Book Review
We Think: Mass innovation, not mass production
Charles Leadbeater & 257 other people
ISBN: 978-1-86179-892-9 2008 256 pages Profile Books
Jason Potts
ARC Center of Excellence for Creative Industries and Innovation (CCI), Queensland University of Technology; School of Economics, University of Queensland, Brisbane QLD
Kate Morrison
Think Play Do Group Australia, c/- UQ Business School, University of Queensland, St Lucia QLD
Internet Economics 2.0
So here comes, we think, two extremely interesting, challenging and important new books by two leading commentators on the effects of the internet on business and society. They both argue that the internet and its emergent communication services and business models are revolutionary and normal: revolutionary in the sense that fundamental parameters have changed, and normal in the sense that these parameters have definitely changed, and the sooner we adapt to these changes the better. Both books seek to explain what has changed and how we might adapt.
The books are of course different - Shirky focuses on the new possibilities for innovative organization, whereas Leadbeater focuses on the new possibilities for the organization of innovation. But they both find recourse to the same set of canonical examples and draw the same broad implications: namely that the world has changed (not might change or possibly will change, but has changed) and that the pertinent issue is 'what now?' Both set out coherent, detailed, entertaining, well-researched, rehearsed and occasionally devastatingly lucid examinations of this ordinary (not brave) new world of internet-based organization and innovation.
Both are extremely persuasive and thought-provoking, such that our own copies of each are now utterly unsaleable due to an accumulated mass and mess of marginalia. Both are very good books that should be read together by anyone interested in - not to put too fine a point on it - the business and socio-cultural possibilities of the internet. And yet these books are not the same. One is definitely better than the other. And this, in the final analysis, was due to one of these books building out of consistent economic thinking, and with the other only arriving at that incidentally. Neither of our authors are economists, yet 'we think' that Here Comes Everybody is, ultimately, the germinal book. This is because Shirky goes systematically further than just description and naming of the changes that are occurring (which Leadbeater does exceptionally well, and reason enough to read We Think) toward explication of the microeconomic foundations of what the internet has changed.
Shirky's argument is that the effect of the internet is that it has changed the structure of transactions costs. This is a point that Leadbeater ('ranked by Accenture as one of the top management thinkers in the world' according to back cover blurb) has simply overlooked. Shirky's argument, however, is the sort of thing an economist would say, not a management thinker; that is the difference. His is an important, nay seminal, insight into the economics of organizations. Furthermore, the Shirky insight into the internet driven economics of organizations then works to systematically underpin the Leadbeater assertions about the internet organization of innovation.
The problem with the Shirky book is that it does not then develop the innovation dimensions that Leadbeater focuses upon. And the problem with the Leadbeater book is that it lacks the Shirky foundations. Perhaps they should collaborate; but we hope not. Both of these books are written for a popular audience through excellent systematic organization of integrative ideas and examples. Both explain a new digital communication and coordination world of business, society, culture and innovation. Still, we like Shirky best because of his ingeniously superior economic analysis. Shirky argues many points, but three stand out.
First, he argues that the declining cost of organisation due to internet-based technologies and behaviours has revealed the subterranean structure of the 'Coasian floor' underlying the economics of markets and organizations, upon which modern microeconomics is constructed. (The 'Coasian floor' is the extension of the Coasian argument of why firms not markets in terms of transactions costs of organizations then extended beyond by organizations (such as firms) to organization as internet enabled: ie below markets lies firms (Coasian economics), but below firms lies interwebby organization ('Shirky organization'?).
Shirky argues that the theoretical possibility of organization without organizations is now real. Real as in actually presently unchangeably real; real as in something business strategy needs to adapt too now or die real rather than amusingly futuristically maybe real. Leadbeater, in turn, takes this for granted without ever explaining why. Shirky's argument is that the internet has driven an epoch-making fall in the costs of organization that leads to a 'more is different' (in the words of Philip Anderson, a physicist of complexity) view of the world. Specifically, he argues that the phenomenally lowered transactions costs to forming new groups (ie coordination among socio-cultural and economic agents) means that much more of this will happen. He argues this as an aspect of constant preferences (ie the human propensity to forming groups) but with changed relative prices of doing so. He infers that this economic incentive will override all manner of extant organizations and institutions based on a pre-internet set of relative prices. He then draws examples of how this is changing and how it might further change. Among this set is the Leadbeater thesis of changed organization of innovation. But the difference is that Shirky explains why.
A second point of Shirky's we like is his inference that creativity is trade. He makes this point en passant in reference to the work of the University of Chicago sociologist Ronald Burt, who observed that 'small world' networks are efficient structural mechanisms of novelty generation and processing. This point is not new to economics, as evolutionary economists have argued this often. Nor is it new to market theory, as it is a mainstay of Austrian economics, as in the work of Ludwig Mises and Israel Kirzner. But it is an important insight into the economics of creativity, in that novelty is a function of environment, and that just as lowering of the costs of trade produces new possibilities of trade, lowering the costs of organisation will produce new possibilities for the flow of ideas. The upshot is that the internet increases aggregate creativity by lowering the costs of organization which, in turn, increase the prospect of trade in ideas as they are shifted from low value organizational contexts to higher valued contexts. This is an important insight into the in interaction between the economics of organization and the organization of innovation.
A third point is his attention to the value of failure, and specifically to the value of the internet, not so much in increasing the likelihood of success, but rather in lowering the costs of failure. The value of the internet as a communication device, in other words, is not in making for superior coordination, but rather for making for faster and more prevalent failure. Paul Ormerod has also written similarly about this (Why most things fail). The internet is a failure mechanism. And that is why it succeeds on an evolutionary scale. And we had no idea we needed something like that, in that same way that economists have only slowly learnt to understand the value of the market mechanism for its ability to process failure in an open system context, rather than as an institutional mechanism to program success. Shirky misses the obvious Hayekian points here, but that is excusable, as he is not yet an economist (he knows Coase, but seemingly not yet Hayek or Schumpeter). However, Leadbeater never gets close to this, and thus still occupies and advances a policy world in which there might still be active public policy things to do.
The virtue of Shirky is that he recognises that there are things to do, and like Leadbeater these are important. But Shirky directs us to analyse these as all at the level of individual actions (ie forming new groups), or at the level of business opportunities (ie facilitating this process). The rest will self-organize. The problem with Leadbeater, in turn, is that he follows this line to a non-market conclusion. He was right about his previous pro-am revolution assays. Let us not mistake or misunderstand his rightness about being right about that. But he is not right now to lazily infer that sharing will transcend markets. There will be change, but this is change in organization that leads to change in markets, and it is Shirky who explains this better. So read Shirky, then Leadbeater, and if you only have time, read Shirky. He gets the microeconomic foundations right, which is the best building block of all.
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