Two American Families: Complexity At Work?

It’s a central premise of the American dream: If you’re willing to work hard, you’ll be able to make a living and build a better life for your children. But what if working hard isn’t enough to ensure success — or even the basic necessities of daily life?

FRONTLINE’s Two American Families follows two ordinary families who have spent the past 20 years in an extraordinary battle to keep from sliding into poverty.

The film, a collaboration with veteran PBS journalist Bill Moyers, who has followed the Stanleys and the Neumanns over the years, raises unsettling questions about the changing nature of the American economy and the fate of a declining middle class.

“He will not be able to see the retirement, you know, that he probably would hope for when he was working at A.O. Smith,” say Keith Stanley, the son of Claude Stanley who was laid off from a steady, good paying job in the early ’90s. “That’s just not a reality. My heart goes out to that generation that was promised something from America, by America, that they would have a better life and that’s not the case anymore.”

Here's my comments on the structural change and the implications if the system that changed is a complex system in a critical state. Click to listen.

The State of America's Middle Class

The following was taken from "The State of America's Middle Class in Eight Charts" by Jason Breslow and Evan Wexler, Frontline, PBS. Click here for charts and article.

Wages are down

Middle class incomes have shrunk 8.5 percent since 2000, after enjoying mostly steady growth during the previous decade. In 2011, the average income for the middle 60 percent of households stood at $53,042, down from $58,009 at the start of the millennium.

Less income for the middle class

Partly as a result of lower pay, the middle class’s share of the nation’s total income has been falling. In 1980, the middle 60 percent of households accounted for 51.7 of the country’s income. By 2011, they were less than half. Meanwhile, the top fifth of households saw their slice of the national income grow 16 percent, to 51.1 percent from 44.1 percent.

Union positions are shrinking

One factor behind the decline in income has been a drop-off in the number of workers earning union salaries. In 2012, the median salary for a unionized worker stood at roughly $49,000. The median pay for their non-union counterparts was just shy of $39,000. Since 1983, however, the share of the population belonging to a labor union has gone from one-in-five workers to just over one-in-ten.

More workers stuck in part-time jobs

A second factor weighing down pay is the rise in the number of Americans stuck in part-time jobs. In 2012, more than 2.5 million Americans worked part-time jobs because they could not find a full-time position, the most since 1993.

Fewer jobs from U.S.-based multinationals

Part of the challenge for job seekers is that U.S. multinational corporations having been hiring less at home. These large, brand-name firms employ roughly a fifth of American workers, but from 1999 to 2008 they shed 2.1 million jobs in the U.S. while adding more than 2.2 million positions abroad.

Rising debt

Predictably, the economic pressures facing the middle class have left families deeper in debt. . In 1992, the median level of debt for the middle third of families stood at $32,200. By 2010, that figure had swelled to $84,000, an increase of 161 percent.

Families are saving less

The rise in debt has meant fewer families have the ability to put away money for things like retirement or a child’s tuition bills. In 2001, more than two-thirds of middle class families said they were able to save money in the preceding year. By 2010, that figure was below 55 percent.

Net worth has plunged

The impact on family net worth — the amount by which assets exceed liabilities — has been painful. In 2007, median net worth peaked at $120, 600. Then came the financial crisis, which pushed millions of Americans into joblessness and home foreclosure. By 2010, net worth had plummeted 36 percent, to $77,300.

How Money Walks

A fascinating way to look at the transfer of wealth within the US from 1995 to 2010. The map below shows Travis County, Texas (home of Austin) which has a net gain in wealth $2.72B. It gained that wealth from Harris County, Dallas County, Los Angeles County, Santa Clara County and Bexar County. It lost wealth to its neighboring counties of Williamson, Hays, Bastrop, Burnet and Caldwell.

http://www.howmoneywalks.com/web-app/

Economics and Complexity

James Glattfelder studies complexity: how an interconnected system -- say, a swarm of birds -- is more than the sum of its parts. And complexity theory, it turns out, can reveal a lot about how the economy works. Glattfelder shares a groundbreaking study of how control flows through the global economy, and how concentration of power in the hands of a shockingly small number leaves us all vulnerable. (Filmed at TEDxZurich.)

James B. Glattfelder aims to give us a richer, data-driven understanding of the people and interactions that control our global economy. He does this not to push an ideology -- but with the hopes of making the world a better place.

 http://on.ted.com/Glattfelder

First a researcher at a Swiss hedge fund and then a physicist, James B. Glattfelder found himself amazed by the level of understanding we have in regards to the physical world and universe around us. He wondered: how can we move toward a similar understanding of human society?

This question led him to the study of complex systems, a subject he now holds a Ph.D in from the Swiss Federal Institute of Technology. Glattfelder is co-head of quantitative research at Olsen Ltd in Zurich, an FX investment manager focusing on market-stabilizing algorithms. In 2011, he co-authored the study “The Network of Global Corporate Control,” which went viral in the international media and sparked many controversial discussions. The study looked at the architecture of ownership across the globe, and computed a level of control exerted by each international player. The study revealed that 75% of all the players in the global economy are part of a highly interconnected core which, because of the high levels of overlap, leaves the economy vulnerable.

In his free time, Glattfelder enjoys snowboarding, rock climbing, surfing and listening to electronic music.

"As protests against financial power sweep the world this week, science may have confirmed the protesters' worst fears. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy ... The study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power."

The New S

 http://www.ted.com/speakers/james_b_glattfelder.html

Solving for $

Solving for $ by Floyd Norris

The New York Times Book Review, January 6, 2013

This article is a critical review of James Owen Weatherall’s book The Physics of Wall Street: A Brief History of Predicting the Unpredictable.

“Ever since the financial crisis, James Owen Weatherall writes in his new book, “The Physics of Wall Street,” “words like ‘quant,’ ‘derivative’ and ‘model’ have taken on some nasty connotations.” He is out to change that.

What finance and economics need, he says, is more physics, not less. So what if the quantitative models that underlay such products as mortgage-backed securities blew up, nearly bringing down the world financial system in the process? Models always have assumptions; it is up to the users to pay attention to whether those assumptions hold.”

He describes that the first part of the book on the history of the use of quantitative modeling in economics is well written.

“But Weatherall has a grander aim. “The Physics of Wall Street” “is a book about the future of finance,” he writes in his introduction. “It’s about why we should look to new ideas from physics and related fields to solve the ongoing economic problems faced by countries around the world. It’s a story that should change how we think about economic policy forever.”

This is a lofty goal, made all the more ambitious by the blunders of physicists on Wall Street in recent decades, blunders he describes well but with an extremely generous view. Sure, he concedes, the crisis “was partly a failure of mathematical modeling,” but he declares that the real problem “was a failure of some very sophisticated financial institutions to think like physicists.””

Norris writes, “He has little use for Nassim Taleb, whose best-­selling book “The Black Swan” argues that the models used by traders disastrously underestimated the possibility of very negative outcomes — the black swans. To say that a model failed, Weatherall contends, is not to say that no models can work. “We use mathematical models cut from the same cloth to build bridges and to design airplane engines, to plan the electric grid and to launch spacecraft,” he writes. If you don’t trust them, why are you driving over the George Washington Bridge? “After all, at any moment an unprecedented earthquake could occur.””

This thought by Weatherall demonstrates his lack of knowledge of complexity science. His examples are certainly complicated but are far from being a complex system like a market or an economic system.

Norris ends his short article with, “The world’s economic problems are far too complex to be reduced to a matter of physics and mathematics. Reading this book brought to mind the adage that if all you have is a hammer, every problem looks like a nail.”

It is amazing to me how most economists consistently refuse to think that economic systems are complex systems in a state of criticality, and hence not subject to cause and effect rules we normally live by.

You can read the review at http://www.nytimes.com/2013/01/06/books/review/the-physics-of-wall-street-by-james-owen-weatherall.html.

Complexity and Economic Growth

“Over the past two centuries, mankind has accomplished what used to be unthinkable. When we look back at our long list of achievements, it is easy to focus on the most audacious of them, such as our conquest of the skies and the moon. Our lives, however, have been made easier and more prosperous by a large number of more modest, yet crucially important feats. Think of electric bulbs, telephones, cars, personal computers, antibiotics, TVs, refrigerators, watches and water heaters. Think of the many innovations that benefit us despite our minimal awareness of them, such as advances in port management, electric power distribution, agrochemicals and water purification.

This progress was possible because we got smarter. During the past two centuries, the amount of productive knowledge we hold expanded dramatically. This was not, however, an individual phenomenon. It was a collective phenomenon. As individuals we are not much more capable than our ancestors, but as societies we have developed the ability to make all that we have mentioned – and much, much more.

Modern societies can amass large amounts of productive knowledge because they distribute bits and pieces of it among its many members. But to make use of it, this knowledge has to be put back together through organizations and markets. Thus, individual specialization begets diversity at the national and global level. Our most prosperous modern societies are wiser, not because their citizens are individually brilliant, but because these societies hold a diversity of know how and because they are able to recombine it to create a larger variety of smarter and better products. The social accumulation of productive knowledge has not been a universal phenomenon. It has taken place in some parts of the world, but not in others. Where it has happened, it has underpinned an incredible increase in living standards. Where it has not, living standards resemble those of centuries past. The enormous income gaps between rich and poor nations are an expression of the vast differences in productive knowledge amassed by different nations. These differences are expressed in the diversity and sophistication of the things that each of them makes, which we explore in detail in this Atlas.

Just as nations differ in the amount of productive knowledge they hold, so do products. The amount of knowledge that is required to make a product can vary enormously from one good to the next. Most modern products require more knowledge than what a single person can hold. Nobody in this world, not even the saviest geek nor the most knowledgeable entrepreneur knows how to make a computer. He has to rely on others who know about battery technology, liquid crystals, microprocessor design, software development, metallurgy, milling, lean manufacturing and human resource management, among many other skills. That is why the average worker in a rich country works in a firm that is much larger and more connected than firms in poor countries. For a society to operate at a high level of total productive knowledge, individuals must know different things. Diversity of productive knowledge, however, is not enough. In order to put knowledge into productive use, societies need to reassemble these distributed bits through teams, organizations and markets.

Accumulating productive knowledge is difficult. For the most part, it is not available in books or on the Internet. It is embedded in brains and human networks. It is tacit and hard to transmit and acquire. It comes from years of experience more than from years of schooling. Productive knowledge, therefore, cannot be learned easily like a song or a poem. It requires structural changes. Just like learning a language requires changes in the structure of the brain, developing a new industry requires changes in the patterns of interaction inside an organization or society.

Expanding the amount of productive knowledge available in a country involves enlarging the set of activities that the country is able to do. This process, however, is tricky. Industries cannot exist if the requisite productive knowledge is absent, yet accumulating bits of productive knowledge will make little sense in places where the industries that require it are not present. This “chicken and egg” problem slows down the accumulation of productive knowledge. It also creates important path dependencies. It is easier for countries to move into industries that mostly reuse what they already know, since these industries require adding modest amounts of productive knowledge. By gradually adding new knowledge to what they already know, countries economize on the chicken and egg problem. That is why we find empirically that countries move from the products that they already create to others that are “close by” in terms of the productive knowledge that they require.

The Atlas of Economic Complexity attempts to measure the amount of productive knowledge that each country holds. Our measure of productive knowledge can account for the enormous income differences between the nations of the world and has the capacity to predict the rate at which countries will grow. In fact, it is much more predictive than other well known development indicators, such as those that attempt to measure competitiveness, governance and education.

A central contribution of this Atlas is the creation of a map that captures the similarity of products in terms of their knowledge requirements. This map provides paths through which productive knowledge is more easily accumulated.

We call this map, or network, the product space, and use it to locate each country, illustrating their current productive capabilities and the products that lie nearby. Ultimately, this Atlas views economic development as a social learning process, but one that is rife with pitfalls and dangers. Countries accumulate productive knowledge by developing the capacity to make a larger variety of products of increasing complexity. This process involves trial and error. It is a risky journey in search of the possible. Entrepreneurs, investors and policymakers play a fundamental role in this economic exploration.

By providing rankings, we wish to clarify the scope of the achievable, as revealed by the experience of others. By tracking progress, we offer feedback regarding current trends. By providing maps, we do not pretend to tell potential explorers where to go, but to pinpoint what is out there and what routes may be shorter or more secure. We hope this will empower these explorers with valuable information that will encourage them to take on the challenge and thus speed up the process of economic development.”

From the Preface of The Atlas of Economic Complexity: Mapping Paths to Prosperity, Hausmann, Hildago, et al, http://atlas.media.mit.edu/media/atlas/pdf/HarvardMIT_AtlasOfEconomicComplexity_Part_I.pdf

How economic inequality harms societies

We feel instinctively that societies with huge income gaps are somehow going wrong. Richard Wilkinson charts the hard data on economic inequality, and shows what gets worse when rich and poor are too far apart: real effects on health, lifespan, even such basic values as trust.

In "The Spirit Level," Richard Wilkinson charts data that proves societies that are more equal are healthier, happier societies.

Rethinking Growth

Herman Daly is an ecological economist and co-founder and associate editor of the journal Ecological Economics. As the World Bank’s senior environmental economist from 1988 to 1994, Daly focused on Latin American poverty and development and helped to establish the discipline of ecological economics. Today, based at the School of Public Policy at the University of Maryland, Daly spoke with Seed editor Maywa Montenegro about growth, technology, happiness, and the steady-state economy.

Read Article

Is Population a Problem?

Is Population a Problem, Maywa Montenegro, Seed Magazine, 6/10/10

Some excerpts:

"The number of people on Earth is expected to grow from 6.5 billion to about 9 billion by 2050. That much is relatively uncontroversial. But recently, we’ve seen disparate views emerge as to how this population growth will affect the planet.

Four decades after publishing The Population Bomb, Paul Ehrlich, for one, is still a firm believer that overpopulation—and along with it, overconsumption—is the central environmental crisis facing the world. In an opinion piece for Yale e360, he and Anne Ehrlich write: “Many human societies have collapsed under the weight of overpopulation and environmental neglect, but today the civilization in peril is global. The population factor in what appears to be a looming catastrophe is even greater than most people suppose.” The reason, say the Ehrlichs, is that each additional person today on average causes more damage to humanity’s life support systems than did the previous addition. And because Homo sapiens are smart creatures, we have already farmed the richest soils and tapped the most abundant water sources. Therefore, to support more people, it will be necessary to move to poorer lands, dig deeper wells, and spend more energy to transport food and water to increasingly distant homes and factories. Population, the Ehrlichs aver, remains an underacknowledged apocalypse in waiting.

Others, however, take a markedly different view. In the recently published book, The Coming Population Crash, and in a series of articles also for e360, environmental journalist Fred Pearce looks at the same demographic trends and sees very good news. “The population bomb is being defused at a quite remarkable rate,” he writes. “Women around the world have confounded the doomsters and are choosing to have dramatically fewer babies.” He then goes on to cite declining fertility rates in countries across Europe, Asia, and Latin America. And in Africa, where high fertility remains the norm, Pearce is optimistic that those extra people can provide a way out of the continent’s poverty trap. Bad agriculture, not population growth, he contends, is the continent’s main predicament—and in this essay, he describes how more people, employed on ecologically friendly, small-scale farms will be key to African sustainable development. Chris Reij, a Dutch geographer whom Pearce interviews for the article, concurs. “The idea that population pressure inevitably leads to increased land-degradation is a myth,” he says. “It does not. Innovation is common in regions where there is high population pressure.”

Consumption, not population, Pearce concludes, is the main problem confronting human society today. After all, he writes, “virtually all of the extra 2 billion or so people expected on this planet in the coming 40 years will be in the poor half of the world.” Assuming per capita emissions remain roughly where they are today, those 2 billion poor people will only boost the developing world’s share of greenhouse gas emissions from 7 to 11 percent. In other words, achieving zero population growth—even if it were possible—would barely touch the climate problem. The real culprits, according to Pearce, are not “generations of poor not yet born” people, but the stable population in the developed world with its gigantic ecological footprint."

***

"The paradox embedded in our future is that the fastest way to slow our population growth is to reduce poverty, yet the fastest way to run out of resources is to increase wealth. The trial ahead is to strike the delicate compromise: between fewer people, and more people with fewer needs, in a new economy geared towards sustainability. The easy part is birth control. The hard part, as Paul and Anne Ehrlich write, is that we still don’t have condoms to prevent over consumption, or morning-after pills to reverse unwanted buying-sprees."

Julia Whitty

***

"So, in all of this doom and gloom, is there any good news?

Yes: not too long ago, demographers were forecasting that global population by 2050 would reach 10 to 12 billion, instead of the 9 we expect today. And when I was a kid, people were talking about 15 to 18 billion people by 2050. As population forecasts have been revised over the years, they have generally been revised downward.

Fortunately, population growth in the world appears to be slowing faster than anyone forecasted, largely through voluntarily measures (with the exception of a few states like China), while simultaneously improving human welfare around the world. The demographic transition appears to be working. People, all across the world, are choosing to have smaller families.

The bad news is that consumption appears to be still increasing rapidly, with no end in sight. So far, there hasn’t been a negative feedback on consumption, telling us to slow down. The rich want to be richer. Big consumers want to consume even more. It’s an endless treadmill, and no one knows how to get off. Instead of the “Population Bomb” of the 1960s, we now have an even larger “Consumption Bomb”, and we don’t now how to diffuse it. And this bomb may well define our relationship to the environment for the 21 century and beyond."

Jonathan Foley

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Wealth of Nations

Wealth of Nations, Seed Magazine, 11/29/10

This article describes some fundamental changes in the ways we look at and measure wealth. It could lead eventually into an economic revolution globally. Here are a few excerpts:

"Amid the dark clouds of the 2008 financial crisis, as the media documented a litany of bank failures, collapsed credit markets, and growing panic well beyond Wall Street, there was a brighter headline: For the first time since scientists began tracking them, carbon emissions in the United States decreased. The drop was marginal, but this environmental success, when juxtaposed with the crippled economy, raised a troubling point: Two important objectives—mitigating climate change and reviving the economy—were at cross-purposes. And it now appears likely that this contradictory relationship extends far beyond atmospheric carbon and climate change. In area after area, issue after issue, economic growth appears to be whittling away at the very foundations of the global economy: the ecosystems that supply our food, fuel, clean water, and stable climate. Our principle measure of success, the gross domestic product, or GDP, excludes the worth and loss of ecosystems and the services they provide, because as valuable as they are, they have no price."

***

"The global public good that both epitomizes and encompasses the challenges that the world faces today is biological diversity, the variety of life on Earth. “Biodiversity loss is, in a sense, the big problem of which all others are relatively small applications,” says Charles Perrings, an environmental economist at Arizona State University and a fellow of the Beijer Institute in Stockholm. Biodiversity is the foundation of ecosystems that capture carbon and energy, and that cycle water and nutrients through the biosphere. These processes, in turn, enable all of the activities—from plant photosynthesis to potato farming—that make human life on Earth possible. Another way of looking at it, says Perrings, is that most human activity boils down to changing the mix of organisms with which we interact. Public health, for instance, is the control of which pathogens come into contact with humans. Farming is simply the tweaking of wild species to suit human tastes and energy needs. Science, medicine, and global agriculture rely heavily on the barely explored cornucopia of the world’s genetic resources. The loss of biodiversity, then, is the loss of everything.

To begin putting a price on such global public goods, says Perrings, we must understand that biodiversity has a dual nature. A healthy forest, for example, provides an array of public services, such as carbon sequestration and water filtration. The components of forestland, however—the trees, animals, and soil—are often privately owned. According to Perrings, this creates large externalities: Private actions, such as cutting down trees, have an effect on public well-being that isn’t reflected in the price of that timber. Clean water that benefits the region, medicinal plants that could benefit the nation, and carbon sequestration that is valuable to the entire world are all at risk of destruction because they are invisible to the market."

***

"Ecologies, we’re now beginning to understand, are best described as complex adaptive systems, with biodiversity as the key to their ability to absorb shocks and stresses. And the economic value of such resilience is likely to be extremely high. Experts have surmised, for example, that mass erosion of Louisiana’s coastal wetlands was largely to blame for the billions of dollars in damage from Hurricane Katrina. Some scientists now say that the worldwide push toward monoculture and away from crop diversity could create huge vulnerabilities in the global food supply."

***

"So today’s more sophisticated assessments don’t just attempt to quantify the benefits that ecosystems provide to humans; they also figure in the costs of foregone economic development and the expenses of conservation. A major 2002 review of 300 case studies published in the Proceedings of the National Academy of Sciences found that by investing $45 billion per year in a global reserve program, we could protect natural services worth some $5 trillion—a benefit-cost ratio of 100:1. In other words, even when the steep costs of non-development are figured into the equation, nature’s services emerge as the ultimate bargain.

It is increasingly evident that safeguarding ecosystems makes solid financial sense, yet biodiversity and the services that ecosystems provide have long been overlooked by classical economists. That is all about to change."

***

"Using more holistic metrics, we may unearth some telling truths. The US is an unrivaled powerhouse when it comes to per capita GDP: $47,500 per person as of 2008. Take into account life expectancy, “life satisfaction,” and ecological footprint, however, and suddenly the top ranking goes to Costa Rica, a nation with a per capita GDP of just $11,600. The global public value of Costa Rica’s forests, coupled with its robust PES* program to keep those forestlands healthy, is a major contributor to its top-notch ranking. In short, biodiversity and ecosystems can become a large slice of a poor nation’s development pie."

* Payments for Ecosystems Services

***

"Valuing ecosystems will strike some as a heartless utilitarian approach, tantamount to slapping dollar signs on species, soils, oceans, and air. What it presages, however, will be a change in the very shape of the global economic system: by valuing our landscapes and the services they impart, by recalibrating incentives toward their preservation, and by respecting the needs of communities most closely dependent on them. We will not just value what nature provides, but also reorganize around a new definition of what is valuable. "

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The Myth of the Laffer Curve

How many times in the last several months have you heard the mantra: If you reduce the tax rate, the economy will grow and we’ll get more tax revenue?

That mantra is based on the Laffer Curve, an economic thought experiment named after Arthur Laffer. The thought experiment is based on the following assumptions:

• If the tax rate is 0%, then the government will get no revenue.
  
• If the tax rate is 100%, the economy will collapse as there will be no incentive for private industry, and the government will get no revenue.
• Between these two end points there is a tax rate that will maximize the governments’ revenue. This is usually represented as a parabola as shown below.

Let’s consider the assumptions:

• Zero tax rate does not necessarily mean zero income. Many people freely give to charities and other organizations – money, time, products, services.
• 100% tax rate does not necessarily mean that there will be no federal government revenue. There are at least two ways that this could occur. Exemptions and deductions would allow corporations and individuals to live well under a 100% tax rate. (President Roosevelt increased the tax rate on the wealthy to 91%, in order to curb greed, and the economy grew.) In many totalitarian governments, all the money goes to the government, and an economy still exists.
• The shape of the curve defies reason. A parabola with a single peak is probably the most unlikely shape of the relationship, if one even exists. If there is a cause and effect relationship between tax rate and government revenue, it is probably much more complicated.

Even if one accepts the curve, in order for the mantra to be true, the U.S. would have to be operating on the right hand side of the curve. There’s no data to assume that that is true. Attempts to gather data in support of the Laffer Curve are very controversial because there is no simple model of an economy, and because we can’t achieve ceteris paribus¹. (We can’t make all things equal between the various states of the economy we want to compare.)

Here’s one example of an attempt discussed by Mark Thoma in Economist’s View:

He first shows a curve created by Kevin Hassett, American Enterprise Institute, in order to prove that tax cuts will generate revenue for the government.

First comparing all these different economies is flawed because we cannot assume that all other conditions are the same across all the economies. Secondly, as Thoma points out, the curve “fitting” the data was forced to look like the theoretical Laffer Curve in order to make the political point.

Thoma suggests that a more reasonable fit to the data is as shown below:

As a matter of fact, there’s no data at all to support the Laffer Curve.

It is pretty clear now that a modern economy is a complex system, and as a result, attempts to find casual relationship between the two parameters is futile. The economy is likely a complex system in a non equilibrium critical state. It would not surprise me at all to find chaotic regions in relationships like these.

---

1 Ceteris paribus or caeteris paribus is a Latin phrase, literally translated as "with other things the same," or "all other things being equal or held constant." It is an example of an ablative absolute and is commonly rendered in English as "all other things being equal." A prediction, or a statement about causal or logical connections between two states of affairs, is qualified by ceteris paribus in order to acknowledge, and to rule out, the possibility of other factors that could override the relationship between the antecedent and the consequent.

Tim Jackson's economic reality check

As the world faces recession, climate change, inequity and more, Tim Jackson delivers a piercing challenge to established economic principles, explaining how we might stop feeding the crises and start investing in our future.

Tim Jackson studies the links between lifestyle, societal values and the environment to question the primacy of economic growth.

This is a bold vision of a new economy, one with a human purpose.

The Wealth of Networks: How Social Production Transforms Markets and Freedom

I normally write extensive reviews of the books I read. I’m not able to do this with this book. Yochai Benkler’s book is so comprehensive in scope and detail (515pp) that it defies summarization. Suffice it to say that this is the authoritative book on the subjects of networks and social production. It’s a difficult read (the academic language) but rewards the reader with an unsurpassed view of the landscape it covers. In the author’s own words in the acknowledgments, “Another great debt is to David Grais, who spent many hours mentoring me in my first law job, bought me my first copy of Strunk and White, and, for all practical purposes, taught me how to write in English; as he reads these words, he will be mortified, I fear, to be associated with a work of authorship as undisciplined as this, with so many excessively long sentences, replete with dependent clauses and unnecessarily complex formulations of quite simple ideas.” Lawrence Lessig comments, “In this book, Benkler establishes himself as the leading intellectual of the information age.”

What is written here is my attempt to cover the salient points of the introduction.

He begins with, “Information, knowledge, and culture are central to human freedom and human development. How they are produced and exchanged in our society critically affects the way we see the state of the world as it is and might be; who decides these questions; and how we, as societies and polities, come to understand what can and ought to be done. For more than 150 years, modern complex democracies have depended in large measure on an industrial information economy for these basic functions. In the past decade and a half, we have begun to see a radical change in the organization of information production. Enabled by technological change, we are beginning to see a series of economic, social, and cultural adaptations that make possible a radical transformation of how we make the information environment we occupy as autonomous individuals, citizens, and members of cultural and social groups. It seems passe´ today to speak of “the Internet revolution.” In some academic circles, it is positively naıve. But it should not be. The change brought about by the networked information environment is deep. It is structural. It goes to the very foundations of how liberal markets and liberal democracies have coevolved for almost two centuries.

A series of changes in the technologies, economic organization, and social practices of production in this environment has created new opportunities for how we make and exchange information, knowledge, and culture. These changes have increased the role of nonmarket and nonproprietary production, both by individuals alone and by cooperative efforts in a wide range of loosely or tightly woven collaborations. These newly emerging practices have seen remarkable success in areas as diverse as software development and investigative reporting, avant-garde video and multiplayer online games. Together, they hint at the emergence of a new information environment, one in which individuals are free to take a more active role than was possible in the industrial information economy of the twentieth century. This new freedom holds great practical promise: as a dimension of individual freedom; as a platform for better democratic participation; as a medium to foster a more critical and self-reflective culture; and, in an increasingly information dependent global economy, as a mechanism to achieve improvements in human development everywhere.

The rise of greater scope for individual and cooperative nonmarket production of information and culture, however, threatens the incumbents of the industrial information economy. At the beginning of the twenty-first century, we find ourselves in the midst of a battle over the institutional ecology of the digital environment. A wide range of laws and institutions— from broad areas like telecommunications, copyright, or international trade regulation, to minutiae like the rules for registering domain names or whether digital television receivers will be required by law to recognize a particular code—are being tugged and warped in efforts to tilt the playing field toward one way of doing things or the other. How these battles turn out over the next decade or so will likely have a significant effect on how we come to know what is going on in the world we occupy, and to what extent and in what forms we will be able—as autonomous individuals, as citizens, and as participants in cultures and communities—to affect how we and others see the world as it is and as it might be.”

He explains the emergence of the networked information economy, “The most advanced economies in the world today have made two parallel shifts that, paradoxically, make possible a significant attenuation of the limitations that market-based production places on the pursuit of the political values central to liberal societies. The first move, in the making for more than a century, is to an economy centered on information (financial services, accounting, software, science) and cultural (films, music) production, and the manipulation of symbols (from making sneakers to branding them and manufacturing the cultural significance of the Swoosh). The second is the move to a communications environment built on cheap processors with high computation capabilities, interconnected in a pervasive network—the phenomenon we associate with the Internet. It is this second shift that allows for an increasing role for nonmarket production in the information and cultural production sector, organized in a radically more decentralized pattern than was true of this sector in the twentieth century. The first shift means that these new patterns of production—nonmarket and radically decentralized—will emerge, if permitted, at the core, rather than the periphery of the most advanced economies. It promises to enable social production and exchange to play a much larger role, alongside property- and market based production, than they ever have in modern democracies.”

He makes three observations about this emergence:

1. Nonproprietary strategies have always been more important in information production than they were in the production of steel or automobiles, even when the economics of communication weighed in favor of industrial models.
2. We have in fact seen the rise of nonmarket production to much greater importance. Individuals can reach and inform or edify millions around the world. Such a reach was simply unavailable to diversely motivated individuals before, unless they funneled their efforts through either market organizations or philanthropically or state-funded efforts.
3. And, likely most radical, new, and difficult for observers to believe, is the rise of effective, large-scale cooperative efforts—peer production of information, knowledge, and culture.

He states that individuals have enhanced autonomy: “The networked information economy improves the practical capacities of individuals along three dimensions: (1) it improves their capacity to do more for and by themselves; (2) it enhances their capacity to do more in loose commonality with others, without being constrained to organize their relationship through a price system or in traditional hierarchical models of social and economic organization; and (3) it improves the capacity of individuals to do more in formal organizations that operate outside the market sphere. This enhanced autonomy is at the core of all the other improvements I describe. Individuals are using their newly expanded practical freedom to act and cooperate with others in ways that improve the practiced experience of democracy, justice and development, a critical culture, and community.”

The major battle to be fought is between open and proprietary models. “The battle over the relative salience of the proprietary, industrial models of information production and exchange and the emerging networked information economy is being carried out in the domain of the institutional ecology of the digital environment. In a wide range of contexts, a similar set of institutional questions is being contested: To what extent will resources necessary for information production and exchange be governed as a commons, free for all to use and biased in their availability in favor of none? To what extent will these resources be entirely proprietary, and available only to those functioning within the market or within traditional forms of well funded nonmarket action like the state and organized philanthropy? We see this battle played out at all layers of the information environment: the physical devices and network channels necessary to communicate; the existing information and cultural resources out of which new statements must be made; and the logical resources—the software and standards—necessary to translate what human beings want to say to each other into signals that machines can process and transmit. Its central question is whether there will, or will not, be a core common infrastructure that is governed as a commons and therefore available to anyone who wishes to participate in the networked information environment outside of the market-based, proprietary framework.”

He writes about four choices: “There are four methodological choices represented by the thesis that I have outlined up to this point, and therefore in this book as a whole, which require explication and defense. The first is that I assign a very significant role to technology. The second is that I offer an explanation centered on social relations, but operating in the domain of economics, rather than sociology. The third and fourth are more internal to liberal political theory. The third is that I am offering a liberal political theory, but taking a path that has usually been resisted in that literature—considering economic structure and the limits of the market and its supporting institutions from the perspective of freedom, rather than accepting the market as it is, and defending or criticizing adjustments through the lens of distributive justice. Fourth, my approach heavily emphasizes individual action in nonmarket relations. Much of the discussion revolves around the choice between markets and nonmarket social behavior. In much of it, the state plays no role, or is perceived as playing a primarily negative role, in a way that is alien to the progressive branches of liberal political thought. In this, it seems more of a libertarian or an anarchistic thesis than a liberal one. I do not completely discount the state, as I will explain. But I do suggest that what is special about our moment is the rising efficacy of individuals and loose, nonmarket affiliations as agents of political economy. Just like the market, the state will have to adjust to this new emerging modality of human action. Liberal political theory must first recognize and understand it before it can begin to renegotiate its agenda for the liberal state, progressive or otherwise.”

This book is well worth studying and would make a great text for discussion group. If anyone out there has read the book and would like to collaborate on such an endeavor, please let me know.

The Wealth of Networks: How Social Production Transforms Markets and Freedom, Yochai Benkler, Yale University Press, 2006, 515pp

The Wealth of Networks (PDF)