Tyler Cowen on invisible competition

Here is an old 2007 essay of mine from Wilson Quarterly, one which most of you have not read.  The key point is that your most critical competitors are now much more distant and indeed invisible than before, and that this will have social and economic implications.  Here is one excerpt:

George Shackle, the neglected Scottish economist, wrote in his 1973 book Epistemics and Economics that the entrepreneur imagines a future no one else sees. For Shackle, the entrepreneur is not just a trader, a manager, or an initiator of enterprise. The fundamental entrepreneurial activity is creative, and it occurs in the mind rather than the physical world. The creators of YouTube and Facebook did not require a new raw material or even a radically new programming technique; most of all they were blessed with the ability to imagine a new way to present material and connect people to one another. Their competitors, if that phrase can even be used, were the young potential entrepreneurs who might have hit upon similar ideas first, but didn’t. These phantom rivals were not out in the public arena, promoting their corporations or thumping their chests and proclaiming grand plans. Rather they were quietly doodling away on their computers in scattered suburbs and cities, perhaps after finishing their homework for the ­evening.

Invisible competition also gives an edge to people who can manage and interpret their own feedback. In the past, if you lost a job to a person who was smarter than you or had a better line of patter, you could size up the winner and gauge where you fell short. Now you can’t always see who crossed the finish line ahead of you. The future will favor people like Madonna, the pop star and media icon who has successfully reinvented herself so many times because she has an uncanny sense of where popular culture is bound and how to get there ­first.

And this:

The nations most disadvantaged by invisible competition may be those that exist in proximity to a key rival. They risk focusing too narrowly on one challenge and getting used to the idea that competition takes a highly visible form. Transfixed by its rivalry with India, Pakistan may be oblivious to other concerns. A similar preoccupation makes it harder for many people in the Middle East to take a global ­perspective.

I still like the piece.


"One-time Democratic presidential candidate Howard Dean was a star on the Internet, but in front of the cameras he lost his temper, and his shot at the White House."

Didn't work for Dean but worked for Trump.

20 years later and I still don’t know why Dean’s speech was considered losing his temper or why it made him unqualified to be President. Voters really are fickle beasts.

Might be a valid idea overall, but Facebook seems like a poor example. Zuckerberg wasn't following an idea that was invisible to the rest of us, he was creating literally an electronic version of the facebook that many colleges had. Or if you think his vision went beyond that, his competitor was the opposite of invisible: MySpace.

Social media is the inevitable result of a greater innovation: the internet. The first modern social network, Sixdegrees.com, was built in 1997, a few years after internet usage began to skyrocket. Most invisible competition is constant-accelerating extrapolation from a mixture of Big Bang innovations such as the internet. Facebook was inevitable (use internet to connect people to people). Uber was inevitable (use internet + smartphone to connect people to cabs). Etc... Most invisible competitors don’t create genuinely, fundamentally new things. They learn a lot about new technologies and trends and find a novel way to combine them.

I like the theory, but invisible competition is somewhat mitigated by the ability to purchase the inputs to said competition. You don’t know what huge creative insights your competitors are having, but you may know the factors that got them there. Education, R&D spending, a culture of openness, personal freedom, strong universities, etc... Those can all be replicated with time if prioritized. Eventually, you foster invisible competition in your own society. This holds at both the macro and micro level. As an individual, going to college makes you more of a black box which can generate novel ideas.

The irony of the Middle East example is that the Middle East floundered precisely because it did not copy the inputs to modern greatness. It peaked when it had a feverish pursuit of knowledge in several scientific domains. A scientific culture, divorced from commercial considerations, was better than most alternatives....until Europe got out of its Medieval slumber and married a scientific culture (inspired by the Arabs and Greeks/Romans alike) with a commercial one.

The corporation, a chance but convenient discovery formed to mitigate voyage risk on naval trade routes, is what propelled Europe ahead of the rest of the world. In contrast, the pinnacle of cooperation among Arab businessmen was to have 1, 2, or maybe 3 merchants in a loose grouping before they got into a fight and disbanded. Loud religious talking heads prevailed in comparing corporations to idol worship. Surely the corporate charter shouldn’t supersede the Quran. Surely the corporation shouldn’t replace God! (Sarcasm, I think that’s a preposterous view and it doesn’t have a proper Islamic basis) There was a grand debate in Islam centuries ago that was akin to Deism vs. Determinism, and the latter won out. That’s why a disproportionate amount of Muslims are so literal in their faith. There was no lack of reasonable scholarship, but a perverted sort of virtue signaling game theory allowed hard-liners to win the debate and imply that competitive viewpoints constitute blasphemous “religious innovation.” Interest is still haram, even in non-userous amounts. You can’t copy something if you think it’s a ticket to eternal damnation.

"The future will favor people like Madonna"

Today is that future and Madonna has been pretty irrelevant for a while now.

I'd like to be $10 million irrelevant :/

Awww, shucks, since you put it like that, we should presumably let the GAFAs acquire whatever companies they like...

Zuckerberg imagined a web site for posting pictures of hot looking girls. Yes, that was Zuckerberg's vision for Facebook. What Zuckerberg and the founders of YouTube, who were veterans of Peter Thiel's PayPal, understood is the self-absorption of millennials.

Madonna is a show character.

Who successfully reinvents itself so many times because of an uncanny sense of where popular culture is bound to and how to get there ­first...is Madonna Inc.

Madonna Inc. is a group of people that contribute to the Madonna character success. There should be a core team of managers, public relations, financial advisors, health coach, childcare and a extended team of freelancers that include composers, sound engineers, logistics, make-up, clothing, supporting dancers, session musicians, etc. All these people is the successful Madonna that reinvents herself.

It bothers me that people that relies on a large team for their success are assessed only as individuals. Come on, just read the credits in the new Madonna album.

It's takes a village, but all we can fit into our heads is a village.

Successful people aren't resistant to change (i.e., they have a low RC factor - yes, there really is a thing called RC). Maybe it's not Zuckerberg, but someone at Facebook has a high RC factor. By that I mean Facebook is addicted to the advertising model and won't change even though it may destroy Facebook. Sure, the advertising model made Facebook, but now the addiction is killing it.

"A similar preoccupation makes it harder for many people in the Middle East to take a global ­perspective."

Are you sure? They probably take the global perspective that those damned Jews are everywhere and control everything. It may be a somewhat hysterical perspective but it is global all right.

Be that as it may, I doubt that it's a big contributor to the shortcomings of the Middle East. If the European Jews had cleared off to Madagascar rather than Palestine do you suppose that the Middle East would be other than a group of what your President would presumably call shitholes?

"Invisible competition hurts some Americans, and its manifestations are not in every way flattering to American society, but nonetheless, it is more to be embraced than feared."

This would be a lot easier to accept, even to cheerfully embrace, if we hadn't been forced to cope with invisible ideology at the same time.

George Shackle was not Scottish. He was Cambridge born and bred.

I agree with this view of competition. I work in a small private equity firm, and the analogy of competition we often use is one of submarine warfare. Rather than imagining one's competition marching around in the open for us to see, we think of them as relatively invisible, submerged below the waves. However, this does not mean that they are not present and active.

Interesting that an investor gets this. Another investor, Richard Koch, retired long ago from Bain and Co., has written extensively about the way to manage this invisible information. See The 80/20 Principle and subsequent books, This article is the economist's rationale for what the investor and entrepreneur discover. The book is a pretty useful dissection of the kind of thinking that produces results in that environment...Koch is now worth $500M in USD. Another good take on this is 80/20 Sales and Marketing by Perry Marshall. While economists debate this phenomenon, entrepreneurs have gotten rich from it. ;-)

Comments for this post are closed