The attack of the digital revolution: a conversation with Bill Janeway

A fast changing world, driven by staggering breakthroughs and new fissures opening up. Can we make sense of patterns of change across the globe during this time of exponential technology?

In this series, I speak to some of the most brilliant minds building, investing in, or analysing the near future. Subscribe on this page to get notified of future columns and let me know what you think.

I spoke with Bill Janeway, a venture capitalist and economist who had a front-seat view of the development of Silicon Valley and the VC industry during his fruitful career. (You can listen to the full conversation here.) In his recent book, Doing Capitalism in the Innovation Economy, Bill traces the history of what he calls a "three-player game" between the markets, the financial capital and the state, warning of the "dark side" of this game unraveling in our time.

State funding enabled deep innovations

In the decades following the World War II, the U.S. Defense Department funded research and development of hardware and software that created the digital revolution. The output of the research was not ready for commercial prime time, but this state funding enabled companies such as Intel and Texas Instruments to lower the costs and establish a reliable production, as it progressed down the learning curve.

The most obvious example this state funding is the Internet, originally called the ARPANET.

In 1982 when Ronald Reagan became President, he notoriously said "Government is not the solution; government is the problem." None of the pioneers of Internet would have agreed with President Reagan. On the contrary, the government was their collaborative, constructive, supportive partner in exploring the frontier of the digital technology"

In 1982 when Ronald Reagan became President, he notoriously said "Government is not the solution; government is the problem." None of the pioneers of Internet would have agreed with President Reagan. On the contrary, the government was their collaborative, constructive, supportive partner in exploring the frontier of the digital technology"

The three-player game

Bill drew inspiration for his analysis of the relationship between the state, the market economy, and the owners of financial capital from physics. The three-body problem in physics describes the fact that the exact behaviour of three or more bodies can't be written down: there's an infinite number of configurations, and no state of equilibrium. Similarly, there is no equilibrium in the relationship of the three players. Bill describes the current situation as the dark side of the three-player game in which the state has been delegitimised as an economic actor in the Anglo-American world. This brings into question our societies' capabilities to lead in the next revolution, the green clean revolution.

As Bill says, "Over the last five, six years since the global financial crisis and the Great Recession through the recovery period, what we've seen is that the digital revolution no longer needs any support or subsidy from the government. On the contrary, it's mature to the point where it is attacking the authority of the state at multiple levels."

"Over the last five, six years since the global financial crisis and the Great Recession through the recovery period, what we've seen is that the digital revolution no longer needs any support or subsidy from the government. On the contrary, it's mature to the point where it is attacking the authority of the state at multiple levels."

Alternative versions of the three-player game

The cover of the new edition of Bill's Book Doing Capitalism in the Innovation Economy is adorned with an image of the Chinese satellite that demonstrated quantum communications over 3,000 km.

It is on the cover for a reason: China is at the frontier of quantum research thanks to the state funding; the Chinese government is resolute to become the leader of innovation economy (I recently spoke to Kai-Fu Lee about this, with special focus on China's AI efforts. Read the conversation here.) Bill views their approach to the three-player game as distinct: "I call it the three-player game with Chinese characteristics: as an alternative, somewhat consciously, somewhat unconsciously, the apparatus that we viewed through the Orwellian lens, the apparatus of surveillance, not only is available to repress and punish those who create unrest, but potentially, as instruments for finding out what's generating the unrest and doing something about it before it spills over to threaten the legitimacy of the regime."

I call it the three-player game with Chinese characteristics: as an alternative, somewhat consciously, somewhat unconsciously, the apparatus that we viewed through the Orwellian lens, the apparatus of surveillance, not only is available to repress and punish those who create unrest, but potentially, as instruments for finding out what's generating the unrest and doing something about it before it spills over to threaten the legitimacy of the regime.

What do you think? What is the dark side of the current configuration of the three-player game? What are its consequences? And what about the ways to break through?

There are many more brilliant insights from this conversation which you can listen to on iTunes, Spotify, Overcast, Breaker & Stitcher. #brilliantminds