Recently in Economics Category

I find that the Japanese, myself included, use the phrase, "Japan is the world's second largest GDP" as some sort of mantra to try to keep Japan relevant in a world that is exceedingly uninterested in Japan. I was talking to Oki Matsumoto, a good friend and the CEO of Monex about this. He told me about a talk he gave at Keio University about the increasing irrelevance of Japan and showed me the following slides which I post with permission.

GDP.001.jpg
This first slide is the percentage of the world GDP of various countries in 2004 and projected in 2050. On the far left is the US at 38.3% in 2004 and a diminished but significant 20.3% in 2050. Japan however goes from 15.4% in 2004 to 4% in 2050. Still 2X that of Italy's projection, but not the mammoth we seem to think will will continue to be. The first yellow block is China and the second one is India. Clearly they are the big growth markets according to the predictions.

You may say, well that's 2050. That's a long time from now.

GDP.002.jpg
The second image shows Japanese GDP plotted from 1980 to 2006. It shows our once 18% GDP down to a a modest 9.1% in 2006. Furthermore, the text on the right explains that we've gone from the world's highest GDP per capita to the world's 18th.

It's really no wonder we're having a hard time getting attention in Japan. With an aging population and a less-than-competitive economy, there are ways to manage, but you don't get there by denying the facts and continuing to beat you chest IMHO.

I'm reading The Art of Happiness by the Dalai Lama and Howard C. Cutler. In it, they suggest that we should focus on pursuing happiness as our goal in life and the we should be careful to make a distinction between happiness and pleasure. Doing crack, drinking alcohol and even enjoying nice weather are mostly pleasures and not real happiness.

One of the core elements of happiness, according to the Dalai Lama, is compassion. Cutler describes how many psychologists will argue that man is inherently greedy and that the first thing that babies try to do is look for a nipple to suck milk - an inherently greedy desire. However, Cutler argues that babies also have a basic instinct to connect with people and illicit a smile or compassion. Babies will stare at you and smile and this makes you feel good and care about the baby. This basic social behavior is an important instinct for babies in addition to the sucking for milk. The argument is that compassion is also a basic human behavior and not something that you have to learn after you are older.

The Dalai Lama describes ways of increasing compassion. One exercise he suggests is to meditate or think deeply about someone or something (like an animal) and think of that person or animal suffering. You could imagine a lamb in fear before it is about to be slaughtered or a friend in some deep pain. As you imagine this, a feeling of compassion emerges. The Dalai Lama explains that one should be able to feel compassionate towards everyone and everything.

In general, I'm a fairly compassionate person, but I do have people and things that annoy me. Recently I've started to practice meditating on those things that annoy me and building compassion and understanding. I still find it difficult at times, but as I do it more and more, I'm finding that I'm becoming happier and happier.

We then realize that we need to develop patience to build compassion. Our patience grows by being challenged by annoying or hurtful people and events. It is these people and events that ultimately are our teachers. We should learn to cherish and be thankful for these annoying things, because without them we would not grow and become even happier. (So thank you all of you annoying people! ha!)

Compassion vs greed is something that we've been talking a lot about in the context of amateur vs professional. I think that compassion and the happiness one gains from giving and sharing is one of the fundamental driving forces of the sharing economy just as greed and the "economic man" are fundamental elements of capitalism and neo-classical economics. I think that in order to really understand how the sharing economy works, we need to understand how happiness works and what makes people choose compassion over greed.

We often make decisions which involved trying to decide which decision will make us happier. We often mistake pleasure for happiness and make the choice that may be more pleasurable instead of the choice that would provide more long-term happiness. The Dalai Lama says that just framing questions to yourself in terms of what will give you more happiness and making a distinction between happiness and pleasure will help us make the right decisions.

It often takes self-control or will to choose happiness over pleasure. As I become more conscious of my happiness, I realize that awareness of this distinction and awareness of your happiness helps to reinforce and provide feedback for your decisions. This feedback makes it easier and easier to make the "right" choice.

Update: Added "patience" in paragraph about teachers.

Just when I thought I had come home, I'm off on a longish trip again.

I'll be going to Switzerland, Germany, Croatia, Macedonia, US and Puerto Rico. Haven't been to Europe in a few month so looking forward to it, but not looking forward to being away from home for so long again.

I just offset 300,000 miles of flying with 60 tons of wind energy carbon credits at NativeEnergy. Should last me for a bit.

See you on the other side.

Yesterday, we started planning our veggie garden and started a compost bin. I'm trying to figure out what percentage of my total food intake I can grow at home. We have a relatively large yard by Japanese standards so most of this will be a matter of personal energy. I'm going to start small this year but try to increase my nutritional independence from commercial networks every year.

My goal is to be able to cover nearly all of our fertilizer needs through the composting of all of our biodegradable garbage this year.

Thinking through the various scenarios, I realized that I could significantly reduce inputs and outputs from our house by going this route. When I imagine walking over to the garden every morning, picking my veggies, then chucking the waste into the compost bin, I get a happy feeling inside. I realize this is pretty simple and not so significant, but "just add water and sunlight" is very appealing.

I think that I can also make a significant impact on my energy inputs through photovoltaics and maybe some day get off of the power grid. This requires a larger financial investment but is an area that I've already done a bit of work in this area from my time at ECD.

In my lab/office/Tokyo pad we just finished setting up (thanks to the folks at WIDE) a dark fiber connection to the WIDE box at the Japanese Internet exchange. It is currently a 1G connection. WIDE is a research project and I'm only paying for the dark fiber. WIDE is routing for me. I am not going through a single licensed telecom provider for my Internet connectivity. Consequently, going from 1G to 10G is just a matter of buying more hardware and has no impact on the running cost. More bandwidth is just about more hardware. The way it SHOULD be.

It's exciting to think about making my footprint smaller and smaller in nutrition and energy and thinking about nutrition, energy and bandwidth more and more as assets that I operate rather than services from big companies.

I was going to Twitter this as I was sitting here drinking my morning tea, but it turned into a blog post. Thanks Twitter. ;-)

Jonkvisa
Phillip Torrone blogs about the future of credit cards on the MAKE blog featuring yours truly on the World of Warcraft card. ;-) He writes about the interaction of credit cards, real money and virtual game money.

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Add international money transfers to my list of activities that are now easier
online than in the "real" world.

I had always found bank transfers a pain because they generally required a
visit to the bank with stacks of forms to fill in. If lucky, my money disappeared
for up to eight working days before arriving in the destination bank at a horrible exchange rate.

Recently I wrote about my experiences using an online foreign currency exchange service that was easier, cheaper and faster than the bank.

Since it is easy to transfer small amounts, I now find the service a lifesaver.

What other new Web-based services could be useful for people who live abroad?


Note: I may cross-post comments on the IHT blog and they may be reproduced in the paper for publication.

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Extracts from my article
on how the top six Paris hotels were caught fixing prices.

Fines ranged from 258,000 euros for the Hotel de Crillon to 55,000 euros for the Hotel Meurice. The Hôtel George V was fined 115,000; the Hôtel Plaza Athénée, E106,000; the Hôtel Ritz, E104,000; and Le Bristol, E81,000.

Email featured prominently in the government's case:

"I have the pleasure here of sending you our results and await yours," a sales coordinator at the George V, identified only as Madame X, said in an e-mail dated Feb. 2, 2001, sent to counterparts at the Hôtel Ritz, the Hôtel Plaza Athénée, the Hôtel Meurice, the Hôtel de Crillon and Le Bristol.

The e-mail included a chart showing levels of occupancy, average room prices and revenue information for the previous December.

They were not very happy to have us reporting on this story.

In the gold-festooned lobby of the Hôtel de Crillon, housed in a building constructed for Louis XV on the Place de la Concorde in the middle of Paris, the communications director declined to make any comment on the fines and insisted that a reporter attempting to speak with guests leave the premises immediately.

Some were not surprised by the price fixing.

A frequent guest at the Hôtel Meurice, an opulent hotel that is owned by the Brunei Investment Agency, said he was not surprised by the collusion. "In this level of hotel you can always negotiate the level of prices anyways," said Luc Janssen, a Belgian who stays at the hotel often.

In what other sectors is price fixing likely or highly suspected?

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A 30-minute business idea in globalizing the many eBay sites around the world.

While it may not work for my bathroom sink on sale now in Paris, if you found items that were cheaper in one market than another and the shipping costs were low, you could safely bid in one country's ebay to sell in another.

This is something that you could automate for certain objects.

The idea was suggested by Mahesh Murthy at the SIME conference in Stockholm last week and I cannot see anything against it.

The only hinderance is if eBay started offering such a service.

Posted by

After spending several days in the Paris suburbs and filing stories non-stop all day today, a few things struck me.

I have written about the first incident that sparked the riots and today's latest news (more violence already starting tonight and plans by French government to use curfew.)

The underlying feeling I got from the young people in Clichy-sous-Bois - where the troubles began - is total despair with no way out.

Seems there must be CK Prahalad opportunities for these young people to make a fortune - or at least a living - if they are given half a chance.

What ideas for businesses or projects that can bring hope to despairing young people in a high rise ghetto?

Are there successful models of what can be done?

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Here's a home video clip a friend sent that claims to show Paris police shooting in the suburbs. Fairly strong stuff.

Disclaimer: I do not know anything further about the site or the clip.

Posted by

Defining the poor is common (The World Bank's one dollar per day level, for example)

But who are the rich?

If you can read this posting, you are likely rich.

Anyone with a university education and an income at or above the lower-middle class level for an OECD country is rich, I would argue. Being rich is more about having time and freedom to make choices about your life than bagfulls of money.

Joi's latest posting may suggest a way to measure wealth through a Technorati rating!

What is the best metric to define someone as rich?

Posted by

My minor hand operation this week highlighted to me how journalism/blogging are literally manual labor.

Also, my ability to tell many people about this injury reminds me of how repetitive strain injury/carpal tunnel syndrome only became something of broad public concern when the chattering classes (ie: white collar workers, including journalists) were hit due to their typing on computer keyboards.

Throughout the industrial revolution, however, the same problem had afflicted manual laborers who could not bring their problem to a wider audience. (Lately there seem to be fewer complaints about it here at the International Herald Tribune, perhaps because there is a greater understanding of ergonomics.)

Must be many examples of diseases that only became well known when they also became diseases of the rich. Any interesting ones?

Posted by Thomas Crampton

Got an early exclusive look at a fascinating survey by ACNielsen about online shopping worldwide.

The study of 21,000 web users in 38 countries, to be made public later today, found that online shopping habits vary radically by country.

The US is way behind Europe in the amount of online shopping (ranking 11 worldwide), perhaps because mall shopping is so much easier than shopping in a European city. This encourages Europeans to shop online.

What people purchase online is very different country-by-country. In South Korea one third of online shoppers purchase nutritional/cosmetic goods, while the global average is just 10 percent.

Payment for online shopping - not surprisingly - are dominated by credit card (visa) and bank transfer globally.

BUT cash on delivery is the second most popular way to pay for purchases in Europe!

I was surprised by Europe's cash on delivery preference, but affirmed it last night at a dinner in Paris. French people at the supper said they do not trust the web so prefer to see the goods before paying. They also said their lack of trust makes them very reluctant to use eBay!

Similar to cellphones, the technology of online shopping may be uniform, but the way in which people interact with it varies by country.

Anyone come across other differences of usage of an identical platforms?

Posted by Thomas Crampton

Inevitable with the narrow-casting of magazines that Germany now has a magazine about divorce.

Reminds me of the launch of a magazine in the US for gay parents. (Apologies for this being a Times Select link.)

These magazines, Rosenkrieg along with And Baby magazine, show how publishers often miss obvious socioeconomic groups due to prejudices or oversight.

Both gay parents and divorcing couples are willing to pay large sums of money for information relating to their situation and there are many advertisers keen to hit those demographics. For years, however, no magazines addressed those issues.

Be interesting to compare the categories of popular Blogsites with the available publications to see where the low barriers to entry of Blogs has discovered a demographic ripe for a glossy publication.

This once again shows the strength of interacting with consumers (readers) during conception of a project.


We just launched the Technorati Live 8 site.

Technorati has teamed up with Live 8 to bring you the latest conversations about the campaign to Make Poverty History. Read first hand accounts of the concerts and events, and get all the news and opinion from the blogosphere.

We've also put together some resources to help you find your way around Live 8 and the blog world:

What is Live 8? Which organisations are behind Live 8?

Are you new to blogging? Find out what it's all about.

Get a Live 8 badge for your blog.

Join in the conversation and find out how to make your posts show up on Technorati.

Do more than just blog - contact the G8 leaders.

The posts listed on the Technorati Live 8 site have been written by bloggers worldwide and appear in real time from Technorati's index of 1.1 million blogs. Find out more about Technorati.

Joe Trippi called us about two weeks ago with this idea. Thanks to a guest appearance of Suw Charman as the producer of the site and extra hard work by the Technorati team, we were able to get this site out in time.

This is such a good opportunity for nations like the United States and Japan to helped their damaged images and also show their solidarity to a cause that they shouldn't have to think twice about. I'm amazed at how poor the response of some of the developed nations has been to this call. Hopefully this concert and the voice of the blogs will help get their attention.

Technorati Tags:

Jim Downing @ Smart Mobs
like a monkey driving a car

This article in Businessweek says that "the study of neuroeconomics may topple the notion of rational decision-making. According to the new science of neuroeconomics, the explanation might lie inside the brains of the negotiators. Not in the prefrontal cortex, where people rationally weigh pros and cons, but deep inside, where powerful emotions arise. Brain scans show that when people feel they're being treated unfairly, a small area called the anterior insula lights up, engendering the same disgust that people get from, say, smelling a skunk. That overwhelms the deliberations of the prefrontal cortex. With primitive brain functions so powerful, it's no wonder that economic transactions often go awry. "In some ways, modern economic life for humans is like a monkey driving a car," says Colin F. Camerer, an economist at California Institute of Technology".

Why Logic Often Takes A Backseat

I generally don't like the idea of trying to turn everything into economics. It often reminds me of trying to make music with math. This idea that we act irrationally is obvious to most people and if neurologists can help explain it to the economists, good. But I don't think it's just our economy that's being run by monkeys.

Adina has a nice essay about why participants in what Benkler calls commons-based peer production are not necessarily communists. If you don't have time to read Benkler's 80 page Coase's Peguin paper, I suggest you read Adina's essay which picks up some important points that you don't get in the abstract.

Pres04_WTA.png
Graph of Bush vs Kerry on Iowa Electronic Markets
The Iowa Electronic Markets are real-money futures markets in which contract payoffs depend on economic and political events such as elections. These markets are operated by faculty at the University of Iowa Tippie College of Business as part of our research and teaching mission.
Jimbo told me about IEM when I met him in Linz. A paper (PDF) describes the past elections and how the markets have been amazingly good at predicting their outcomes. IEM has a current market quote which is updated every 15 minutes. As of this posting, it is 40.6%/59.4% Kerry/Bush.

On IRC, crw, just pointed out a blog post on The SaltwaterPizza that used Google to see how many people said they were voting for one candidate or the other. The sample size was 104,789. This gave 46.8%/53.2% Kerry/Bush.

The results are disappointing for those of us who are hoping Kerry will win, but these alternatives to traditional polls are very interesting none the less.

Ashraf Ghani is Afghanistan's finance minister. He was interviewed by David Kirkpatrick

Here are my notes.

Q: What's at stake in Afghanistan.

A: Positive and negative. Freedom from terror and freedom from drugs. Afghanistan can easily be turned into a mafia state. Afghan heroin has made it to California.

We have on our borders some of the largest energy producing states as well as nuclear states. The stability of Afghanistan could help stabilize this region.

Even people who's homes were accidentally bombed by Americans still welcome American soldiers. This is different than the rest of the Middle East.

We've been a trading people for a couple of thousand years. We thrive in networks, but not in hierarchies.

Q: Give us an update. The US media says Afghanistan is in quasi chaos.

A: Quasi chaos is quasi progress. US is not known for depth or understanding. They don't take push-back. They don't engage in debate.

Can't type fast enough, but he's giving a update on all of the great progress they are making.

Progress is good, but problem is expectations. Bush and Blair got up and promised a miracle.

70% of our people live under $1 a day. How do you convince people $1B is a small amount of money.

I'm not going to chase foreign aid and I want to get out of foreign aid in 10 years.

$1 of foreign investment is worth $5-$10 in foreign aid.

Kofi Anan is a great leader but the UN system doesn't work. There are lessons from Afghanistan that can help other countries.

Q: What is the prospect that you can get a grip on the drug mafia in Afghanistan.

A: They told me I had 0.1% chance of success. Cotton will not compete with poppy, but the T-Shirt will.

Poppy is a male crop. Women are not involved in the cultivation of poppy. What a family looks for is its overall income. How do we connect the women to the market. The management skills to get them to the value change.

Every drug producing center of Afghanistan is a center of cotton production. Tax incentives for textile companies would help. Security for textile cities.

Seasonal labor is the weak point of the drug industry.

They need to be given an assurance that things will get better.

It took Thailand 10 years. Afghanistan doesn't have 10 years because it could be taken over by the mafia before that.

Q: Moving companies to Afghanistan could help deal with this mafia issue which is putting the world at risk. They aren't coming because they are afraid?

A: July of 2002, there wasn't a single mobile phone in Kabul. Now my mobile phone from Afghanistan works here. The US spends $11B / yr security in Afghanistan. Security is not about spending money on military. It's about jobs.

Afghanistan is growing quickly. If it could be given a push....

Q: Are you optimistic long term with relationship between the region and the US.

A: The classic age of Islam needs to be understood. We didn't go through the medieval period. This is a confident culture. The extremists exist because of lack of open debate and dialog and this is because of the cold war. Most muslims are moderate. Go to muslim countries. You'll find people like you. We are in clashes. We are not focused enough on solutions.

I'll turn it around. Can you function without the Middle East? Can you exist without oil from the Middle East? If you can't exist without us, we need to focus on solutions.

The risk to my life is about 95% which is worth the risk of saving the millions of people of Afghanistan. I was educated by the people and it was a price I was willing to pay.

Q: You talked about the drug mafia but not about warlords? What do you do with the rest of the country where you can't protect people from the warlords.

A: The ministry of finance is collecting from every corner of the country and we have influence across the country. We need to look at diverse sources of power.

Up until now, monopoly of violence was the source of power. Rules are also power. These people are afraid. Human rights prosecution, etc. They are afraid. We haven't addressed these issues. 80% of Afghanistan has always been self-policed. Need to enhance the social capital of the regions. Communities that ensure security should get reconstruction assistance. Getting free of drugs should provide more assistance.

The answer is about understanding cold self-interest. We've rebuilt the country a hundred times in the past. We'll rebuild. But the rest of the world has to understand the issues to provide help.

Q: Are the terrorists working with the drug mafia.

A: Drug money is easy fast money. $4B in Afghanistan, $40B outside of Afghanistan. The ability for this to do harm is huge.

Bjorn Lomborg

What if hospitals only dealt with patients who made the most fuss. That's what it seems like we do with global resource allocation for global problems. Why don't we prioritize? What if we had an extra$ 50Bn to allocate. What would you spend it on?

HIV aids?
Schools?
Climate age?
Malnutrition?

We need rational basis on our spending.

The Copenhagen Consensus was a group of leading economists who got together to try to prioritize based on best information available.

What we would do:

1- Prevent HIV - $27Bn will save 29M lives
2- Micronutrients - $13Bn will help more than 1/2 the world
3- Free Trade - would create more than $2000Bn / yr
4- Treat Malaria - $12Bn could come back 10X or more

What we wouldn't do?

Kyoto (global warming) is not a good use of money

Focus on high benefit projects.

We now have the list. We have to get the rest of the world on board.

Bill Joy

I think there will be a crisis or catastrophic event that will take our attention away from terror or war and as a positive response may redefine our focus of the century.

A global pandemic/epidemic - the positive response: New found respect for natural systems and focus on health.

Environmental tip. A phase change with a irreversible climate change - the positive response: Understanding balance with natural systems.

Over self-consumption like the oil supply - the positive response: Might help wastefulness and make it a century of efficiency.

The Agency Costs of Overvalued Equity - Michael C. Jensen

Here are my notes. They are rough notes and may be a bit inaccurate or unclear.

Any time two or more people try to engage in cooperative activities, there is a cost because they never have the same preferences.

Stock options should be adjusted to dividends and cost of capital or their incentives are not aligned with shareholders.

If you as a manager find yourself in a situation where your stock is overvalued. It sets up pressures that cause people to destroy value. When an executive commits fraud to deliver market expectation, they know it's overvalued. 70bn peak but was worth 30bn for Enron. They had a choice of defending the 70bn or confess that it's really only worth 30bn. The board and the investors won't feel that it is value reseting, but rather value destruction and would fire the CEO and look for someone who could perform. No easy way to correct. Probably prevent from getting there. If you're there, you've probably lost your job.

Enron could have stopped the run-up, but they didn't see the downside of the run-up. "Charlie and I get just as uneasy when a company is selling for more than the intrinsic value than when it is trading at less." - Warren Buffet.

Overvaluation is managerial heroin. Feels good at the beginning, but turns out really bad at the end. The pressures of the market cause messing with the gray area of accounting. People raise money to buy companies and destroy more value. Funding of risky investment.

For every $1 in the purchase price, $2.31 is lost in the value of the firm for Nortel when investors realized that the acquisitions were not adding value. Companies destroy value with acquisitions. They con the market into believing that they can add value so it postpones the day of reckoning, but it eventually comes and comes bigger. Bad acquisitions were overwhelmingly with stock. Auctions with multiple irrational people increasing irrationality.

Throwing stock options in is like throwing gasoline on the fire. The solution is in the governance system. Can't solve all problems with incentive systems. You need honest and intelligent people who are monitoring. Unwinding constraints. Lockups after vesting.

Why did the shorts shut down shop at the beginning of the turn-around and didn't correct the problems.

95% of waste from stock options went to people lower than the top five officers. Some people think it is costless to issue options, but this isn't true.

DON'T LET YOUR STOCK GET OVERVALUED. If your stock is overvalued, YOU ARE GOING TO BE IN TROUBLE.

Solution for not having stock overvalued. Communicate your strategy. Don't forecast earnings in value. Publish audit-able metrics for strategy. Stop producing short term earnings forecasts. Would not even do rolling 12 month earnings forecast. Managers should not be in business of forecasting.

Lago
Rational Ignorance

Academic life is ruining the internet for me. An example: Today I read Joi Ito’s wandering entry on money, economics, and physics, and the first thing I thought of doing was to post a bibliography of all of the reading that should have been done before that post was made. And then I realized that posting such a bibliography is the equivalent of shouting at the television. It doesn’t matter what I say about it. The TV (and the internet) can’t really hear me.

Lago reacts to an interesting point that I in fact pondered yesterday before posting my thoughts from my lunch with Seth. Is it better for me to post my superficial musings with Seth in the one hour that I had before I needed to move on to the next thing, or do I scribble them in my notebook and write a more rigorous treatment with references. I decided, as Cory often says, that my blog is my notebook and that even though many of my thoughts were half-baked, it was better to write early/write often than to back burner the thoughts and probably never get around to posting them.

If you read on in Lago's post, he does raise a very interesting way to look at the trade-offs of shallow vs rigorous. What is the cost of rigor and is it worth it?

I am not an academic. I am an extremely busy businessman who happens be lucky enough to meet quite a few smart people from a variety of fields. As one good friend has told me, my primary purpose is to connect people. It probably adds more value to society for me to spend one hour getting two people excited enough to talk to each other than to sit and ponder a notion by myself. My blog is not a rigorous treatment of the topics that I'm interested in, but rather a collection of links, questions, thoughts and points of view. A great variety of people read this blog and I'm sure that just about any professional thinker in on any topic I write about will find my treatment of the topic rather superficial. The question is to me is whether this is valuable or whether my lack of rigor could actually be a disservice to the discourse.

Getting back to my last post... I actually did think about spending the weekend dragging out my old notes from Hayek, Coase, Arrow, Chandler, Shannon, Mauss, Simon, etc. and digging into my memory and trying to tie all of this together. Instead, I posted a my rambling thoughts because I knew I'd never do it if I put it off. Also, I realize that I will never be able to compete directly with full-time academic and that it is not my position to answer these questions in a rigorous way. I suppose that if I can end up getting Seth, an economist and a rabbi to sit down and chat about world views over dinner at some point, I will have served my purpose.

I don't want to ignite a academic vs non-academic flame-war here. I'm just trying to point out, as Lago does, that we are all making decisions about how much to study in order for us to make the right decisions. I don't have the time or the ability to do "all of the reading that should have been done before that post was made." Having said that, I would encourage people to post "a bibliography of all of the reading" since I am interested and so are many other people.

sethlJohn Brockman, literary agent extraordinaire and editor/publisher of Edge introduced me to Seth Lloyd via good old fashioned email. I had lunch with Seth today.

Seth is known for his seminal works in the area of quantum computing and is visiting Japan for a year. We talked a bit about Japan, but I jumped at the opportunity to talk to him about some of the loftier things that are puzzling me these days. My first love was physics, but I dropped out when college physics turned out to be more about math than the art of physics. I'm now a repressed physics lover who can't keep up with the math. Therefore, I always jump at the opportunity to have someone explain physics to me in an intuitive way.

Seth explained that historically, physicists have always talked a lot about energy and the conservation of energy. Energy changed form, but there was always the same amount. They later found that you would lose a bit of energy over time and they attributed this to entropy. Recently, people have realized that entropy is sort of randomized molecules and looks a lot like information. Seth explained that the whole universe could be viewed as a big huge computer and you could apply information theory on physics and vice versa.

At this point I tossed out some of the questions I've been asking all of the smart people I've been meeting these days. What is money? Is economics really the way we should be analyzing and managing the exchange of value in society? How are non-financial assets such as trust, beliefs and culture created and transmitted? Does more money beyond a certain point really make you happier and if not, what is happiness?

Seth talked about how money was similar to energy in that it was conserved, at least on paper. Seth pointed out that most things that make you happy require money and energy, but that money and energy in themselves do not usually make you happy. In a sense, they are a necessary part of the process, but not the end. You do get an endorphin rush from the process of scoring more points in a game, gambling, or making more money, but the happiness you get from chasing these obsessions is not the same happiness you get when you finish a great meal or finish a session of meditation.

Seth pointed out that if you are struggling to survive in a tough environment, eating fatty and sweet foods and conserving your energy are probably good things. When you have enough food, sitting around eating sweets on the couch suddenly becomes detrimental. Is there an equivalent to this with money? I believe that free markets and democracy are great things and are the foundation of civilization and progress. I believe that efficiency and greed play a big role in creating healthy economies. Having said that, I do not believe that just because we have free markets and democracies, that people will be happy or that we will have peace. My question is, at what point, if any, do you have too much money? At what point is greed pointless and destructive? Can countries and economies become addicted to economic growth or become financially obese?

Neoclassical economists tend to model human behavior with a simple formula where more money makes you happier and people will do everything they can to earn more. This is like saying that the more calories you take in the healthier you will be and that eating more makes the world a better place. It's obvious to most real people that we decide what to spend our time and money on based on a variety of psychological, cultural and societal influences. Very few of us only spend money to make more money. The question I posed to Seth was whether there were models from the study of energy and entropy or from quantum computing that could be applied to try to understand some of the issues at the edges of economics? Are there ways of measuring and analyzing non-financial, non-conservative value such as culture, love and trust? Were there non-economics models for modeling some of these things? Was there a way to determine whether certain types of pursuits of happiness tended to help the human condition more than others? Was there something in information theory that could help us understand the value of social networks or ties?

Seth said he would ponder some of this stuff and get back to me. I promised to try to render some of my thoughts into a more focused question or problem.

This morning, we had a breakfast between the Global Leaders for Tomorrow, Social Entrepreneurs and Religious Leaders. I got a great table with a broad range of people from developing nations, religious leaders, economists, and entrepreneurs.

We started out the discussion talking about the nature of money. We talked about how greed and the idea that more money means more happiness is compulsive behavior and the notion that more money makes you more happy may hold true in developing nations, but is not necessarily true in developed nations. We talked about how this notion of more money means more happiness may be contributing to some of the problems in society. One representative of a global financial organization talked about how similar to the "poverty line", maybe there should be a "greed line". An economist pointed out that there was a book written about economy as a religion where the author asserted that pollution should be moved to developing nations because poor people were worth less in a purely economic model. Obviously, this is not right, and we asked the religious leaders to address some of the issues such as caring, giving and happiness.

Religions are memories of history, rich with ritual and values. They need to create a double language, one for internal dialog and another to share ideas with others. One point I made was that many religions were designed for environments where people were still struggling to survive and the focus was on rituals and believes for such an environment. Many religions focused keeping people alive rather than providing them with a primary religious experience. For environments where the struggle to survive is not as big of an issue, it might be that religions need to help support people more with things such as their obsessions and ethics.

It was noted that people who live in developing nations still needed money and that it was important. However, it was pointed out that many of the economic values have a detrimental effect on developing nations such as promoting crime. It was also noted that many churches in developing nations focus on promotion economic values. (Join the church, get rich.) The notion of sharing and sacrifice which are very important values that religions promote are often subverted to raise money for the churches.

David Green of Project Impact in India talked about how he performs cataract surgery in India. He provides 1/3 of the procedures for free, 1/3 for a low cost and 1/3 for a high price. The rich pay the high price for first class service, but the basic operation is the same. He is able to subsidize the operation for the poor and still make money. He is so successful that instead of paying $300 for the lenses, he was able to create a manufacturing operation and lower the cost to $4 a lens and has become the second largest manufacturer in the world. He provided this as an example of a good economic model can provide a great deal of good.

I'm going to reply to some of the comments on the items, but I thought I'd post this thought I had this morning in the context of the discussion about dichotomies and money/privilege.

It is interesting to note that 90% of people interviewed in the US think that people around them respect entrepreneurs while only 10% of people interviewed felt the same way about entrepreneurs. The culture of the US was build during a primarily industrial revolution oriented social backdrop. Japan, however, built a great deal of its culture during the backdrop of an agrarian society.

The traditional caste system in Japan had the Emperor at the top, and the nobles next, then the warrior/samuri, then the clergy, then the artisans and farmers and below them came the merchants and tradesmen. Money was considered a zero-sum game, the people involved not being considered to be contributing a great deal of value to society. Farmers and artisans were clearly working and producers in the community. During the hundreds of years of peace in Japan, the nobility, the warrior class and the clergy played the role of the intellectual and the cultural class.

My mother, who was raised in a privileged family was not allowed to touch money until she was 18. She has a servant who took care of the payments. In Kyoto, I don't pay cash at many of the places I go, it is discreetly billed to me later. During the Edo period an interesting shift happened. The wars stopped and the warrior class had less to do. Culture blossomed as did trade. The merchant class gained power and helped drive the economy of Japan, but they were not rewarded with the same kind of cultural/social status that their American counterparts were. This stigma about being rich, making money and having financial power survives in Japan today and is in fact one of the big reasons that Japan continues to have structural problems and entrepreneurship is so weak.

The other notable point is that those who traditionally wielded power have lost their power. The nobles lost most of their money either during the Edo period or during the War. (Our family lost its property during the Meiji Restoration, lost its factories during the war, lost its money from giving all of the money to the war in the form of war bonds and gifts, lost its swords and family heirlooms to the US occupation forces, and finally lost just about everything under the current tax system that is basically designed to eliminate family wealth within a few generations. All that was left by the time I got there was our foolish pride.) The current ruling political party of Japan was funded by the Japanese gangster and the CIA in an effort to stomp out the left-wing and the ethics of those in power have become twisted caricatures of the original traditions.

One important Japanese businessman once told me. Power in Japan is not about having money yourself. It is about having the influence to move money.

Disclaimer: I am not supporting or condoning the Japanese here, but making a generalization and an observation about role of money in society which contrasts with what American's might believe.

Andy Oram just posted an interesting article on the O'Reilly Weblog.

Andy Oram
Can computers help reverse falling employment?
Information technologies are implicated in a worldwide and world-historic crisis: falling employment.
[...]
Each labor-saving device means the idling of thousands of people, wasting their years of experience, rigorous training, and practical insights.
[...]
Anyone who writes programs or plans system deployment should start thinking, "What can I do to bring average people back into the process of wealth creation?"
This has sparked an interesting discussion over on Slashdot.

My personal opinion is that short term quarter-by-quarter capitalism can't possibly think long term enough to deal with many of the larger social issues. I don't think it's just about creating jobs. I think issues such as the environment, poverty, privacy, even computer architectures defy short term profits/gains thinking sometimes. I think it's a good idea for computer professionals to be socially responsible and think long term whenever possible. (See CPSR and EFF).

I think the idea of creating jobs directly by writing software for small businesses is a bit complex. I think that "good jobs" come from innovation and new industries. Many old industries such as the restaurant business are rather zero-sum. I think that increasing the public domain and the commons (spectrum, computer software, creative content...) is the best way to allow people to innovate and be entrepreneurial without being shackled in the well-funded proprietary world. I think that focusing on creating and sharing intellectual wealth in the commons is the best way to create jobs.

M. S. Granovetter .The strength of weak ties : A network theory revisited. In Sociological Theory (1), 1983. is an important paper for understanding social software. Unfortunately, it's an academic paper and therefore NOT ONLINE. (I'll rant about that later). In the paper, Granovetter describes strong ties and weak ties. Strong ties are your family, friends and other people you have strong bonds to. Weak ties are relationships that transcend local relationship boundaries both socially and geographically. He writes about the importance of weak ties in the flow of information and does a study of job hunting and shows that jobs are more often found through weak ties than through strong ties. This obviously overlaps with the whole 6 degrees thing. I do believe there are some "nodes" but think that it is much more complex than a simple power law with a few number of local maximums.

After reading Shannon "Pet Rock Star" Campbell's piece on her quest for a job at a temp agency and the "Nickel and Dimed: On (Not) Getting By in America" page, I decided to look at all of "this stuff" from the perspective of jobs.

I was recently at an advisory board meeting for a trade school. We had just done a survey of employers asking for what they their primary criteria for choosing new employees was and it was overwhelmingly about execution and character and very little about skills. Skills, they said, could be taught later. I believe that "character" in the context of a job is your self-esteem and your passion for what you are doing.

What I would like to assert is that social software can help people with their self-esteem and can also help you find others who can find your assets and interests more valuable and place people in jobs where one can have "character". I wrote about this self-esteem thing earlier and in a trackback on that item, you can find a link to "Exhibit A". Boris writes first hand about the development of his self-esteem through blogs and IRC.

Shannon is a really interesting "case" for me. She is witty, has great character, is a brilliant musician, is a poster-child for the Creative Commons (I first heard of her when Larry Lessig was raving on about her over lunch), and she's worried about her interview at a temp agency in South Carolina. Something's wrong here. I know several other people on my IRC channel who are looking for jobs where they are surrounded geographically by people who don't understand or are unable to "leverage" the assets of that individual.

What I can see emerging is a way to amplify the strength of weak ties. (I knew this before, but it's becoming more crisp to me now.) IRC allows me to see the style and personality of many of the people online. Blogs help me see what their interests are and focus is. LinkedIn provides a professional context for referrals. I think that supporting the process of developing your assets and character and finding a job that best suits you will be one of the single most important benefits of social software. I know I've been ranting about Emergent Democracy and about level 2 and 3 in Maslow's hierarchy of Needs, but I just realized that social software may be most important in addressing level 1, finding the job that brings home the bacon. I know this is stupid of me and everyone is saying "doh" right now, but this, to me, is a big "ah ha".

I recently hired two people who were IRC regulars. I felt very comfortable after "getting to know them" over the last few months on IRC. Of course face to face meetings and interviews were essential, but the time spent with them on IRC really added to my ability to judge their character. I realize now that I am actively recruiting from my network of weak ties on the Net and also using the Net to meet interesting people to connect with others who might be good collaborators for those interesting people. The Net has always been a big part of my arsenal of networking tools, but I think it's reaching a whole new level.

Philip Greenspun blogs about the idea that stocks are going up in the US because more and more public domain is moving into the hands of large corporations. He gives the example of Disney being the beneficiary of the the copyright extension and the restriction on flying thru the airspace over Disneyland.

Thanks to rvr and bluehaze on #joiito.

Date: Sun, 03 Oct 1999 15:37:04 -0400

From: "Wayne Silby"

To: Joichi Ito

Subject: Re: NPO Buyouts and Sustainable Communities

Joichi- I liked the article on NPO buyouts and Sustainable Communities. It echoes some of the concerns that I have about the Net. Basically, almost every major player is there to get your credit card in some manner or fashion. And you make a good point about not being able to attract the talent that is now so concerned with stock options during this gold rush.

Of course we are in the same boat and we have investors who want the big returns for the high risk. Given some of my social change background, we have some desire to focus on the non-profit market. I am thinking of going to some of the foundations in the US that might be able to bridge this issue by financing and manifesting some of our work in the collaborative tools space.

The added value of working in this space might be that nonprofit share a common do good mission as opposed to focusing on profits. Accordingly, though some may argue with this, they may be ripe for the knowledge management tools that could be applied ACROSS their different organizations without fearing the consequences of sharing knowledge. We have one such application in development that is about people sharing their contacts, using our GroupDOT platform.

But I don't know where the "governance" controls are. In the mutual fund industry the users own the fund but make a contract with the manager. This contract must be approved annually. Perhaps some kind of user group committee is created, which might include a few representatives from management, that approves the contract with the "managers." They take into account profit margins, etc. Of course there are standard models in the mutual fund industry and our Internet industry now has no such standards for proper community management. This user group might approve of the kinds of ads that are placed, how often, fees and charges for special services, and full disclosure and review of sensitive content issues. Occasionally the user group may even authorize extra charges for a new service that they want for their groups.

What is accomplished by the above is that you don't get a non-profit mentality going among the managers. They need ways to win and create value and take responsibility. And the big "win" for the managers is that the community becomes more trustworthy with these controls, which will eventually keep and attract the choice users. I am both chairman of Calvert Funds but also sit on the holding company board of the Management company. It's an interesting dynamic and balancing act. But $3 trillion dollars has been entrusted to mutual funds, partly as a result of this way that trust it built. Of course this is also monitored by the SEC, but generally it is a self regulating industry.

Thanks for allowing me to share this and you may pass on these remarks as you see fit. Again, the key for me is to focus on the "standards" that the user group oversight board might develop in determining what's appropriate for revenue generation from the community but maintains the proper level of integrity.

Wayne Silby

To: Joichi Ito

From: Mizuko Ito

Subject: Re: Bcc: NPO Buyout

Some comments on your essay:

"... She talked about the educational software market where there is no good model for the evaluation of software and mothers end up buying what is on the shelf. What is on the shelf, being driving more by advertising and marketing than real evaluation. A community might be able to evaluate and develop this market. There are many communities which straight advertising is not serving well. ..."

it is not only that the consumers are not being served well. The developers aren't either. There is basically this dense layer of distribution and marketing which is taking a huge cut of the resources in the industry and also filtering the content in particular ways. For example, it is the consensus in the industry now that you can't have a successful kids title now without a strong license at the level of Disney, Lucas, Barbie, or the "Sim" brand. This means that it is impossible for independent developers to survive and for originally characters to be developed. The fact that the industry has "matured" means that the stakes are higher but also that you need major backing to be a player now. It also means that the majority of the budgets these days are being spent on marketing and distribution, which means less dollars proportionally for development and creating quality products.

"The idea that a single market should determine everything is actually a product of our very neo-classical economic view on society. In small communities, it is possible that new forms of value and exchange are more relevant and dynamic than large markets. "

Right. And if you look more wholistically at exchange systems rather than just market economies, you would see that people actually have all kinds of "economies" that are not supply and demand based or even "utilitarian" in the narrow economic sense. The gift economy is one, but there are all sorts of other "regimes of value" that are moblized ever day, like sexual exchange, the "home" economy of families, status economies in professional communities, citational economies in publications, and all sorts of different kinds of cultural capital that are only recently being colonized by monetary systems are valulation. In my kids software case, yes, parents and kids care about getting a good "value" but they care more about what other kids are playing with, what is relevant to the school curriculum, and what happens to be available at WalMart during their fifteen minutes of discretionary shopping time. Decisions are very local. And on the other side of the equation, it is not as if the labor of development is translated transparently into the value or price of the product anymore. Value and price tend to be an effects of a kind of collective social system of exchange rather than something that can be attached to labor input or use value. Things are much more complex and it is much harder to be reductive about valuation when you are looking at cultural commodities.

"Takao Nakamura said that he thought it might be boring to work in an NPO with a bureaucratic governance model. Similarly, Austin Hill described similar schemes where ISP's have been run bo Co-ops where the committee becomes polulated by boring people or the decision making becomes slow. It is necessary to invent a robust and exciting governance model which includes a leadership that allows the organization to make deals, be quick and be visionary.

" Are there any examples of this? I think it will all depend not only on a governance model, but on the actual personalities involved. Maybe MUDs are an example in microcosm... "Politically speaking, this NPO would have to be similar to a nation-state. It would have to have strong beliefs, policies, likes and dislikes, intelligent people, vision. It should exclude people who are not interested in dropping out of the current advertising and market driven consumer market. "

Probably you would see different layers of participation. Again, looking at MUDs there are the gods, wizards, generic players etc. I think most people would participate in the broader community through a specific niche community that meets their local needs, such as wanting support for parenting, bicultural community etc. The larger structure or governance model may be largely invisible, trasnparent to the generic user, but through their participation, they would be supporting the organization. Yes, the wizards need to hold the torch and carry the vision to make it work, but for the end user it just needs to work. It's got to be foremost just the best place to meet certain needs. Kind of like the Internet at large works because there are a lot of activists holding the torch on a variety of issues, but most users don't know or care why. So I'm not sure if it would be a literal co-op model, but some hybrid maybe.

"It could be financed by donations and by savings on purchasing of infrastructure and products directly. The users would own the platform. Isozaki-san of Netyear mentioned that most Internet companies are already owned by the user. I think the main difference will be that there will no exit for the shareholders, only voting power. This would cut out speculators and shift the managment from growth of revenue to happiness of the users... "

Yeah, kind of more a popularity contest in a social sense than market competition. Like you say below, hybrid political economic.

"I have been listening to young and intelligent bureacrats and academics talk about the lack of accountability. Many feel that solid policies necessary to change society are disregarded on not implemented. These people are used to working with option value. If organized properly, I feel that calling on the resources of the academic and government worker community might yield a great deal of people who would help develop the governance model. If a global network of policy designers used the community and the Net to study and propose technically, economically and globally solid proposals to governments, it may be possible to make such proposals so indisputabily "right" that access to such policy would become political power for compliant politicans. Such a group could gain a great deal of reputation value on "vision" and global acceptability. This coupled with the economic power of group buying and acquisition of vital assets, may allow the community to grow to nation-like size. "

A lot of current marketing and distribution was born in an era that was still constrained by a lot of physical geography issues which the net circumvents. You needed to worry about inventory, print distribution, buying shelf space etc. etc. I think we are at a good moment because the net is only just being commercialized, and you still don't have serious net distribution yet. i.e. the old systems haven't reproduced successfully on the net yet. I think it's time for a new model. Like you say, there are a lot of people in the academic community that have been thinking about this stuff, like CPSR, say.

From: Michael Wilson

To: Joichi Ito

*** Joi, you sent the notice to the open list, so I figured it wouldn't piss you off to have me comment. You're either very busy, or I got on your 'bad side' somehow, but if you have time, just drop me a note and let me know you're doing well, and when you think you might be Stateside. I'm kicking around, and it might be fun to link up.

NPO Buyouts and Sustainable Communities DRAFT 0.1 9/21/99 I recently had a discussion with my sister about what we should do about the "Momoko Ito Foundation" and the bicultural community project that we have. I have been thinking a lot recently about community recently. Amano and I had talked a bit about how Japanese seem to be taking a different angle, but that personal communication seems to be quite important. Hector and I talked a bit about multi-cultural and multi-lingual community sites. I also recently exchanged some messages with Howard Rheingold, Jeff Shapard and Lisa Kimball about the state of community sites these days.

*** I'd actually love to hear more about the Foundation; the links to the details on eccosys are dead. Obviously I think any communication aspect of the study is critical; genes get passed on in reproduction, but memes require the linguistic infrastructure. It's made more complicated by the 'locality' issue; Town A and Town B are next door, and are pretty congruent, which is the same for Town B and C, C and D, etc. When you try to shift context from A to (arbitrarily) M, though, the little differences add up; you'll notice it first, particularly, in language. This has dramatic impact on what are viewed as homogeneous 'culture' and interrelationships between cultures. Anyway, my sister mentioned that she thought that many of the community sites were too commercial looking these days. We all agree that the business model for community sites has not yet been discovered. my sister (Mimi) is studying from an anthropological point of view, small communities and how people in small communities are tied together. She is focusing on Net communities. She talked about the educational software market where there is no good model for the evaluation of software and mothers end up buying what is on the shelf. What is on the shelf, being driving more by advertising and marketing than real evaluation. A community might be able to evaluate and develop this market. There are many communities which straight advertising is not serving well.

*** Ha! The business model for realworld community has yet to be discovered. It's tied up in a sense of identity, obviously, and we all know how that varies across individuals. Have your sister look up the old PLATO system; there are lots of interesting details from that era on why net-based community works and doesn't. It ends up breaking along lines of affinity (notice the common elements of language in any affinity group, incidentally); you see it in computer communities, cults, gamers, otaku, etc. Language as a tool of group-identity, which means it defines inclusively and exclusively. This is when you start to skew over into reputation capital and trust issues--key elements of any community--where you have the test underlying of 'what are you good at, and just how good?' It might be 'great company, but never be in business with them' or 'good physician, but avoid any stock tips.' I agree that advertising is a poor indicator of reputation or trust; branding is supposed to be one way to approach a quantification, but the technology world is missing the equivalent of an Underwriter's Labs (UL). Look at a piece of US electronic equipment, and you find it had to meet a certain standard and safety. Software/hardware are still a wild context, and it's why the risks and threats exist, not to mention shoddy products and systems. In some ways, it's a good thing, because the lack of embeddedness to that sort of structure helps keep the tempo up; it's also the crack that a lot of problems flow through. Shibuya-san of Keio recommended that I read "An Introduction to Post-Keynesian and Marxian Thories of Value and Price" by Peter M. Lichtenstein. In this book Lichtenstein explains that neo-classical economics says that the market and "demand" determine the price and value of something. Marx stated that the labor that goes into production should determine the value. One can also discuss the actual utility of an object to determine value. The idea that a single market should determine everything is actually a product of our very neo-classical economic view on society. In small communities, it is possible that new forms of value and exchange are more relevant and dynamic than large markets.

*** True. Marx missed the point, at the edge of the information age. Keynes ended up recanting before he died, but his process of economy lived on (mostly dead now, particularly with Bretton Woods gone). If you remember my 'new econ, same as the old econ' paper, you know I'm tackling some of these issues as well. Certainly value and price are context dependent; one way to think of a localized context is as community, particularly where the emphasis is on relationships (you could just as easily use ecological models, but again, ecology gets fuzzy with politics). We're on the edge of having to come to a better understanding conceptually of community; so far, they're organic, and occur naturally rather than being engineered. Quantification and association of metrics are first steps in the direction (which direction? one is as good as another right now...) needed. As you're aware, economics already copes with 'spot' issues and arbitrage; we could bat around the relationship aspect, and get into the sociology of it, which might be useful

. I have recently begun reading "Towards a New Economics" by Kenneth E. Boulding which Jiro Kokuryo of Keio recommended to me and it also seems quite relevant, discussing the area where economics ends and sociology takes over.

*** Ahhh. Time to brush back up on statistical theory. I'm not familiar with the book, but one of the key factors I keep running into at the interface between sociology and economics is the resolution. Fine grain of relationships is sociology; pull back and abstract a bit, and you get back to economics. Lump that with all those things you can't get metrics on (motivation) and it gets interesting.

These recent exchanges and readings sparked an idea that maybe the users of community should form an NPO and buyout the community platform. The NPO could be governed in a way that suits the community the best.

*** Interesting. So you're modifying the old Kelso approach to equity distribution, and turning the community participants into owners and de facto management. I think this might be a real disaster. The hierarchical tendency would get ugly fast. I'm very interested in watching what's going down with slashdot and andover, with slashdot doing a karma/repcap implementation and andover doing the dutch auction. I wonder if that was part of what prompted your line of thinking.

One case would be if the users of a large community such as AOL offered to buy AOL and take it private. Another would be if we collected various community tools, managed them as an NPO, and as users increased and donations/tax increased, the NPO could acquire more and more technology and resources.

*** Hmmm. AOL would never work that way I suspect, it's too much a creature of 'entry point for newbies' and that's a heavy overhead price on a community. Your other model is very congruent to the open source and linux model, but you would lack the test of code (does it function according to design). I don't think you can sustain community past a certain threshold (undefined) well, and I think you run into steep overhead issues as your scale increases (diseconomy of scale due to complexity of relationships).

Several thoughts on this. Takao Nakamura said that he thought it might be boring to work in an NPO with a bureaucratic governance model. Similarly, Austin Hill described similar schemes where ISP's have been run bo Co-ops where the committee becomes polulated by boring people or the decision making becomes slow. It is necessary to invent a robust and exciting governance model which includes a leadership that allows the organization to make deals, be quick and be visionary.

*** Heh. Let me just point to Granovetter here, and you know how I tie heterarchical org structures into tempo, particularly optempo. I think you have to lock down on a purpose, have association based on that, and when the 'purpose' grows too big to have freeform org around it, you spawn. What you're describing are what I've outlined as opfor from personal experience; you have to keep small, cadre, decisions made where the event is, allow mistakes (which means plenty of room for failure, with the network able to catch you when you fall), etc.

Politically speaking, this NPO would have to be similar to a nation-state. It would have to have strong beliefs, policies, likes and dislikes, intelligent people, vision. It should exclude people who are not interested in dropping out of the current advertising and market driven consumer market.

*** Hmmm. I don't think the nation-state functions quite along those fashions. I agree on the strong focus and solid people, but hierarchical org structures still associate authority upon position, and you can't afford that in what you're talking about.

It could be financed by donations and by savings on purchasing of infrastructure and products directly. The users would own the platform. Isozaki-san of Netyear mentioned that most Internet companies are already owned by the user. I think the main difference will be that there will no exit for the shareholders, only voting power. This would cut out speculators and shift the managment from growth of revenue to happiness of the users...

*** Hmmm. The old co-op model, which killed a lot of biz in Berkeley. You get hammered on both the scale and scope issues. I think you also have to build in the spawn/schism function, otherwise you screw yourself.

Finally, I think that Japan is an interesting place to start such a venture. The US high-tech ventures require 150% growth to be classified as a "growth" company. Without such a classification, there is no option value. Without option value, there is no incentive for the jaded high tech employee. It is currently too easy to make money in Silicon Valley and too difficult to incent people without it. Japan is currently still in a depression and there are quite a few people who are willing to make enough to survive if the work is interesting.

*** Worse, those of us who are interested in good work are poorly understood. There's a pretty big rush on the cash in on the bubble, make the paper profits, and let the market crash to hell. On the other hand, you really can't plan well beyond a 24/36-month horizon. We're starting to radically up-tempo in a lot of technological directions, but we have unaddressed, unsolved problems that nobody is working on because they won't show the turnaround (yes community, but what about the representation issue?).

I also believe that eventually the US growth will slow down and option value will decrease. Management structures and ethics developed around the growth model may not be able to manage talent in such a state. If the NPO structure I propose can manage to set a vision and incent intelligent individuals without option value, such a structure may be able to accumulate dissillusioned talent from the Silicon Valley market after a market depression.

*** Well, they'll consolidate and embed. We're already seeing it happen. It isn't a problem as long as the larger players don't use their market clout to keep the tempo down so they can cope with their own slowing tempo and installed base anchor. Incidentally, the military, which is horribly hierarchical, has internally a culture similar to what you're setting out, where squad through platoon have an internal sense of community, and you sure as hell don't take 'reward' seriously where your buddies are concerned. Note, though, that that generally occurs among parallel in rank.

I have been listening to young and intelligent bureacrats and academics talk about the lack of accountability. Many feel that solid policies necessary to change society are disregarded on not implemented. These people are used to working with option value. If organized properly, I feel that calling on the resources of the academic and government worker community might yield a great deal of people who would help develop the governance model. If a global network of policy designers used the community and the Net to study and propose technically, economically and globally solid proposals to governments, it may be possible to make such proposals so indisputabily "right" that access to such policy would become political power for compliant politicans. Such a group could gain a great deal of reputation value on "vision" and global acceptability. This coupled with the economic power of group buying and acquisition of vital assets, may allow the community to grow to nation-like size.

*** Bah, accountability. Authority needs to equal responsibility. More important from the angle you're talking about is -what are they willing to be committed to?- Break apart an option, and what you see is a mechanism to reward commitment to a goal that someone can put a metric onto. What's the value in being committed? You get the pay-off. In your community model, you need to look long and hard at what motivates (pays off) the committed behaviour to the community. From there, technology is an enabler, economics reward and test viability, 'government' provides your constraints. The social contract is already evolving, we're just seeing most of the unsuccessful mutations die off. The net, in particular, is already achieving the level of 'power' you're speaking of (power, of course, being the ability to provide or deny dependencies). On the other hand, the point of the community would not be to be dominant or overbearing, but to serve the interests of pro-active and visionarily aligned users.

Companies, governments and other outside organizations could serve both the needs of this community and others including the traditional markets. This community would just be a sustainable community, or an island in the market.

*** Hmm, I think you're dropping into Sterling at the end there, but I don't read his stuff. Think ecosystem. As the ecosystem grows, you get increasing room for additional niches (roles in the system); plenty of microecologies can exist locally, with occasional competition. If you lose homeostasis in the ecosystem, everything falls out of the relationships necessary to holding the microecology, and it all goes to hell.

*** M

NPO Buyouts and Sustainable Communities DRAFT 0.2 9/22/99

I recently had a discussion with my sister about what we should do about the "Momoko Ito Foundation" and the bicultural community project that we have. I have been thinking a lot recently about community recently. Amano and I had talked a bit about how Japanese seem to be taking a different angle, but that personal communication seems to be quite important. Hector and I talked a bit about multi-cultural and multi-lingual community sites. I also recently exchanged some messages with Howard Rheingold, Jeff Shapard and Lisa Kimball about the state of community sites these days.

Anyway, my sister mentioned that she thought that many of the community sites were too commercial looking these days. We all agree that the business model for community sites has not yet been discovered. my sister (Mimi) is studying from an anthropological point of view, small communities and how people in small communities are tied together. She is focusing on Net communities. She talked about the educational software market where there is no good model for the evaluation of software and mothers end up buying what is on the shelf. What is on the shelf, being driving more by advertising and marketing than real evaluation. A community might be able to evaluate and develop this market. There are many communities which straight advertising is not serving well.

Shibuya-san of Keio recommended that I read "An Introduction to Post-Keynesian and Marxian Theories of Value and Price" by Peter M. Lichtenstein. In this book Lichtenstein explains that neo-classical economics says that the market and "demand" determine the price and value of something. Marx stated that the labor that goes into production should determine the value. One can also discuss the actual utility of an object to determine value. The idea that a single market should determine everything is actually a product of our very neo-classical economic view on society. In small communities, it is possible that new forms of value and exchange are more relevant and dynamic than large markets.

I have recently begun reading "Towards a New Economics" by Kenneth E. Boulding which Jiro Kokuryo of Keio recommended to me and it also seems quite relevant, discussing the area where economics ends and sociology takes over.

These recent exchanges and readings sparked an idea that maybe the users of community should form an NPO and buyout the community platform. The NPO could be governed in a way that suits the community the best.

One case would be if the users of a large community such as AOL offered to buy AOL and take it private. Another would be if we collected various community tools, managed them as an NPO, and as users increased and donations/tax increased, the NPO could acquire more and more technology and resources.

Several thoughts on this.

Takao Nakamura said that he thought it might be boring to work in an NPO with a bureaucratic governance model. Similarly, Austin Hill described similar schemes where ISP's have been run by Co-ops where the committee becomes populated by boring people or the decision making becomes slow. It is necessary to invent a robust and exciting governance model which includes a leadership that allows the organization to make deals, be quick and be visionary.

Politically speaking, this NPO would have to be similar to a nation-state. It would have to have strong beliefs, policies, likes and dislikes, intelligent people, vision. It should exclude people who are not interested in dropping out of the current advertising and market driven consumer market.

It could be financed by donations and by savings on purchasing of infrastructure and products directly. The users would own the platform. Isozaki-san of Netyear mentioned that most Internet companies are already owned by the user. I think the main difference will be that there will no exit for the shareholders, only voting power. This would cut out speculators and shift the management from growth of revenue to happiness of the users...

Finally, I think that Japan is an interesting place to start such a venture. The US high-tech ventures require 150% growth to be classified as a "growth" company. Without such a classification, there is no option value. Without option value, there is no incentive for the jaded high tech employee. It is currently too easy to make money in Silicon Valley and too difficult to incent people without it. Japan is currently still in a depression and there are quite a few people who are willing to make enough to survive if the work is interesting.

I also believe that eventually the US growth will slow down and option value will decrease. Management structures and ethics developed around the growth model may not be able to manage talent in such a state. If the NPO structure I propose can manage to set a vision and incent intelligent individuals without option value, such a structure may be able to accumulate disillusioned talent from the Silicon Valley market after a market depression.

I have been listening to young and intelligent bureaucrats and academics talk about the lack of accountability. Many feel that solid policies necessary to change society are disregarded on not implemented. These people are used to working with option value. If organized properly, I feel that calling on the resources of the academic and government worker community might yield a great deal of people who would help develop the governance model. If a global network of policy designers used the community and the Net to study and propose technically, economically and globally solid proposals to governments, it may be possible to make such proposals so indisputably "right" that access to such policy would become political power for compliant politicians. Such a group could gain a great deal of reputation value on "vision" and global acceptability. This coupled with the economic power of group buying and acquisition of vital assets, may allow the community to grow to nation-like size.

On the other hand, the point of the community would not be to be dominant or overbearing, but to serve the interests of pro-active and visionarily aligned users. Companies, governments and other outside organizations could serve both the needs of this community and others including the traditional markets. This community would just be a sustainable community, or an island in the market.

-- 9/22/99

Met with Takano-san of One Galaxy and he agrees with many of my points. We discussed the "no-exit" business model and he had similar thoughts. It is possible that a platform provider to the community could be a good business. It could be an "exit" style business, or a sustainable business servicing the community. The point would be to gain the economy of scale and have it fairly priced so that the community would not want to switch. High switching cost could be built in to the platform, but it would not be necessary.

On Trust... Using e-bay and after talking to Kokuryo-sensei about trust and pricing on e-bay. It appears that trust in a community context may be more important than trust in technology or brand. I recently bought a fountain pen on e-bay and they offered to send me the pen before they received the check because "pen collectors are trustworthy people." Ebay manages reputations.

A platform provider could be trustworthy in a political, person, or other way, relying not necessarily on price, technology or brand to keep customers. This reminds me of "old style" business. Like traditional trading companies. Are we going backwards?

The observation that Kokuryo-sensei had on ebay was that prices for equivalent products fluctuated greatly depending on the timing and the person selling the product. The net is not creating a perfect economy where all prices are equalized by the great market, but a more non-linear community oriented pricing mechanism heavily influenced by consumer to consumer interaction. Fun fun! ;-)

Talk at Waseda University

January 19, 1999

by Joichi Ito

Low Cost of Global Connectivity

Characteristic Models Examples
Borderless, Distributed Network "Out of Control" and no more sovereignty of nations IETF, Offshore Data/Tax Havens, TLD problems, Global Finance, Global Markets
Too Much Information Attention Economy Portals, Internet Traffic Model
Low Cost of Collaboration Non-Capitalist Asset Development, Online Communities

OSS/Linux

High Context Information/Media Products -> Services Copyright, Cygnus , Agent Disintermediation, News Feeds
Convergence of Telecom Services Large Scale Open Networks, End of Single Purpose Networks End of Telephone Companies (IP Telephony), End of DBS/TV

 

Evolution of Value and Exchange

The Market   The Firm   Community
Physical Assets Intangible Assets Social Assets
Metal, Food, Books   Process, Management, Risk, Copyright, Patents   Trust, Brand, Creativity, Open Source Software

 

Japan and the US

  • Reason for American Dominance in Information Businesses and Branding
    • Risk Valuation and Risk Taking
    • General Trust (Yamagishi)
    • Government Funding for Academic Aesthetics (Open Source Community)
    • Scale
  • Probable Future
    • Dominance in Japanese IT Industry by US
    • Japanese Companies to Service Foreign Interests
    • Leverage Cultural Assets to Add Value
    • Educate Next Generation
  • Risks
    • High Costs and Closed Markets Make Japan Undesirable
    • Japanese Companies Compete in IT Markets and Fail
    • Cultural Assets Lost and Collapse of Common Knowledge
    • Assets Spent on Bad Risks

Bibliography

Coase, Ronald H. The Firm, The Market, and The Law The University of Chicago Press, Chicago and London, 1988
Arrow, K. J. The Limits of Organization Norton, 1974
Barnard, Chester I. The Functions Of The Executive Harvard University Press, 1938
Chandler Jr., Alfred D. The Visible Hand : The Managerial Revolution in American Business The Belknap Press of Harvard University Press, 1996
Goldhaber, Michael H. The Attention Economy and the Net First Monday
Granovetter, Mark The Strength of Weak Ties - A Network Theory Revisited Marsden, P.V., and Nan Lin, Social Structure and Network Analysis, Sage, 1982
Hall, Edward T. Beyond Culture Anchor, 1977
Simon, Herbert A. The Sciences of the Artificial, Third Edition The MIT Press, 1969,1981
Aigrain, Phillipe Attention, Media, Value and Economics First Monday
Blau, Peter M. Exchange and Power in Social Life John Wiley & Sons, Inc., 1964
Fukuyama, Francis Trust: The Social Virtues and the Creation of Prosperity  
Ghosh, Rishab Aiyer Economics is dead. Long live economics! A Commentary on Michael Goldhaber's The Attention Economy First Monday
Mauss, M. The Gift: The Form and Reason for Exchange in Archaic Societies W. W. Norton
McLuhan, Marshall The Gutenberg Galaxy : The Making of Typographic Man University of Toronto Press, 1962
Raymond, Eric S. The Cathedral and the Bazaar First Monday
Raymond, Eric S. Homesteading the Noosphere First Monday
Smith, Adam The Wealth of Nations The Modern Library
Yamagishi, Toshio and Yamagishi, Midori Trust and Commitment in the United States and Japan Motivation and Emotion Vol. 18, No. 2, 1994
Date: Mon, 31 Aug 1998 21:21:35 +0900
From: Jiro Kokuryo 
To: Joichi Ito 
Subject: Re: Cultural Captial

Hi Joi,

>Culture could be the most important stabilizer for the information
economy.

Yes!! 
Katarzyna Olszewska who is traveling with me gave me a hint that culture
depends not only on the sender of messages but also on the framework by
which the receiving end interprets it.  This is parallel to the idea of
"knowledge" or "meaning" dependent on the interpretive mechanism.  

A community that shares the experience of interpreting messages together
forms a shared system of interpreting information, which is my
understanding of context.   Is my understanding correct that this is
close to what you are calling culture?)  Richness of communication
depends on the the level of it.

What the modern transport and communication technology offers are
markets that are wider than communities that shares high levels of
context.  What we see as a consequence is a large scale dissemination of
shallow communication. 

I have a mixed feeling about the the commodification of culture.  In a
community that has limited context in the past, shared experience with a
common artifact provides a base for future context.  You know, something
to start a conversation with a total stranger. A common base is
necessary to communicate.  Takemura-san's system of expressing color
becomes a shared system of expressing and interpreting color -a shared
context-. 

I was reading a biography of Otsuki Bumpei who edited an enormous
dictionary of the Japanese language in the Meiji period.  Not only in
Japan, but in all "nation states," editing of the dictionary was equated
to the establishment of the national identity and was therefore a
national security matter.  In the process, languages were standardized
creating bases for people to communicate.

The bad news is that some dialects were deliberately destroyed.  We
tried imposing Japanese language on the Koreans which, to the Koreans,
was elimination of their identity.

I guess the lesson from the internet is the commonly shared context at
the lower layer provides opportunity to build high context communities
on top of it.

> On Sun, 30 Aug 1998 11:58:02 +0900
> Joichi Ito  wrote:
> 
> > Hi... I just finished talking to my sister again. I wrote a few
> > paragraphs describing my current thoughts. If you have a
> > moment, I would really appreciate any feedback you might have.
> > The notes are at:
> > 
> > http://www.neoteny.com/jito/context/culture.html
> > 
> > Thanks!
> > 
> > - Joi
> > 
> > 

To: Jiro Kokuryo
From: Joichi Ito
Date: 9/5/98

Hi Kokuryo-sensei,

I'm sorry that my reply to this message is so late. I really appreciate
your thoughts and this last message from you I think has driven home
a point that I have yet to resolve in my own mind. I don't have a very
good way of thinking through this problem, but let me try to describe my
confusion to you...

I think that what I have been calling "culture" has at least two opposing
aspects. I heartily agree with you that a common protocol whether it is
IP protocol or language or the rules to a game such as Go are very important
in creating context and allowing the tranfser of meaningful content.

On the other hand, I think what I have been calling "culture" is almost the
opposite of that. In the example of the tapas restaurant from my sister,
I think the "culture" aspect was the part that couldn't be codified. So what
is culture?

Taking it from a different angle...

I think you need to be able to think of something completely new and also
be able to communicate this meaningfully to others to be of value to a
community or culture.

What this means is that each node needs to be different enough to be unique,
but same enough to connect. It is a question of at what layer you put the
sameness and what layer you put the information.

I suppose the fear that my sister has with commodification of culture is that
in a world where there is sufficient sameness and syncronization the system
feeds on new information or difference. By taking a new layer such as fashion
or food and commodifying it, it is depleting a resource of sorts. I think that
where there is complete chaos or where chaos is prevelant, rules and order
help to stabalize it. I hate to reduce everything to balance, but it seems like
this might be the only good explanation from me at this point.

I suppose that it might be viewed as a situation where one group is trying to
keep a certain layer different from everyone else to preserve identity and
the commodification of that layer reduces the value of that layer. But...
Maybe layer is the wrong metaphor... Taking the tapas restaurant or any
other bit of culture that has been commodfied... (maybe house music)

Why is it bad? 

By making it a commodity, the system reduces the it to just the elements
that can be understood and consumed by the masses. At this point, it becomes
rather superficial and the core of the culture that it comes from (which
probably can not be synched with the main stream) is removed. Such a
"neutralized" piece of culture an then act as a common metaphor to use
as context, but such a piece of culture becomes static and no longer grow
or develop much. So stepping away from the "layer" metaphor, I suppose
that different cultures use different pieces of its culture to retain "difference"
and "identity". Other cultures can take that culture and build it into their
"similarity" or "context" to add value to their "context" part. But, this
lowers the "identity" of the first culture. I'm not sure what I am saying makes
much sense, but I am trying to describe thoughts that occur to me from my
experience.

Mimi, do you have any thoughts?

 - Joi


Date: Sat, 05 Sep 1998 20:50:59 +0900
From: Jiro Kokuryo 
To: jito@eccosys.com
Cc: mito@portola.com
Subject: Re: Cultural Captial

Hi, Joi,

> What this means is that each node needs to be different enough to be unique,
> but same enough to connect.

I agree that this is the question.  Don't have answer myself.

An exercise that is usually helpful in this kind of instance is to
define terminologies.

Can you define culture in less than 25 words?

Do NOT think about this while driving...  It's dangerous.

PS 
The argument that I usually make is: to "connect" you need to share a
"platform" which consists of (i) vocabulary, (ii) grammar, (iii) context,
and (iv) norm.  A group of people that share a platform is called a
community.  There can be multiple platforms and a person may be on
multiple platforms.

To: Jiro Kokuryo
From: Joichi Ito
Date: 9/7/98
Kokuryo-san,

Tell me if you have already gone down this trail
of thought...

If you use the strength of weak ties idea with
culture and communication, it seems that
strong ties require more shared context and
"sameness" whereas weak ties are more
about have just enough context to communicate,
but taking advantage of the "difference".

Therefore, I can imagine a view of the myriad
of cultures and groups in our society as a
combination of high context close-knit
communities and low context wide communities
or weak tie links.

I think what happens when culture is commodified,
is that a weak tie is converted into a strong tie
and the difference between the two groups is
collapsed and forced into context. This increases
the size of the strong force group, but now there
is one less node.

What is wrong with less nodes? I think that nodes
are like different DNA combinations and that
diversity is good. Probably different languages
are better and describing or thinking about different
problems and I think different cultures produce
different cultural goods. This difference can help
dampen fluctuations and manage changes in the
different environments.

- Joi

p.s. I will work on the 25 word definition of
culture.


Date: Tue, 08 Sep 1998 08:44:10 +0900
From: Jiro Kokuryo 
To: jito@eccosys.com
Subject: Re: Cultural Captial

Hi Joi,

A bit pressed for time.  Please excuse me for giving compressed
response.

I think what we need are:
Diversity in nodes on a common dimension
while a single node residing on multiple dimensions.

Contrast this with a situation in which:
No diversity among the nodes.
Only one dimension exists.

Multiplicity of dimensions is sort of important, I think.

May be we share enough context for this to make sense to you...

Protecting and Nurturing Culture - The Asset of the Information Age

August 29, 1998

I just finished talking to my sister again. She described a new tapas restaurant that had pool tables, all of the cool new tapas dishes, an industrial look and everything just right to become really "hip" and successful. She said it had all of the right designs, but lacked the authenticity of the original and was too "franchise" looking. Franchises are taking over local areas in San Francisco and people are trying to ban franchises in certain areas. my sister calls this the commodification of culture and thinks we need to try to stop it.

At Kokuryo-san's ecommerce study group meeting on August 26, 1998 we heard a presentation by someone from World, an apparel company. They are using POS data to speed up the turn around time to respond to trends. They can now react to POS data by having a new design in the shops in 2 weeks. They have a brand that is very successful at this. My observation and concern is that they are probably consuming trends from culture and speeding up the depreciation of new trends. I think that the fragility of trends and the lack of substantive culture or diversity in middle America is a direct result of neglecting the culture and using economic incentives as the primary source of direction for the content.

Takemura-san of the Kyoto University of Art and Design talks about the artisans who specialize in color in Kyoto. They communicate regularly with representatives from famous European brands. The Europeans take Kyoto color culture and use it to as an element in their decision about their designs for the Haut Couture. From there, brands around the world pick up their trends, and so the culture is distributed throughout the world. The colors in Kyoto allow the designers to continue to set new trends, albeit a cyclic one.

I think that an argument similar to the argument ecologists use for the cost of pollution in the air can be made about the commodification and depreciation of culture. If a rigorous economic and organizational model could be designed to describe cultural capital, the exchange of value within such a capital system and its relationship to the economy, maybe would could design a structure to help preserve culture. In turn, this may have the effect of stabilizing markets and trends which have become chaotic. Culture could be the most important stabilizer for the information economy.

(It's all kind of like Nukamiso ;-P )

Comments on:

The Limits of Organization by Kenneth J. Arrow

1974, Fels Center of Government

In the book, Arrow first shows that the price system is not sufficient in mediating competition and making all things fair. He shows that organizations such as the firm and government serve to make decisions and distribute resources in everyone's best interest. He explains why organizations are more efficient. He explains that authority is necessary for organizations to exercise power and be effective, but responsibility is also necessary to prevent or minimize error. The balance between authority and responsibility being important.

He says, "There is no simple argument, and there are few economists, though perhaps many laymen, who would defend the proposition that there is a simple argument which states that the resulting distribution of income has any special claim to be called just. The price system then does not provide within itself any defensible income distribution and this is a key drawback." This is similar to the point that Mimi and I have been discussing regarding the salaries of CEO's. The price mechanism is not enough and many things are hard to value. He goes on to talk about trust by saying, "Now trust has a very important pragmatic value, if noting else. Trust is an important lubricant of a social system. It is extremely efficient; it saves a lot of trouble to have a fair degree of reliance on other people's word. Unfortunately this is not a commodity which can be bought very easily." Authority and belief in organizations is a way of increasing the efficiency of a system by building trust.

This trust is similar to what the BoJ guys were calling common knowledge which in turn was the collateral for their currency. Since organizations can manage this trust and the balance between authority and responsibility is a significant factor in the effectiveness of organizations, it may be said that the balance between authority and responsibility can account for the level of trust in society which in turns become the collateral behind money.

 Arrow talks about the "codes" within organizations as a way for people to exchange information which in turn allows decisions to be made. Since organization can optimize the way information is dealt with, organizations can have more "channels" and make better decisions. People within organizations exchange information using these codes and have channels within and with the outside. Arrow talks about the method in which these channels develop, are maintained and are used for collecting information used to make decisions. He also says, "this definition of information is qualitative," and also says that, "the value of knowing whether or not A is true may be vastly greater than the value of knowing B's truth-value."

So, it would seem that a robust organization requires authority, responsibility and also a method of making good decisions, which requires maximization information, which is qualitative in nature. How does an organization attract higher value information and allow them to exchange this information effectively within the organization. Arrow talks about the capital investment and the tendency to stick to channels. This means that individuals and organization tend to fixate on specific channels. If the environment requires rapid change, some method in necessary to restructure these channels, value the information, yet retain authority.

Coase comes up with a definition of the "firm" as an organization that defines employer and employee, master and servant which satisfies the "plain man's" definition of the firm.

Coase comes up with a definition of the "firm" as an organization that defines employer and employee, master and servant which satisfies the "plain man's" definition of the firm. Coase explains that transaction cost optimization can account for the need of the firm.

The thesis is interesting and his discussion of other theories is rigorous and useful, but Coase's conclusion and logic is limited in many of the same ways as the theories he tries to tear down.

First of all, the idea that there is some kind of curve that can show when a firm is the right size, albeit the firm may be in several product areas is a bit linear. Also, he doesn't really discuss in depth some of the knowledge and competence that can be held in a firm and account for its fitness or value. Obviously silicon valley and virtual companies didn't exist in 1937 when he published the paper, but I think that the technological advances that caused the scalability and transaction cost performance that gave birth to the firm are now giving birth to virtual firms and communities that transcend the firm.

As a paper to set the definition of the firm and set a milestone, it was very interesting.

Feburary 16, 1999

In afterthought and particularly after talking to Iwamura-san, it appears that Coase does describe the firm as something beyond the market. Iwamura-san noted after my reference to Coase that Coase was not the first person to think of this. In any case, some people, like Iwamura-san will argue that everything is just an extension of the market.

I just talked to my sister Mimi. She is interested in thinking about the commodification of culture. It is kind of interesting because another way of saying what I am theorizing is the culturalification of economy, which is the same phenomenon, but from the opposite perspective as usual.

I just talked to my sister Mimi . She is interested in thinking about the commodification of culture. It is kind of interesting because another way of saying what I am theorizing is the culturalification of economy, which is the same phenomenon, but from the opposite perspective as usual.

She talked about Marx and his notion of commodity fetishism and the alienation of labor, or the idea that things have use value and exchange value. The idea is that the value of things are often based on the price and the value of the labor involved is not considered. She agreed that Marx is far too hung up on the labor thing, but is idea of use value vs. exchange value is interesting.

Thinking about Simon who I just read:

I think that we are on the third stage of development of markets

  1. The market managed the value of goods and therefore was stable and in control.
  2. Later, large corporations and organizations/managers took over the economy and the market reflected their decisions and the value of goods, but became more unstable as the actions of the leaders became less predictable and less local.
  3. Recently, the market is just a chaotic byproduct of a general trends in fashion, brand, technological development, culture and other completely non-physical highly context sensitive interactions. The market is no longer in control. The value of corporations have very little to do with their physical assets. In fact, they do not even have realistic values based on standard discount and business valuation methods.

Therefore, the idea of trying to commodify culture is backwards. We should be thinking about a way to structure, support and manage the efficient exchange of non-commodifable information, or high-context information. This probably relates to the idea of developing community.

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