » SCARE TACTICS ABOUT INTANGIBLES by Denise Caruso ~ November 13, 2008 I recently a story about software patents so goofy (to me, anyhow — YMMV) that I had to share it.The story was from the IT Examiner, titled, “US throws out most software patents.”The hook was a decision by the US Court of Appeals for the Federal Circuit in Washington DC. Instead of automatically granting a patent for a business practice, the court decided there would be a specific testing procedure to determine how patentable is the process in question.As the story put it, this is “a nearly complete reversal” of a judgment of 1998, which started the stampede for patenting business practices.All I can say is, About damn time! Here’s the link to my extremely cranky New York Times column on this very same subject, written in 1999.So here’s the goofy bit: The reporter wrote,The decision is great for open source advocates. But it could mean a permanent change in the value of intangible assets, which comprise approximately 70 per cent of the average high-tech company’s market capitalisation. With the world’s economy sliding downhill at an increasing pace each day, this decision could cost US companies billions of dollars.Oh, please. First of all, patents comprise only a fraction of that “70 percent” value for intangibles, and business practice patents are only a fraction of those.And second, those patents should never have been granted in the first place, and everybody knew it. During the dot-boom before the dot-bomb, anybody could do pretty much anything they wanted for the ka-ching, and that was one of the most ridiculous of them.But I’ll give the reporter credit. Even if the patent/intangible thing was a little off, he found a nameless Silicon Valley executive who saw “a silver lining” to the decision: Companies will save a lot of money on legal fees (I’d say legal departments) by not needing to ceaselessly file, license and defend patents so basic that the bureaucracy to maintain them equals or exceeds the money they bring in the door.Patents are gumming up the works in more places than the software industry, and I’ll be writing more about this in the next few weeks, in the context of biomedical and environmental research in particular. In the meantime, I wouldn’t worry too much about the software industry in this regard. Some companies will probably even find some upside in all the downturn. Permalink | Filed under: Hybrid Vigor, Policy and Decisions, Valuing Intangibles | 2 Comments » IT TAKES ‘T-SHAPED’ PEOPLE by Denise Caruso ~ November 13, 2008 I’m a little embarrassed that it’s taken me almost two years to post this item — I saved a draft of it in January 2007, yikes — but even though I can’t find the link to the original story (The Korea Times, 21 Jan 2007), I thought it was worth posting anyway. It’s great food for thought, and relevant far beyond its immediate subject. Certainly it something to consider for companies who consider employees to be important intangible assets.Back then, Lee Jeong-bae, a senior consultant at South Korea’s LG Economic Research Institute, said he thought he knew why Korean firms have failed to produce such iconic devices as Apple’s iPod and Motorola’s RAZR, despite their technological expertise: he said they lack “T-shaped” people — people who have an area of deep interest or expertise (the vertical part of the T), but also have empathy for and ability in other areas. “To create innovative products, we have to secure insights not only into the products but also into their business opportunities by having an observant and empathetic view of the world. Only T-shaped people, who have well-rounded personalities and broad interests, can obtain such viewpoints. Sophisticated engineers who do not understand the market and customers will never devise [the products] which have a shot at becoming a grand slam.” Permalink | Filed under: Hybrid Vigor, Valuing Intangibles | Discuss » NEW IDEAS ABOUT GENES?AGAIN, I SAY: SPEAK TO ME OF RISK by Denise Caruso ~ November 13, 2008 It is not always happy-making to be ahead of one’s time.On Tuesday, the New York Times published package of articles that explored new genetic research and new ideas of what a gene is.Much of the package was based on the findings of the ENCODE study, which was sponsored by the National Human Genome Research Institute.The upshot of ENCODE, which was published about a year and a half ago, in June 2007, was pretty straightforward: the human genome is not a “tidy collection of independent genes,” after all, with each sequence of DNA linked to a single protein, which in turn is linked to a single function, like the production of an enzyme.Instead, genes appear to operate in a complex network, and interact and overlap with one another and with other components in ways will challenge scientists ‘’to rethink some long-held views about what genes are and what they do.'’The lead story in the package notes this perspective, writing that scientists “no longer conceive of a typical gene as a single chunk of DNA encoding a single protein,” and quoting one of them as saying, simply, “It cannot work that way.” YES! I was so excited that this issue was finally going to get some attention. Not only was one of the central themes of my book, Intervention, but I too wrote a column about ENCODE for the New York Times — called “A Challenge to Gene Theory, A Tougher Look at Biotech” — right after the results were published, in July 2007.In it, I asked what (to me) is the most obvious and important question, but it was addressed nowhere in the NYT package:If so much of what we know about genes is wrong, how does this change the decisions made about the safety of the thousands of biotech products already on the market, from pharmaceuticals to living transgenic organisms, that were based on these very faulty — in fact, almost completely backwards — scientific assumptions?Fact is, all of the proposed benefit of genetic engineering (including its “no-risk” profile) comes from this assumption: that DNA will produce the same protein in whatever genome it’s planted, and that’s all it will do — that the host organism will be essentially unchanged except for expressing that one additional trait.The FDA’s consumer magazine published an article on plant breeding in 2003 that made the same declaration. The benefit of genetic engineering, it said, is that it is “more precise and predictable … a single gene may be added” to a plant to give it a single specific characteristic without transferring the undesirable traits.All things considered, revisiting the question of risk is an absolutely logical, rational, fair — and, I might add, pretty important — line of inquiry. Thus I remain completely baffled about why even the smartest journalists in the mainstream media are completely ignoring it.I understand that these products are having no gross effects. People aren’t dropping in the streets with big oozy pustules, whole farm fields are not being laid to waste, and so forth. If they were that obvious, we’d have figured out a connection. But physiological effects can be invisible, subtle, and even cumulative. And because there is no required tracking or monitoring of biotech drugs or organisms once they’ve been sold, we will have no way of knowing what these effects might be until it’s too late. Also, it must be stressed, ENCODE’s findings are not new information. Molecular biologists and geneticists did and do know that the “one gene, one protein” theory hasn’t held water for several decades. Just for starters, they know that there are some 20,000 protein coding sequences in the human genome, while there are probably hundreds of thousands of proteins (some even say millions). They know they are nowhere near knowing how the mechanisms work that trigger their production. Epigenetics, which studies changes in the appearance of an organisms or in gene expression that are caused by mechanisms other than changes in the underlying DNA sequence, is just one of many areas of study in molecular biology that demonstrates a long-standing rejection of this simplistic notion of the gene.For their part, organismal biologists — those who study whole organisms, like fish and insects and mammals, not just their DNA — as well as population geneticists and evolutionary biologists and behavioral geneticists, have never hewed to the “über DNA” perspective. For them, it has never held explanatory power outside the lab, in the real world that they live in and study.As one molecular biologist I know once said to me, “This perspective changes the nature of the questions we ask.”Oh, how I wish that were true! Permalink | Filed under: Hybrid Vigor, 21st Century Risk, Policy and Decisions, 'Intervention', Planetary Life | Discuss » ‘WE INTERRUPT THIS BROADCAST …’HOW A LITTLE BIT OF FAILURE CAN DO A LOT OF GOOD by Mike Neuenschwander ~ October 29, 2008 I was recently talking to some German friends about their trips to the United States. Apart from the standard touristy things they found memorable about the U.S., they were all greatly impressed that they could go shopping for almost anything in the middle of the night. Even to modern Europeans, the concept of midnight shopping seems fantastic. Imagine their amazement when I explained that, in the U.S., they could go shopping on almost any holiday as well.Today’s business culture thrives on on performance, success, winning, and constant availability. The world continues on its frenzied trend toward 24×7 services, “five 9’s” of up-time, and six sigma products. The drive to succeed has provided us with all sorts of modern conveniences—and plenty of modern instances.Perfect.But I’d like to say a few words in defense of failure, because I believe failure has an important purpose and we can’t simply wish failure away by focusing on success. In my view, systemic failures can be averted simply by introducing some planned imperfections into the systems we build. One of the lessons that should be learned from the current financial crisis is how securities originally thought to be insular from the housing market were proven to be directly on the financial fault line.Here’s the problem: when a system (such as a computer network, power grid, or financial market) performs steadily for a period of time, it fades into the background and seems as certain as the rising of the sun. Over time, a complex and interdependent mesh of relationships develops. Because these dependencies aren’t explicit, it becomes nearly impossible to predict how the beating of the proverbial butterfly’s wings in one part of the system can wreak havoc in another.Is there a way to tease out the dependencies in such networks and develop complex distributed systems that fail safely? I think there’s a simple solution: introduce the element of failure. Shoot for 4 9’s instead of 5. Interrupt the broadcast so that we can run the drill before the disaster strikes. Learning to fail on a regular basis could help us deal better with much larger, systemic failures in the future. Permalink | Filed under: Hybrid Vigor, 21st Century Risk, Social Trust Online | Discuss » DON’T TRUST THE BADGE! OIG CENSURES THE TSA FOR POOR CONTROLS OVER UNIFORMS AND BADGES by Mike Neuenschwander ~ October 14, 2008 Next time you stand in line at an airport, take a moment to reflect on how your driver’s license is more likely to be accurate than the badge displayed by the TSA employees. A front page story in Monday’s USA Today reported on how the United States Office of the Inspector General (OIG) chastised the TSA in an an audit report for improperly managing badges, uniforms, and passes issued to personnel.The agency overseeing security at the nation’s airports failed for years to track security passes and uniforms of former employees, creating widespread vulnerability to terrorists, says a government watchdog report obtained by USA TODAY.The Transportation Security Administration lacked centralized controls over the secure passes issued to some of its employees, according to Department of Homeland Security Inspector General Richard Skinner. The passes grant people access to the most sensitive areas of an airport, such as where baggage is screened or planes are parkedInvestigators found numerous cases in which former employees retained their passes long after they had left the agency.The investigation also found that TSA uniforms were frequently not collected when employees left or were transferred.People using improper badges, IDs or uniforms — particularly in combination — “could significantly increase an airport’s vulnerability to unauthorized access and, potentially, a wide variety of terrorist and criminal acts,” the report said.For all the effort the Department of Homeland Security has devoted to constructing a nationwide identification system (such as Real ID and New York’s “enhanced driver’s license“), the revelation that even the TSA can’t properly manage identification for its own employees highlights the absurdity relying on identity systems for security. It’s a Catch-22: the more a security system relies on IDs for access, the more valuable the IDs become to attackers. After all, why would a terrorist bother to infiltrate an airport as a mere traveler when it’s easier and more effective to infiltrate as a TSA official?The TSA responded to the OIG report by claiming the infractions were overstated and that the TSA already has made important changes to its programs. The TSA also points out (rightly, in my opinion) that their security program doesn’t rely entirely on badging but depends heavily on the social trust and social capital (my terms) that exits among coworkers in an airport setting:While TSA has more than 43,000 security officers in airports nationwide, each airport has teams and shifts of employees working regular shifts who trained to look for threats and things that don’t look right. If a former employee or someone impersonating an officer showed up at a checkpoint or a sterile area of an airport, they would be subject to the eyes and ears of on-duty officers and random employee screening throughout the airport.In short, a badging system that aids social processes for trust will be reasonably effective at thwarting attacks; but a badging system that attempts to replace social trust (as I think the Real ID Bill would do) is destined to fail and desimate social capital in the process. Permalink | Filed under: Hybrid Vigor, Social Trust Online | Discuss » MONEY CAN’T BUY YOU TRUST:WHAT WE WON’T BE GETTING FOR $1 TRILLION by Mike Neuenschwander ~ October 12, 2008 Managing Risk is Not EnoughLate last year, I sat in a meeting in which several bankers were present. During the meeting, one of the bankers said something that in retrospect belongs in the highlight reel of “famous last words.” The comment went something like this: “We’re bankers! We understand risk, because it’s our business. We know how to manage risk. That’s why industry and government are looking to us to solve risk-related problems.”As ridiculous as this statement now seems (especially to those of us whose retirement funds have been decimated) I’d argue that the statement holds true—even in a grizzly market. Yes, good bankers do know how to manage risk—their own risk. Which is why the best investment bankers view a recession more like a sabbatical, while the rest of us have to figure out how to keep food on the table. And even as the government is coming to the rescue, the Fed won’t be doing the risk management part: they’re paying bankers to figure out how to get out of the mess they’ve created. Talk about a win-win!Not that these guys aren’t suffering. Here’s a bit of anecdotal evidence of how bad things have gotten:This is a finance guy making a ton of money and he was trying to decide whether he should sell the country home in Connecticut, the apartment here in the city or the 8,000-square-foot dream home in Oregon that he just finished… (from “End of an Era on Wall Street: Goodbye to All That“)A dilemma for sure, but global financial crises demand desperate measures.Markets Transfer Risk, Not Trust The foundation of modern financial markets is seeped in the mathematics of probability. Over the years, rules and regulations have been piled on to promote competition and reduce overall risks. The results are compelling. And something in the human psyche tells us that since these guys are so much better at managing their own risk—and they obviously are, since they have several luxury houses at their disposal—then maybe we should trust them to manage our risk too. A market allows us to transfer our assets to someone who can navigate a risky terrain better than we might ourselves.But risk management in itself doesn’t guarantee collaborative outcomes—that is, outcomes in which gains and losses are shared proportionally—nor does risk management inexorably produce social trust.Clearly, the current crisis is as much about a breakdown in social trust and a loss of social capital as it is about debt ratios and credit freezes. We’ve already seen how even an injection of more than a trillion dollars won’t allay lenders’ anxieties. If you’re not an actuary, the reason is obvious: anxiety isn’t a risk equation, it’s a human emotion. Anxiety is symptomatic of a collapse of trust.The problem with words like “anxiety” and “trust” of course is that they’re mystical to the mathematical mind. How’s a actuary to calculate the value of trust futures? or social trust default swaps?Restoring Social TrustWhat the world needs now is a renewed social trust. Until recently, social trust seemed like an intangible commodity with a will of its own; it couldn’t be systematically cultivated, measured, forecasted, or valued. But a growing canon of research into successful resolutions of social dilemmas demonstrates that collaborative arrangements are more likely to emerge when certain conditions are met. It’s time to develop mechanisms that foster pro-social behaviors by supporting natural processes of recognition, reciprocity, and community awareness. Most of the fundamental research is available to build such a system, so it’s more a matter of applying these ideas to real world relations, institutions, and markets.Laws of Relation Revisited: Codifying Pathways to TrustA few years ago, I challenged the software industry to take ideas about trust from various branches of science (such as game theory, social science, evolutionary biology, and psychology) and produce a system that greatly improved the likelihood of collaborative outcomes and improvement in social trust. The system could then be applied to trust-related problems on the Internet, such as spam, identity theft, and credit fraud. If such a “trust leavening” could be invented, it might even be applicable to a wider range of problems, including stronger trust in financial markets.To design a trust system, there needs to be some workable theory on trust that explains how it’s created, how it’s maintained, and how it’s used. The theory needs to be intellectually accessible to a wide range of professionals. Just to get the conversation started, I offered three “Laws of Relation” (which are really more like postulates at this point). They are:Law of Relational SymmetryThe party in control of the terms of a relationship controls the relationship and, in the absence of symmetrical countervailing controls, will eventually exploit the other participants.Law of Relational RiskContribution to the relationship that is not met proportionally by the other participants is a loss to the contributor.Law of Relational ProjectionAny party with more than an informational interest in a relationship is a participant in the relationship.As it turns out, financial markets illustrate these laws rather well.The first law says that exploitation will occur in asymmetrical relations. Who controls the playing field in financial markets? The SEC? The Fed? It seems in many cases, the large investment banks who continually added exotic financial instruments, pushed for rule changes, and lobbied for reduction in government oversight. The prevailing belief in Washington was that these are smart guys who know how to manage risk. As it turns out, they were easily the smartest guys in the room and they were exceptional at managing their own risk, but not motivated at all to think of market risk. The average investor has almost no say in matters regarding market rules, so the relation was systematically slanted in favor of the rule makers.The Law of Relational Risk predicts that collaborative outcomes are more likely when all parties experience a loss proportionally. The losses on Wall Street have been catastrophic, but not for everyone. Many of the people directly involved in creating this mess won’t suffer from the crisis the way some of the shareholders or general public will.And the Law of Relational Projection distinguishes participants from on-lookers. One thing that has been a surprise to everyone is how interrelated and interdependent we’ve all become. Interdependency can be a vital pro-collaborative element to relations (per the Law of Relational Risk). In fact, it’s our agreement on a shared conflict, our mutually assured financial destruction–that has formed the basis for cooperation in congress and among world banks. But the strategy only works well when these relations are explicit. Instead, as our home loans have been sold, resold, hedged, and bet on through derivatives of derivatives, it’s no longer clear to anyone who is a participant and who’s a bystander. So what’s happened is that people who were believed to be bystanders have brought the house down with little or no accountability.Designing Pro-Collaborative SystemsFew of society’s existing institutions are set up to support collaborative outcomes, and so exploitation is inexorable. With an informed understanding of elements that promote collaboration and trust, we can greatly improve our institutions, including financial institutions. I’ll continue to present my ideas on how to do this in follow-on posts, but I hope that professionals from a wide range of disciplines will contribute their ideas as well. Permalink | Filed under: Hybrid Vigor, Collaboration and Sensemaking, Policy and Decisions, Social Trust Online, Valuing Intangibles | Discuss » RESPONDING INSTINCTIVELY TO THE FINANCIAL CRISIS by Mike Neuenschwander ~ October 7, 2008 Today, there was some interesting discussion in the New York Times on human instincts for punishment and forgiveness. According to the article, researchers have found that within a population, some percentage of people (between 10 and 40%) are attuned to following their “referee instincts” by ensuring evil-doers get their due. This instinct has clearly come into play during the wide-spread financial crisis:The public urge for punishment that helped delay the passage of Washington’s economic rescue plan is more than a simple case of Wall Street loathing, according to scientists who study the psychology of forgiveness and retaliation. The fury is based in instincts that have had a protective and often stabilizing effect on communities throughout human history. Small, integrated groups in particular often contain members who will stand up and — often at significant risk to themselves — punish cheaters, liars and freeloaders.But allowing such impulses to play out on a grand scale can also exacerbate a crisis. The article continues:Some experts believe that Japan’s disastrous delay in bailing out its banks in the early 1990s was caused in part by a collective urge to punish corrupt bankers, and they fear a similar outcome today.Game theory suggests alternative approaches to resolving social dilemmas. In running various gaming scenarios in which participants respond to each others’ uncooperative behaviors, the best outcomes for all players are achieved when players follow simple tit-for-tat strategies and allow for forgiveness. On this subject, the article states:Fortunately for the economy, researchers say, a strong countervailing psychological force is also at work: the instinct to forgive, and to cooperate…. Running thousands of computer variations … scientists have found that the strategies that pay off the most are tipped toward cooperation.Agreed. But we’re not in a laboratory, so the quaint models of game theory aren’t so readily applicable. In real life things are so much messier, if only for the phenomenal scale on which the current crisis is playing out. It’s not even clear how the average person can actively participate in responding to the crisis. I imagine most just want to board up their windows, live off of food storage, and wait for the hurricane to pass. I imagine the average person won’t be quick to take advice from financial advisers or government officials, because so much trust has been lost in these relationships. If so, the result would be an even worse situation for everyone.The financial crisis highlights our need for greater social trust. Humanity has learned to stitch societies into a globally integrated economy, but our natural pathways to trust have languished. The explosions in the size of the organizations and communities we associate with, the amount of information we need to process, and the complexity of the system of trade we must rely on for our well being have overwhelmed our native, instinctual ability to form relationships based on trust. How to construct a basis for trust in the modern era is, in my mind, the most important issue of our time. Permalink | Filed under: Hybrid Vigor, Social Trust Online | Discuss » ∞Previous Entries »
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