According to the Asian Development Bank the fall in the value of financial assets may have reached $50,000 billion, with estimated losses in Asia (excluding Japan) of at least $9,625 billion. Many developing nations face a financing gap of between $270 billion and $700 billion a year as capital continues to flow out of their countries. Clearly the problem facing the global economy is not just a recession. It could more accurately be described as a long process of de-leveraging and deflation which may take ten years or more to fully resolve.
Two things are equally certain: (i) the export‐based models of Asia will falter and (ii) the vital restructuring of domestic markets will take longer than expected in an under‐capitalized context.
Better times may eventually emerge. Or at least they have done in the past. In the meantime what can be done to provide for those who sit idly by, or who lose their jobs (and much of their identity in the process) through no fault of their own. Furthermore what should be done to prevent hundreds of thousands of university graduates from facing the alarming prospect of long-term unemployment?
A prolonged period of economic recovery will squander the talents of millions of people. It will also deprive them of the opportunity to learn, consolidate and augment vital skills and expertise. And of course it risks fracturing generational knowledge. If governments dither, and the corporate elite is permitted to cling to old ways and privileges, lengthy periods of inactivity could lead to significant social unrest and dislocation among young people and the unemployed, thus adding to the further de-stabilization of already fragile communities.
As we wait for a restructuring of financial markets and the de-leveraging of assets, are there alternatives we should be considering? Are there policies and opportunities that could grow greater value, more rapidly, in return for public investments, other than shoveling more people into markets that may take years to restructure?
The positive and hopeful answer is ‘yes’ there is. It has to do with stimulating the potential for what we call social innovation. This is the realm of Internet-mediated production that leverages the capacities of open social networks to achieve better positive externalities.
To understand the logic of this promise, we can look to a less severe, but nevertheless serious economic crisis; the Internet ‘dot-com’ collapse in 2000-2001. All the pundits had been predicting, then as now, that without sufficient capital innovation would come to a grinding halt. In fact the very opposite occurred. Almost everything we now take for granted (in terms of Web 2.0 and the emergence of social and participatory media) was born in the crucible of that downturn. Innovation did not slow down; it actually increased during the investment drought.
This fact, though often ignored, reveals an extraordinary new tendency at work: capitalism is progressively divorced from entrepreneurship, especially where entrepreneurship is a networked activity taking place through open platforms of collaboration, which may or may not require serious infusions of capital.
Internet technology fundamentally changes the relationship between innovation and capital. Before the Internet, in the world of ‘creative destruction’ decreed by economist Joseph Schumpeter, innovators needed capital for their research. That research would then need to be protected through copyright and patents and further funds were needed to build the factories and manufacturing plants needed for production.
In the post-Schumpeterian world, however, geography has become immaterial. The Internet allows entrepreneurs from around the globe to come together to collaborate, generating new knowledge and products on the cheap.
Paradoxically, the new entrepreneurs only need capital when they are successful and the servers risk crashing from overload. Think about Bittorrent, the most important software for exchanging multimedia content over the internet. Bittorrent was created by a single programmer, self-financed through his personal credit cards, with zero institutional funding.
Although the Internet has empowered many individuals to launch game-changing innovations, like Linus Torvalds [Linux], Shawn Fanning [Napster]and Richard Stallman [free software] for example, the real story of the Internet is its ability to enable large-scale communities of collaboration. These collaborations are not limited to knowledge and software, but extend to everything that knowledge and software enables, including manufacturing. Anything that needs to be physically produced, needs to be ‘virtually designed’ in the first place.
The phenomenon of networked collaboration (often called ‘social innovation’ or ‘social production’) is increasingly responsible for nearly all innovation. In an era when most educated people are interconnected through multiple networks of their choice, the idea that all valuable activity occurs within a discrete enterprise via the marketplace is an outmoded conceit. Further, the idea that one is either an active ‘producer’ or a passive ‘consumer’ (but not both) is a dangerous anachronism.
Nowadays, conventional boundaries between design and production are blurring. No single firm can rely on its own proprietary systems. No closed company can hope to compete with an open business ecology practicing co-design, co-creation or crowdsourcing in all its various forms.
An important corollary of enabling such open business ecologies is a new attitude to intellectual
property rights. Companies wishing to benefit from the use of open platforms serving business ecosystems must invariably adopt new attitudes concerning the ownership and sharing of ideas. In these ecosystems generosity is a fundamental driver from which collective benefits are derived – rather than any exclusive private gain. As a consequence those companies that enable and empower social innovation and that use open forms of intellectual property, are more successful in attracting cooperation. They can grow their business on the social exchange that occurs in a thriving knowledge commons – even as everyone else also benefits from such participation.
Traditionalists may scoff, but the system is fantastically productive - and innovative. The Linux open-source economy is now estimated to be a $36 billion market and that is just one of countless free software-based sectors. Chris Anderson of Wired magazine estimates the annual total value produced through social innovation at around $300 billion.
One of the most robust sub-sectors of this economy is user-generated content. The new successful companies like Google, YouTube, Flickr, Twitter and all the rest, are not creating value themselves, but rather enabling user communities to create value through their well-designed, user-friendly platforms.
As a general principle all successful social production systems end up generating vibrant business ecologies that both profit from the knowledge commons while helping to sustain it. IBM now reaps more than half its revenues from Linux-related services and support (more than its own patent portfolio in fact) yet its participation in the Linux community has fortified the social communities and open knowledge exchange within Linux circles. In Latin American countries like Ecuador and in some states in India such as Kerala, nearly every free software programmer has a job.
But what does this mean for the current economic crisis? What are the implications concerning the plight of today’s underemployed and unemployed? For one thing it means that the distinction between working productively for a wage, and idly waiting for jobs that are fast disappearing, is crumbling. All the technical and intellectual tools are now available to allow people, both young and old, to engage in the production of social and economic value. In so doing they are able to sustain their work experience (or knowledge capital), nurture their social life (or relationship capital) and enhance their professional reputation. All three will be crucial in keeping them employable. More importantly all three will substantially increase their potential and future capabilities.
Businesses can benefit too and in any number of ways. For example, by active participation in new open business ecosystems, rather than by hiding within closed, proprietary cocoons, companies can more easily discover emerging consumer trends and needs. By helping sustain the social commons that generates innovation, companies can also create all manner of value-added products and services thus sustaining an infrastructure of cooperation while ensuring ecosystem viability.
But what can and should be the imperatives of the state in this process? What is the role of a ‘partner state’ in enabling and empowering social production to occur? There can be no doubt that public authorities can and should do a great deal to facilitate social production – for example giving people opportunities to continue developing their skills and knowledge; assisting businesses to develop innovative, competitive products and services; and aiding the reconstruction of a more resilient economy.
There are several factors facing government authorities wishing to participate in such a vision. First, a fully functional broadband infrastructure must be made a high priority. In particular, this needs to reach rural and inner-city residents alike so that their talents can be tapped and that scalable cooperation can be achieved.
Second, governments need to educate business owners and the public about the role of the commons in innovation and business development. Governments could, for example, create a Commons Institute which promotes cooperative practices in key areas of community life and business. The Commons Institute would teach users about open licenses for business and explain their benefits. In Brest, France, city authorities have been instrumental in supporting and sustaining the social production of their citizens. This has not only enriched local cultural life, but attracted more tourists to the city. This idea can also be extended to the creation of public ‘co-working spaces’ linked to processes of business incubation.
Third, public authorities should themselves start to incubate innovation. In Toronto, for example, the Open Source Business Resource has been instrumental in supporting free software start-ups. This has helped forge a local business ecology and an open source service industry that supports local businesses in their adaptive processes.
Fourth, government agencies should offer various forms of patronage (in the form of awards, grants and procurement contracts) to those individuals who are developing the innovation commons. Typically the most robust innovations are propelled by a core of passionate individuals working collaboratively in a specific knowledge commons. These individuals are often propelled by motivations related to the creation of a public good – or common wealth. It therefore makes good sense, both in business and in policy terms, to create new forms of support for the work of individual pioneers. Just as 18th Century science was supported by a network of patrons, leading to an upsurge of scientific research, so governments today should use their procurement and advocacy obligations to promote the processes of open knowledge and collaborative design.
Finally, social innovation should not be seen in isolation but as part of a growing and interconnected set of trends towards ‘peer-to-peer’ methods and infrastructures. Next to the well-known Internet-based infrastructure of digital communications, there are other significant networked infrastructures whose fortification will help local economies survive periods of globalized crisis.
President Obama’s ‘green stimulus’ proposal, for example, illustrates a genuine understanding of the value peer-to-peer grids bring to the overall energy infrastructure as well as offering an integrated strategy to deal with Peak Oil and climate change. Moving beyond a dependency on depletable fossil fuels, peer-to-peer energy grids encourage citizens to invest in home and neighborhood-centered energy production (based on renewable energy sources like wind and solar) and to share or sell that energy with others on the grid. In this way peer-to-peer energy grids strengthen local communities and open the door to a thriving new kind of energy sector.
Among other uses peer-to-peer principles can be used to improve the efficiency of economic production by enabling ‘complementary monetary systems’. The proliferation of regional currencies in the Germanic-language countries of Europe together with the success of the WIR system in Switzerland and Thailand’s Santi Suk complementary currency, show how communities can retain a greater part of the local value it produces, rather than letting this be transferred (exported) to other parts of the nation or the world. Peer-to-peer monetary systems help insulate local economies from the volatility of national currencies (these days invariably entangled with the global economy) providing localities with much-needed respite and resilience.
As these examples suggest, a ‘social innovation’ stimulus plan can provide incalculable benefits to all citizens in times of financial crisis. Despite capital scarcity, social innovation allows the process of value creation to continue unabated. It can deepen and enhance human capital while building a resilient ecology of open-source businesses that cooperate within social innovation communities.
Through active public support of this new productive sector we can build much stronger and resilient economies able to withstand the storms of globalization. Instead of locking up most know-how and creativity in intellectual property rights (whose circulation is now limited by bankruptcies and the depressed economy) social production and open licensing can unleash creativity into the knowledge commons.
If we have the courage to cultivate our precious ‘common wealth’ we can expect local and global markets to revive and prosper - reinventing themselves on a far stronger, more resilient foundation than was previously thought possible.
This posting was contributed by Michel Bauwens (a researcher for the Asian Foresight Institute at Dhurakij Pundit University in Bangkok and founder of the Peer-to-Peer Foundation) in collaboration with David Bollier (an independent policy strategist, journalist, activist and consultant whose work focuses on reclaiming the commons).
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