Platforms for Good Ideas, Credit for Working Class Places, & Goodhart's Law
Small Cities Weekly | 06.14.2024
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Platforms for Good Ideas
I mentioned a few weeks ago reading How We Got to Now by Steven Johnson. I enjoyed it and recently picked up another of his books, Where Good Ideas Come From. There is a lot in it that resonates with what I’ve learned over the past few years, and other things that are more challenging.
One of the chapters is devoted to “platforms” for good ideas and how they come about. I don’t have clear reflections yet, except to say that it seems that we are still missing some key tenants when it comes to creating entrepreneurial platforms, or ecosystems as many call them. The most successful, both natural and human-made, platforms rely much more on emergence, interconnected self-interests, recycling of “waste” products, and networks than the programing and services that dominate these systems today.
I’ve pulled a few passages (and bolded specific lines) from the book that I found especially helpful and challenging below. If you have thoughts on any of these, or if you’re read the book, I’d love to hear your reflections.
Most hotbeds of innovation have similar physical spaces associated with them: the Homebrew Computing Club in Silicon Valley; Freud's Wednesday salon at 19 Berggasse; the eighteenth-century English coffeehouse. All these spaces were, in their own smaller-scale fashion, emergent platforms. Coffeehouse proprietors like Edward Lloyd or William Unwin were not trying to invent the modern publishing industry or the insurance business; they weren't at all interested in fostering scientific advancement or political turmoil. They were just businessmen, trying to make enough sterling to feed their families, just like those beavers constructing lodges to keep their offspring safe. But the spaces Lloyd and Unwin built turned out to have these unusual properties: they made people think differently, because they created an environment where different kinds of thoughts could productively collide and recombine.
[pg. 188-189]
Platforms have a natural appetite for trash, waste, and abandoned goods. The sea bass and mussels making a home in a decommissioned A train, like the songbirds nesting in the abandoned homes of the pileated woodpeckers, mirror a pattern Jane Jacobs detected years ago in urban development: innovation thrives in discarded spaces. Emergent platforms derive much of their creativity from the inventive and economical reuse of existing resources, and, as any urbanite will tell you, the most expensive resource in a big city is real estate.
"If you look about, you will see that only operations that are well established, high-turnover, standardized or heavily subsidized can afford, commonly, to carry the costs of new construction," Jacobs wrote. "Chain stores, chain restaurants and banks go into new construction. But neighborhood bars, foreign restaurants and pawn shops go into older buildings. Supermarkets and shoe stores often go into new buildings; good bookstores and antiques dealers seldom do."
[pg. 199]
As Jacobs observed:
As for really new ideas of any kind - no matter how ultimately profitable or otherwise successful some of them might prove to be - there is no leeway for such chancy trial, error and experimentation in the high-overhead economy of new construction. Old ideas can sometimes use new buildings. New ideas must use old buildings.
[pg. 200]
The entire coral reef ecosystem is characterized by similarly intricate and interdependent food webs, the full complexity of which scientists are only now beginning to map. Once you understand the may biological platforms build on the waste products generate within the system, Darwin's Paradox ceases to be a paradox at all.
The symbiotic relationship between coral and zooxanthella increases the total energy captured from the sun, and the tight nutrient cycles created by the productive reuse of energy sources by so many densely interconnected species means that the habitat can do much more with less. You get a watery metropolis with astonishing diversity in an environment that by rights should be as desolate as the sandy atoll above sea level. It is not competition that drives that process, but rather the inventive collaborations of density. The reef platform does not have the luxurious supply of nutrients that tidal estuaries do, delivered daily by the freshwater rivers that carve topsoil out of riverbanks upstream. But the reef platform thrives nonetheless, thanks to the ecosystem engineering of the coral, and the marvelous recycling of of both shelter and biological waste that makes the platform so vital.
[pg. 202]
Links
You can find links from this and all previous editions here.
Lafayette Square’s Damien Dwin: Investing in working-class people & places, Agents of Impact Podcast
Place matters. And so you're right, the places where I trained did not emphasize geography, and that is core to my work here at Lafayette Square. Along with centering working class employees, we know that labor and geography are two critically overlooked areas in our current system. And one person's overlooked areas [is] another person's opportunity.
As you say, the data reveals most investments today in our private credit ecosystem go to high income zip codes. Most investors are shocked to learn that 50% of private credit goes to just five states, California, Texas, Florida, New York and Illinois, and 80% of credit flows to high income zip codes. So exactly to your point, we have identified an attractive investment opportunity nationally. We think it's a more balanced, geographically diverse approach to investing, where we center working class places and businesses that employ working class people, because we can get paid and see really interesting job creation and economic mobility opportunities by making credit available in those places and in that way.
People spend a lot of time talking about the skewed statistics about where venture capital goes, but private credit seems to follow a similar pattern. Lafayette Square is doing some interesting thing with interest rate deductions when their borrowers enact certain policies for employees.
Slow Ventures PhD Program with Will Quist — indie Interview, Bryce Roberts, indie.vc
If founders become better “investors” in their own companies by deeply understanding their business model, capital efficiency, and growth levers beyond just building great products, it could lead to more efficient allocation of capital.
This is a great interview in general, showing how an early-stage business looks more like a PhD than anything else. But I love this quote above more than anything else. Founders thinking of themselves as investors can completely change the point of view in how to go about starting a business, especially when asking, What risks do I need to remove to prove this to myself, first?
How to drive a stake through your own good heart, Adam Mastroianni, Experimental History
This is the inexorable logic of Goodhart's Law: wherever there's a system, there will be people gaming it. Journals prefer to publish papers with “statistically significant” results, so researchers develop all kinds of clever hacks for slipping their stats under the threshold. The Affordable Care Act legally limited health insurance companies' profits, so those companies started buying clinics and pharmacies, where the profits are unlimited. My local library used raffle off prizes by giving kids a ticket for every book they read, so my sister and I would check out huge stacks of the shortest books we could find, speed-read them, and turn them back in for tickets, two lil living Goodharts.4
That's where the discussion of Goodhart's Law usually ends. Oh, the hubris of the people who design these systems! Oh, the nefariousness of the villains who game them! It's too bad we must live in a never-ending cat-and-mouse game where the good-hearted try to fix incentives and institutions faster than the bad-hearted can Goodhart them. But hey, that's why it's called Goodhart's Law, and not Goodhart's Temporary But Ultimately Solvable Problem.
Goodhart’s Law is frustrating because, while true, it seems impossible to get around. I think economic development and entrepreneurship can often suffer from its effects - what would it mean to not?
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