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Peter Cochrane's Uncommon Sense:
A butterfly flaps its wings and a dot-com goes bust?
Chaos theory is a phrase bandied around all too often. But have you ever considered the various factors that led to the internet bubble? Peter Cochrane has...

Apart from the occasional ice age or natural disaster such as a hurricane, earthquake or tsunami, our species has enjoyed a reasonably stable and linear existence. We have evolved appropriately to appreciate three spatial and one time dimension, with a sense of past, present and future. By and large most of us think in such terms and do not step into a world that exhibits ten or more dimensions and yet all of our modern business and commerce problems tend to be multi-dimensional, and therefore well beyond our ability to grasp as a whole.

Everything in nature is multi-dimensional, non-linear and chaotic. From the clustering of the constellations in the night sky to lightning storms and the evolution of life itself, all are governed by chaotic mechanisms. For any life to be successful it has to live on the edge of death. For you and me, our hearts are always close to fibrillation, and if they are not, then they wouldn't work.

At a more prosaic level, we see people in our families being born, getting married and dying in clusters, we see our domestic appliances failing at the same time and we see car accidents clustered in twos and threes.

Perhaps more evidently the occurrence of chaos is really visible on road networks. It isn't by accident that you can stand and wait for a taxi or a bus for 20 minutes, not see one, then five or six come at once. It is not by accident that on motorways the traffic naturally bunches and comes in clusters. It turns out to be a fundamental result of a chaotic system that sees intelligent entities making independent decisions based on the actions of others.

How come chaos is generally unrecognised and has not been noticeable, reported or deemed significant to date? It is all down to the speed and perception. One hundred years ago the chaos of the world passed us by. Our frame of life was short compared to occurrence of chaotic events. Today, however, speed of communication and physical travel are making our lifetime perceptibly much shorter and therefore chaotic events are becoming very noticeable.

The recent dot-com crash is a good example of a situation that has occurred many times before, the most recent being the industrial revolution. In the year 1900 there were more than 1,000 manufacturers of automobiles in the US. By 1930 there were four. The industrial revolution spanned a 100-year time period, thousands and thousands of companies were created but only a few survived. In the dot-com world that's exactly what happened in less than 10 years.

In a linear world we have always looked at a vast field of variables or influencing factures in a situation, picked out the three or four key items, usually the most visible, and we have analysed and assessed the situation. We have then made a decision on that basis which often results in a single number answer, or a simple yes/no decision.

Incredibly, this simple-minded linear approach has served us well and resulted in most of our key advances and achievements. But that kind of approach, that kind of logic, can now lead to massive failures. We are talking butterfly wings causing a hurricane. In a predominantly non-linear and chaotic world a small perturbation can cause a massive change. This is now a world where some insignificant parameter or factor that we choose to overlook is actually very significant and can have dire consequences.

If we take the dot-com bust for a moment and list the causes of collapse, we get:
The role of human greed
The lemming effect, where one success heralds another - apparently
A blind belief that old market and business principles could at last be abandoned and that profit really did not matter
The old economy conspiring to protect itself, to slow down progress and bite back

But not many people would cite the lack of bandwidth in the networks feeding our homes and business or the lack of management ability to adapt to IT and away from paper as also being route causes. And no one would probably identify governments as having any responsibility but their action in driving up the price of 3G mobile network licences to an absurd level actually precipitated a huge crash of the telecommunications industry across Europe and the rest of the world.

This really was a case of people looking at a limited number of parameters, making an assessment on that basis and deciding to do something that was fundamentally stupid.

This column was typed on my laptop and sent from the Norwich to London Intercity train travelling at 90mph - using my Motorola GSM mobile phone to connect at 9.6Kbps.