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Posts Tagged ‘Elon Musk

How ‘movers and shakers’ move and shake

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Godfather

We know them well, those people who make things happen. Leaders, entrepreneurs, creators, builders, movers and shakers. Those who see opportunities where others might not, or take risks when others won’t. Some have built – or are building – global empires. Think Elon Musk or Jeff Bezos. Others make things happen at a smaller scale, perhaps in less glamorous industries or with a preference to avoid the limelight. But they are active: building a business, a political movement or fighting for a social cause.

Economists have been slow to understand what makes successful movers and shakers. Our theories generally assume that where profitable opportunities exist, a competitive market will allow entrepreneurs to fill the void. We care little about explaining the characteristics of those entrepreneurs who see the gap in the market first, and then manage to beat the competition. That is, until now.

A forthcoming paper in the Quarterly Journal of Economics attempts to do just that. The authors, Robert Akerlof (son of Federal Reserve Chair Janet Yellen and Nobel Prize winner George Akerlof) and Richard Holden, construct a mathematical model that has two types of agents: managers (or entrepreneurs – the ‘mover and shaker’) and investors. The managers form social connections with investors and then bid to buy control of an investment project. The winning bidder then has to make other investors aware of the project, and these investors then have to decide whether to invest in the project or not.

The model shows that of the many managers that start, there is only one ‘mover and shaker’ that emerges victorious, and that this manager earns a high payoff for doing so. The noteworthy contribution is that the success of this ‘mover and shaker’ depends on their network: “the most connected manager ends controlling the projects”. Other qualities, like a manager’s skill at running the project, their talent in communicating with investors, and the amount of capital they have personally, will also influence the outcome. But, most importantly, a larger network of connections may often compensate for a deficiency in one of these other dimensions.

The authors use William Zeckendorf, a well-known US property developer in the 1950s and 1960s, as a case in point. Zeckendorf was responsible for many ambitious building projects in the US and Canada, and his autobiography attributes his success to his social connections: “the greater the number of … groups … one could interconnect … the greater the profit”.

Akerlof and Holden’s model provide theoretical support for the increasing body of empirical evidence which shows that social networks matter, now and in the past. My PhD student, Christie Swanepoel, have found, for example, that those settler farmers in South Africa’s eighteenth-century Cape Colony that were well-off also had extensive networks of debt and credit.

What is clear, though, is that it is not necessarily the number of connections that matter, but the quality of those connections. In a recent summary of the literature on social networks, Matthew Jackson, Brian Rodgers and Yves Zenou argue that the network structure of a society can have large implications for how innovation and new ideas spread through it. “Not only does the average number of relationships per capita in a society matter, but also higher variance in connectivity matters since highly connected individuals can serve as hubs that facilitate diffusion and contagion.”

Understanding the network structure of a society is, therefore, essential for businesses and policy-makers. At the most basic level, marketers may find that a customer’s decision to buy is heavily influenced not only by the price or quality of the product, but who their customers are shopping with. (My grocery basket looks remarkably different when I do the groceries with or without my wife.)  At a more macro level, policy-makers should realise that networks can have a significant impact on the success of policies ranging from education, public health, segregation, finance, and even policing. Let’s take the latter as an example. Movers and shakers operate, of course, not only within the bounds of the legal economy. The mafia is a classic example of the success of an interlinked network. Using Swedish criminal records, two researchers at Stockholm University have shown that if the police target ‘key players’ – i.e. the mafia bosses – in the criminal network, they can reduce crime much more than if they had just focused on tracking the most active criminals or, worse, just tracked any criminal without considering their position in the network. Using network analysis in their crime fighting strategy, they suggest, the police can reduce crime by 37%.

From criminal networks to political networks to business networks, identifying movers and shakers, and the reasons for their success, can be a very useful strategy in fighting crime, securing votes or boosting profits. But networks vary across many dimensions, and so too its applications; size, clearly, isn’t everything. Understanding network structures in a diversity of social settings will be a fruitful avenue for future interdisciplinary research, fertile ground for the next academic ‘mover and shaker’.

*An edited version of this first appeared in Finweek magazine of 11 August.

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Written by Johan Fourie

September 3, 2016 at 05:34

Dinner at my place

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Dinnerforone

If you could invite anyone to dinner (and they were forced to accept), who would you choose?

This is the type of thing you think about when you should be marking. But it was interesting enough that I entertained the idea for a while. Who would I really like to meet, and why? Would it be to simply bask in the fame and popularity of my guests? A selfie with Meg Ryan (that gives away my age, right?) or Mesut Özil (a fan since the 2010 World Cup in South Africa)? Would it be to wine and dine with the powerful and prosperous? (Maybe I can convince Bill Gates, Aliko Dangote or Oprah to fund LEAP…!) Or would it be for the engaging conversation with the intellectual elite, debating ideas with Nobel prize laureates Paul Krugman, JM Coetzee or Stephen Hawking?

I decided to make two lists: five South Africans I’d like to invite to dinner, and five people from across the world. I started with the South African list: Cyril Ramaphosa seemed an obvious choice. He might not be our next president, but he is sure to influence the decision. I also included Thuli Madonsela, a pillar of moral clarity the country so desperately needs. I considered former politicians and activists: Desmond Tutu, Thabo Mbeki, Trevor Manuel and Phumzile Mlambo-Ngcuka, now Under Secretary-General at the United Nations. And then there are the businessmen and women, of course, people like Koos Bekker, who transformed a stale South African media company into a multinational giant, or Herman Mashaba, who built up his own cosmetics company and now is a director of several leading South African companies.

Writing down these names, though, made me wonder about the purpose of my dinner invitation. Yes, it would be great to meet powerful and impressive people, and ask them questions about their careers and experiences. But it would be equally wonderful to meet young people who will shape our future societies. Do I want to discuss the past (you don’t need much to convince an economic historian), or do I want to dream about the future, as young people inevitably do?

So I instead made a list of the top five people younger than me I’d like to invite. This turned out to be even more difficult: how do you choose between Taylor Swift, global music icon, and Catherine, Duchess of Cambridge, for example? (Catherine was disqualified on a technicality because, despite being born in the same year as I, her birthday is in January.) Or between Julius Malema and Mmusi Maimane, two men whom I suspect will have a long-term impact on South African society? (Again, both were disqualified because they are older than me, but only just.) And then there are the dozens of tech gurus already creating the future: from South Africans building satellites and platforms and apps and drones to the tech geniuses of San Francisco like Mark Zuckerberg (who is, miraculously, still only 31!), Marissa Meyer (CEO of Yahoo and 40) and Sergey Brin (founder of Google and 41). So, after some tough decisions (and many hours of not marking papers), here are my two lists. I’ve included a short explanation and my first question to them:

  1. Trevor Noah (31): He’s funny, he’s engaging and he’s taking over America. Q: How will we laugh at ourselves without you?
  2. Mark Zuckerberg (31): Facebook has connected the world. Who knows what it will do next. Q: What will Facebook do next?
  3. Taylor Swift (25): Global music icon. Q: Do you have a blank space in your diary?
  4. Mesut Özil (26): He has more than just a cultured left boot. Q: Who should Arsenal buy to win the league?
  5. Elizabeth Holmes (31): She started her own company when she was 19. It’s now worth more than $9 billion. Q: How do we create more Elizabeth Holmes’s?

Surprisingly, the global list was slightly easier. The first three were certainties: Elon Musk is the most innovative and confident person on the planet, Obama the most powerful. The Queen is a walking library (and it would just be pretty awesome to have the Queen over for dinner). Arsene Wenger is a legend at Arsenal, and an intellectual in the sport world. He’s also a trained economist. That’s a killer combo. It was really only the last slot that caused some deliberations. How do you not invite the Pope, for example? I reckoned there might be a language barrier (my Spanish and Latin is pretty poor), so instead I decided to invite someone else with an enormous following: Tom Hanks. He is not only a brilliant actor but also collects old typewriters. Sold.

  1. Elon Musk: The Thomas Edison and Nikola Tesla of our generation. Q: We have an energy crisis in South Africa. Perhaps you have some ideas?
  2. Barack Obama: US president. Q: We have a leadership crisis in South Africa. Perhaps you have some ideas?
  3. Elizabeth II: Surely the only living person to have met the last 12 British Prime Ministers (including Winston Churchill) and the last 12 American presidents, from Herbert Hoover to Barack Obama. She also met Jan Smuts, Nelson Mandela and Jacob Zuma. Q: How are the corgis doing?
  4. Arsene Wenger: The reason I support Arsenal (and have spent too much money on supporters gear). Q: Who will Arsenal buy to win the league?
  5. Tom Hanks: Second highest all-time box office star. Q: Can you bring along Meg Ryan?

Wait, did I just write a whole blog post about imaginative dinner guests? This is what marking does to you.

Forget the SONA embarrassment. This is how we change our future.

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lighttunnelWhat South Africans learned last night – if we did not already know it – is that if we are to make progress as a country, it will happen despite and not because of our politicians. Everyone lost in last night’s State of the Nation embarrassment: the EFF who, after chasing around one of their own MPs in the streets of Cape Town, interrupted the president repeatedly during his State of the Nation Address; the Speaker, who ordered armed police to forcibly remove the boisterous EFF members; and ANC MPs, for cheering on while EFF members were assaulted. And I haven’t even mentioned the jamming device used to scramble all cellular networks (shut down only after journalists and opposition MPs insisted that it be turned off). Or the fact that DA members marching outside were hosed down by riot police, and some arrested. The solemn figures of Thabo Mbeki and FW de Klerk in the parliamentary gallery depicted perfectly how far our country’s leadership has fallen.

But perhaps, in search of our dark cloud’s silver lining, what happened in parliament yesterday, although a reflection of the state of the nation, is not a reflection of the future of the nation. Another South African made news yesterday, news that will affect countless more lives (even South African ones) than what our president did or could say in a State of the Nation address. Instead of focusing on the sorry figure of Zuma, perhaps we should pay more attention to the ideas and plans of our greatest export in recent years: Elon Musk, founder and owner of Tesla and SpaceX, who is, incredibly, still only 41 years old. Musk announced on Wednesday that Tesla is planning to unveil a new lithium-ion battery pack that homeowners could buy to store and supply their own energy. Here’s Time Magazine:

Details on the batteries were sparse, but an obvious use would be placing them in homes equipped with solar panels to store excess energy. Solar energy company SolarCity already offers Tesla battery packs in some markets that customers can use to store energy and use as a kind of emergency generator. Musk is the chairman of SolarCity and its largest shareholder.

In addition to selling to residential customers, Tesla could also sell batteries to utilities trying to increase energy efficiency.

A shortage of electricity is arguably South Africa’s most immediate constraint: South Africa is producing less electricity than it did twenty years ago, owing to a lack of investment in new power plants and maintenance on existing ones. It is embarrassing to explain to my international visitors that, yes, we have a schedule about when power cuts will occur. Load shedding is killing investment, growth and jobs. Zuma acknowledged as much: “The country is currently experiencing serious energy constraints which are an impediment to economic growth and is a major inconvenience to everyone in the country”. He outlined short, medium and long-term responses, none new. According to most experts, we can expect load shedding for most of 2015 and well into 2016.

That is, if we trust government to deliver on its promises. We shouldn’t. Last night showed us that the best we can hope for is a government that does little harm. Don’t expect that any time soon, though. Instead, we should trust those people who have an incentive to get things right: if they do, and we begin to use batteries in our homes like we use toasters, they win fame and fortune. Musk will become an even richer genius. Politicians, in contrast, have none of those incentives. The way they make money is to skim the cream off a big tender. Delays mean larger contracts and more to skim off. There is nothing in politics that incentivize leaders to be efficient.

Entrepreneurs are different. They must innovate, improve, and deliver to satisfy the demands of millions of consumers. The better they do this, the more money they make. And this innovation improves the planet, too. Battery-powered homes (and cars and offices) will allow us to make better use of renewable energies, especially in a sunny and windy South Africa. It will allow us to connect the 3.5 million people that still don’t have access to electricity. (Consider the impact cell phone technology on African living standards.) And it will allow us to escape the inefficiencies of badly-run state monopolies. #powertothepeople #inmuskwetrust

Better politicians are not the answer to South Africa’s woes. Better entrepreneurs are. For South Africans, the light at the end of Eskom’s dark tunnel is a fast-approaching train. For Musk, it’s an entirely new world.

Written by Johan Fourie

February 13, 2015 at 10:28

Here’s an idea, South Africa

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hyperloopOn Monday, South African Elon Musk revealed his latest revolutionary idea – the Hyperloop, a new type of public transport that will run between Los Angeles and San Francisco. Musk, who moved to the US after school and founded the legendary companies PayPal, SpaceX and Tesla Motors, was disgusted by US government plans to build a high-speed train between the two cities for the exorbitant fee of $70 billion and thought he could come up with a faster, and cheaper, alternative. He revealed his plans for the Hyperloop in a blog post.

In a nutshell, the plan is to fire frictionless, magnetically levitated capsule vehicles through a near-vacuum tunnel. (If you’re into this stuff, read the full document here.) The pods will travel at a maximum speed of 1220km/h, which will reduce the travel time for the 613.9 km between LA and San Francisco from the current 5 hours 34 minutes (as predicted by Google Maps) to what Musk hopes will be no more than 35 minutes. And this all for only 9% of the cost of the high-speed train (construction of which is scheduled for 2014).

Musk has his critics. Because most of the technology is very much in the development phase, there are some doubts whether his projections are realistic. He may also undershoot construction and maintenance costs (Musk believes a ticket will cost about $20 per ride.) But with some investment in research and development, there is no denying that this is an idea that could revolutionise medium-distance transport. The major problem may in fact be political: too many vested interests afraid of the disruptive power of new technology.

South Africa is currently debating its own transport future. One plan that has been mooted is to build a high-speed rail between Johannesburg and Durban. Incidentally, this is about the same distance – 568 km – than the distance for Musk’s California Hyperloop, meaning that such technology can reduce the travel time between Durban and Joburg from five and a half hours to just 30 minutes. You could potentially work in Joburg and reside in Durban and spend less time “on the road” than those tackling the Ben Schoeman highway every day. But it’s not really passengers that I’m thinking about: South Africa’s main industrial area is situated, for historical reasons, in Gauteng, for from a port. A hyperloop for containers could significantly reduce transport costs, making South African manufacturing and exports competitive in world markets.

So here’s an idea, South Africa: instead of building an expensive (as I’ve suggested in an earlier post) high-speed rail network, why not give Musk R100 billion to build his Hyperloop in South Africa. This will: a) provide a far more inexpensive and quicker mode of transport between Durban and Johannesburg than what a high-speed rail can promise; b) push South Africa to the technological frontier, creating a new industry that – if successful – would give South African firms a strong first-mover advantage in the global market, boosting exports of high-tech, knowledge-intensive goods (see my earlier post on Game Changers); and, c) inspire the next generation of South African physicists, engineers, innovators and entrepreneurs. One of them might just be the next Elon Musk – with an ever more daring revolutionary idea.

Written by Johan Fourie

August 15, 2013 at 17:15