Web 2.0: A New Economic System?

Observers who study and research culture — anthropologists and those that focus on cultural or social aspects of this discipline — have a method and a rigor that help them to see what others don’t. Howard Rheingold is just such a person and this Business Week interview (from August of 2004 I might add) hints at what I and others are talking about with Web 2.0: a new economic system is emerging.

From the interview:

Q: What will all those trends (open source, Wikipedia, Google page ranking, Amazon’s recommendation engine and user reviews) produce ultimately?

A: All these could dramatically transform not only the way people do business, but economic production altogether. We had markets, then we had capitalism, and socialism was a reaction to industrial-era capitalism. There’s been an assumption that since communism failed, capitalism is triumphant, therefore humans have stopped evolving new systems for economic production.

But I think we’re seeing hints, with all of these examples, that the technology of the Internet, reputation systems, online communities, mobile devices — these are all like those technologies…that made capitalism possible. These may make some new economic system possible.

This is worth stopping and thinking about since it informs what I do for my work…and should inform everything you do regardless of your business or organizational bent. As you look at what you’ve made money at in the past — especially if you’ve made really great gross margins opening yourself up to potentially be disrupted out of business — this idea of mass collaborating with the connected world’s free effort and energy is either disturbing or liberating. Depends on your view.

I’m not an economist nor an anthropologist. I’m not a meteorologist either but I don’t need the weatherman to tell me the sun is shining. What *is* important to me is to tap into the observational knowledge of people with the skills and tools who can predict with some level of certainty what might happen (it’s why satellite imagery, weather pattern measurements, modeling and Doppler radar have given meteorologists pretty damn good predictive analytical tools).

Howard Rheingold is one such observer. Another is Yochai Benkler, professor of Law at Yale and author of The Wealth of Networks and the paper Coase’s Penguin. A third is Don Tapscott who recently released his solid overview entitled, Wikinomics.  If you’re a leader in your company or organization — or want to be one — I’d heartily recommend you get your head around the concepts and arguments these three (and others) have been seeing and bringing forth for some time. Your future depends on it.

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  1. Ben on February 26, 2007 at 1:37 pm

    I don’t think a “new economic system” will emerge, rather, it will be harder to enforce a socialist system. Because information sharing and communication is getting easier and cheaper, capitalism will emerge stronger than before, and a large state apparatus will have a tougher time regulating and taxing it.

    Milton Friedman liked the internet because it made it hard for the state to tax its people. Governments most effectively collect taxes on things that can’t move, therefore, taxing property is first. Big (socialist) govs have an easier time with the less fluid. Can you imagine putting a tariff on imported “information” like we do on steel? Or subsidizing information/communication like we do for corporate farmers?

    “Friedrich Hayek attacked socialist planning on the grounds that no planner could possibly obtain the “dispersed bits” of information held by individual members of society. Hayek insisted that the knowledge of individuals, taken as a whole, is far greater than that of any commission or board, however diligent and expert. he magic of the system of prices and of economic markets is that they incorporate a great deal of diffuse knowledge.”

    Capitalism is essentially the economic form of “freedom.” I believe the internet is a great enabler of freedom, and thus, capitalism. In the near term, those who stand to gain the most are those with the most repressive governments. Certainly, people in the US will benefit, but people in China, Iran, Russia, anywhere there’s a government that controls the press, will have a
    tougher time controlling it’s people… I digress.

    Anyway, the laws of economics still stand, we’re just in the middle of a technology change. But politics may change. Especially as the return on web2.0 knowledge has increasing returns (aka. “income inequality” – even though everyone’s standard of living will rise).

  2. Ben on February 26, 2007 at 3:21 pm

    I like your point about non-monetary exchange, though I would add that there is still an incentive. (I hope I’m understanding you correctly)

    As a Ruby on Rails developer in MN, I see this kind of thing all the time. For example, someone put a few lines of code together that allows anyone with an application built in Rails to upload images to their website and have them safely stored away on Amazon’s S3. Many social networks do this. This reduces hosting costs and labor significantly. Everyone gains.

    I guess you could say that web2.0 has lowered the barrier to doing charitable work, or at least increased the productivity!

  3. Steve Borsch on February 26, 2007 at 2:53 pm

    I agree with the enforcement problem of socialistic or totalitarian regimes…though China is exhibiting tight controls through the closing of the Internet sphincter before the bits enter or leave the country. People are still routing around it but it’s tougher.

    I appreciate your perspective on capitalism and it’s the only incentive system that’s ever worked. Though many would like there to be income and standard of living parity — while still abhoring Communism — I’ve not seen any other system that works as well.

    I still submit that the non-monetary, non-barter value exchange is accelerating. Perhaps it will be relegated to low level production while higher value production charges premium prices and therefore drives profits, but there is more going on here than is apparent on the surface. I’m experiencing it, seeing it and others are too (e.g., Stanford’s Center for Social Innovation and the others I mentioned).

  4. BryanB on March 2, 2007 at 12:13 am

    Here’s an interesting post about a new pricing system that dovetails nicely with the “long tail” of Web 2.0 digital media.


    Consumer-generated pricing would seem to level the playing field for new artists (and other generators of content) and would create an interesting volume*value method of ranking creative works. Intersting economic feedback loop.

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Podcasting hit the mainstream in July of 2005 when Apple added podcast show support within iTunes. I'd seen this coming so started podcasting in May of 2005 and kept going until August of 2007. Unfortunately was never 'discovered' by national broadcasters, but made a delightfully large number of connections with people all over the world because of these shows. Click here to view the archive of my podcast posts.