No one can escape the transforming fire of machines.
Technology, which once progressed at the periphery of culture,
now engulfs our minds as well as our lives. Is it any wonder
that technology triggers such intense fascination, fear, and
rage?
One by one, each of the things that we care
about in life is touched by science and then altered. Human
expression, thought, communication, and even human life have
been infiltrated by high technology. As each realm is overtaken
by complex techniques, the usual order is inverted, and new
rules established. The mighty tumble, the once confident are
left desperate for guidance, and the nimble are given a chance
to prevail.
But while the fast-forward
technological revolution gets all the headlines these days,
something much larger is slowly turning beneath it. Steadily
driving the gyrating cycles of cool technogadgets and
gotta-haves is an emerging new economic order. The geography of
wealth is being reshaped by our tools. We now live in a new
economy created by shrinking computers and expanding
communications.
This new economy represents a
tectonic upheaval in our commonwealth, a far more turbulent
reordering than mere digital hardware has produced. The new
economic order has its own distinct opportunities and pitfalls.
If past economic transformations are any guide, those who play
by the new rules will prosper, while those who ignore them will
not. We have seen only the beginnings of the anxiety, loss,
excitement, and gains that many people will experience as our
world shifts to a new highly technical planetary economy.
This new economy has three distinguishing
characteristics: It is global. It favors intangible
thingsideas, information, and relationships. And it is
intensely interlinked. These three attributes produce a new type
of marketplace and society, one that is rooted in ubiquitous
electronic networks. Networks have existed in every
economy. Whats different now is that networks, enhanced
and multiplied by technology, penetrate our lives so deeply that
"network" has become the central metaphor around which
our thinking and our economy are organized. Unless we can
understand the distinctive logic of networks, we cant
profit from the economic transformation now under way.
New Rules for the New Economy lays out ten essential
dynamics of this emerging financial order. These rules are
fundamental principles that are hardwired into this new
territory, and that apply to all businesses and industries, not
just high-tech ones. Think of the principles outlined in this
book as rules of thumb.
Like any rules of thumb they arent infallible. Instead,
they act as beacons charting out general directions. They are
designed to illuminate deep-rooted forces that will persist into
the first half of the next century. These ten laws attempt to
capture the underlying principles that shape our new economic
environment, rather than chase current short-term business
trends. The key premise of this book is that the
principles governing the world of the softthe world of
intangibles, of media, of software, and of serviceswill
soon command the world of the hardthe world of reality, of
atoms, of objects, of steel and oil, and the hard work done by
the sweat of brows. Iron and lumber will obey the laws of
software, automobiles will follow the rules of networks,
smokestacks will comply with the decrees of knowledge. If you
want to envision where the future of your industry will be,
imagine it as a business built entirely around the soft, even if
at this point you see it based in the hard.
Of
course, all the mouse clicks in the world cant move atoms
in real space without tapping real energy, so there are limits
to how far the soft will infiltrate the hard. But the evidence
everywhere indicates that the hard world is irreversibly
softening. Therefore one can gain a huge advantage simply by
riding this conversion. To stay ahead, you chiefly need to
understand how the soft world workshow networks prosper
and grow, how interfaces control attention, how plentitude
drives valueand then apply those principles to the hard
world of now. The tricks of the intangible trade
will become the tricks of your trade.
The new
economy deals in wispy entities such as information,
relationships, copyright, entertainment, securities, and
derivatives. The U.S. economy is already demassifying, drifting
toward these intangibles. The creations most in demand from the
United States (those exported) lost 50% of their physical weight
per dollar of value in only six years. The disembodied world of
computers, entertainment, and telecommunications is now an
industry larger than any of the old giants of yore, such as
construction, food products, or automobile manufacturing. This
new information-based sector already occupies 15% of the total
U.S. economy.
Yet digital bits, stock options, copyright, and brands have no
measurable economic shape. What is the unit of software: Floppy
disks? Lines of code? Number of programs? Number of features?
Economists are baffled. Walter Wriston, former chairman of
Citicorp, likes to grumble that federal economists can tell us
exactly how many left-handed cowboys are employed each year, yet
have no idea how many software programs are in use. The dials on
our economic dashboard have started spinning wildly, blinking
and twittering as we head into new territory. Its possible
the gauges are all broken, but it is much more likely the world
is turning upside down.
Remember GM? In the 1950s business reporters were infatuated
with General Motors. GM was the paragon of industrial progress.
It not only made cars, it made America. GM was the richest
company on earth. To many intelligent observers, GM was the
future of business in general. It was huge, and bigger was
better. It was stable and paternal, providing lifetime
employment. It controlled all parts of its vast empire,
ensuring quality and high profits. GM was the best, and when
the pundits looked ahead 40 years they imagined all successful
companies would be like GM.
How ironic that ever since the future has arrived, GM is now the
counter example. Today, if your company is like GM, its in
deep trouble. Instead, pundits point to Microsoft. Microsoft is
the role model. It is the highest-valued company on Earth. It
produces intangibles. It rides the logic of standards. Its
sky-high stock valuation reflects the new productivity. So we
look ahead and say: In 40 years all companies will be like
Microsoft.
History would suggest this is a bad bet. The obvious lesson is
that we tend to project the future from whats fashionable
at present. Right now software and entertainment companies are
very profitable, so we assume they are role models. Brad DeLong,
an economist at UC Berkeley, has handy theory of economic
history. He says that various sectors of economy wax and wane in
prominence like movie stars. The history of the American economy
can be seen as a parade of "heroic" industries that
first appear on the scene as unknowns, then heroically
"save" the economy by doing economic miracles, and for
a time are treated as economic stars. In the 1900s, the
automobile industry was heroic: There was incredible innovation,
many, many car company upstarts, incredible productivity. It was
a wild and exciting time. But then the heroism died away and the
auto industry became big, monolithic, boring, and hugely
profitable. In DeLongs view, the latest heroic savior is
the information, communication, and entertainment complex.
Businesses in the realm of software and communications are now
valorous: They pull successes out of a hat, stack up unending
innovation, and perform economic miracles. Long live
computers!
There is a lot of common sense to DeLongs view of heroic
industry. Just because Microsoft is heroic now, doesnt
mean all companies will follow their lead and replicate
intellectual property on floppy disks with a profit margin of
90%. No doubt many, many companies in the future will not
resemble Microsoft at all. Somebody has to fix the plugged
toilets of the world, somebody has to build houses, somebody has
to drive the trucks hauling our milk.
Even Wired magazine, mouthpiece of the digital
revolutionwhere I serve as one of the editorsdoes
not approach the ideal of an intangible company. Wired is
located smack in the middle of an old-fashioned downtown city,
and in one year turns 8 million pounds (or 48 railway cars) of
dried tree pulp, and 330,000 pounds of bright colored ink into
hard copies of the magazine. A lot of atoms are involved.
So how can we make the claim that all businesses
in the world will be reshaped by advances in chips and glass
fibers and spectrum? What makes this particular technological
advance so special? Why is the business hero of this moment so
much more important than its recent predecessors?
Because communicationwhich in the end is what the
digital technology and media are all aboutis not just a
sector of the economy. Communication is the economy.
This vanguard is not about computers. Computers are
over. Most of the consequences that we can expect from computers
as stand-alone machines have already happened. They have sped up
our lives, and made managing words, numbers, and pixels quite
extraordinary, but they have not had much more effect beyond
that.
The new economy is about
communication, deep and wide. All the transformations
suggested in this book stem from the fundamental way we are
revolutionizing communications. Communication is the foundation
of society, of our culture, of our humanity, of our own
individual identity, and of all economic systems. This is why
networks are such a big deal. Communication is so close to
culture and society itself that the effects of technologizing it
are beyond the scale of a mere industrial-sector cycle.
Communication, and its ally computers, is a special case in
economic history. Not because it happens to be the fashionable
leading business sector of our day, but because its cultural,
technological, and conceptual impacts reverberate at the root of
our lives.
Certain technologies (such as the integrated circuit chip) spur
innovation and novelty in other technologies; these catalysts
are called "enabling technologies." Occasionally an
economic sector will leverage power and accelerate the advance
of other sectors in an economy. These can be thought of as
"enabling sectors." Computer chips and communication
networks have produced a sector of an economy that is
transforming all the other sectors.
Only a relatively small number of people have ever been directly
employed in the world of finance. Yet ever since the days of the
Venetian bankers, financial innovations such as mortgages,
insurance, venture funding, stocks, checks, credit cards, mutual
funds, to name only a few, have completely reshaped our economy.
They have enabled the rise of corporations, of market
capitalism, of the industrial age, and much more. Unlike many
previous heroic industries such as the electrical power industry
or the chemical industry, this small sector has influenced how
all business is done, and how we structure our lives.
As tremendous as the influence of financial inventions have
been, the influence of network inventions will be as great, or
greater.
It took several billion years on Earth for unicellular life to
evolve. And it took another billion years or so for that
single-celled life to evolve multi-cellular
arrangementseach cell touching a few cells near it to make
a living spherical organism. At first, the sphere was the only
form multicellular life could take because its cells had to be
near one another to coordinate their functions. After another
billion years, life eventually evolved the first cellular
neurona thin strand of tissuewhich enabled two cells
to communicate over a distance. With that single enabling
innovation, the variety of life boomed. With neurons, life no
longer had to remain bounded in a blob. It was possible to
arrange cells into almost any shape, size, and function.
Butterflies, orchids, and kangaroos all became possible. Life
quickly exploded in a million different unexpected ways, into
fantastic awesome varieties, until wonderful life was
everywhere.
Silicon chips linked into high-bandwidth channels are the
neurons of our culture. Until this moment, our economy has been
in the multicellular stage. Our industrial age has required
each customer or company to almost physically touch one another.
Our firms and organizations resemble blobs. Now, by the enabling
invention of silicon and glass neurons, a million new forms are
possible. Boom! An infinite variety of new shapes and sizes of
social organizations are suddenly possible. Unimaginable forms
of commerce can now coalesce in this new economy. We are about
to witness an explosion of entities built on relationships and
technology that will rival the early days of life on Earth in
their variety.
In the future very few companies will look like Microsoft, or
even Wired. Even ancient forms will be bent. Farming, and
trucking, plumbing, and other traditional occupations will
continue, just as unicellular life continues. But the economics
of farmers and friends, in their own way, will obey the logic of
networks, just as Microsoft does now.
We see evidence for that already. A farmer in Americathe
hero of the agricultural economyrides in a portable office
on his tractor. Its air conditioned, has a phone, a
satellite-driven GPS location device, and sophisticated sensors
near the ground. At home his computer is connected to the
never-ending stream of weather data, the worldwide grain
markets, his bank, moisture detectors in the soil, digitized
maps, and his own spreadsheets of cash flow. Yes, he gets dirt
under his fingernails, but his manual labor takes place in the
context of a network economy.
Much the same can be said about truck drivers. While the
experience of sitting behind a wheel remains unchanged, the new
tools of truckingbar codes, radios, dispatch algorithms,
route hubs, and even roads themselvesall follow the logic
of networks. Thus, the very sweat of truckers as they manually
load and unload heavy boxes becomes incorporated into the
network economy.
Our economy is an amalgamation of diverse styles of trade,
commerce, and social exchanges. New economic functions develop
around the operating old. Barter, one of the earliest forms of
commerce, has not gone away. The barter economy ran through the
agricultural age, the industrial age, and continues today.
Indeed most of what happens on the World Wide Web is barter.
Even many years from now a significant portion of what the
economy does will be done by the industrial layersmachines
churning out goods and moving materials. The old economies will
continue to operate profitably within the deep cortex of the new
economy.
Yet the inertia of the industrial age continues to mesmerize us.
Between 1990 and 1996 the number of people making tangible
thingsstuff you can drop on your toedecreased by 1%,
while the number of people employed in providing
"services" (intangibles) grew 15%. Presently a mere
18% of U.S. employment is in manufacturing. But three quarters
of those 18% actually perform network economy jobs while working
for a manufacturing company. Instead of pushing atoms they push
bits around: accountants, researchers, designers, marketing,
sales, lawyers, and all the rest who sit at a desk. Only a
minuscule percentage of the workforce performs industrial age
tasks, yet our politics, our media, our funding, and our
education continue the grand fantasy that industrial jobs need
to be created. Within a generation, two at the most, the number
of people working in honest-to-goodness manufacturing jobs will
be no more than the number of farmers in the landless than
a few percent. Far more than we realize it, the network economy
is pulling in everyone.
As the world of chips and glass fibers and wireless waves goes,
so goes the rest of the world.
In the face of history this bold assertion may seem naive. But
every once in a while something big and new does happen. It must
have felt that way to the home-craft Luddites who sensed that
the industrial age was not just about newfangled looms, but
foreshadowed deep, systemic changes with life-changing
ramifications. Were they naive to think that machines would
ultimately transform the ancient and holy act of planting seeds
and harvesting the grain? Of breeding cows? Of the structure of
communities?
"Listen to the technology," advises Carver Mead, one
of the inventors of the modern computer chip. "Find out
what it is telling you." Following that lead, I have
assembled these rules of thumb by asking these questions: How do
our tools shape our destiny? What kind of an economy is our new
technology suggesting?
Steel ingots and rivers of oil, smokestacks and factory lines,
and even tiny seeds and cud-chewing cows are all becoming
enmeshed in the world of smart chips and fast bandwidth, and
sooner or later they will begin to fully obey the new rules of
the new economy, as everything will. Ive listened to the
technology, and as best as I can determine, the technology
repeats ten distinct refrains, as premiered in the following ten
chapters.
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