Over the last few years, there have been quite a few books cautioning internet users to reflect on their digital lives. Notable among these are Jonathan Zittrain’s The Future of the Internet — and how to stop it and Nicholas Carr’s The Shallows: What the Internet is Doing to Our Brains. These books quote tomes of research to suggest that stuff on the internet should be taken with more than a pinch of salt.
While there are many counter-arguments, these authors are taken seriously since they themselves are, or have been, avid technology users. Carr, for instance, has authored an article titled “Is Google making us stupid?”, and his book The Shallows, released in June 2010, advances this argument. Not only was it a Pulitzer prize nominee, but it also appeared on the New York Times non-fiction bestseller list. And Zittrain is a US professor of Internet law at Harvard Law School and Harvard Kennedy School, besides being a professor of computer science at Harvard School of Engineering and Applied Sciences.
Authors such as Zittrain and Carr have primarily dealt with the impact of the internet on individuals and society. Overconnected by William H Davidow is along the same lines, only the author adds a stock market angle that has relevance to the role of the internet in recent market crashes. He clarifies at the outset that he is not referring to the “overabundance of technology” in our lives. Rather, he talks about “what happens to a system when connectivity increases dramatically both inside and out of it, and parts, if not the whole system are unable to adjust”. He cautions that “across the worldwide digital sprawl, things go viral at lightning speed. And people get carried away in a competitive, greedy fervour of their own creation”. If we play by the rules, he argues, we can benefit greatly from the dramatic increase in inter-connectivity, failing which the world could experience more meltdowns.
Why is it that the technology that allows us to pay our bills online makes us fear that our identity will be compromised, he asks. His answer: “Overconnected environments tend to be very unstable and are subject not only to rapid change but also to accidents [refers to a paper written in 1958 by Eugene Wigner].” He explains his idea of connected-ness by defining four stages that do not necessarily have clearly-defined boundaries. First is the under-connected state, followed by the inter-connected state, where the environment changes gradually. Third is the highly connected state in which businesses, economic systems and government institutions drive change. And fourth is the over-connected state, where institutions change so rapidly that the ecosystem cannot cope with them.
He gives the example of the newspaper industry to buttress his theory. “Almost overnight, newspapers went from thriving in an interconnected environment to suffering in an overconnected one.” Positive feedback, he says, drives much of what we call progress. He attributes the rise of Microsoft, eBay, Google, Facebook and Twitter to this phenomenon, which he terms “network effect” (where the value of what one person does increases the value to others for doing the same thing). He argues that events of economic contagion, like the South Sea bubble in 1720, the Great Depression in 1929, the internet bubble of the late 1990s and the 2008 global meltdown, were always accompanied by thought contagion — the irrational greed that drives prices up and the panic and fear, producing the opposite reaction.
The difference between the 2008 crash and other crises, he points out, is that the internet could spread panic around the world in a few hours unlike during the time when computers were not connected. For instance, global financial markets use TCP/IP or Internet Protocol, enabling currency transactions of around $3 trillion daily.
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He also cites the crash of Iceland’s three biggest banks in 2008 to demonstrate the power of an over-connected world (read the internet). He asks: “How did an island in the middle of nowhere, a country known best for its salt cod industry, with a gross domestic product of about $10 billion in 2003 (around 10 per cent of IBM’s annual revenues) become a banking epicentre with assets many times its economy?” By 1999, nearly 60 per cent of Iceland’s population had internet access from home. By 2008, the percentage had risen to 99. The worldwide rise of the internet, he notes, “almost magically coincided with economic reforms in Iceland”. Thanks to the internet, he notes, the citizens of Iceland owed (collectively) over $900 million in foreign currency for car loans alone, and 11 per cent of households were paying over 30 per cent of their disposable income towards those loans.
New levels of connectivity, Davidow explains, put all of us in contact with new environments in which it may be difficult to adjust. He moves on to devote an entire chapter on “how the internet supercharged the subprime crisis”. He adds that it’s largely because of the internet that stock ownership is broadly distributed, and it’s the reason that traders exist. Moreover, he notes that increased levels of inter-connectivity have enabled companies to move wherever oversight is limited, tax rates low, and laws least stringent.
Davidow concludes by saying that while designing systems, we should take care to anticipate the effects of over-connectivity (far easier than done, a fact he admits), adopt a system with greater safety margins and avoid unnecessary inter-connections. “We brought the world the tools and believed society would only benefit ... we have no choice but to adapt to an environment transformed by own inventions ... whether we seize it or let it hold us hostage is our decision to make.”
OVERCONNECTED
The Promise and Threat of the Internet
William H Davidow
Delphinium; 240 pages; $27.95