On Network Capitalism, Ernesto van Peborgh, ISSS Keynote, George Washington University, July 2014

58th. Conference of the ISSSJuly 2014

On Network Capitalism

By Ernesto van Peborgh

This is Paul Baran, a Polish-American engineer who was a pioneer in the development of computer networks.

At the most critical and tense moment in the Cold War and in the face of an imminent nuclear attack, the Department of Defense of the United States asked Baran to develop a means of communication capable of resisting a such attack.

His logic evolved from that of a centralized network to a distributed one. These are the drawings Baran published in his work “On Distributed Communications”.

He was able to prove that, even when 50% of the distributed network’s nodes were destroyed, the system did not collapse. What’s more, it was much more resilient than the previous network.

by Paul Butler

Fifty years later, humankind has braided itself into a networked of interconnected minds. This is Facebook – almost 1.5 billion people connected exchanging knowledge, ideas and solutions without pause.

by Paul Butler

by Paul Butler

This photograph marks the change and speed of the times. In just eight years, each one of us is carrying an amazingly high-tech communications device connected to a cloud of minds. !

Vatican City, 2007, Benedicto

Vatican City, 2013, Francisco

Our underlying Matrix has evolved, as Baran’s did. We are standing on a new behavioral matrix for humankind, and this affects all our social, economic and cultural processes. !

2007

Time magazine clearly illustrates this with its “person of the year”; in 2007 “We” (You, Me) became the person of the year – Broadcasting shifted into the hands of citizens, we acquired the ability to reach the world from our computers. A Home computer had the same communications potential as a TV Broadcasting Channel, both in audience scope and editing capabilities. !

2011

In 2011, the same magazine shows a new character: the protester, a person who understood how social networks could be used for organizing oneself differently –it began with the Indignados in Puerta del Sol, Tahir Square, Zuccoty Park with OWS, and recently in Brazil. Below the traditional media’s radar are people organizing themselves to generate a change. !

Our socioeconomic and cultural structures don’t change in a linear manner they do so in exponential leaps. We are now experiencing “new normals”: knowledge and communication capabilities that did not exist ten years ago, today have become a necessity. WhatsApp was hardly known six months ago – today it’s valued at US$ 19 billion and over 500 million people using it.

Towards a new balance system

2000 2010 2020

We drive into the future using only our rearview mirror. Marshall McLuhan

Marshall McLuhan, perhaps the finest theorist of communications in the last century, said that we go towards the future gripping the rearview mirror, because we can’t, we are unable or we don’t want to see that the world has changed and we are unable to leave the ancient logic.

At present a new communications and organization matrix is replacing our logic. As a result, a new cosmology rules our social order and this change has essential implications for our culture and our socioeconomic structures.

This change in the matrix will have a deep impact on the structure of one of the most powerful forces dominating humankind – capitalism.

Capitalism is at a crossroad ………….or so the Capitalists are saying.

Thinking Capitalism as a System

In order to understand its scope and assess its effects, we need to analyze it from a systemic perspective. Thinking of capitalism as a system will enable us to understand how a change in its underlying matrix impacts its morphology and workings.

Elements Interconnected PurposeSystem = * *

A system is a group of interconnected elements that fulfills a purpose

Elements Interconnected PurposeSystem = * *

!The systems theory argues that when one of the elements is changed there is a change in the system. A change in the system triggers feedback loops that again change the elements and again change the purpose. !

Elements Interconnected PurposeSystem = * *

!We are in the midst of the greatest interconnectivity process ever experienced by civilization in such a short time. !The “I” is what is driving the system at this time. !

The great difference between these two paradigms is interconnectivity. In the one on the left everything has to go through a central node. !!!

How will that affect capitalism?

Our organizations – all the companies – all our communications in the last century were based on this matrix logic.

This centralized structure not only enabled the accommodation of the hierarchical rationale and power dynamics of capitalism, but also drove its vertical integration and economies of scale.

Interconnectivity is limited, since communication flows must pass through the central node.

Broadcasting replicates this logic: It consists of mass messages issued from a powerful power central node to passive nodes which do not communicate with each other and which receive the message without being able to modify or retransmit it.

Our new distributed matrix on the other hand, has far ampler and deeper possibilities and derivations, not just at the communications and organizational levels, but also because of the potential generated by the interaction among the network’s nodes.

In the distributed matrix communication flows independently of the nodes, as Paul Baran demonstrated with his experiment.

Elements

Interconnections

Emergent

A system’s greatest property is not found in its separate elements, but that which emerges from the system. The emergent is the system’s unique property. !

Emergence is the system’s unique property

Elements

Interconnections

Emergent properties are found for example in Water: oxygen and hydrogen cannot separately achieve the properties of water. !!

H2

O

Emergent

We are in the midst of the greatest interconnectivity process ever experienced by civilization.

by Paul Butler

The “I” is what is driving the system at this time.

It is impossible for Capitalism to remain outside the impact of this matrix structure. As an open system it shall necessarily be affected in its logics and primordial function. The dramatic changes we are experiencing in interconnectivity imply a dramatic impact on Capitalism as a system.

Internet of knowledge

Internet of Collaboration

This impact can be analyzed from a dual perspective: the Internet of knowledge and Internet of Collaboration

Internet of knowledge

Elinor Ostrom was awarded the Nobel Prize in Economics in 2009 On the basis of tools present the Web 2.0 she resolved some Governance issues of what is known as the “tragedy of the commons”. What is the tragedy of the commons? Any system human beings use, where the benefits are individual, but the cost is shared among everyone, deteriorates: a meadow, a fishing area, an irrigation area, the oceans, the Amazonia, the planet… This lady installed in our agendas a new governance system which goes beyond the State and the Markets.

In her new book, “Understanding Knowledge as a Commons” Ostrom argues that there is an emergent in the networks which is being created by humankind – a collective knowledge which is a commons available for everyone.

Networks are not just about interconnectivity between persons (which is what traditional marketing seeks) but the emergent of this system, which is a new capital. It’s a social capital that didn’t exist 4 or 5 years ago, which today is available for everyone – and which may be managed from system level.

0

10.000.000

20.000.000

30.000.000

40.000.000

2007 2012 2020

Volume of information humans shall be creating in the next eight years (MM GB)

This is the volume of information which we humans shall be creating in the next eight years; it is exponential and being created collectively. Each piece of information is uniting persons and creating a collective consensus on that knowledge. It is a knowledge that is different, it is a knowledge emerging from the network. Those of us who have been raised under the centric logic don’t really see it, but there is a generation who does; Lets see some examples. !

This is Jack Andraka, who was 15 years old last year. He created a device for detecting early pancreatic cancer. When they ask him, “How did you do it?”, he replied: “All the information is on Wikipedia or Google”.

Easton LaChappelle created a kind of bionic arm which he operates from his phone But since it was too expensive to produce, He turned to a 3D printer, and for US$ 300, he himself created this device, exemplifying a new trend: the democratization of production.

This girl created a flashlight that is turned on by a hand’s energy. …………. she is fifteen years old.

Examples abound for this generation that is demonstrating that the information necessary to hack science is available today from a collective knowledge commons. They are also demonstrating that knowledge for innovation is a commodity and that there is a logic and a language for detecting it. This generation of young people who don’t yet occupy spaces of power in governments, markets or companies will very soon be there.

“The basic economic resource is no longer capital, nor natural resources, nor labour. It is and will be knowledge.” ! Peter Drucker

Knowledge is Capital

Capital is knowledge – but the question is this: if knowledge is available to everyone, where will differentiation come from? !In order to access knowledge we need a different language and logic.

Internet of Collaboration

by Paul Butler

Again, a cortex of minds – this huge network is exchanging ideas and solutions.

Something else is exchanged over this network: and here lies the basis of change in financial industry. The network is exchanging collaborative money. The Pebble watch hit the market before the Samsung Gear 2, 68,929 people invested on this idea to make it possible. 15,482 comments, which show that these people did not only provide money, but also knowledge and ideas to improve that product.

2013

Through the Lending Club people lend money to others. Its growth is exponential. 83% of this money refinances bank money – thus, there is a migration of individuals who, through this platform, are refinancing money formerly financed by banks.

This little device recently appeared on Kickstarter – when one aims it towards any kind of food, in this case cheese, it tells us we have 28 grams of cheese, 71 calories, 6 grams of fat. This will change our diets, we will start seeing people strolling along supermarket aisles with their little devices, checking the apples’ for pesticides or ripeness levels. And all that information will be on the cloud.

Moore’s law is Flat

Cost of human genome sequencing

Gordon Moore, CEO of Intel, popularized Moore’s Law, which holds that a microchip doubles its capacity and halves its price every 18 month. This is the curve of the cost of human genome sequencing. This is the new Moore’s curve. Supercomputers plus new and intelligent algorithms have made the cost of sequencing genome disappear. !

We need to understand how this new Matrix works. It works under a different logic, what Jeremy Rifkin in his new book calls zero marginal cost. The marginal cost of production is practically zero. Lets look at some examples:

The New York Times stock price dropped 87% by 2009 after Facebook appeared; like every broadcast company they are currently trying to find an economic model. The charts to the right show 70% drops in newspaper advertising and the production of CDs. Information and the production of information became free, and it’s very difficult to charge for that. !

In the information model:

The same impact was felt in the music and entertainment industry with Napster or uTorrent. The paradigmatic issue here is not that we have free access to music or movies. If you have ever downloaded a movie from uTorrent you know that these are movie parts that hundreds of people have in their computers, which arrive in your computer from different sources, after which an algorithm assembles the movie instantly. This is the DNA of collaboration – that we should be willing to use our computers as sharing nodes in a network. The Paul Baran logic makes this system superior to former models. Today it is the nodes that carry the information and are willing to create a construct and emergent resource from it. !

iTunes found its business model from the long tail theory: it is much more profitable to sell single tracks than CDs.

The economy of apps exploded, without which today we wouldn’t be able to even call a taxi in some cities. Last year, over 70 billion apps were downloaded just from Apple; this meant US$ 10 billion in revenue. But perhaps the most surprising issue is the number of jobs generated by Apple for young people creating apps. There are around 700,000 people in the United States today whose business is the creation of new software App systems. A new generation that manages a new language, the language of code, which we’ll probably consider the alphabet of the future. !!

As regards to platforms, the most interesting one, challenging mainstream models is Etsy. It’s a platform where 30 million people are exchanging products whose average value is US$ 15, mostly of the DIY type – handicrafts, jewels, items of scant value. US$ 1 billion is transacted through this platform every year. Now, what happens when these craftsmen access a 3D printer at home? (which today can be bought for US$ 1000.) The democratization of production is already with us, and this platform will prove it as 3D printers get better and cheaper.

The advent of Crypto currencies to this new matrix is currently redefining our monetary system as a whole. Ripple is a breakthrough worth mentioning: its purpose is to create a platform where all crypto and traditional currencies may be transacted without cost. !

Amazon is in the process of creating its Amazon Coins, so when we want to buy a book from Amazon we will probably be asked to use their currency, and there will be a platform for exchanging our dollars for that currency. The same could happen with Etsy… Suddenly currencies might lie behind the ideology of a group of people or communities that transact their business or goods in a certain associated currency, since the cost of going into or out of another currency is zero, Etsy might decide to create “Etsy" currency for its Etsy community. !

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Is it possible that we start seeing niche coins?

The opportunity here is to create a new social capital, a Knowledge Commons, in constant evolution and perfectioning, driven by the commitment of a community, a system, made up of interconnected elements with a purpose: Their purpose is simple, to better a resource. Give people the purpose of creating a Commons, the protocols and the organizational tools to manage it, and they will create and sustain this new capital which is a collective knowledge resource.

Ellinor Ostrom and the Knowledge Commons

Each time the human race faced an overload of information, it had to create a new operational system, a new language.

Humankind has created a new operational system

Hominids trying to hunt down a mammoth needed the spoken word as an order-providing system: at least four words –“right”, “left”, “attack” or “run”– in order to cut down that huge beast.

In Sumer, when there were agricultural surpluses, someone came up with the idea that, if three sacks of wheat were brought, three marks should be made on a clay tablet, which was dried in the sun, and there came writing and maths as two new languages. Not so as communication languages but as organization languages. A glorious period of innovation flourished: ceramics, architecture, plowing. All this happened over short period of time when diversity and information overload came together and created the need of new organizational languages.

Writing and mathematics brought a new overload which only science could solve. Today, every one of us who has attended a university has his or her own science degree.

Computers and informatics solved the science overload. In the face of what we have just analyzed, this new language, Internet, appeared and evolved very rapidly towards our current network language.

If we understand that there is a new network language, a new Matrix on which we now operate, we have 50% of the answer.

Capitalism will probably soon understand this, and as a system, it will very rapidly change the conscience of its elements and its purpose.

www.ernestovanpeborgh.com

Thanks

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