Standing on the Sun. Christopher Meyer
virus planning its leap from the information world to the physical one. This book isn't about that—but don't say we didn't warn you.
Trading New Goods
There's a related fundamental development in capitalism's environment: the source of value has changed. What people pay for in markets is increasingly intangible rather than tangible. This has been a long-term trend—perhaps as long as human history—and it shows up markedly in the shift every developed economy has experienced from product manufacturing to service provision. But it's also about products. The price of a product like Apple's iPad has very little to do with the cost of the plastic, metal, and silicon that go into its manufacture. What customers value is its design, its connectedness, its intelligence.
When the source of value changes, it has big implications for the economic system. And information has unique economic properties. As a simple example, land doesn't depreciate—but property, plant, and equipment do. Thus the shift from an agrarian to an industrial economy called for new capitalization solutions, accounting rules, and financial instruments. Likewise, as we move from an industrial to an information economy, we must deal with a new fact of life. Although mass-produced, tangible goods have substantial marginal production costs, information goods have essentially zero marginal costs. Once someone has paid for the first recording or software solution or essay to be created, any additional copies are almost cost free. In a world where many goods cost nothing, it is meaningful to talk of a gift economy—and new approaches must be devised to fairly fund the creation of new goods. Insisting on retaining the old models—copyright and patent systems, for example—as they are is a rear-guard action.
When we refer to information goods we are talking about much more than the media and entertainment offerings that consumers buy. We're also talking about the “machine tools” of the information economy: CAD/CAM software, spreadsheets, website designs, instructional videos. In the industrial world, both tools and offerings were tangible: behind the manufacture of a physical tube of toothpaste was a physical toothpaste-making machine—and it was, and remains, expensive. Consumers didn't pay for the machines, but through their consumption of toothpaste they funded them. Today, the media industry is in turmoil because the marginal costs of the goods they produce is zero, and so people readily give them away (try giving away your used toothpaste). But increasingly, the capital equipment of the information economy is also information goods, and these production tools are also being shared freely.
When Linux appeared and then succeeded, the self-organized network of volunteer coders was remarked on, but few observers outside the software industry—and not many within it—considered it of great importance. When Wikipedia appeared and put Microsoft's Encarta out of business, commentators began to see Web 2.0 as a mode of production. Now SourceForge.net, a product of Geeknet, Inc., is a superstore of open source software and a hangout for volunteers who want to work on it, a kind of global souk for free machine tools—230,000 of them.
The ability to freely share capital equipment undermines some of the most well established ideas about barriers to entry. It challenges the very meaning of terms like capital and ownership. It also suggests the rate of innovation will continue to accelerate. Thanks to free sharing, innovations become instantly available everywhere. Imagine how rapidly the Industrial Revolution would have progressed if machine tools had been free.
Spanning the World
One last fundamental alteration in capitalism's environment is something we would describe as a phase change. After centuries of becoming increasingly international, the context of trade suddenly has become truly global. Picture an historical map of the world, with pinpoints of activity in the earliest commercial centers. Now think of how those points of commerce began to interact regionally, the lines between them multiplying and broadening to the point that they became saturated splotches of trade. Now consider the current economic interdependence of the world; the pinpoints and lines have filled the screen to the point that there is no white space remaining. When the scope of one's economy grows from the tribe, to the village, to the city, to the nation, to the sphere of influence, and finally to the planet, that is not simply a linear progression. Rather, the world is reordered in important ways.
We're just now teetering on the point of that phase change. As we write, in the summer of 2011, the Greek debt crisis has placed the future of the euro in some doubt. The debates raging in European capitals make it clear that we're still at the point of tension between nation and sphere of influence, held back by the strictures of nations. But at the same time, the reality of one global economy is dawning.
That's a new reality that will certainly force capitalism to adapt. For one thing, we predict it will create the stage for multinational corporations to rise in global influence. We should note that multinationals will no longer be a Western club; the United Nations reports that there are now 21,500 of them based in the emerging world. Wherever they hail from, we'll see multinationals routinely achieve scale larger than many political entities. As early as 1992, former Citibank chairman Walter Wriston predicted what he termed the “twilight of sovereignty.” His book by that name portrayed a world wherein a new electronic network—made of advancing information and communications technology—had unified the world into one global market of ideas, data, and capital, all able to move with lightning speed to any corner of the globe. International financial markets, he noted, had outpaced the ability of governments to control national economies and old political borders. A “global conversation” was now possible that could, among other things, advance civil and democratic rights.
More recently, and far more darkly, Prem Jha (in his similarly titled book, The Twilight of the Nation State) describes globalization as “a sudden explosive expansion of capitalism, one that is now breaking the container of the nation state to encompass a large part of the globe.” For good or for ill, in a planetary economy many former functions of the state will be exercised de facto by multinationals; at the same time, certain regulatory functions—police, health, and monetary authorities among them, we hope—will feature international governance. We'll spend more time contemplating the evolving role of the state in chapter 8.
No Embedded Base
Back in the days when competition was coming to the U.S. telecommunications market, the new entrants were rapidly deploying modern digital technologies to give them an edge over the established regulated monopoly. Bell System executives, faced with having to write off and replace their aging physical plant, encoded their predicament with a rueful joke: “How did God create the world in six days?” they asked. The answer: “No embedded base.”
We started our survey of environmental changes with the growth of emerging economies, and we end there as well. For although the changes we've described will create a new setting for capitalism worldwide, not every part of the world will be equally positioned to capitalize on it. The emerging economies, by virtue of their rapid growth rates, their youth, and their delay in entering the global economy, are the fields in which new practices will flourish.
There is a precedent for this pattern. In the eighteenth and nineteenth centuries, it was the British economy that was the engine of innovation. New industrial technologies were pouring out of its workshops. Inventors in England and Scotland came up with the theory of electricity and magnetism, steam power, dynamos, and Bessemer steelmaking. They invented the telegraph, Bakelite, and pasteurization. Steel replaced wrought iron. Mass production using interchangeable parts and division of labor unseated artisanal fabrication. The Scots even invented a fundamental doctrine of market capitalism—the invisible hand—to explain to the foot-draggers why they, the British, were being so successful. In light of Great Britain's standing and continued innovation, the Victorians had every reason to believe that their empire would remain the leading global power. The reason behind all this innovation was obvious: as the world's richest economy, Britain could afford the universities, the time devoted to study, and the private laboratories lords liked to have in their castles. (Birr castle in Ireland, where the dynamo was invented, also for a time housed the world's largest telescope. Yes, cloudy, rainy Ireland.)
But