Wednesday, January 02, 2008

The Perfect Storm: A fourth element?

The Perfect Storm referred to in Wikinomics (and which I believe is really starting to hit this year - see Digital Media Predictions for 2008) has three elements:

1. Technology: The emergence of the new web - a read/write web where every person is their own sovereign node - with all the power and instant global connectivity implied.
2. People: The arrival of the 'Net Gen' in roles of influence.
3. Economics: Globalization.

But I've been thinking about economics recently (inspired by Eric D. Beinhocker's Origin of Wealth. It was recommended to me by Alan Moore.)

I'm starting to think there is a fourth element we must consider - a fourth driver of the storm which may be just as, if not more, powerful as any of the other three elements. My guess is that this fourth element could radically transform the wealth creating ability of the entire planet.

To be fair, this element can only happen by combining with one of the previously defined ones.

It is this: The perfect fit between the economy and the web -
The convergence of two complex adaptive systems.

Never before has there been a way in which people can connect, share and trade which so perfectly maps/fits the way in which the economy itself has evolved.

The web grew out of a series of human needs, to communicate, to create, to trade, demand and supply. So, of course, did the economy.

No one ordered the creation of the web. No one ordered the creation of the economy.

The web evolves. So does the economy. No one is in charge of the web. And despite the impression governments seek to create, no one is in charge of the economy.

The web is about connections. Likewise the economy - no connections - no flow of goods and services.

The web is about people self-organizing in non-directed groups. So is the economy (when it's left to its own devices, at least).

The web creates emerging value from connections. And that's exactly what an economy does - by ( in Beinhocker's view) differentiation, selection and amplification.

Reed's Law (which I've written about at length here) tells us that each time we add a node to a network we double the potential value of all the connections within that network. The economy is just another network.

Beinhocker's description of the economy as a complex adaptive system, rather than one based on ill-fitting ideas borrowed from classical physics (such as the 'laws' of supply and demand, the idea of equilibrium and the long run) reveals it as a hand-in-glove fit with the web.

Perhaps this is why those businesses who have truly tapped into the wealth generating potential of the web have been astoundingly and rapidly successful ($700 a google share, anyone?...
• Google is the “fastest growing company in the history of the world.” – Times of London, 1/29/06).

My contention is that the fastest growing company in history could only happen in the age of the web. It is the fact that the web is here, that it works in such harmony with the economy, that enables such startling efficiency.

I'm not sure of all the implications of this assertion - and I'm extremely open to hearing your comments and criticisms, anything you might be able to build on top of this. You, collectively, have a greater expertise in, well everything, than I do.

What I do believe is that the convergence of two complex adaptive systems makes for is THE single most efficient distribution of goods, services, ideas and the ability to implement them since the economy began. And shouldn't that lead to an extraordinary explosion in value creation?

Given that the economy has always been a complex adaptive system, perhaps it is only now with the emergence of the web that we will see it function to its full potential?

We've already seen the strain on local pricing that the web has caused, the challenge for those seeking to impose customs duties and local taxes... it's easy to imagine a world in which the imposition of tariffs, trade embargos etc, are all but unenforceable.

The web can truly free the economy.

I'm not pretending that comes without problems. It does make the $100 laptop project even more important and it may mean we have to protect those who are disenfranchised from this new web/economy ecology. But if I'm right - it looks like we'll be able to afford to...

1 comment:

  1. I'd augment your reading by going back to the source - 'Wealth of Nations' by Adam Smith, which nailed the fundamentals of human economic activity over 200 years ago. You correctly pinpoint human economic development is intrinsically linked to efficiency. Markets to moderate supply and demand, value chain specialisation to maximise production etc. The internet has already made massive contribution in these areas, and that's why so many companies moved quickly to gain those benefits. The functions of markets particularly are about free flow of information - the buyer who knows the full range of prices offered by all sellers in the market is massively empowered. So in all that I agree - more to come. However, the particular economic model we pursue across most of the world is also about PRODUCTion - the definition and delivery of products for customers, and the success/failure of these based on the competitive advantage they have over other products of that type. In this respect, Google's success is not due to the fact its products were built upon a complex adaptive system, but that its products WERE ADVANTAGED over others (it was not and remains not the world's sole search engine - it has plenty of impoverished competitors). Basic competitive advantage remains offering a product of perceived higher value produced at a competitive cost.


The rate of change is so rapid it's difficult for one person to keep up to speed. Let's pool our thoughts, share our reactions and, who knows, even reach some shared conclusions worth arriving at?