New Rules for the New Economy

1) Embrace the Swarm. As power flows away from the center, the competitive advantage belongs to those who learn how to embrace decentralized points of control.

2) Increasing Returns. As the number of connections between people and things add up, the consequences of those connections multiply out even faster, so that initial successes aren't self-limiting, but self-feeding.

3) Plentitude, Not Scarcity. As manufacturing techniques perfect the art of making copies plentiful, value is carried by abundance, rather than scarcity, inverting traditional business propositions.

4) Follow the Free. As resource scarcity gives way to abundance, generosity begets wealth. Following the free rehearses the inevitable fall of prices, and takes advantage of the only true scarcity: human attention.

5) Feed the Web First. As networks entangle all commerce, a firm's primary focus shifts from maximizing the firm's value to maximizing the network's value. Unless the net survives, the firm perishes.

6) Let Go at the Top. As innovation accelerates, abandoning the highly successful in order to escape from its eventual obsolescence becomes the most difficult and yet most essential task.

7) From Places to Spaces. As physical proximity (place) is replaced by multiple interactions with anything, anytime, anywhere (space), the opportunities for intermediaries, middlemen, and mid-size niches expand greatly.

8) No Harmony, All Flux. As turbulence and instability become the norm in business, the most effective survival stance is a constant but highly selective disruption that we call innovation.

9) Relationship Tech. As the soft trumps the hard, the most powerful technologies are those that enhance, amplify, extend, augment, distill, recall, expand, and develop soft relationships of all types.

10) Opportunities Before Efficiencies. As fortunes are made by training machines to be ever more efficient, there is yet far greater wealth to be had by unleashing the inefficient discovery and creation of new opportunities.



Because the nature of the network economy seeds...

...disequilibrium, fragmentation, uncertainty, churn, and relativism, the anchors of meaning and value are in short supply. We are simply unable to deal with questions that cannot be answered by means of technology. The stereotypical modern consumer is already a rather thin character. He or she is like a balloon: possessing an inflated ego and a thin identity stretched to its limit. They don't know who they are, but they are very certain that they are very important. The smallest prick can pop their container.

In the great vacuum of meaning, in the silence of unspoken values, in the vacancy of something large to stand for, something bigger than oneself, technology--for better or worse--will shape our society.

Because values and meaning are scarce today, technology will make our decisions for us. We'll listen to technology because our modern ears listen to little else. In the absence of other firm beliefs, we'll let technology steer. No other force is as powerful in shaping our destiny. By imagining what technology wants, we can imagine the course of our culture.

The future of technology is networks. Networks large, wide, deep, and fast. Electrified networks of all types will cover our planet and their complex nodes will shape our economy and color our lives. The shift to this new perspective will be neither immediate nor painless. Nor will it be as strange as it first appears.

There is no reason to accept the imperative of technology without challenge, but there is also no doubt that technology's march is clearly aimed toward all things networked. Those who obey the logic of the net, and who understand that we are entering into a realm with new rules, will have a keen advantage in the new economy.



In the network economy, ownership is fragmented...

...into myriad parts, sped along electronic pathways, and dispersed among workers, venture capitalists, investors, alliance members, outsiders, and, in minute doses, even to competitors. Networks breed swarm capitalism.

Yet as networks rise, the center recedes. It is no coincidence that global networks appear at the same time as the postmodern literary movement. In postmodernism, there is no central authority, no universal dogma, no foundational ethic. The theme of postmodernism in the arts, science, and politics is summed up by Steven Best and Douglas Kellner in their book The Postmodern Turn: "The postmodern turn results in fragmentation, instability, indeterminacy, and uncertainty." This also sums up the net.

Network principles renounce rigidity, closed structure, universal schemes, central authority, and fixed values. Instead networks offer up plurality, differences, ambiguity, incompleteness, contingency, and multiplicity. These qualities are ideal for disruption, for the spread of networked-organized crime, and for fostering the lack of shared values.



Fourth, the Silicon Valley model of compensation... infecting more parts of the world. A major element of equity culture is the ideology that every person working in a company should have the opportunity to own part of it. In most American high-tech companies, stock options for employees are mandatory. Shares in the company are often used to recruit hot talent, or to be dispensed as bonuses, or, in the case of start-ups, to be paid out as a substitute for a salary. Companies that grant stock options to all employees return greater wealth to shareholders than companies that don't (19% for the former, 11% for the latter).



Third, the same type of fine-grained...

...decentralization is about to happen in publicly traded companies. During the 1990s approximately 4,000 companies "went public" in the United States. These corporations were newly funded by the investment of many small shareholders, who collectively contributed about $250 billion to these companies' equity. Right now, very old-fashioned hurdles prevent many smaller companies from accepting equity investments by the public. Some of these hurdles are legacies from the industrial era when communication and information were scarce. Some obstacles are simply the selfish protections of investment bankers and others who reap billions by their monopoly on controlling the process of taking a company public. Network technology is radically altering the stock market, causing a widespread reevaluation of the role and worth of stock brokers, traders, and a centralized market itself (such as the New York Stock Exchange) in a world where economic information is ubiquitious and instant. Secure, reliable, and trustworthy offerings of publicly traded companies can happen on the net without most of the traditional Wall Street rigmarole. Network technology will make it possible for qualified companies to take their company public from a desktop, directly soliciting the investments from billions of individuals and organizations worldwide. This will happen sooner than Wall Street thinks.



Second, as the ease and price of transactions drop,...

...the spread of ownership becomes fine-grained and ever wider. Smaller and smaller investments into more and more varieties of endeavors are possible. Several banks are following the lead of the Grameen Bank of Bangladesh and offering microloans. These loans amount to U.S. $100 or less, and are made to third-worlders who use the money to buy a cow, purchase some yarn, or begin some other microentrepreneurial dream. The payback rate is around 95%, making these almost as risk-free as bonds. As one banking report says, "Lending to poor people in the shanty towns of La Paz may be safer for banks than lending to the government of Bolivia itself." Large commercial banks have noticed the U.S. $7 billion already lent to 13 million people around the world, and are bringing "microfinance" into the mainstream of banking. The low cost of tracking large numbers of fast-circulating payments means that network technology can accelerate the velocity of money in such decentralized, microfinance programs. It is easy to imagine a high-yielding mutual fund based on hundreds of thousand of up-and-coming third world microentrepreneurs.



First, the spread of ownership is becoming global,...

...just as the economy itself is. In the last few years, Europe has suddenly sent a mind-boggling infusion of money into the stock markets. Europeans discovered equity culture and overnight invested hundreds of billions of dollars of their old wealth into the network of ownership. At the same time, hungry investors are pouring billions into the coffers of Asian and Latin American "emerging markets." Today, almost any investor in mutual funds, whether he knows it or not, has a stake in a company operating in a nation outside his own.



This network equity is made possible by...

...the same network technology--shrinking chips and expanding communications--that creates wealth in the first place. The tracking, accounting, and transmission of each person's wealth and slivers of ownership can happen only because computation and telecommunication have reduced the cost of a transaction to insignificance. Today there are 7,000 mutual funds--7,000 ways to divvy up the equity of wealth creation. And there are a similar number of publicly traded companies that have, in effect, divvied up their wealth to many owners.

There are several trends in this emerging equity culture, each one amplified by pervasive network technology.



Networks promote this equity culture.

The ownership of organizations is distributed and decentralized into a thousand points. The transactional costs of owning a tiny share of someone's else's dreams and ambitions continues to drop so that it becomes feasible to possess, directly and indirectly, small parts of many companies. When you invest in a mutual fund, you invest in hundreds of thousands of other people's work. You use the wealth that your own ambition has generated to seed the generation of prosperity by others. You may own only some minuscule portion of an enterprise, but you can easily own parts of many firms, and each firm is owned by millions of individuals. This is network equity.

Out of this distributed ownership a portrait of a network emerges. Millions of lines of investment crisscross the landscape. A few individuals own a lot, but the majority of nodes are dispersed into small bank accounts in small towns. The bulk of stocks in the United States are controlled by the pension funds of ordinary citizens--by millions of individuals in the aggregate. The workers of America really do collectively own the means of production.



The sources of capital, which in the industrial age...

...were once consolidated in a few banks and individual "capitalists," are now fragmenting into millions of networked bank accounts, mutual funds, and private investments throughout society. Elite, centralized banks used to have a monopoly on capital--the engine of capitalism. Bankers loaned their assets as debt, and from this debt, industry rose. But with increased knowledge and communication, investors realized that partnerships--or investments where the investor shares risk--yield significantly more wealth in the long run. Technology has accelerated the migration from making loans to making investments. The ease of computerized accounting allows almost anyone with as little as $100 to plug into the network of equity. Despite the rise of a few gigantic global banks, increasing amounts of the wealth are now held in equity, and not in debt. Today, for instance, 28% of U.S. household assets are kept in equities--more than is kept in banks--and 44% of U.S. households own stock.


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This is a blog version of a book of mine first published in 1998. I am re-issuing it (two posts per week) unaltered on its 10th anniversary. Comments welcomed. More details here.
-- KK