Good news: a research project I helped to write has been approved for funding by the European Commission’s Future and Emerging Technologies program. The project is led by one of the scientists I admire the most, David Lane, and rests firmly in the complexity science tradition associated to the Santa Fe Institute. We intend to attack a big, fundamental problem: innovation is out of control. Humans invent to solve problems, but they end up creating new and scary ones. Which they tackle by innovating more, and the cycle repeats itself. Cars improve mobility, but they come with global warming and the urban sprawl. Hi tech agriculture mitigates food scarcity, but it also gives rise to the obesity epidemics. To quote one of our working documents:

While newly invented artifacts are designed, innovation as a process is emergent. It happens in the context of ongoing interaction between agents that attribute new meanings to existing things and highlight new needs to be satisfied by new things. This process displays a positive feedback [...] and is clearly not controlled by any one agent or restricted set of agents. As a consequence, the history of innovation is ripe with stories of completely unexpected turns. Some of these turns are toxic for humanity: phenomena like global warming or the obesity epidemics can be directly traced back to innovative activities. We try to address these phenomena by innovation, but we can’t control for more unintended consequences, perhaps even more lethal, stemming from this new innovation.

We want (1) build a solid theory that concatenates design end emergence in innovation and (2) use it to forge tools that the civil society can use to prevent the nefarious consequences of technical change. It does not get any bigger! And in fact we got a stellar evaluation: 4.5 out of 5 for technical and scientific excellence and 5 out of 5 for social impact.

The project commits to building Dragon Trainer, an online community management augmentation software. The idea is to make a science of the art of “training” online communities to do useful things (like policy evaluation), just as you would train an animal too large and strong to push around. I am responsible for producing Dragon Trainer, and it is quite a responsibility.

I am superhappy, but worried too. Taxpayers foot most of the bill, and this makes it even more imperative to produce the absolutely best result we can. I will need to work very, very hard. I am seriously thinking of devoting myself to full time research for a couple of years starting in 2012. Does this make sense? What do yo think?

Antonella Noya at OECD (thanks!) pointed me to their report The Changing Boundaries of Social Enterprises, in which they attempt to render the past ten years of social enterprise in developed countries. It’s been an important ten years for this sector, from all points of view: growth, legislation and finance too. From a finance perspective, an executive summary could as follows: social enterprises are undercapitalized and find it difficult to access financial instruments other than traditional loans or grants. A lot of financial innovation was thrown at the problem.

The OECD report has an impressive list: venture philantropy, “patient” loans, crowdfunding platforms à la Kickstarter, social performance assessment tools like the Dow Jones Sustainability Indices and so on. All’s well then? Yes and no. Yes, because the problem exists and is being looked into. No, because it is being addressed in a way which is a little too reminiscent of that other wave of financial innovation, the one that gave us the 2008 global meltdown.

Consider Blue Orchard. It’s a simple idea: connect institutional investors (say, pension funds) wanting to invest ethically with microlending. How does that work? It begins with some institution making microloans. Each of them creates an asset in the balance sheet of the microlending institutions. Now this microlender takes all of these assets, packages them up and uses them as collateral to back a bond (which is a derivative product, its primary being of course the microloans) which he then sells to the institutional investor. And it’s done! The latter has been enabled to invest ethically without actually having to be able to tell which microborrowers to lend to. At the same time, the microlending institution has gained extra liquidity, and can go on to make more microlending. Great!

Or is it? The process described is called securitization. One of its effects is to separate the borrower from the final lender (in this example the pension fund). Before they got securitized, home mortgages were issued by local banks, that knew borrowers personally and could assess their creditworthiness reasonably well. If they got it wrong and the borrower found it difficult to repay the debt, the bank would do its best to get him back on track, possibly restructuring her debt: after all, she was a client, and lived in the same local community as the bank. The more prosperous the community, the better things were for the bank. After securitization, all this changed: now John Smith’s mortgage is repackaged and sold to a nonlocal lender — a pension fund at best, a very aggressive hedge fund at worst. As soon as Mr. Smith starts falling behind with his payments, this investor has no reason to be understanding: it will try to maximize its immediate gain, as he has no stake in Smith and his community’s long-run prosperity. What will the pension funds that purchase Blue Orchard’s products if they find that the returns are too low? If they decide to exit fast, what will the consequences be for the microborrowers? Could they be forced to pay their debit back or lose their assets too? Could this wipe out the social benefit of the poorest of the poor investing in themselves?

Similar questions can be asked for ethical capital markets being rolled out in some countries, like ETHEX in the UK or Bolsa des Valores Sociais in Brazil. The stock market as we know it brought a fresh stream of capital to for profit enterprises, but at the price of making them focus away from long term growth and onto quarterly results. What would happen to social enterprises once their shares (yes, some do issue shares) are traded in Wall Street or London?

These are unsettling questions. But looking the other way would be much worse: we have no choice butlook fo the answers.

According to David Lane, sometimes we need to make decisions in a condition that he calls of ontological uncertainty. That means we have no means of painting an exhaustive picture of the situation and of the full range of moves we can possibly make; and certainly we are unable to foresee the consequences of the few moves we can imagine. In a famous article, David asks us to consider the situaton of a Bosnian diplomat trying to bring an end to the bloodshed in his country in early September 1995:

It is very difficult to decide who are his friends and who his foes. First he fights against the Croats, then with them. His army struggles against an army composed of Bosnian Serbs, but his cousin and other Muslim dissidents fight alongside them. What can he expect from the UN securiy forces, from the NATO bombers, from Western politicians, from Belgrade and Zagreb, from Moscow? Who matters and what do they want? On whom can he rely, for what? He doesn’t know – and when he thinks he does, the next day it changes.

How to make decisions in such a situation? Answer: by telling yourself stories. Humans are good at storytelling: if you recognize yourself as the hero of a story, he will inspire your course of action, just like Don Quixote changed his life to model it in on medieval chivalry epics.

Innovation often happens in ontological uncertainty conditions. It is certainly possible to have a well defined goal in terms of producing an artefact, but the market system that depends on what people will use that artifact for – is always emergent. Movable type printing was a well-defined R&D project, but Gutenberg could not have forseen Aldus Manutius’s portable book and and the Umanesimo movement in Italy in the Renaissance; Henry Ford rationalized car production, but he could not have foreseen bedroom communities and mass commuting. To build and bring to market an innovation means acting in a changing context, like that of our Bosnian diplomat. And that requires storytelling.

Nadia El-Imam has come up with the idea to help people to tell stories about themselves and what they are doing with technology. She uses a special deck of tarot cards she designed herself (in lieu of the Hermit and the Magician she has arcana like the Server, the Developer and the Interface). Dressed up as a gypsy fortune teller, she offered to divine the future of the various geeks gathered at Mozilla Drumbeat in Barcelona. It was a roaring success, with a permanent queue of people waiting to interrogate her tarot. Among them, entrepreneur and venture capitalist Joi Ito (in the video). Engaging with Nadia and the cards, innovators make sense of what they are doing, and look for a way to complete their quests.

In their own unusual way, Nadia’s techno tarot are a platform, that lends itself to be used for collecting ethnographic data on innovation, for technology counseling and who knows for what else. I am quite curious to see how it all evolves.

There’s a lot of talk about innovation lately. A lot of people seem to regard it as some kind of religion: innovate, for innovation can save us. David Lane and Sander van der Leeuw, on the other hand, suspect that the innovation race of our present society might not be sustainable. They would like to discuss this intuition with the technological and social innovators: so they are giving a talk on Monday, September 27th at 11 a.m. at The Hub Milano, via Paolo Sarpi 8, and they are very curious to meet the Milanese technical and social innovators, and get their opinion on the matter.

David Lane looks at innovation as an economist. He is a member of the Science Board of the Santa Fe Institute for the study of complex adaptive systems, which means his approach is very>/em> cross-disciplinary. He now teaches at the university of Modena and Reggio Emilia. Sander van der Leeuw looks at it as an archaelogist – which means his temporal perspective encompasses the last couple of million years, not so usual for innovation experts. He is now the Dean of the School of Sustainability at Arizona State University.

Do yourself a favour and show up. I heard David lecturing many times, and every time I’come out reeling for the intellectual overstimulation, but energized. I have not met Sander, but the video above is breathtaking. I’ll be there.

Most fiscal system discourage luxury consumption with a tax rate higher than that used for “normal” consumption, whatever that means. Any public finance 101 course will tell you that there are two reasons for this. One is that the demand for these goods is less responsive to variations in price than the demand for “normal” goods. Therefore, increasing their consumption tax rate does indeed lead to a slump in demand and GDP, but it is a lesser one than you would have had taxing nonluxury consumptions for any given revenue. The other reason is that it’s normally the wealthy consuming luxury goods, and economists are trained to have a preference for economic equality. All other things being equal, it’s best to tax the rich.

All of this holds in a static model and in equilibrium. In equilibrium, because it focuses on the ideal condition (which never quite happens in real life) in which each and every household has maximised their utility, and each and every firm its profit. Static, because it does not deal with the time dimension. Specifically, it assumes out technical innovation.

Critiques to the notion of economic equilibrium aside, I would argue that, if you do take into conderation the time dimension and technical change, there is a third reason to discourage luxury consumption. This: luxury goods don’t change the world. They never did. They don’t create new market ecosystems; they don’t promote social mobility and diffused wealth. What does change the world is cheap goods. Not Bugatti or Rolls Royce, but Ford Model T and Fiat 600; not private yachts, but low cost airlines; not the satellite phones of yuppies in the 80s but 20$ GSM phones accessible to shepherds and farmers in Africa; not the wonderfully ornate manuscripts of the 15th century’s, but Aldus Manutius’s portable books and the printing press; not the IBM mainframe but the Apple Macintosh. Luxury objects are often beautiful, but they almost always embody a future identical to the past, with (simplifying quite a bit) wealthy families expanding their collection of gadgets, like father like son, and the rest of us lft to play the role of the admiring crowd, with various degrees of envy.

This is why I am wary of the Slow Food movement, and its ever-growing presence in the discourse on regional development in Italy. Basically, what they do is this: they take good local food specialties – of which we have so many in Italy. They are good, they are healthy, they are prepared by local people on the basis of tradition. They are the result of centuries of trial-and-error. And they are cheap: we come from a recent past of poverty. People don’t make a big deal of this food, they just get it and enjoy it. Slow Food hypes it up, puts a guarantee brand on it, and makes sure it is prepared and sold by academy trained chefs in the world’s business capitals. Prices go up ten- or twentyfold, and the food does not get any better (I should know – I come from a farming extended family in Emilia Romagna. Believe me, my female relatives are world class food experts).

It gets worse. The various certification of origins, quality guarantees and the like are the prerogative of food produce that is produced following certain protocols: so they don’t only certify what you are eating, but how it was made. And this is key, beause it blocks innovation. if you want the certification you need to to thigns exactly by the same book as everyone else. The conclusion is that truly excellent products are not certified. The greater wines have no controlled origin, because winemakers experiment with grapes from all over the place to make their wine better. Paradoxical? Not really: certifications are not about good food, they are about higher margins. If some genius were to make a Veuve Cliquot taste alike for $3 a bottle; or a good Parmesan substitute with camel milk for $6 a kilo, no certification body would give them the time of the day.

Wrapping up: Slow Food, as so much of the so called taste industry, is trying – quite successfully – to market as luxury consumptions a good, cheap way if eating , invented by our forefathers who had very little cash and a lot of inventiveness. In so doing, it reduces the potential for this food to reach the masses, who are left with junk food. Furthermore, it takes away the incentive for innovation, making marketing investment on certification that shield existing products against new ones. A technology equivalent could be a certification for newspapers written on typewriters rather than computers (Slow Writing), or one for public authorities who do not issue information or certification online (Slow Service). Looks like a dead loss to me – something that public policy should actively discourage. But maybe it’s just I’m not getting it.

My friend Andrew Missingham is working on the digital strategy of Arts Council England – which, being a venerable governmental machine invented by none other than John Maynard Keynes as World War II drew to an end, has never had one and is wondering what goals it should set for itself exactly. Andrew’s idea is that ACE might think of itself as an individual who decides to run the London marathon for the first time. No matter how hard it trains, ACE is not going to win it. Paula Radcliffe is. “However, with focus and dedication (alongside the day job) ACE will be able to participate fully, taking in all of the sights, sounds and excitement of the day and get the most of the journey that marathon training involves. And if ACE met Paula Radcliffe, it would be able to hold a conversation that respects her pre-eminence, whilst being able to understand the issues, passions and pressures that drive her.”

This concept of full participation seems to me to capture an important part of the motivations of those who take part in the global conversation on innovation without being MIT or Google or one of its protagonists. I, for one, am interested in collaborative and user generated public policy. I have thought up and deployed several small and medium projects – like Kublai – some more successful, some less. My contribution to the discipline is modest, but not useless, or so I like to think. I am not one of the great gurus like Shirky or John Holland, whose work I follow passionately. But I take part in the collective effort for more and better knowledge: I train hard, am committed and I will finish the marathon with dignity. Like so many athletes, I feel this effort completes me and makes my life more interesting and, yes, moral. De Coubertin did have something going on after all.