The a16z Show - a16z Podcast: Connectivity and the Internet as Supply Chain

Starting point is 00:00:00 The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, everyone. Welcome to the A6NZ podcast. I'm Sonal. And today, Michael and I are talking to Paragcana, who's a global contributor on CNN. He's a senior fellow at a school of public policy at the National University of Singapore. And most interesting to us is he recently has a book out, a new book out called connectography, which is about mapping the future of global civilization. But more concretely, Parag, it's about how connectivity and the supply chain you argue are really the

Starting point is 00:00:46 driving forces more than geography, more than anything else, for the world. Absolutely. Well, thank you for having me on. Well, I guess I would kick things off. I think it'd be great for, you know, we have a tendency when we talk about the topics, these topics, to be very great. grandiose. We've got to connect the world and technology can break down these barriers. And I think we'd like to take a step away from that and really dive into what's been happening. Like what's the evolution that we're talking about? The supply chain, for example, like I think one of the most interesting ideas you put forth is that this historical evolution of the supply chain. Can you talk a little bit more about that? Sure. And there's no reason not to be grandiose. I write books with

Starting point is 00:01:21 neologisms and we're terms like global civilization. So I'm hardly one to shy away. I aim at the 100-year perspective, but also there is lots of granularity in the argument. I think, you know, it is true that though when you're in the valley and you're talking about connectivity, of course, your first instinct is to think about digital connectivity and the internet and your mobile phone. And all of that is true, but the internet is actually only the newest layer of global infrastructural connectivity. And, you know, the fundamental argument is there is the most powerful force of this century is connectivity. But that connectivity falls at a three categories. There's transportation, energy, and communications. And that evolution that you asked about

Starting point is 00:02:02 begins in the late 19th century with intercontinental and cross-border highways, and then, of course, railways built by empires such as the British, even the Ottomans had railways that spanned across the Middle East. And of course, the Russians did too. That's just transportation. Then came energy. We didn't have international oil and gas pipelines 100 years ago. Today we have about 2 million kilometers of them, right? Not to mention the four million kilometers of railways. And so on top of transportation, on top of energy, you have communications. And communications is the third and most recent layer of global infrastructural connectivity. We've got the telegraph and along some of the same maritime routes where we, where the British laid telegraph cables a century ago, we now have

Starting point is 00:02:49 fiber optic submarine cables across the continent. And there's about one million kilometers of fiber optic cables under the ocean floor. We're building more and more all the time. And then, of course, we've got the satellites and the data centers and the ISPs and all of the ways in which digital connectivity takes place. So it is a data supply chain. We have a supply chain for moving cargo, a supply chain for moving energy, for moving ourselves.

Starting point is 00:03:14 Now we have a full-on global layering of a digital supply chain, which we call the Internet. So as I say, the Internet is only the newest kind of supply chain. It's the third and freshest and newest and obviously among the most powerful. I want to pause on that idea for a minute. It was eye-opening for me to think about the Internet as the one in this continuum versus like this discrete theme that's just randomly layered on top. Why does that distinction matter so much?

Starting point is 00:03:41 Why that's important what the implications of that is? We think we live in a world in which the most fundamental layer of human organization is the political state. You know, it's my nation and your nation and the borders between us, states and borders. What happens when you have the volume of infrastructural connectivity between cities and communities so drastically exceed the utility and the length of global borders is that you change the entire nature of the system. And of course, we're not old enough to remember, and only those who are steeped in kind of geopolitical history would think back to the last period of what's called major systems change from the middle ages to the modern state system. and that was 500 years ago. And once every 500 years, we have this kind of systemic transformation

Starting point is 00:04:29 in how human society is organized. And so, you know, we're moving from the world of nations and borders to what I call the world of flow and friction in which infrastructure and supply chains fundamentally matter more than nations and borders. Because, again, there's so much more infrastructure than there is borders. So instead of thinking about things stopping at borders,

Starting point is 00:04:50 we should think of the only way ways in which we slow down, you know, the movement of goods, of people, of resources, of knowledge, of ideas, of technology is through various kinds of frictions, the great firewall of China. And the things that are flowing through these systems are technology, goods, capital, people, human capital as well. I mean, it could be all of those things, ideas. It's literally everything because the world becomes not a world of the Westphalian political

Starting point is 00:05:19 borders, but it becomes a supply chain world, in which the supply chain, connects everything. Every supply in the world, every resource, every commodity, every idea can reach any other place or person in the world through these infrastructures. So the world becomes completely organized according to connectivity, that which is connected and that which is not connected. And everything becomes fungible, right? Any resource can be moved and transferred from one place to the other. And so that is a supply chain world. And that is totally unprecedented in human history, not to mention that it is global. So the supply chain, it just makes me think of Europe and Russia and natural gas,

Starting point is 00:05:58 where the politics haven't gotten the way of the flow of natural gas to Europe, but they certainly could. I'm just wondering, it sounds to me like you're arguing that the supply chain kind of supersedes the political, but does it? I can see situations where the gas does stop flowing. Oh, I'm so glad you brought up this example. It's a perfect one, because interesting,

Starting point is 00:06:21 enough, once Russia, that is one of the largest builders of gas and oil pipeline infrastructure through a company called Transneft, it's a state-owned like a Kremlin-backed company that builds most of the pipelines that flow between or that connect Russia and Europe. So even though it's a Kremlin-run company, you would think that when Russia wants to cut off supplies to Ukraine and Europe, it would just flick a switch and do that and punish them, right? Right. Instead, Transneft wants to make money. And Transneft can't make money if it's not selling oil and gas. So it is a Kremlin-backed-owned company that is actually doing the most to undermine Putin's foreign policy because it doesn't want to lose money by the

Starting point is 00:07:03 flow. I have a whole map of this in the book where I point out that the more pipelines you build between Russia and Europe and the more natural gas that Europe can import through Turkey, from North Africa, from the United States, the United States now ships and liquid natural gas to the Baltic countries. So the more resilience you have in the system, because even if Russia were to turn off one tap, it's got all these other taps that are still flowing. So here's the crazy part. This is the punchline. The target country for Russia is, of course, Ukraine. But now that Russia has built so many, is building so many new pipelines to Europe that circumvent Ukraine, Europe is building what are called reverse pipelines that take the gas that goes from Russia to Germany and feeding it back through Poland

Starting point is 00:07:43 to Ukraine. So even if Russia wanted to cut off Ukraine, it Russia. gas is still going through Ukraine through Western Europe. It's one of the kind of arcs that I try and argue is that the more connectivity you build, even if it seems redundant, even if it seems superfluous, even if you think, why do we need 10, 17 internet junctions in Singapore, for example, this tiny island, you know what? Because the other 16 may one day get cut off. That's also just really good engineering practice. The design of any good system, the philosophy is that you want to have as many redundancies as possible so you can reroute if something breaks, if, you know, whether it's a printer or circuit or, you know, any mass autonomous system, you want to be able to have multiple pathways

Starting point is 00:08:22 and ability to reroute on demand. It's super fascinating. You just talked about with that example, how does that play out with, like, say, technology companies and applications? So, you know, earlier I mentioned a company that most people have never heard of, and yet it's the most powerful builder of energy infrastructure in the world, Transneft. Now, the technology companies, the technology infrastructure companies that lay all of these fiber cables, many of many people haven't heard of Tata Communications and the others that build, own, and operate these millions of kilometers of undersea internet cables. And they are the silent agents of digital connectivity around the world. Now, of course, many people have heard of Vodafone. Vodafone is the largest

Starting point is 00:09:01 telecom operator in the world, a nominally British company, but really a global telecom superpower. These telecom and technology and kind of, you know, data industry companies invest about, you know, it's estimated that between now and 2020, let alone all the trillions that have been since so far, we'll spend another $4 trillion just on the physical infrastructure of digital connectivity around the world. That's the internet cables, that's the data centers. That's our telecoms, relay stations, mobile infrastructure, all of those things all over the world. The point I want to emphasize is this is a physical thing. It's a physical investment. It has this transformative impact on like the nature of the organization.

Starting point is 00:09:42 of the world because you can actually touch and feel these things. Of course, we think of the, you know, sort of internet as something so ethereal, but it is such a physical thing and all of this infrastructure becomes more tangible and more relevant to our lives than invisible borders. So in that world, and that's our world, Vodafone becomes what? I mean, it's certainly a multinational corporation, but how is its influence and its kind of gravity felt everywhere? It is what I call a stateless superpower. So when you think of like a commodities trader like Glencore, a company that can buy, you know, mining assets, copper, zinc mines, you know, whatever the case we mean, get it anywhere in the world through its shipping networks. That's a stateless superpower. It operates

Starting point is 00:10:26 everywhere and is nominally registered as a Swiss company. Switzerland has a large share of these stateless superpowers as does Singapore and some of the offshore British jurisdictions. Think of McKinsey is another example. You know, where is McKinsey? Where is Accenture? They have hundreds of thousands of but no one knows where their headquarters is. Sometimes their own staff don't know. So, you know, I recently wrote a long essay that was just analyzing how 20, 25 years ago, in a pre-connectivity sort of world, in a world where there was not all of these connected nodes that had all of the full services of a legal sort of, you know, domicile of quality regulation,

Starting point is 00:11:03 of technological connectivity, of good airports, even, all of these things. You only had a few companies that were really leveraging this globally connected system. Now people, companies are everywhere. The Vodafone is a British company, but what share of its revenue do you think really comes from the United Kingdom, right? Very, very small. In fact, it has a giant global footprint. And so all telecom companies are angling.

Starting point is 00:11:25 If you're a Spanish telecom company, you are aiming to boost your market in Latin America. Tata, again, Tata, Reliance, all of these Indian telecommunications companies, where is their biggest growing footprint besides their home market? It's Africa. And this applies now to all sectors. I mentioned consulting, I mentioned energy, I mentioned now technology. Most Fortune 500 companies now earn more revenue abroad than at home. So to become a stateless superpower.

Starting point is 00:11:50 You want to have a globally distributed revenue. You want to have your management distributed in different jurisdictions. You want to be a bit decentralized. You want to have diverse kind of management structures, all of these kinds of tools in a way that companies are using. And people always think that these are American companies. They were created by American talent. immigrant talent, they thrive on the air of entrepreneurship that sort of pervades Silicon Valley, that ultra-high oxygen content air, you know, that gets people thinking a step ahead of the rest of

Starting point is 00:12:24 the world. But in the present, these same companies are saying, whoa, you know, we can grow faster in India. There's great technology workers and programmers and coders in emerging markets who cost less. And of course, we can't get enough talent into the borders. For all of these reasons, a lot of large companies. Cisco, to say nothing of obviously companies that are leveraging, just coding talent in the cloud, want to locate and be just about everywhere. And so they are in a way de-territorializing themselves. It's really interesting to watch this all play out at a macro scale, but at a very mundane kind of detail level, what happens to the individual employees in these companies? How does that affect them? And I'm thinking, you know, about like the next set of workers, the people whose jobs are changing.

Starting point is 00:13:10 like how are things playing out for them in this world that you're painting, which is probably reality. You're describing what already is in many ways. Exactly. I know I get called a futurist sort of all the time, but I wouldn't be writing about any of this stuff if it weren't sort of, you know, deeply grounded in everything that I observe today as I'm just traveling around the world and talking to people and seeing things. There's nothing particularly futuristic about all of this. And I think there's two answers to your question. One is on the level of the workers and workplace practices and the other other is the level of identity. I'm interested in both the nature of identity is actually really an interesting one.

Starting point is 00:13:43 We're at the point now where there are more people surviving in the sharing economy. So as part-time workers, digital workforce, gigonomists, whatever term you want to use, freelancers as a whole, some estimate 30 to 40 million of them. More people employed or self-employed in that way than there are manufacturing workers in America, which is less than 10% of the labor force and only about 10 or 12 million people and obviously dwindling very fast. Let's fast forward to where Americans are self-employed and are living off of various tasks that they get through connected work, through large companies, to each other, and so forth. And that is, of course, changing the nature of how the individual relates to the economy. There's no more stable employment for generations on end.

Starting point is 00:14:26 Instead, you have to be much more self-reliant. And your degree of connectivity is going to shape your prosperity, your ability to be mobile sort of digitally so that you can continue to work in different ways over the course of your career. get by financially. So connectivity and mastering connectivity on an individual level actually matters profoundly for each and every American. That's one angle. Then there's identity. When looking at stateless superpowers, I looked at the, you know, hundreds of thousands of employees used to be less than the 1%. The elite global travelers who are bankers and consultants, now it's so many people who are always moving from one place to the other. I look at, for example, the number of expatriates in the world. There used to be about 100 in the 60s and only 100 million people

Starting point is 00:15:07 living outside their country of origin. Now it's over 300 million people who are expats. And they might be permanent expats. They belong to what I call in the book, the independent republic of the supply chain. Oh, that's so interesting. What is their primary identity? And as someone who's migrated a lot in my life, are very sympathetic to this. I've met young Russians and Brazilians and Indians and Saudis who say, you know, my passport is such a drag. You know, I don't have visa-free entry around the world like, you know, someone from Norway. But thank goodness I work for a Golden Sacks or Accenture or McKinsey or Google, I get to move all around the world, and any country will take me because of my employer. And their loyalty is much more to their company than to their country. And this is a particular

Starting point is 00:15:48 thing that will expand, you know, with Generation Y and Millennials and certainly Generation Z, you know, with my kids, because they will feel increasing like they will go wherever the work takes them and they will identify with, you know, whatever their source of employment is, whoever gives them not only technological assets, but obviously, skill building, all of the things that governments are getting worse and worse at doing. So I think that we're going to see more identification with the supply chain, which is a way of saying cloud communities, you know, these virtual communities that are facilitated by who you work for and where you travel, but also obviously just on a day-to-day level, you know, what are the Facebook

Starting point is 00:16:26 groups you're in and, you know, who are you dialoguing with online? That gives you a sense of identity, too. Big shift from 500 years ago, right? Your primary identity was religion or state. And now it's anything you want it to be. And so I think, again, connectivity, total connectivity enables this. You know, one of our partners, he's now running a startup full-time, wrote a really interesting op-ed, which I edited actually a few years ago, called Software as We Organizing the World. And his premise was pretty much what you're talking about, but more interestingly, the connection of the two, which is what happens when online communities that are organizing are now kind of becoming more physical in certain ways. And one of the things that I was thinking about in that frame is it's great that communities and tribes, whatever we want to call them, groups can sort of self-sort. I mean, it's even a form of Tebow sorting in a way. What does that mean in terms of people being exposed to different ideas, not being in an echo chamber? Are they getting exposed to more diverse ideas? Are we over-microsorting and all this? I mean, I'm kind of curious about your views on that. I'm a big fan of his work. On your question of what does it mean in terms of the future of sort of, how would you phrase it? You say, you know, digital tribes?

Starting point is 00:17:42 Yeah, like tribalization for better or worse. Yeah. So there's a lot of mythology around this idea that, oh, we used to, you know, huddle around the NBC evening news and what we were exposed to lots of diverse ideas watching our monochrome television. Everyone going to the same old office every day, like a Japanese worker, let's say, and working 60 years for the same company. That world is not coming back, and nor did that world ever really exist. Let's embrace the reality of the fact that, first of all, we're exposed to a zillion times more ideas than we were before from every corner of the world. I can't possibly imagine the feedback and the diversity and the geographic, you know, diversity of feedback that I get on every syllable that I write coming from everywhere,

Starting point is 00:18:26 we're at not for this connectivity. Just because you can choose to switch on a filter bubble and isolate, yourself with totally nationalist ideas or ideological ideas, political ideas. That doesn't mean that you do, in fact, do that. If you look at the number of, for example, international friends that people have on Facebook, it used to be only, you know, four or five percent of an average person's friends were from another country, and now it's risen to like 15 or 16 percent. Now, of course, we can debate the meaning of the word friend. I think the fact is that we have global connections. Most people in the world will still never leave the country in which they were born. So I'm very, you know,

Starting point is 00:19:03 sympathetic to the idea that you can be a prisoner of the kind of, you know, the values, the identity that are imposed on you by the place, by the government, by the religion of the country that you're in. And without digital connectivity, how would you ever have those options as to, you know, who you identify yourself with what you believe in and so on? The fact is that more connectivity is better for everyone. Where does this world that you describe? And I'm sort of thinking about the stateless superpower and then the rest of us. I mean, is there only room for the very giant that gets bigger and bigger before it comes super? Like, where is the room for innovation and for what Silicon Valley does best, right? You know, birth these things and put them out

Starting point is 00:19:43 into the world? Or is the network effect of these stateless superpowers so powerful that there isn't room for anything else? Oh, no, not at all. The global economic pie is still expanding. There's plenty of growth in the world. And I think the answer might sound mundane, but it's scale. I mean, a lot of the things that we're talking about right now are happening, but aren't happening fast enough. You know, we do have the next three billion, the next five billion that need to be connected. So that's kind of a long way to go, right? And I think, you know, again, the answer is in scaling supply chains, getting people more access to markets, whether it's technology, capital, mobility, whatever the case may be. And I think tech companies have a lot of a big role to play.

Starting point is 00:20:24 Let me give you a very concrete example. It's very expensive to access global shipping and transportation networks to move cargo and goods around the world. That is something that big companies can do. And the costs of access are very often bureaucratic paperwork and bribes. So, of course, Ethereum, you know, and blockchain technologies really reduce the transaction cost and the transparency and the security of participating in global economic transactions, in getting your goods from, you know, the village in country X to the big city and country Y. And so what I'm seeing in my research is that through all of these cloud-based digital technology, for, you know, just call them for lack of a better terms, global trade enterprise apps,

Starting point is 00:21:05 whether they use blockchain or otherwise. Now just about anyone can participate in global supply chains. You know, you can make parts for the global supply chain for manufacturing or be part of a digital kind of coding ecosystem on like, you know, Nitris or GitHub, whatever the case. Maybe you can participate in the financial transactions and the digital transactions and the economic transactions through all of these increasingly lower cost platforms. So to me, scale is still the real big issue. And this is where all of the inventiveness and innovation of Silicon Valley meets the frictions, you know, to go back to the earlier term, of the real world. And we have to continue to fight and push to overcome those frictions. I wanted to go back to one of the points you brought up

Starting point is 00:21:45 earlier in the echo chamber bit. So one of the things I think is interesting as you talked about how we have this nostalgia for this time that never really was the way it was before and that you're arguing never really was. And I think many people agree that it's just sometimes a hindsight view of the world. I think one of the things that's happening is, is that those systems that evolved became containers for practices that are associated with taking care. So for the example that you cited, like, you know, you work at one company for 60 years. That's no longer happening anymore. But because that was the system, that was where health care was located.

Starting point is 00:22:16 That was where people's financial security was located. And now we're in this place where we haven't quite built out this other ecosystem of third-party services that can support, like, you know, we have in the U.S., we have now Obamacare. so that helps take care of health care. But then, you know, other third-party services to help the employees who are no longer captive to a single company. So we're kind of in this in-between place

Starting point is 00:22:38 and the world hasn't quite settled into this place. We're in the middle of this friction. So do you have any thoughts on what's changing, what needs to change there? Because we can't also dismiss the real concerns of people

Starting point is 00:22:49 who are moving in these systems and trying to live their lives and make their way. Oh, yeah. No, to the contrary, I think that simply harping nostalgically for that world that never was is not exactly a constructive solution to this dilemma of, you know, people

Starting point is 00:23:03 feeling disrupted by transitions. I think part of the transition and disruption is also the solution to the problems that we found from the previous era that that gave us the financial crisis. And then Freelancers Union, which used to be when I lived in New York five years ago, I was a member of Freelancers Union. I was getting my health insurance and so forth. Now it's really growing and growing at a massive rate. And they're looking at portable insurance schemes and workers' rights and all of these kinds of new types of political arrangements and negotiations and social contracts with their members, with insurance companies, with the state of New York, and so on. So these are the solution to this transition that we're right. They are the future and they are

Starting point is 00:23:46 also scaling rapidly right now. So the more cities we can have, and there's very good rankings around this. City Group and the Economist Intelligence Unit did this research on which cities in North America and around the world are doing the most to create ecosystems that allow millennials to get new skills and which cities have general assembly, which cities have incubators, which cities have lots of low-cost co-working spaces, which schools have kind of, which cities have like a polytechnics or like vocational schools or night schools, all of these things people need in order to make it through this transition period in the global economy and be ready for a digital kind of global economy. And it's cities like Chicago, like New York, like Toronto, like Hong Kong, like Singapore. And I think that

Starting point is 00:24:30 we need to look at those cities and see how, in fact, those are the places where these kinds of freelancer communities that provide insurance services and so forth for people are thriving. We have to encourage much more of that. It also goes back to your point about the skill set for this world is to have connectivity and then what to do with it when you have it. And these are all the things that grow up around that. So on that note, let's actually take a turn. for a moment and talk about smart cities in general. So obviously you're talking about ecosystems and cities, but we're talking about smart cities in the sense of cities that have technology embedded into their very physical fabric. So let's talk about that trend. What are some of the more interesting things that

Starting point is 00:25:08 you've seen and how this is playing out with the themes of your book? Absolutely. I have this line in the book where I say I've spent much of the last 10 years in places that don't exist because there's lots of cities that are not on the map yet. And yet there are places where governments are investing in developing new kinds of modern infrastructure, especially economic zones, supply chain hubs, if you will. Instead of just cities, which are our oldest political unit of organization, we've had cities for 5,000 years, we've had modern nations for a couple of hundred years. The city is the organizing unit of humanity, and the sort of top 300 cities in the world represent most of the world economy. And so countries around the world are saying, what can we do to get in on

Starting point is 00:25:48 this global network of connected cities that are driving the world economy forward, that dominate supply chains and so forth. They're building these special economic zones and hubs for supply chains. And I noticed that, you know, in 50 years ago, there were only a couple of special economic zones in the world. Today, we have 4,000 of them. So you're talking about Shenzhen or, I mean, name some places. Exactly. Yeah. So Shenzhen or, you know, what started out as a Shenzhen, Dominican Republic, Mauritius phenomenon has now become these pockets in enclave, whether they're port cities or the Dubai International Financial Center or the Bangladesh textile export processing zone or the Malaysia multimedia supercar. Either it's the transformation

Starting point is 00:26:29 of an existing place or it's literally breaking ground, building entire new cities from scratch, like Songdo, New Economic City in South Korea, which a lot of people look at, Mastar City in Abu Dhabi. These places are not on our maps. And what I've been doing is traveling to them and trying to understand what are the technologies that they're investing in the most in order to leapfrog, basically, to the 21st century. What are the industries that they want to capture and compete in? So, LED lighting, right, for example, or digital animation, clean tech software and programming. I'll give you one example, business process outsourcing. We think of it as being dominated by like Bangalore in India, right? But now, because outside of Manila in the Philippines, there's a whole

Starting point is 00:27:11 city that's like basically BPO city. The Philippines now has more workers and more revenues from call centers than India does because they physically made a plan. Let's physically get connected. Let's leverage our English-speaking population and let's capture this industry from India. We've got 4,000 such special economic zones around the world that are getting into this global economic competition to leverage connectivity and attract industries and investment and technologies that help build their workers and raise wages and obviously build, a better life. And that's why, you know, the Philippines and India and Vietnam, these countries that have the most especially economic zones are among the fastest growing countries in the world.

Starting point is 00:27:51 I've been traveling to them one by one over the last five, ten years and a lot of the stories are included in this book. It's funny because Mark Andreessen wrote a really interesting op-ed a few years ago in Politico where he argued that regions, whether it's a city, a state, you know, whatever, can essentially relax their laws or change certain things to tweak that they, can attract a certain type of investment. So, for example, Detroit could decide to focus on drones and another region could focus on biopharma and in doing so become specialists in a certain thing. And more importantly, cities could compete with each other. And it's a form of regulatory arbitrage. It sounds like what you're describing is not dissimilar to that in many ways. The question I have

Starting point is 00:28:32 is that the link between the existence of those special zones and the fast growth, has that really been firmly established or what's the arc of what's a connection between the two really? First of all, I totally agree with Mark's argument. And that's exactly what's happening is regulatory arbitrage with one caveat. We used to call it the race to the bottom. We used to believe that countries would relax all sorts of regulations in order to attract investment of any kind. And that was the kind of 1970s and 1980s of Asia. But in fact, I argue that it's actually a race to the top because this is how countries ascend to the value chain. This is not how they make soccer balls with their hands for the next 50 years, this is how they get jobs, they get investment,

Starting point is 00:29:14 they get technology, and they gradually move up the value chain. Sometimes they move up very, very quickly. We used to think of this as a derisive kind of, you know, sort of trend, but it's actually a very positive trend. And I'll tell you why, and this was one of the hardest areas of data gathering for me to do for this book, but it's all embodied in one map that I have in the very early part of the book about these special economics. And what it shows is the share of exports of each major country in the world or even small countries that is derived from the economic activity in those zones. So, for example, you know, 50% of the GDP of Central American countries is derived from the manufacturing and textile exports that are produced in those zones.

Starting point is 00:29:54 So if they didn't have them, if they didn't participate in that arbitrage, if they didn't set up these new regulatory areas, how would they have attracted the investment and where would 50% of their GDP come from? It would not. And we don't even, people, People didn't realize until this data was gathered, and I've put it prominently in the book. It's like 25% of China's GDP still comes from the exports generated in the special economic zones. So a huge, huge contribution. We used to think of these places as islands. So this is where a few, lucky few people get to work, and all the rest suffer and wither.

Starting point is 00:30:29 But now you see the incredible spillover effect. I'll give you just one more example because it's a couple of miles from where I'm sitting, but it's the island of Batam, which is just across the Straits of Malacca from Singapore. The island of Batam is an impoverished Indonesian island that's exactly 2.7 kilometers away across the straits. And there, Singapore has set up, it's like shipbuilding operations in these special economic zones. So I got my mountain bike. I stuck it on a ferry, and I went across the street.

Starting point is 00:30:56 And I started cycling around. And I saw these like single family homes and very nicely paved streets and, you know, fast food restaurants. None of this would have been here were it not for global. supply chains for, you know, prominent, you know, companies going and locating their operations there, employing thousands of workers and allowing them to build a better life. So again, what we thought of as being a sort of race to the bottom and exploitation of workers, it doesn't really look that way on the ground. It looks very much like the opposite when you're really there. That's actually really a great point to bring up because one of the things that I had argued with Mark about,

Starting point is 00:31:31 well, not argued, but when I was probing him about the idea on Twitter, before I actually came here to work here was that I didn't want it to become this model for where poor countries would have to essentially suffer in order to get ahead. But what you're arguing is the exact opposite, which is quite refreshing and hopeful. Well, Parag, this is really interesting. I think people should read your book, connectography, and see the immense amount of research and analysis and thinking that you've done at scales, both grand and in micro-levels as well. Thank you for being on the I-6-N-C podcast. Thanks, Farag. Thank you. Thanks so much.

The a16z Show - a16z Podcast: Connectivity and the Internet as Supply Chain

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