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November 21, 2008

The future is already here - it is just unevenly distributed. —William Gibson

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Benkler on transactional frameworks

As some of you may know, I am reading Yochai Benkler’s The Wealth of Networks. Within the context of my thinking around innovation and Atomized Enterprises, I will quote particularly illuminating excerpts from the book as I work through it. I highly recommend you buy the book (or just read it from the full-text online edition). Today’s quote:

(p. 107-112, all emphasis mine)

The first thing to recognize is that markets, firms and social relations are three distinct transactional frameworks…

The point is not, of course, to reduce all social relations and human decency to a transaction-costs theory. Too many such straight planks have already been cut from the crooked timber of humanity to make that exercise useful or enlightening. The point is that most of economics internally has been ignoring the social transactional framework as an alternative whose relative efficiency can be accounted for and considered in much the same way as the relative cost advantages of simple markets when compared to the hierarchical organizations that typify much of our economic activity–firms…

This does not mean that social systems are cost free–far from it. They require tremendous investment, acculturation and maintenance. This is true in this case every bit as much as it is true for markets or states. Once functional, however, social exchanges require less information crispness at the margin…

The difference between markets and hierarchical organizations, on the one hand, and peer-production processes based on social relations, on the other, is particularly acute in the context of human creative labor–one of the central scarce resources that these systems must allocate in the networked information economy… pricing of individual effort can be quite crude. More importantly, as aspects of performance that are harder to fully specify in advance or monitor–like creativity over time given the occurrence of new opportunities to be creative, or implicit know-how–become a more significant aspect of what is valuable about an individual’s contribution, market mechanisms become more and more costly to maintain efficiently, and, as a practical matter, simply lose a lot of information.

The above is an important and refreshing call to bring in the transactional framework based on social relations into the realm of economic analysis in a knowledge-based economy. What I like best about the excerpt above is its balance: neither does it denounce present day capitalism and economic analysis as obsolete in the face of new models of value creation, nor does it define these phenomena of the edge economy as born of a ‘hacker’ mentality driven to subvert all that free-market capitalism has cultivated and cherished. Traditional economic models have fallen short in accounting for social relational transactions in a wide variety of situations (if value creation at the edge these days isn’t a compelling enough example, consider how GDPs of developing countries are often underestimated because they never incorporate nonmarket services–such as socially transacted childcare–which nonetheless generate utility). By giving the social relational transactional framework an even-handed analytical treatment, Benkler does contemporary economic thinking all a great service.

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