New economy and commons economy: similar phenomenon, different future
LEE, Seong-kyu | Journalist at Bloter
Knowledge economy and commons economy – similar but different dreams for the future
It is well known that the market cap of Naver, an Internet company Korea, is three times larger than that of LG, a multinational electronics manufacturer. But probably not many people are aware of the fact that Naver’s market cap is 10 trillion won and 16 trillion won higher than that of SKT and Hyundai Heavy Industries, respectively. Now Naver has a huge market cap comparable to that of Hyundai Motors in Kospi. The fact that an Internet company, which doesn’t manufacture ships or cars nor has communications infrastructure, has fast emerged as a core player leading the Korean economy heralds a fast paradigm shift in the Korean economy.
It’s not that different in China too. The most valuable company in Asia is neither a manufacturer nor a telecom company any more. Tencent, an internet and game service provider, is Asia’s biggest company by market capitalization. It’s quite a Rip Van Winkle moment now and a sea change from a few years ago. Now players who drive the economy have changed and we are seeing different growth engines. However, we still don’t have a framework to interpret and understand the phenomenon properly. We often try to design the new era with classical principles found in dusty economic textbooks, only to find out there are too many things that simply do not fit. This article is intended to find a new framework for analyzing and diagnosing the rapidly changing world.
Software, knowledge, information, and data – as sources of wealth of nations in the current era, one thing they have in common is immateriality. While they are immaterial, invisible and intangible, surprisingly they have well established as sources that create wealth of a nation. Unlike products like ships or automobiles, which cannot be traded as a materialized value in the market until production elements such as steel or heavy metals are put in, they are essentially different in their nature as goods.
Paul Romer, World Bank’s Chief Economist and professor at NYU, explained economic system of immateriality with a new growth theory called knowledge economics. He proposed that economic growth in the future would be driven by immaterial knowledge as inputs of the traditional capitalist economy – land, labor, and capital – would be replaced by knowledge, humans, and materials (Walsh, 2006/2008). While new classical economists consider technology derived from knowledge as an exogenous variable, Romer argues that technology is a source of wealth, which was in the shortlist of Nobel prize nominees for several years.
At the center of Romer’s theory lie increasing returns and knowledge. Knowledge has a characteristic called non-excludability, which means it is impossible to prevent B from accessing a knowledge owned by A. Rather, the more you share and mix, the more knowledge and values are created. This approach is in nature different from the traditional economic theory based on the principle of diminishing returns; and naturally, perspectives and philosophies that deal with this economic theory are different.
Open source in the commons economy
When there is a phenomenon, there is always another view that interprets it with a completely different theoretical approach; and in this case, it is a view that considers network as the source of wealth. While this group considers knowledge as the primary source of growth too, they are different in that they focus more on the process of producing knowledge. Yochai Benkler who published a masterpiece titled “The Wealth of the Network” is a leading figure in this group.
Benkler defines the recent trend as “Networked Information Economy” and distinguishes it from the existing “industrial information economy.” He emphasizes that the core element in the network information economy is the network that drives the production of information. And above all he pays attention to the emerging models of information and cultural production that he sees are radically decentralized and based on emergent patterns of cooperation and sharing, but also of simple coordinate coexistence (Benkler, 2006/2015, p.53).
Networked information economy
Benkler proposes the networked information economy as a new stage of information economy displacing the industrial information economy. According to him, the networked information economy is defined by radical decentralization of intelligence in our communications network and the centrality of information, knowledge, culture and ideas to advanced economic activity.
Individuals connected with network technology have the ability to not only produce information or knowledge but also distribute it and therefore this results in a foundation for more knowledge and information to be produced. These economic agents build up digital commons that are accessible to anyone in response to social motivations. And digital commons is the socio-political status of open source in the networked information economy.
The building of digital commons is a catalyst for bringing about and vitalizing the economy of increasing returns. As areas of the commons grow, increasing returns accelerates. Recently, Paul Romer has often expressed criticism about intellectual property regime. But he didn’t go far as to lead it to a structural discussion on the commons, since his theoretical focus is different from that of Benkler. But one thing that is clear is, whether calling it knowledge economy or networked information economy, the building of digital commons represented by open source is playing the role of a growth engine.
Confrontation between motivations for profits and social good
As mentioned above, the two perspectives pursue different goals. Rome’s knowledge economy focuses more on the profit-seeking side. The main purpose is to gain a new momentum for growth through inputs of human capital e.g. R&D. It explains it as an effort to regain the momentum for growth lost in the capitalist economy through human capital and knowledge-based technology. Therefore, discussions around main alternatives boil down to an expansion of education and R&D investment for improving the quality of human capital and technological innovation. In addition, market opening to embrace more knowledge from the outside is a key factor in this model. Creating a space and culture where various knowledge are embraced and exchanged – like in Silicon Valley – will build a foundation for growth according to this model.
Benkler proposes a different solution, which tends to boil down to the building of more commons. According to him, “commons are an alternative form of institutional space, where human agents can act free of the particular constraints required for markets (Benkler, 2006/2015, p. 231). He moves beyond the market-oriented view of Romer and focuses more on social production of the commons. He thinks social benefits grow when people share and cooperate to expand and strengthen the commons. His commons economy can even co-exist with the market. And as seen in the case of Linux, the commons economy can be competitive against the market. He highlights the commons economy can be a new economic system for the future from the perspectives of both market and social good.
New economic framework supporting the future
IT platform providers such as Facebook, Google, and Amazon are symbolic companies that support Romer’s new growth theory. While they have claimed to break with the old system represented by industrial economy, they haven’t still completely broken from the tradition in that they use users’ data as raw material, combine them with their knowledge to take advantage of it as a growth engine and monopolize profits. While they use data and information produced by users and knowledge created by themselves as raw materials unlimitedly, they don’t care about distribution. Michel Bauwens, a co-founder of P2P Foundation, calls this model “netarchical capitalism” (Kostakis & Bauwens, 2014 ; p.39).
Of course we should not underestimate the contribution these IT platforms make to the digital commons: Google published source codes for Android, Tensorflow and other projects as open source. Facebook has also released open source projects such as React and HHVM and allows broader access. However, the intention behind going open source is using it as a marketing strategy for the growth of their business. Even though they do so out of goodwill in part, their contribution to the digital commons is just a minor by-product of it compared to the benefits they reap from it.
As collaboratively produced immatieral products are appropriated by only a few IT platform businesses, the inequality incurred during the industrial economy is still around. They shut late comers out using their patents and enjoy monopoly globally. Increasing returns – a concept proposed by Romer – are constrained by institutional barriers such as intellectual property rights and returns may rather decrease or even be eliminated. Moreoever, states help and support these IT platforms have legal monopoly. This is why we need to look to Benkler’s networked information economy and digital commons economy.
Platform Cooperativism is worthy of note as a strategy to control a monopoly of platforms and at the same time to seek to an enlargement of the commons. Platform cooperativism is about democratizing ownership, decision-making and participation in digital commons. Loomio, a platform for digital democracy developed by a New Zealand based team, and Wikipedia are examples of platform cooperative.
Platform cooperative movement is an effort to find an alternative economic system outside capitalism and an idea extended from Benkler’s model of networked information economy. A platform cooperative is a digital platform where knowledge or products produced by users’ collaborative efforts, dedication and contribution are freely accessed and shared buy any participant rather than by only a few businesses such as Uber and Airbnb.
No matter whose theory we are following, it seems obvious that we are currently at a turning point which calls for new thinking and philosophy. 10 years ago, half of the 6 most valuable companies in the US by market capitalization were oil and gas companies including Exxon Mobil. Now, they have been replaced by tech companies. Exxon Mobil’s market cap is now similar to that of Facebook and it is only a matter of time before Facebook passes the oil company. It is hard to explain this phenomenon within the framework of industrial economy; but from Romer’s point of view, this is no wonder.
It’s time to prepare for the time after Romer’s model. Industrial economy is giving way to networked knowledge economy. Knowledge and increasing returns are functioning as core elements and principles of the economy; they co-exist with the old system of industrial economy and at the same time develop a new realm and order. However, the problem is that the unequal distribution of wealth is still there in this great transition period. For a hint for an economic system that would enable non-exploitative, ethical, and sustainable development, you shouldn’t look at the old system of market economy; it can only be found somewhere outside of capitalist market economy.
Commons economy is an idea drawn from that outside, and is a “cooperative human system” Benkler proposed. If we don’t want to live with inequality in the post-industrial world, we should refine and develop commons economy further.