August 28th, 2013 at 12:00 pm
This week our featured book is The Ethical Economy: Rebuilding Value After the Crisis, by Adam Arvidsson and Nicolai Peitersen. Today, we have the first half of an essay by Adam Arvidsson: “Ethical Economy: Can Capitalism Evolve?” In his essay, Arvidsson discusses how the information age is changing current models of corporate capitalism and looks to the future to predict how those changes will play out.
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Ethical Economy: Can Capitalism Evolve?
In the last century, capitalism could generate growth and prosperity by expanding consumer markets. Now that model has exhausted itself in various ways. In the West, popular prosperity as steady and secure employment have become a thing of the past. This happened to blue collar jobs in the 1990s and it is happening to white collar jobs now as the AI revolution kicks in. As a result, support for capitalism will continue to decline, even among the middle classes. And while the promise of capitalism might still seem attractive in rapidly growing economies like China, the present paradigm of consumerist growth is unsustainable, even in the not-so-long term, as climate change and resource scarcity are creating serious bottle necks. At an even more fundamental level, the corporate model is losing its social relevance. The business of actually making and selling stuff that meets people’s needs only accounts for a small part of the value added by the corporate economy, with most large companies making their money on financial markets. Worse, innovation seems to be slipping out of corporate control, even as companies pump unprecedented amounts of cash into R&D. We are likely to see a growing distance between an ever more financialized and self-referential economy, where ‘intangible’ values are tossed around while people actually need useful and innovative products. This gap will become particularly evident as the imminent ecological crisis will create a demand for radically innovative products: not just a new iPhone, but workable solutions to food, energy, and water scarcity. Capitalism will look ever more like the French monarchy in the 18th century, increasingly distant from the real needs of the people, offering the proverbial cakes in lieu of bread. Something similar is already happening as mistrust in big corporations is growing, despite soaring spending on goodwill and corporate social responsibility.
These are well known facts. The perception that system does not work any more grows stronger by the day. The question is what the next system will look like. This is not the first time that capitalism has been through a transformative crisis. Similar things happened in the 1930s, and further back in the 18th century as new manufacturing technology put serious strains on an existing mercantile capitalism based on the monopoly of long distance trade. Capitalism has always evolved through crises, and there is no reason to suppose that it will not do so this time as well. But to understand what it might evolve into, what a sustainable model of 21st century capitalism might look like, we need to take a close look at what is happening under the radar right now.
The most fundamental tendency of the information economy is the unprecedented socialisation of production. As late as the 1970s, automobiles were still made in single factories, supported by a local ecology of suppliers and services—General Motors in Detroit, Volvo in Goteborg, Fiat in Turin. Today the average automobile supply chains involves some 2500 factories, concentrated to South East Asia, but spread more or less across the world. This means that the level and complexity of productive cooperation involved in the manufacture of everyday stuff—from automobiles to consumer electronics—has increased enormously. It also means that the know-how necessary to engage in these pursuits very quickly spreads throughout the production chain and becomes something close to common knowledge. Apple is not the only company who knows how to make an Apple-grade iPhone screen. Thousands of Chinese component manufacturers know how to do this, and you can easily purchase these products on a number of websites. This is the first fundamental shift: the privately controlled knowledge that used to be the basis of the corporate industrial economy, the fact that only Volvo knew how to make a Volvo car, is now replaced by global knowledge commons where a complex web of subcontractors and component manufactures all draw on a similar same stock of knowledge and, in turn, contribute to it.This happens officially: as subcontractors in the automobile industry are contractually obliged to contribute to both product and process innovations. It also happens informally: as Apple’s and Samsung’s new technological solutions circulate among Chinese component manufacturers and are freely appropriated and counterfeited. We call these new productive forms ‘publics’: an apt term to describe a multitude of strangers that co-operate around a common, publicly available, knowledge pool. And such publics are affirming themselves inside the corporate economy as well as outside of it. Free and Open Source software are perhaps the most successful example of non-corporate publics: they dominate innovation in the software industry, reducing corporate players like IBM to the providers of services, customisations and add-ons.
According to Eric von Hippel at MIT, what happened to software in the 1990s is now happening to hardware now as Open Design networks proliferate around anything from farm machinery to Open Source Drones. In China, cell phone component manufacturers have organised in so called Shan Zhai (or ‘pirate’) networks that are essentially Open Design communities where technological solutions—some appropriated from their big brand contractors, some modified or invented on the spot—are shared in total disregard for Western notions of intellectual property. This has resulted in some quirky phenomena, like the Obama phone, a blackberry clone that sold really well in Kenya during the 2008 US presidential elections, but also in serious facts. Shan Zhai publics are presently responsible for some 30 per cent of the world’s mobile phone supply, and playing a major part in providing online access to poorer consumers in the global South. What this might lead to nobody knows. The point is that innovation is increasingly happening in such publics,organised around the sharing of common knowledge, and corporations are trying hard to adapt to them.
Much of this struggle for control is played out on the arena of values. Corporations have always had values. They were never just about raw profit seeking: for example, in the 1940s General Motors was committed to building a new and prosperous America. But corporate values were set at the top and implemented down the organisations. Productive publics set their own values, from the bottom up, as their very productive organisation, from the global team of knowledge workers to the local Community Agriculture Network requires a lot of discussion and deliberation among its members. In the corporate world Values Based Management and Corporate Social Responsibility are strategies to deal with the value diversity that comes with such publics. They aim at creating value coherence among a large diversity of actors, each with different motivations and interests. Sometimes this is successful, as when a strong brand can make everyone involved in the value chain—from assembly workers to consumer—identify with its ethos. But at the same time corporations have become financial operations. This has made them ever more locked in to shareholder interests, and, as a consequence, less credible as providers of grand and holistic ‘values’. This contradiction between the ethical potential of publics and the growing difficulty of corporations to act as credible ethical agents has let to a growth in managerial cynicism and general distrust in the corporate model. Perhaps more seriously, it has also created difficulties for corporations in motivating productive corporations.
In a commons-based innovation economy it is passionate engagement, the willingness to go the extra mile, creativity, the ability to go beyond an established job description, thinking outside of the box, what have you, that makes the real difference. And this is very difficult to measure and remunerate in monetary terms—in fact, attempts to measure such ‘creativity’ in the form of balanced score cards or other devices tends to render it stiff and bureaucratic. And even when it can be remunerated, research shows that, above a certain level, it is no longer really money that counts. This way a public of passionate amateurs will out-innovate a corporate behemoth endowing itself with ever more desperate and hollow values. Or at least this will happen more often as amateur publics begin to have access to stocks of common knowledge that compare in quality to corporate reserves of intellectual property.
Stay tuned for Part 2 of this essay, coming tomorrow!