13.

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In 1903, the American Wright brothers were the first people ever to fly in an aeroplane. Four years later, on December 23rd, 1907, the US military issued a sensational call for proposals for an aircraft that could lift two passengers with a total weight of 350 pounds (160 kilos), contain sufficient fuel for a flight of 125 miles (200 km) and achieve a speed of at least 36 mph (58 km/h)¹⁹² And so the era of mass aviation had begun.

Exactly 100 years later, on a sunny Friday afternoon in March 2007, the editor of Wired Magazine, Chris Anderson, was looking forward to his weekend. His publication always received lots of test specimens of technical gadgets that people hoped it would cover. And for this weekend, Anderson had decided to take two of these home, namely a LEGO Mindstorm kit to build robots and a remote-controlled model aeroplane. The idea was to play with the two together with his children.

The weekend arrived, and the children first created a LEGO vehicle, but they soon tired of it, as it couldn’t do much. Then they went to a park to launch the plane, which headed straight for a tree-top.¹⁹³

Later that day, as Chris went jogging, he suddenly had the idea to combine the two systems. He would use the LEGO operating system to provide better control of the model aircraft by turning it into a drone. The difference between a drone and a remote-controlled model airplane is that the drone can receive pre-programmed instructions and then run on autopilot. This could work because the LEGO set included an accelerometer, a compass, a gyroscope and a Bluetooth transmitter that could be connected to a wireless GPS sensor (this is yet another example of the creative design space in action).

A few weeks later, he and his family made the first drone test flight. At this time, the cheapest drone in the world was the Raven, which you could buy from AeroVironment for $35,000, and Anderson’s experiment gave him an idea: try to make a mass produced drone that had 90% of the Ravens functionality, but which was cheaper, because it used cheap standard parts.

Much cheaper.

But this required a creative social space. He therefore registered the internet domain www.diydrones.com (diy stood for “do it yourself”), which became an online forum where people interested in drones wrote blogs, created discussion forums and uploaded images, videos and software codes for drone software. Soon the website was humming with activity and it became clear that these hobbyists, by helping each other, could accomplish the most incredible developments with free, shared software and ultra-cheap sensors from microchips, mobile phones and so on. Meanwhile, Anderson founded the company 3DRobotics, which had soon sold more operating systems (software) for drones than were used by the entire US military.

Three years after its launch, this forum had 26,000 members, who built approximately 1,000 new drones a month, and Anderson’s own company was now selling a Quadcopter - a mini helicopter - for $300 - less than one percent of the price of the aforementioned Raven. What Anderson had really done was to create a social environment that could create products. He institutionalized creativity.

This story demonstrates how Western creativity works, when it works best and as we shall see, this tends to involve our five basic conditions for creativity: the small units, change agents, networks, shared memory systems and competition.

The specific process that Anderson used is what is known as crowdsourcing. This is a special kind of de-personalization - a network phenomenon in which many people, who do not know one another or work in the same organization, (many lacking formal qualifying credentials) spontaneously find themselves working together to solve tasks. The internet encyclopedia Wikipedia is written in this way – as co-operation between strangers - and there are now crowdsourcing projects for numerous applications - from writing Linux software to solving problems with a given brand of camera.

Wikipedia is itself a fascinating story. The idea for it came from a economist and former university professor named Jimmy Wales. Originally, his aspiration was to make an internet encyclopaedia called Nupedia, where various experts would write each section, which would be checked and corrected by other experts. But it progressed at a snails’ pace and, in frustration, he developed a small side project called Wikipedia, where anyone could write about any topic without formal controls. This website launched in January 2001, and after only a month, it contained approximately 1,000 articles. It surpassed 40,000 entries in August of that year, and in the spring of 2012 it had reached an incredible 22 million articles. Like Anderson, he had harnassed the creativity he needed.

The amazing thing about Wikipedia is the collective working spirit and morale it illustrates. If someone writes an inaccurate or defective article on a topic, it will often only take a few hours for someone else to correct the deficiencies, until the article is good and rich. To test this, the journalist AJ Jacobs of Esquire Magazine wrote an article about Wikipedia itself, on Wikipedia. This was not only deliberately poor and incomplete, but full of intended misspellings. In the following 24 hours, Jacobs watched in amazement as others went in and improved on the article 224 times; an additional 149 corrections were made by various people, turning his post into an high-quality article.

Wales was a big fan of the ultra-liberal writer Ayn Rand, the Russian/ American novelist, philosopher, playright and screenwriter, who has shocked many and delighted others by advocating strongly that people should, first and foremost, focus on their own interests. Initially, it would seem that Wikipedia is a significant violation of this principle, because its writers work for free and often put in huge effort which is not acknowledged or attributed to them. However, what actually occurs is a voluntary win-win transaction, because most people apparently gain great satisfaction from contributing in this way, as long as they can do so voluntarily. In this case, no-one coerced anyone; it was a win-win scenario.

Today there are myriads of other “wikis” on more specialized topics, and lots of companies use internal versions of this model to share information among employees and external crowdsourcing systems to boost their creative output. The site InnoCentive has created a network of 300,000 registered problem solvers from 200 countries that by 2014 had received more than 1,500 awards ranging from USD 5,000 to one million each. Recently, two scientists studied 166 scientific problems posted there and found that 49 of these were solved, mostly by people who had expertise that was very different from that of the people who had posted the problem.¹⁹⁴ For instance, NASA had, for years, tracked solar flares (a sudden flash of brightness observed over the Sun’s surface), but could not figure out an accurate way of forecasting when they would occur. So it posted its data and outlined the problem on InnoCentive in 2010, and a retired radio frequency engineer called Bruce Cragin responded. Cragin knew nothing about solar flares but a whole lot about something called magnetic reconnection. Using this knowledge, he quickly came up with a model that could forecast the solar flares rather well.

This is the power of crowdsourcing – a stranger who has no role or credendials assumed relevant to a particular problem, and who – in this example – knows nothing about solar flares, figures out how to solve the problem anyway because he knows something else that you don’t. This is a variation on the “social space” concept, where the inner circle typically comprises people working in your organization; the next layer is made up of other people with relevant credentials and the outer circle is everyone else, who you acces via crowdsourcing techniques.

There are many other crowdsourcing types, some of them relating to the exchange or aggregation of technological information over the internet, such as in the example of the website www.diydrones.com.

Another variant of crowdsourcing is offering public inducement prizes for the solving of important social or technical problems. The advantage of inducement prizes compared to, for example, Nobel prizes (awarded on the basis of results), is that the former encourages future achievement and is awarded only if defined objectives are met, rather than past achievement, which may be less effective.

Inducement prizes are especially effective when you can clearly define the problem you want solved or the task to be undertaken, but where it is not clear how this can be achieved. It also works well where there is extreme imbalance between “Schumpeter profit” and “alchemist fallacy” (defined earlier) – in other words: where society may benefit significantly from a solution, compared with the gain made by an innovator solving it in a commercial market.

The classic example of the inducement prize is innovation awards. One specific example is the famous Longitude Competition, which was organized by the British government in 1714.¹⁹⁵ The motive for this was the need to solve the problem of sailors being unable to determine, reliably, their east-west position (their position in longitude), as the Earth revolved around its axis towards the east. Their position to the south or north (latitudes) could be calculated from positions of the stars in the night sky.

To find their longitude, they had to know exactly what time it was and then compare the visible stars with a star map. This problem was very important, because a ship that does not know its position on the sea can encounter serious difficulties. Competitors were offered the chance to win £10,000 if they could come up with a method of determining the location of longitude with a precision of 60 miles, £15,000 if the accuracy was 40 miles, and £20,000 with a precision of 30 miles. The £20,000 corresponds to about £2-3 million (or $3-5 million) today, so it was big money.

Despite the incentive, it took 59 years for anyone to come up with a solution. This came from a carpenter named John Harrison, who during all these years - throughout his career – had worked intensely on the development of a watch that could work with sufficient precision in high seas, in order to win the competition. More specifically, his goal was that the timepiece should not lose or gain more than 150 seconds per day, even if it moved a lot. In total, Harrison received £15,000 pounds for his work, paid out to him at various times, and he died wealthy.

Later, the British and the French governments initiated many other innovation competitions which led to the invention of, for example, the steam turbines and various chemical processes. When Napoleon needed to find a way of preservng food rations for his soldiers, a pastry baker won an innovation prize of 12,000 Francs in 1810 by inventing the airtight tin can.

Many individuals have since launched similar awards to encourage innovation. For example, in 1919, French New York City hotel owner Raymond Orteig promised $25,000 to the first person who could fly directly from New York to Paris - a prize which was won by pilot Charles Lindbergh in 1927.

Since then, many companies – mostly in the US - have used crowdsourcing to solve specific problems as well as to seek general inspiration: IBM has launched several international crowdsourcing projects since 2001, where the best-known was its “Innovation Jam” in 2006, which involved 150,000 participants from 104 countries. Over a period of 72 hours, many of IBM’s own employees and their families, its customers and business partners, as well as some universities, attended. Via a website, participants watched presentations about a number of IBM’s core technologies and were then invited to make suggestions for how these could be applied in practice. This resulted in 46,000 individual ideas that a team of IBM executives turned into 312 more general ideas. Since then, IBM has helped several of its clients develop similar idea competitions to harnass knowledge.

US military research institute DARPA has also run a number of crowdsourcing competitions concerning drones, versatile robots, driverless vehicles and much more. The first competition regarding the vehicles was held in 2004 and involved private firms, individuals, and student teams from different universities competing with driverless cars that should automatically run through a desert stretch of 240 km.

It did not go well because two of the selected cars never made it to the starting line,one flipped over at the start, and none of the remaining 12 made it further than 12 kilometres (5% of the intended stretch). However, the following year the same competition was repeated with 23 participating cars, and this time they all made it past 12 km, and five completed the full distance. In 2007 came the much more demanding DARPA Urban Challenge, where 11 selected teams’ cars had to drive 96 km through an urban environment in a military base, while respecting all public traffic rules. Six out of the 11 cars achieved this. In 2011, the leader of the winning team in the DARPA competition in 2005, German computer scientist Sebastian Thrun, introduced Google driverless cars in a real urban environment in Nevada, after that state made it legal to use such vehicles in June of that year.

Isn’t it amazing that you can go from not being able to drive a single driver-less car more than 12 kilometres in a desert, to having them operate safely in a city environment within just seven years? That’s what crowd-sourcing can achieve, and we should note how it happened: there was no central plan for how it should be done, but there was a clear incentive to get it done and a crowdsourcing platform to organize the process.

Innovation awards represent an effective way of inspiring creativity and identifying talent. The awards can help create new, creative social networks and raise awareness of social or technological problems, while pinpointing a range of possible solutions. Finally, they can motivate students by offering them real tasks to solve. What a fun way to study!

These are excellent examples of how creativity can arise when one completely abstains from central planning and instead focuses simply on motivating people deeply to get things done. According to consulting firm McKinsey, the use of such prizes tripled between 1970 and 2007, growing by 18% annually, on average, over the last ten years. A number of companies such as Idea Crossing, Nine Sigma, Spigiot, BigCarrot and InnoCentive now offer readymade platforms and system solutions for running such contests.

Companies have used innovation awards to complete a wide range of tasks from identifying ways of sourcing more gold in a gold mine to improving a software application that helps people find movies on Netflix, and developing ways to make mice live longer. Google has launched annual “code jams”, where anyone could help solve difficult math problems and the FIRST Robotics Competition in the US in 2008-2009 involved 175,000 students, 16,000 robots, 58,000 teachers and 33,000 volunteer assistants. This competition is repeated each year; thousands of teams compete to build the best robots to solve specific tasks. Another example of crowdsourcing is the International Genetically Engineered Machine (iGEM), a series of global competitions among teams of students to create biological systems from standard components called BioBricks. In another competition programme, called iGEM, participants were, in one case, challenged with creating a strain of the bacterium E. coli, which eminated a luminous green colour. Some teams actually managed to fulfill this bizarre brief. Another task involved the creation of a vaccine against the bacterium Helicobacter pylori. An amateur team from Slovenia won this award. In yet another programme, called DIYbio, various institutions have, since 2005, offered “biohackers” access to their resources in order to create their own bio-experiments with DNA and non-pathogenic microorganisms.

A similar example is the robot PR2, which is based on open software systems known as ROS, OpenCV and PCL. People have written these applications with gusto, and as anyone has been able to follow on YouTube, the robot has through this crowd-sourcing learned to fold clothes, play billiards and do many other things.

Some of the best known competitions are the X-Prizes, which are sponsored by private companies and donors. The organization behind it has, for instance, offered a reward for making a private spaceship that can fly in-and-out of the atmosphere twice in two weeks. In addition, there have been prizes offered for placing a robot on the Moon; for developing small, inexpensive and accurate rockets; for creating a super-cheap mini-lab for home diagnosis of diseases; for technology that can clean up oil spills at sea; for finding ways of reducing poverty and for developing far more environmentally-friendly cars.

Crowdsourcing can also be used to enable closer, virtual on clearly-defined tasks. An example is the crowdsourced computing task project SETI (Search for Extra-Terrestrial Intelligence ), where people make their computers available to a large data-intensive project involving the interception of radio waves from the universe in search for signs of alien civilizations, when they are not using their machines themselves. Similarly, you often see examples of people who, via the internet, share a task of reviewing large quantities of published material in order to pinpoint spedific areas of interest.

One of the most fascinating creative phenomena in crowdsourcing is the observation that members of large crowds are often very good at jointly estimating a numerical value or at choosing between different solutions to a problem. This is especially the case in situations in which individuals cite an opinion without knowing the views of others. The explanation is partly a statistical phenomenon known as Condorcet Jury Theorem (after the previously mentioned “enlightenment” writer, the Marquis de Condorcet). This is about the relative probability of a given group of individuals arriving at a correct decision. In its simplest form, it says that the more people who guess the correct answer to a question out of two options, the more likely it is that their average guess will lean in the right direction. If each person, for example, has a 55% probability of guessing the correct solution to a problem, the probability that the guess is wrong will of course be 45%, if there is only one person involved. But when you increase the number of people guessing independently and take the average of their guesses, the risk of a collective error falls amazingly quickly.

This phenomenon is very relevant to so-called prediction markets. These typically operate like stock markets, so that people bet on the outcome of a future event. The world’s leading expert and pioneer in this area is probably Oxford Professor Robin D. Hanson; he and others have shown that betting contracts predicting who will win a general election are more accurate, on average, than opinion polls.¹⁹⁷ One of the benefits of such markets is that those who participate tend to be knowledgeable about the subject. With the Hollywood Stock Exchange, for instance, one can bet how much revenue a given movie will achieve, or on who will be nominated for an Oscar. Collectively, people do that very well.

Stock exchanges are obviously also prediction markets, and here, economists have discovered that even though stock markets are sometimes/often mistaken, they are better at predicting large turning points in the economy than almost any other indicator. This is true even though they suffer from the problem that participants can see each other’s predictions via the stock prices, which create group-think problems.¹⁹⁸

A number of multinational companies such as Eli Lilly, HP, Deutsche Bank, Google, Goldman Sachs and Microsoft have been using prediction markets as tools for forecasting important events. For example, in August 2004, Microsoft launched an internal market for assessing the number of cars that would successfully complete the aforementioned DARPA 2004 Challenge; participants correctly predicted that the result would be “none”. That same year, it made a prediction on when a specific internal software project would be completed. The project leaders said “November“, but just three minutes after the betting contract was opened, the prices traded at levels indicating only a 1.2% chance that this target would be reached. Although this crowdsourced assessment later increased to 3%, the betting contract’s behaviour persuaded management to postpone the release date. The programme was finally released in February 2005.¹⁹⁹

Incidentally, crowdsourcing is also used to create a phenomenon known as collaboratory filtering. Anyone who has used Amazon or iTunes (or many similar online shopping services) will have experienced the phenomenon. These websites register what each user is clicking on and buying. They use this to create a database of people’s preferences, deducing what each user might like from what similar users have liked. They have thus created virtual collaboration between lots of people who learned from each other without ever knowing each other. It is a variant of the same mechanism which helps to make Google so efficient at predicting searches.

Speaking of the internet, we must also mention blogs. Here you have amateurs acting as web authors, and quite often they do this skillfully and with an enthusiasm that even professional journalists, writers or scientists can find hard to better. Some bloggers earn revenue from advertisement sales, whereas many simply do it fun, as an intellectual indulgence.

It works. There have now been numerous famous instances, where bloggers have revealed mistakes made in traditional media or among established scientists. One of the more notable examples came about in 2004, when CBS journalist Dan Rather published some apparently very revealing documents about George Bush’s military service. However, soon after the story was featured on television, a blogger pointed out that the documents were written using a proportionally spaced font, so that some letters took up more space than others. In 1972, when the documents were alleged to have been written, people used typewriters for documents of this kind, using a monospaced font, meaning that the documents had to be fake. CBS then fired a number of those responsible for making the television programme and issued an apology to viewers.

A fairly recent example of crowdsourcing is “social impact bonds”. Various countries, including the US, UK and Australia, have started to finance certain social activities via private no-cure; no-pay contracts, where you only get paid for actual results. The principle is to reward institutions according to the measurable social utility of their solutions. For example, you pay a private or charitable organization an amount to provide social services to former prisoners, but the final payment depends entirely on how often they are convicted of further crimes. Full payment happens only if this never happens.

This principle has two major advantages. First, no one signs up for the job if the allocated amount is disproportional to the magnitude of the task. Society will therefore automatically avoid spending money on hopeless projects, as it otherwise often does. Second, there will be great diligence and creativity among institutions that actually volunteer to undertake such activities.

We should also mention another example of crowdsourcing, which may change many sectors: online sharing service such as Uber, Airbnb and many others, which have brought us the voluntary sharing community. We previously saw that you can use Uber to hail a taxi, but the funny thing is that it isn’t really a taxi you hail. It’s anyone with a car. So anyone who wants to be a driver for other people using his own car can just register with Uber, and then they will be hailed. After the journey is over, the client is asked to rate the experience, and so is the driver. Any driver who doesn’t provide a clean car and good service and thus receives poor average ratings, is thus kicked out of business, and any client who doesn’t behave decently cannot use it anymore. Relay Riders does something similar, but where you get the car without the chauffeur. And Airbnb does it for short-term accommodation – you can use it for an overnight stay or to rent holiday homes, but again, bad behaviour by either party sees them kicked out of the network.

A final example of crowdsourcing is crowdfunding, where start-up companies and projects are presented online to potential investors without having to go through a long-winded, complicated process. As an example of this, the Crowdfunding platform Kickstarter funded between 2009 and 2014 more than 50,000 projects with a total of 900 million dollars.

Evidently, crowdsourcing can mobilize huge creative energy. For example, innovation prizes often stimulate a co-operative effort among the participants that are of much greater value than the promised prize award sum. Since X - Prizes promised a prize for flying in space, 26 teams invested a total approximately $100 million in attempts to win the $10 million that were promised as a reward for the winner. Similarly, nine teams spent, between them, around $400,000 trying to win the bounty of $25,000 for flying from New York to Paris. In the 1920s, people were so eager to win this that many pilots and navigators ended up sacrificing life and limb in the process. In the spring and summer of 1927 alone, 40 pilots tried to make long-distance flights over the ocean, and 21 of them died in the attempt. This was obviously tragic, but it indicates, once again, the enormous untapped potential creative resource a society has available to it if it opens up its social space by inviting people to come forward with their own contributions to joint projects.

All this brings us to the interesting underlying phenomenon in creativity that we already discussed with our case of the grey wolf, which turned into 160 kinds of dogs: voluntary co-operation creates diversity.

Just think of this: In the 1970s, computer people were considered, by many others, to be the very manifestation of conformity and centralism. Back then, most computer people worked with mainframes, or what they sometimes called “master-slave computing”, where a central computer provided information to the terminals. Then came “client-server computing”, where local terminals also had their own processing power, which meant delegation of power. The next step was “personal computing”, where everyone had their own PC. And then came the internet, whereby everyone was connected to everyone else. This was sometimes called “networked computing”. Around the same time came “ubiquitous computing”, where computers were built into all sorts of other things that also were interconnected. Then we got our smartphones, tablets and other mobile devices, as a part of “mobile computing”. So computing has spontaneously become evermore diverse and friendly, similar to how one wolf became 160 dogs. Today we have userfriendly computers - large and small - on our desktops, in our pockets and hidden inside many of the things we use, and we can call this the “I movement”.

Developments in the media is another example of spontaneous decentralization. In the 1970s, most countries had a single state television channel, or perhaps two, and maybe two or three state radio channels. But then came terrestrial private channels, followed by cable and satellite radio and TV. After this, along came YouTube and eventually hundreds of millions of individual websites, blogs, chat forums and social media networks such as Facebook and LinkedIn. Media became diverse and decentralized; just like computing.

Such trends towards decentralization – yes, de-centralization - are a logical consequence of spontaneous creativity. It is simply our creative design spaces and social spaces that are expanding. It happens everywhere, and for instance, the new so-called “maker movement” is a new social phenomenon, where people manufacture locally and in small scale. How? With open, compact fabrication tools such as 3D printing, desktop programmable manufacturing tools and crowdsouring to produce physical products at home or in shared “hackerspaces”, “Fab Labs” and other “maker spaces”. These phenomena are now also popping up in educational institutions.²⁰⁰

Decentralization and diversity is actually also reflected in the number of nations. From 1945 to 2015, the number of nations in the world recognized by the UN rose from 50 to 193; typically in alignment with transitions from dictatorship to democracy. For instance, when the Soviet Union and Yugoslavia became democratic, they each divided into a number of smaller nations, as might also happen should China or various Arab nations become democratic. Interestingly, a recent Credit Suisse study showed that small nations (defined as those with fewer than 10 million inhabitants) score, on average, considerably higher on the Human Development Index and Country Strength Indicator than larger countries.²⁰¹ Furthermore, Credit Suisse found that small nations that had emerged out of larger ones, such as Croatia, Lithuania and Kazakstan, had tended to improve their relative standing in the global Human Development Index rankings subsequently.

The point of crowd-sourcing, diversity, decentralization of products, the sharing society and the maker movement is that they all bring us closer to what we can call a true “participation society” - a society where more and more doors are opened so that people can participate to the limits of their personal abilities. Another example is that ever more women receive tertiary education - in fact, in many countries, they have already surpassed men in this respect.

It is also happening due to a new phenomenon called “massive open online courses”, or “MOOCs”. An example was seen when Professor Peter Norvig of Stanford University introduced online transmissions from a class in artificial intelligence on 29 July, 2011. After two weeks, to his astonishment, 50,000 students had signed up for this free course, and even before classes had started, the number of subscribers had risen to 160,000. This was for lectures that would normally be attended by a few dozen people, up to perhaps a maximum of 150. So this was a quick productivity increase in a private university by a factor of approximately 100-fold, but it was also a new opportunity open to anyone, across the globe, with access to a connected computer.

Free online training has since spread like wildfire. Harvard University and Massachusetts Institute of Technology (MIT) collaborate, for example, on the edX program, where they offer single courses free of charge, online, and, by April 2013, the online education network EDU video on YouTube surpassed 100 contributing universities.²⁰² Other international programmes appear in Coursera, which was started in May 2012 and topped its first million students just four months later, and two million by year end.²⁰³ Similar explosive growth has been seen in the online-based learning organizations Udacity and Udemy.²⁰⁴ In Brazil, Kroton Educational has become possibly the world’s largest private educational company partly by emphasizing computerized learning and online courses that can be followed even by students living in the remotest jungle villages. Brazil had approximately six million students following distance- learning programmes in 2014.

The growth of cheap online education offers countless opportunities, and Professor Anant Agarwal, CEO of edX, has proposed a new higher education structure combining online and on-campus study plus work experience as follows: First year is pure online education. Those who can pass this have two years on campus focused largely on case-work. In the fourth year, they are given a job but while doing some final online courses.²⁰⁵

This educational trend towards decentralized, none-exclusive participation societies is not only for university courses. Former hedge fund analyst Salman Khan began in 2005 helping his cousin Nadia with her homework over the internet while using Doodle notepad software. Since then, he has produced thousands of learning videos on YouTube, which together have had several hundred thousand downloads and, in 2009, he founded his own e-learning company that, in late 2012, had more than half-a-million subscribers.²⁰⁶ By analysing the use of his videos, he and his team now see very clearly where students have problems.

Furthermore, in the information society the pace of innovation has become so fast that even medium-sized companies may find it difficult to keep pace, and this is also reflected in decentralization; the average size of firms in OECD countries has fallen steadily for years, and among US companies, it has decreased from 25 to 10 employees over 25 years.²⁰⁷ There is also a rise in the number of so-called micro-multinationals which comprise very few staff, or even a single employee, who manages purchasing, manufacturing and marketing worldwide.

This development has gone hand-in-hand with a typical development within different product categories. There is a steady trend from cheap, mass-produced industrial goods toward premium and luxury (mass-to-class). Premium calls for more decentralized production with more elements of fine crafts and handwork – just think how cars, coffee, sporting goods, clothing, handbags, bread, and other products seem to become evermore diverse. The same goes for production where, for example, we have seen recent growth in the number of mini–breweries in many countries. Indeed, many marketing strategies are now based on mass-customarization targeting; what the marketers call “the segment of one”, where every single client has to have his or her indivuidualized version of a product.

Meanwhile, management of companies has become far more multi-cultural, and in many smaller nations a substantial number of the most iconic companies are now run by foreigners. (something that is not reflected in the public sector at all). Ownership of larger companies has also become far more diverse. Originally, all private companies were owned by a single person, a family or a closed partnership of a handful of partners. Today, the largest companies have millions of owners, including private investors, pensions funds (which again have millions of members) university endownments and sovereign wealth funds (which are owned by entire populations). Furthermore, since the late 1990s, the use of stock options has contributed to a further spread of ownership.

The decentralization phenomenon is also reflected in how physical products tend to develop. Initially, townsmen would typically draw their water from a common well. Then water came to every house (tap water), and later into both the kitchen and bathrooms, where we gained sinks, showers and bathtubs. These were then turned into style objects and were produced in more and more variants. So we recognise decentralization and diversity again, and something similar is now happening with aircraft, as we saw with the case Chris Andersen and his diydrones.com. What is important in all this is that the emerging participation society is based on voluntary sharing of products, services and opportunities, but not coercion or centralization.

The fact that increased diversity and decentralization occurs spontaneously in a market economy is actually not that surprising when we consider that exactly the same happens in nature, where the number of species has grown continuosly for billions of years. It is, in both cases, simply an expression of the inner logic of creative design spaces, including the aforementioned character displacement and co-evolution phenomena.

Increasing product diversity and commercial decentralization in product markets goes hand-in-hand with lower prices and more compact designs, which means that items that are initially bulky and expensive, over time, become cheaper and small enough to have at home. Today, for instance, we have our own printing in the form of printers and, increasingly, 3D printers. We also have our own personal church clocks to wake us in the morning (alarm clocks), locomotives (cars), movie studios (video recording and editing software), concert halls (stereo), cinemas and theatres (television), etc.

Generally it is the case that, if something can, in principle, be made on a reasonably small scale, it is only a matter of time before it becomes decentralized and personalized. This, together with ever-increasing crowdsourcing, shows that a market economy is essentially inclusive, rather than extracting, and it will not place more and more power in fewer and fewer hands, as many have feared, but rather delegate more and more power to individuals. The participation society is evolving all around us.

However, here is another concern: will decentralized market economies concentrate more and more money in ever fewer hands?

This is what economist David Ricardo said in 1817, where he claimed that land-owners would accumulate an ever-greater share of the world’s wealth since you could increase the number of factories, but not the quantity of farmland.²⁰⁸ What he didn’t foresee was the enormous growth in farm productivity, which had the same economic effect as if the landmass had expanded.

In Das Kapital (written between 1867 and 1894), Karl Marx also predicted an inevitable collapse of liberal democracies because they would create ever-widening gaps between the “haves” and the “have-nots”. Workers should thus seize power, he said, and so, indeed, they did. “We are poor because they are rich”, was the belief and so they went on to slaughter the rich people and their supporters. All in all, Lenin, Stalin, Mao, Pol Pot and others murdered in the region of 94 million people such as bankers, Kulaks, traders, “rootless cosmopolitans” and others so they could enforce redistribution. Hitler’s national socialists had a similar mindset, but here the “rich crooks” were the Jews, of whom they killed approximately six million. So the combined murders committed by the Nazis and communists amounted to some 100 million people.

The persecution of the rich elite also occurred in democratic Western countries. For instance, in 1966, Paul Baran and Paul Sweezy released their influential book Monopoly Capitalism, which claimed that capitalism would exhibit a continuous concentration of mega-companies, until a “military-industrial complex” would largely run the world, paying off politician cronies to go along with their plans.²⁰⁹ So instead of Kulaks or Jews, it was now multinationals and global trade and investments that should be stopped, a mission with which terrorist groups such as the Baader-Meinhof group, Revolutionäre Zellen and Brigate Rosse soon engaged.

However, this was only in Europe. In Indonesia, locals were violently jealous of the rich Chinese upper class, which accounted for 3-5% of the population, so thousands of this demographic were raped or murdered, especially in 1998. Elsewhere, it was the rich Japanese, Lebanese, Indian, Jewish or Koreans emigrants that people hunted down.

Ugandans were also concerned about concentration of capital among the elite. In their case, it concerned approximately 1% of the population of Asian origin mainly Indian, which controlled some 20% of the economy. In 1972, the possessions of these people, which amounted to 5,655 companies, commercial real estate and agriculture, cars, houses and furniture, was confiscated and redistributed, while the Asians were given 90 days to leave. Unfortunately, this had disastrous economic consequences, which is why, 20 years later, they were invited back and offered partial compensation (which most declined). Once bitten, twice shy.

In Zimbabwe, it was the Whites who constituted the rich 1%, which is why the government began confiscating and redistributing their land and other property. This triggered the country’s aforementioned economic downturn, during which unemployment rose to 80% and inflation to 489 billion %, and both living standards and life expectancy almost halved.

Of course, there are also more moderate methods of redistributing the wealth of the rich. In the UK in 1974, for example, the marginal tax rate on earned income was rasied to 83% and to 98% on capital gains tax. Two years later, the country had to seek emergency loans from IMF to avoid bankruptcy.

None of these experiements went well, but the rich will always be a proverbial stone in the shoe to some, and, in 2013, the French economist Thomas Piketty gave their persecution yet another go with his bestselling book Capital in the Twenty-First Century. This time, the target wasn’t Kulaks, Jews, Indians, Whites or multinationals, but the wealthiest 1%, who he considered too rich.

The book contained a very thorough examination of inequality in income and wealth between 1810 and 2010. Piketty didn’t claim that global inequality was rising, because it was, in fact, declining, and the decline was especially significant when adjusting for the fact that there were more children in the poorest countries (income and wealth peak around middle age, so nations with a very young average age can have deceptively low average income).²¹⁰ No, Piketti examined only the inequality in four countries: the US, UK, France and Sweden; and he actually showed that inequality had been unchanged or falling over these 200 years in these countries as well. What he did say was that the inequality gap had, in particular, shrunk in the first 70 years of the 20th century, but after that had widened. He argued that the initial reduction had been due to temporary factors such as war, whereas the subsequent widening in inequality was because capital gave a return that exceeded economic growth.

Let’s consider that for a while. Economic inequality can increase due to a combination of factors that help the rich. First, technical innovation has evolved, so that today, many innovators, especially in IT, can develop multinational giants within just a few years and with the use of very little capital compared to what is needed in industry and farming. As modern IT entrepreneurs’ businesses are based more on ideas than on capital, they don’t become too financially diluted, so they still own a large part of their company, when it matures. The founders of such companies are typically young and often single and childless when they hit the jackpot, and this is new. In times past, it typically took two to three generations or longer to build up an international industrial group, and when its value peaked, the founder would be long gone and the assets shared between his countless grandchildren and spouses from divorces in the extended family - plus possibly between children and spouses of those as well.

A second factor that may have led to greater capital concentration is that more women now benefit from a higher education, which means that young men and women meet at university and get married.²¹¹ This leads to polarization, so that those who are about to get rich are more likely to marry each other.

A third factor is population growth, which has put upward pressure on property prices, since supply of land is flat. As property constitutes about half of global wealth, this has boosted the return on capital, as the world’s population roughly doubled during the time that concerned Piketty.

Global ageing together with the IT revolution and globalization has also put downward pressure on inflation and interest rates during the exact period (from 1970) during which Piketty believed the inequality widened. When interest rates fall, the discount factor of future earnings on investment assets goes up, and this drives up their prices. For example, the exact same house or share may double in value if interest rates fall by half, so that the owner appears twice as rich, even if what he owns is exactly the same.

A final factor that can drive up asset prices is an excessive global credit expansion, which is also exactly what happened between the late 1970s and 2010.

The other type of inequality drivers are obviously those that can put downward pressure on low earners. The first of these is the frequent statistical mistake of measuring income per household, because as there are more single households, the average “household income” falls, even as “personal median income” actually rises. This makes the poor seem poorer in statistics.

Increased pursuit of tertiary education has also had a more direct statistical effect in as much as approximately a third of those registered as “poor” in many developed nations are university students (another third tends to be small-scale private businessmen going through a rough patch).

Globalization has also been important, because while it has stimulated a huge increase in wealth among poor people in nations like China and India and thus global decline in inequality, it has also put downward pressure on low earners in rich countries.

A final factor that should be mentioned, is, as American political scientist Charles Murray has pointed out: welfare states create rapid increases in the number of latent poor, which may be followed by an increase in the number of actual poor, after a delay. The rise of welfare in the four countries Piketty investigated happened precisely during the period in which he believed the inequality gap had widened, so this may also be a contributing factor.

All in all, there have certainly been developments that could be said to have contributed to greater inequality since the 1970s. However, when we scrutinise the story, we are in for some surprising finds.

Admirably, Piketty published all his figures and equations on the Internet for everyone to see, and, soon after, UK business newspaper, The Financial Times (FT), uncovered what it thought were a number of oddities and mistakes. “There is little evidence in Professor Piketty’s original sources to bear out the thesis that an increasing share of total wealth is held by the richest few,” it concluded, adding: “There seems to be little consistent evidence of any upward trend in wealth inequality of the top 1%.”²¹² The FT also noted that Piketty had incorporated inaccurate British data into figures for Europe as a whole and given it the same weight as data from France and Sweden, which had smaller economies. If you corrected for that, they concluded: “There is no sign that wealth inequality in Europe is rising again.”

Whether or not it had risen, it remains the fact that it is almost unavoidable for wealth concentration in a market economy to fluctuate around an equilibrium instead of ever-increasing. Occasionally, there will be over-investment in the quantity of production equipment (due to so-called competitive overinvestment), and then the relative bargaining power of the workers in these factories increase, while profits decrease, due to oversupply. That reduces inequality, but it cannot last, because business then stops investing, which hurts workers but boost profits for a while. A curious example of this effect was seen in the years 1346-53 when the Black Death killed approximately half the European population, which meant the ratio of capital to population doubled. This scenario leads to a speedy improvement in rights and incomes of common folks.

Fluctuation in productive investments is a natural part of business cycles and self-correcting, also driven by equally self-correcting fluctuations in property prices and more. Furthermore, the price of assets that make rich people rich fluctuate with interest rates, credit formation and countless other cyclical factors, but again, this is self-correcting.

Most of the other factors mentioned above, such as population increases, global aging, globalization, increased uptake of higher education among females and the growth of welfare states are also likely to peak or fall, and the greatest effects, when this happens, will come from rising interest rates and reverse globalization.

THOMAS PIKETTYS DATA FOR WEALTH SHARED AMONG THE TOP 1% IN THE US, BRITAIN, FRANCE AND SWEDEN 1810 – 2010. AS THE DATA SHOW, THE OVERALL TREND HAS BEEN TOWARDS FAR LESS INEQUALITY IN THREE OF THE FOUR NATIONS OVER THE PERIOD. THE EXPECTION IS THE US, WHERE THERE HAS BEEN A SLIGHT INCREASE.

A quick look at the GINI co-efficient, which measures inequality nation-by -nation, shows that this is generally far lowest in countries that have embraced free market economies for a long period of time – Western nations, in other words.

But there are also problems in the concept of “the rich” (of “the 1%”, as it is often called), because this group is far more volatile today than in the past, when the same families kept vast fortunes tied up in land or factories throughout many centuries.

To look at some numbers: A statement about incomes, from the US Department of the Treasury, showed that those people who, in 1996, were among the poorest 20%, saw their income rise by an average of 91% in the following nine years, while the richest 20%, over the same period, only experienced income growth of 10%. The wealthiest 5% in 1996 actually had a subsequent average decline over the same period. What about the richest 0.1%? Their income also declined afterwards, and, in this case, by a mind-boggling average of 50%.²¹³ In other words: if you follow the destinies of individual people rather than comparing statistical snapshots, you find the poor tend to grow a lot richer and the rich tend to become significantly poorer.

Why are income and wealth so highly volatile among the very richest? It’s usually because you only grow very rich by doing things that are very demanding, risky and volatile. Companies today pay more for their absolute top-level executives than ever before, but tolerance is also much lower. As in elite sport, the rewards are huge if you deliver absolute top performance, but the moment you stop doing it, dismissal notice comes far more promptly than it used to. Also, share prices fluctuate, technologies change, fashions shift and other factors influence who is sought after at the top.

This explains some remarkable observations. Looking at Fortune Magazine’s list of the US’s wealthiest “Fortunate 400”, between 1992 and 2008 a total of 3,672 different people made it to that list, but only four (yes , 4!) of these remained on the list throughout the period.²¹⁴ In fact, a survey of these 400 richest people from 1992 to 2000 showed that fewer than a quarter remained in this category for more than a year, and less than 13% remained there for longer than two years. Similarly, more than 75 % of Americans who were among the poorest 20% in 1975 were among the 40 % richest in 1991. And in a sizeable longitudinal study (where you follow the same people for many years), two scientists found that:

12% of Americans had, at least once in their lifetime, experienced being among the 1% in the US with the highest incomes

39% had been among the wealthiest 5%

56% experienced time among the top10 %

73% had been among the richest 20 %

54% had tried to be officially poor or close to poor

This confirms again that, in modern times, the rotation between rich and poor is very significant indeed, and a lot of the poor will later become rich, and vice versa. This means the narrative that you have with a small group of people – the 1% - who become ever-richer in comparison with the rest, is misleading not only because global wealth inequality has in fact been falling recently and inequality in wealthy nations has fallen over the last two centuries, but also because there is widespread-and-growing creative destruction taking place around the top, which means faster exchange in who constitute the richest 1%.

For the past couple of centuries, market economies have been subject to repeated conspiracy-style theories claiming that information, money and power will grow increasingly concentrated. Somebody – the Kulaks, the bankers, the Jews, the Chinese, the Japanese, the Koreans, the Indians, the multinational companies or the top 1% are leading a conspiracy against the rest. Karl Marx and Piketty believed this would lead to the collapse of free markets, Baran and Sweezy believed it created tyranny via big companies, various Hollywood producers and authors have envisioned future scenarious in which people are run by computer-aided dictatorship, and Piketty thought the richest 1% would dominate evermore.

Actually, the feared concentration of power and money in very few hands was widespread before liberal democracies, and thus before Karl Marx. This can be seen from the records in the Domesday Book from 1086 (a manuscript record of the Great Survey of England and parts of Wales); or sensed by any visitor to the opulent the Palace of Versailles in France (a symbol of of the system of absolute monarchy, pre French Revolution). According to the Domesday Book, a handful of families, plus the Church, owned the vast majority of England and Wales, while the French kings could essentially take whatever they wanted from anyone in their country. In 2014, Celebrity Network published an estimate of the inflation-corrected maximum wealth of the 25 richest people of all time.²¹⁵ Only three of these people lived after World War II, even though world population and average income has a great deal larger since World War II than ever before.

When you think more deeply about it, it would actually have been fairly surprising if free markets had created increasing concentration of anything, because the natural tendency of any creative system is to create greater diversity and pluralism. Therefore, we are not, by now, all controlled by a single, evil mainframe computer (think HAL in 2001: A Space Odyssey), but instead use our own many small computing devices, from smartphones to PCs and tablets. We are not indoctrinated by a single branch of the media or central institution (think Aldous Huxley’s novel Brave New World; George Orwell’s 1984 or – a more recent example – Suzanne Collin’s Hunger Games). By contrast, we have become individual publishers via our own blogs and social media plaforms. Furthermore, we can now all take online courses at the world’s top universities, virtually for free, and will soon be able to print out our own products using home 3D printers. We have not seen monopoly capitalism play out as Karl Marx and others expected, but have instead seen average company sizes decline considerably while shareholder bases have broadened. Social mobility has not declined, but has rather increased to the point where being among the super-rich now tends to be a very temporary affair. And, as Piketty’s own figures actually demonstrated, wealth concentration is not a long-term rising trend.

The recurrent persecution of “the elites” across the world has, as we have seen, led to mass-murder and economic melt-down again and again, but, in a clear example of the civilization process in progress, the persecuters are now far more likely to call for higher taxes than to shed blood. Piketty, for instance, proposed a 10% annual wealth tax and 80% marginal tax. This was radical stuff, because if capital yielded 4% profit but was taxed at 10% (both annually), the taxation would equal 250% of the profit. If this was combined with 80% income tax, the effective marginal tax would easily equate to more than 300 %, not even counting VAT and other taxes. So, in order to implement Piketty’s system, you would need a global, centralized government, or the rich would surely flee to wherever his draconian taxes were not implemented. Furthermore, no one would have any financial incentive to take risks or postpone gratification; they would spend any money earned straight away or they would hide it from authorities in the guise of jewellery, gold bars or by making undeclared improvements on their homes (for tax-dodging purposees), all of which would leave no capital for investment in new business. Society would, almost immediately, stagnate and fairly quickly collapse.

So the summary is this: many people have, over the past several centuries, expressed concern that free market economies will be self-defeating because they will lead to more conformity and greater concentration of information, wealth and power among ever fewer people. But when we study realities, it is the opposite pattern we detect; a pattern where free market economies create greater diversity, mobility, mass participation, pluralism, decentralization and change.

No, if you should look to any sector of society that has actually concentrated evermore power and money, look to the state: