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Some thoughts on a) specialization and b) aligning knowledge & power, inspired by Arnold Kling’s “Unchecked and Unbalanced” and @ScandalOfMoney's “Knowledge and Power”:
More on the latter here:
More on the latter here:
In primitive societies, people were self-sufficient. They gathered food, made clothing, and found shelter.
Today, no one’s self-sufficient. They’re specialized.
Everything you consume—you couldn’t produce it.
Your daily life depends on the cooperation of millions of others.
Today, no one’s self-sufficient. They’re specialized.
Everything you consume—you couldn’t produce it.
Your daily life depends on the cooperation of millions of others.
Imagine making, say, cereal from scratch.
You’d need to grow the grains yourself, which would mean making tools, which would mean mining metals, which would mean finding metals, which would mean building machinery, etc—you get the idea.
You’d need to grow the grains yourself, which would mean making tools, which would mean mining metals, which would mean finding metals, which would mean building machinery, etc—you get the idea.
How does this happen? Markets.
Entrepreneurs constantly test new types of specialization and markets determine which specialization prospers and which dies.
This isn’t dictated by a planner but from the decentralized actions of many founders testing ideas in search of profit.
Entrepreneurs constantly test new types of specialization and markets determine which specialization prospers and which dies.
This isn’t dictated by a planner but from the decentralized actions of many founders testing ideas in search of profit.
Decentralized markets are able to send signals, averting surpluses and shortages and guiding inputs to their most effective use.
On the contrary, a centralized system’s ability to allocate its resources is only as good as the intuition of its central planners.
On the contrary, a centralized system’s ability to allocate its resources is only as good as the intuition of its central planners.
The less knowledge there is, the more central planning makes sense
The more knowledge there is, the more decetnrlizzed systems, notably markets, make sense.
What leads to increasing knowledge?
Specialization.
The more knowledge there is, the more decetnrlizzed systems, notably markets, make sense.
What leads to increasing knowledge?
Specialization.
Zooming out:
Arguably, it was possible 400 years ago for a single individual to understand what was then known about every scientific subject or to read every book—
Or in other words, it was far easier back then to align knowledge and power in one central planner.
Arguably, it was possible 400 years ago for a single individual to understand what was then known about every scientific subject or to read every book—
Or in other words, it was far easier back then to align knowledge and power in one central planner.
Today, there is increasing specialization across the board.
New species of jobs, products, and areas of expertise are appearing at an exponentially increasing rate.
The knowledge at the center is shrinking relative to knowledge at the periphery—edges of networks.
New species of jobs, products, and areas of expertise are appearing at an exponentially increasing rate.
The knowledge at the center is shrinking relative to knowledge at the periphery—edges of networks.
This is why we don’t have many Leonardo Da Vincis today—people who are world class at many disciplines.
H/t @jon_choi_
H/t @jon_choi_
However, as information has become more diffuse (thanks to specialization), political power has become more concentrated.
Scale creep - population increases while the size of the jurisdiction remains constant
Scope creep - jurisdictions undertake more + more activities each yr
Scale creep - population increases while the size of the jurisdiction remains constant
Scope creep - jurisdictions undertake more + more activities each yr
One area where the divorce was uniquely felt was the financial crisis of 2008.
Innovative financial instruments were understood by financial engineers (they had the knowledge), but not by executives, policymakers, and regulators (who had the power).
Innovative financial instruments were understood by financial engineers (they had the knowledge), but not by executives, policymakers, and regulators (who had the power).
It’s interesting to watch knowledge & power play out in venture capital
Just as one person could have understood all of physics at one point, it was possible for one person to specialize at “internet investing” and be an expert at all.
Today that’s unfathomable
Just as one person could have understood all of physics at one point, it was possible for one person to specialize at “internet investing” and be an expert at all.
Today that’s unfathomable
To put a fine point on it, back then an investor could source, diligence, and support across the board.
As specialization has increased, those activities have become increasingly unbundled, and sub-categories & new experts have emerged.
As specialization has increased, those activities have become increasingly unbundled, and sub-categories & new experts have emerged.
Sidenote: crypto, for example, even in it’s most nascent stage, has dozens of sub categories, requiring corresponding areas of expertise.
Now not just investing or sourcing. Law. Game Theory. Engineering. Math. Finance. Social Science. Product expertise.
Now not just investing or sourcing. Law. Game Theory. Engineering. Math. Finance. Social Science. Product expertise.
Another side note: When ppl talk about why decentralization matters, particularly in crypto, they talk about broadening ownership, better aligning incentives, decentralizing governance, but it’s worth explicitly calling out that decentralization betters align knowledge & power
VC has unbundled significantly and yet most VC is still GPs on Sandhill rd acting as masters of the universe
This is why we at VG (& others) are trying to decentralize sourcing, diligencing, and supporting—to leverage specialization and, crucially, better align knowledge & power
This is why we at VG (& others) are trying to decentralize sourcing, diligencing, and supporting—to leverage specialization and, crucially, better align knowledge & power
Broadly, specialization will only increase, following from the increase of nonzero sum behavior*, so I’m excited for next generation of decentralized organizations & markets to help aggregate and make sense of this increasing knowledge.
*
*
Increasing specialization & atomization of VC:
- Sector specific funds.
- Sub-sectors: “Within crypto, privacy. Within biotech, longevity." (Now 6 longevity funds!)
- Functional area VCs
- Specific talent pool (geo/age/URM)
- Scouts unbundling sourcing, deciding, supporting
- Sector specific funds.
- Sub-sectors: “Within crypto, privacy. Within biotech, longevity." (Now 6 longevity funds!)
- Functional area VCs
- Specific talent pool (geo/age/URM)
- Scouts unbundling sourcing, deciding, supporting
