I continue on the thread I started to develop in my last update in French, titled ‘De quoi parler à la prochaine réunion de faculté’, i.e. I am using that blog, and the fact of writing, to put some order in the almost ritual mess that happens at the beginning of the academic year. New calls for tenders start in the ministerial grant programs, new syllabuses need to be prepared, new classes start. Ordinary stuff, mind you, this is just something about September, as if I were in Vivaldi’s ‘Four seasons’: the hot, tumultuous Summer slowly folds into the rich, textured, and yet implacably realistic Autumn.
My central idea is to use some of the science which I dove into during the summer holidays as an intellectual tool for putting order in that chaos. That almost new science of mine is mostly based on the theory of complex systems, and my basic claim is that technological change is an emergent phenomenon in complex social systems. We don’t know why exactly our technologies change the way they change. We can trace the current technologies back to their most immediate ancestors and sometimes we can predict their most immediate successors, but that’s about it. Futuristic visions of technologies that could be there in 50 years from now are already some kind of traditional entertainment. The concept of technological progress, when we try to find a developmental logic in the historically known technological change, is usually standing on wobbly legs, on the other hand. Yes, electricity allowed the emergence of medical technologies used in hospitals, and that saved a lot of human lives, but there is no way Thomas Edison could have known that. The most spectacular technological achievements of mankind, such as the Egyptian pyramids, the medieval cathedrals, the Dutch windmills from the 16th century, or the automobile, seen from the historical distance, look ambiguous. Yes, it all solved some problems, but it facilitated the emergence of new problems. The truly unequivocal benefit of those technological leaps, which could have been actually experienced by the people who made them, was to learn how to develop technologies.
The studies I did during the Summer holidays 2021 focused on four essential, mathematical models of emergent technological change: cellular automata, flock of birds AKA particle swarm, ants’ nest, and imperfect Markov chains. I start with passing in review the model of cellular automata. At any given moment, the social complexity can be divided into a finite number of social entities (agents). They can be individual humans, businesses, NGOs, governments, local markets etc. Each such entity has an immediate freedom of movement, i.e. a finite number of one-step moves. The concept is related to the theory of games and corresponds to what happens in real life. When we do something social, we seldom just rush forwards. Most frequently, we make one step, observe the outcomes, adjust, then we make the next step etc. When all social agents do it, the whole social complexity can be seen as a collection of cells, or pixels. Each such cell (pixel) is a local state of being in society. A social entity can move into that available state, or not, at their pleasure and leisure. All the one-step moves a social entity can make translate into a trajectory it can follow across the social space. Collective outcomes we strive for and achieve can be studied as temporary complex states of those entities following their respective trajectories. The epistemological trick here is that individual moves and their combinations can be known for sure only ex post. All we can do ex ante is to define the possible states, and just wait where does the reality go.
As we are talking about the possible states of social complexity, I found an interesting mathematical mindf**k at quite an unexpected source, namely in the book titled ‘Aware. The Science and Practice of Presence. The Groundbreaking Meditation Practice’ by Daniel J. Siegel [Penguin Random House LLC, 2018, Identifiers: LCCN 2018016987 (print), LCCN 2018027672 (ebook), ISBN 9780143111788, ISBN 9781101993040 (hardback)]. This is a mathematical way of thinking, apparently taken from quantum physics. Here is the essence of it. Everything that happens does so as 100% probability of the given thing happening. Each phenomenon which takes place is the actualization of the same phenomenon being just likely to happen.
Actualization of probability can be seen as collision of two vehicles in traffic. When the two vehicles are at a substantial distance from each other, the likelihood of them colliding is zero, for all practical purposes. As they converge towards each other, there comes a point when they become sort of provisionally entangled, e.g. they find themselves heading towards the same crossroads. The probability of collision increases slightly, and yet it is not even the probability of collision, it is just the probability that these two might find themselves in a vicinity conducive to a possible collision. Nothing to write home about, yet, like really. It can be seen as a plateau of probability slowly emerging out of the initial soup of all the things which can possibly happen.
As the two cars drive closer and closer to the crossroads in question, the panoply of possible states narrows down. There is a very clear chunk of reality which gains in likelihood, as if it was a mountain range pushing up from the provisional plateau. There comes a point where the two cars (and their drivers) just come on collision course, and there is no way around it, and this is a peak of 100% probability. Boom! Probability is being consumed.
What do those cars have in common with meditation and with the emergence of technological change? As regards meditation, thought can be viewed as a progressively emerging actualization of something that was just a weak probability, sort of a month ago it was just weakly probable that today I would think what I think, it became much more likely yesterday, as the thoughts from yesterday have an impact on the thoughts of today, and today it all comes to fruition, i.e. to the 100% probability. As regards emergent technological change, the way technology changes today can be viewed as actualization of something that was highly probable last year, just somehow probable 10 years ago, and had been just part of the amorphous soup of probability 30 years ago. Those trajectories followed by individual agents inside social complexity, as defined in the theory of cellular automata, are entangled together precisely according to that pattern of emergent probabilities. Two businesses coming up with two mutually independent, and yet similar technologies, are like two peak actualizations of 100% probability in a plateau of probable technological change, which, in turn, has been slowly emerging for some time.
Those other theories I use explain and allow to model mathematically that entanglement. The theory of particle swarm, pertinent to flocks of birds, assumes that autonomous social agents strive for a certain level of behavioural coupling. We expect some level of predictability from others, and we can cooperate with others when we are satisfactorily predictable in our actions. The strive for social coherence is, therefore, one mechanism of entanglement between individual trajectories of cellular automata. The theory of ants’ nest focuses on a specific category of communication systems in societies, working like pheromones. Ants organize by marking, reinforcing and following paths across their environment, and their pheromones serve as markers and reinforcement agents for those paths. In human societies, there are social pheromones. Money and financial markets make probably the most obvious example, but scientific publications are another one. The more scientific articles are being published on a given topic, the more likely are other articles being written on the same topic, until the whole thing reaches a point of saturation, when some ants (pardon me, scientists) start thinking about another path to mark with intellectual pheromones.
Cool. I have (OK, we have) complex social states, made of entangled probabilities that something specific happens, and they encompass technology. Those complex states change, i.e. one complex state morphs into another. Now, how the hell can I know, as a researcher, what is happening exactly? Such as the theory of complex systems suggests it, I can never know exactly, for one, and I need to observe, for two. As I don’t know exactly what is it exactly, that thing which I label ‘technological change’, it is problematic to set too many normative assumptions as for which specific path that technological change should take. I think this is the biggest point of contention as I apply my theory, such as I have just outlined it, to my main field of empirical research, namely energy economics, and technological change in the sector of energy. The more I do that research, the more convinced I am that the so-called ‘energy policies’, ‘climate policies’ etc. are politically driven bullshit based on wishful thinking, with not much of a chance to bring the positive change we expect. I have that deep feeling that setting a strategy for future innovations in our business/country/world is very much like that Polish expression ‘sharing the skin of a bear which is still running in the woods’. First, you need to kill the bear, only then you can bicker about who takes what part of the skin. In the case of innovation, long-term strategies in that domain consist in predicting what we will do when we have something we don’t even know yet what is it exactly.
I am trying to apply this general theory in the grant applications which I am in charge of preparing now, and in my teaching. We have that idea, at the faculty, to apply for funding to study the market of electric vehicles in Europe and in Poland. This is an interesting situation as regards business models. In the US, the market of electric cars is clearly divided among three categories of players. There is Tesla, which is a category and an industry in itself, with its peculiar strategy of extreme vertical integration. Then there are the big, classical car makers, such as Toyota, General Motors etc., with their business models based on rather a short vertical chain of value added inside the business, and a massive supply chain upstream of the house. Finally, there is a rising tide of small start-ups in the making of electric vehicles. I wonder what I could be in Europe. As our European market of electric vehicles is taking off, it is dominated by the incumbent big manufacturers, the old school ones, with Tesla building a factory in Germany, and progressively building a beachhead in the market. There is some timid movement towards small start-up businesses in the field, but it is really timid. In my home country, Poland, the most significant attempt at starting up an electric vehicle made in Poland is a big consortium of state-controlled companies, running under the name of ‘Electromobility Poland’.
I have that intuition, which I provisionally express as a working hypothesis, namely that business models are an emergent property of technologies which they use. As regards the market of electric vehicles, it means that Tesla’s business model is not an accidental explosion of Elon Musk’s genius mind: it is an emergent characteristic of the technologies involved.
Good. I have some theory taking shape, nice and easy. I let it ripen a bit, and I start sniffing around for facts. What is a business model, in my mind? It is the way of operating the chain of value added, and getting paid for it, in the first place. Then, it is the way of using capital. I noticed that highly innovative environments force businesses to build up and keep large amounts of cash money, arguably to manage the diverse uncertainties emerging as technologies around morph like hell. In some cases, e.g. in biotech, the right business model for rapid innovation is a money-sucker, with apparently endless pay-ins of additional equity by the shareholders, and yet with a big value in terms of technological novelty created. I can associate that phenomenon of vacuum cleaning equity with the case of Tesla, who just recently started being profitable, and had gone through something like a decade in permanent operational loss. That is all pertinent to fixed costs, thus to the cash we need to build up and keep in place the organizational structure required for managing the value chain the way we want to manage it.
I am translating those loose remarks of mine into observable phenomena. Everything I have just mentioned is to be found in the annual financial reports. This is my first source of information. When I want to study business models in the market of electric vehicles, I need to look into financial and corporate reports of businesses active in the market. I need to look into the financial reports of Mercedes Benz, BMW, Renault, PSA, Volkswagen, Fiat, Volvo, and Opel – thus the European automotive makers – and see how it is going, and whether whatever is going on can be correlated with changes in the European market of electric vehicles. Then, it is useful to look into the financial reports of global players present in the European market, e.g. Tesla, Toyota, Honda and whatnot, just to see what changes in them as the European market of electric vehicles is changing.
If my intuition is correct, i.e. if business models are truly an emergent property of technologies used, the fact of engaging into the business of electric vehicles should be correlated with some sort of recurrent pattern in those companies.
Good. This is about the big boys in the playground. Now, I turn toward the small ones, the start-up businesses. As I already said, it is not like we have a crowd of them in the European industry of electric vehicles. The intuitive axis of research which comes to my mind is to look at start-ups active in the U.S., study their business models, and see if there is any chance of something similar emerging in Europe. Somehow tangentially to that, I think it would be interesting to check whether the plan of Polish government regarding ‘Electromobility Poland’, that is the plan to develop it with public and semi-public money, and then sell it to private investors, has any grounds and under what conditions it can be a workable plan.
Good. I have rummaged a bit in my own mind, time to do the same to other people. I mean, I am passing to reviewing the literature. I type ‘electric vehicles Europe business model’ at the https://www.sciencedirect.com/ platform, and I look at what’s popping up. Here comes the paper by Pardo-Bosch, F., Pujadas, P., Morton, C., & Cervera, C. (2021). Sustainable deployment of an electric vehicle public charging infrastructure network from a city business model perspective. Sustainable Cities and Society, 71, 102957., https://doi.org/10.1016/j.scs.2021.102957 . The abstract says: ‘The unprecedented growth of global cities together with increased population mobility and a heightened concern regarding climate change and energy independence have increased interest in electric vehicles (EVs) as one means to address these challenges. The development of a public charging infrastructure network is a key element for promoting EVs, and with them reducing greenhouse gas emissions attributable to the operation of conventional cars and improving the local environment through reductions in air pollution. This paper discusses the effectiveness, efficiency, and feasibility of city strategic plans for establishing a public charging infrastructure network to encourage the uptake and use of EVs. A holistic analysis based on the Value Creation Ecosystem (VCE) and the City Model Canvas (CMC) is used to visualise how such plans may offer public value with a long-term and sustainable approach. The charging infrastructure network implementation strategy of two major European cities, Nantes (France) and Hamburg (Germany), are analysed and the results indicate the need to involve a wide range of public and private stakeholders in the metropolitan areas. Additionally, relevant, and fundamental patterns and recommendations are provided, which may help other public managers effectively implement this service and scale-up its use and business model.’
Well, I see there is a lot of work to do, as I read that abstract. I rarely find a paper where I have so much to argue with, just after having read the abstract. First of all, ‘the unprecedented growth of global cities’ thing. Actually, if you care to have a look at the World Bank data on urban land (https://data.worldbank.org/indicator/AG.LND.TOTL.UR.K2 ), as well as that on urban population (https://data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS ), you will see that urbanization is an ambiguous phenomenon, strongly region-specific. The central thing is that cities become increasingly distinct from the countryside, as types of human settlements. The connection between electric vehicles and cities is partly clear, but just partly. Cities are the most obvious place to start with EVs, because of the relatively short distance to travel between charging points. Still, moving EVs outside the cities, and making them functional in rural areas, is the next big challenge.
Then comes the ‘The development of a public charging infrastructure network is a key element for promoting EVs’ part. As I studied the thing in Europe, the network of charging stations, as compared to the fleet of EVs in the streets is so dense that we have like 12 vehicles per charging station on average, across the European Union. There is no way a private investor can have it for their money, when financing a private charging station, with that average density. We face a paradox: there are so many publicly funded charging stations, in relation to the car fleet out there, that private investment gets discouraged. I agree that it could be an acceptable transitory state in the market, although it begs the question whether private charging stations are a viable business in Europe. Tesla has based a large part of its business model in the US precisely on the development of their own charging stations. Is it a viable solution in Europe?
Here comes another general remark, contingent to my hypothesis of business models being emergent on the basis of technologies. Automotive technologies in general, thus the technology of a vehicle moving by itself, regardless the method of propulsion (i.e. internal combustion vs electric) is a combination of two component technologies. Said method of propulsion is one of them, and the other one is the technology of distributing the power source across space. Electric vehicles can be viewed as cousins to tramways and electric trains, with just more pronounced a taste for independence: instead of drinking electricity from a permanent wiring, EVs carry their electricity around with them, in batteries.
As we talk about batteries, here comes another paper in my cursory rummaging across other people’s science: Albertsen, L., Richter, J. L., Peck, P., Dalhammar, C., & Plepys, A. (2021). Circular business models for electric vehicle lithium-ion batteries: An analysis of current practices of vehicle manufacturers and policies in the EU. Resources, Conservation and Recycling, 172, 105658., https://doi.org/10.1016/j.resconrec.2021.105658 . Yes, indeed, the advent of electric vehicles creates a problem to solve, namely what to do with all those batteries. I mean two categories of batteries. Those which we need, and hope to acquire easily when the time comes for changing them in our vehicles, in the first place, and those we don’t need anymore and expect someone to take care of them swiftly and elegantly.