Joi Ito's Web

Joi Ito's conversation with the living web.

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.

An old favorite quote from Alexis de 's "Democracy in America" written in 1835. I found this in college, but now it seems more and more relevant...

An old favorite from Alexis de 's "Democracy in America" written in 1835. I found this in college, but now it seems more and more relevant...

From time to time, indeed, enterprising and ambitious men will arise in democratic communities whose unbounded aspirations cannot be contented by following the beaten track. Such men like revolutions and hail their approach; but they have great difficulty in bringing them about unless extraordinary events come to their assistance. No man can struggle with advantage against the spirit of his age and country; and however powerful he may be supposed to be, he will find it difficult to make his contemporaries share in feelings and opinions that are repugnant to all their feelings and desires.

It is a mistake to believe that, when once equality of condition has become the old and uncontested state of society and has imparted its characteristics to the manners of a nation, men will easily allow themselves to be thrust into perilous risks by an imprudent leader or bold innovator. Not indeed that they will resist him openly, by well-contrived schemes, or even by a premeditated plan of resistance. They will not struggle energetically against him, sometimes they will even applaud him; but they do not follow him. To his vehemence they secretly oppose their inertia, to his revolutionary tendencies their conservative interests, their homely tastes to his adventurous passions, their good sense to the flights of his genius, to his poetry their prose. With immense exertion he raises them for an instant, but they speedily escape from him and fall back, as it were, by their own weight. He strains himself to rouse the indifferent and distracted multitude and finds at last that he is reduced to impotence, not because he is conquered, but because he is alone.

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.

Simon has many very interesting models that he develops for thinking about and describing things. In his words, he describes interesting "states" and interesting "processes".

Simon has many very interesting models that he develops for thinking about and describing things. In his words, he describes interesting "states" and interesting "processes".

Simon seems to conclude that everything might seem very complex, but that actually if you design the way you think about and the way you view everything, it actually can be described. He describes a system of a hierarchy of chunks which are "near decomposable" which means that intra-component (intra-chunk) linkages are generally stronger than inter-component linkages.(1) Or… High frequency being independent from low frequency dynamics. This allows evolution to occur by level in the hierarchy making it easier and more likely. It also allows the system to be described more simply because the design of the function or the "efficiency" of each component can be separated from the internal design of the component. Thus, the fitness function of a DNA strand is a based at the end of a combination of organs which is not so concerned about the detail of the internal workings of the organs.

I have a problem with this model. It is possible that the internal design of a component may not affect the next layer up in the hierarchy, but may affect another layer. This may be very non-linear and not as easily quantifiable as "efficiency". For example, the color of an organ or skin may not have direct impact on certain variables, but may have significant impact in certain situations from the fitness point of view. I think that there is considerable "chaos" integrated in hierarchical complex systems, particularly when they have to do with information or culture. Simon talks about chaos, but classifies it as a different sort of complexity than his hierarchical complexity. This may be true in many of the models he presents, but I think that this model by itself is limited. I have a "hunch" that chaotic systems can be "described". Maybe not in words, but in some method that allows us to on the one hand deal with physical things in this sort of reductionist mode and deal with chaotic information based things in some other method and reconcile this in some other kind of output. I have a feeling that there are some answers in art, anthropology or sociology which is more familiar with the non-linear, but natural.

The way that he simplifies the complex is by collapsing similarities and creating new views that lessen the number of chunks by adding levels or by organizing a level in a certain way. This is very interesting and is probably very useful, but a risk is that there are various methods of making our storage and manipulation of a reality more efficient, but each of the methods brings with it a bias towards a specific direction or solution. (2) Simon talking about the folly of the model of optimized markets which maximize the utility function. One can find adequate solutions, but there is no optimum solution. I think that one can apply this idea to methods of describing complexity.

I very much like his style, his approach and his methods, but I think there is a risk of underestimating the impact of weak ties, culture and non-linear interactions. On the other hand, it allows a level of rigor in thinking about complex things that is very enlightening. His idea of the linearity of the brain is very useful (although he doesn't address illogical decision making processes, dreaming, emotions, etc.). His view that the utility function is too simple and aspiration and satisficing can help explain some of the problems with the idea of optimizing the utility function are useful. On the other hand, I think that trust networks, communities, SWT, common knowledge, culture, etc. are much more complex than just computing aspiration and satisfaction.

His description of the role of organization vs. markets was very interesting and I think will lead very well into Chandler, so I will reserve myself a little until then.

  1. This is really about the strength of weak ties. Simon describes some examples using scientific methods which are very useful in thinking about SWT. The idea of gravity being more important than electrical attraction at a macro level is a very good example of SWT. Talking about frequency is also very useful.
  2. Hall in Beyond Culture talks about the risks associated with thinking that your thinking is the only way to think. I think that a literal interpretation of Simon my cause greater culture gaps. For example, I think that GAAP is a very good way to organize components, but it makes certain types of assets invisible, and is a very specific viewpoint even though "the market" thinks it is reality.


OK. Below I was trying to organize a series of "chunks" that Simon was presenting as a sequence of quotes… After reading further and finally the last chapter, I realize that was presenting a series of sub-concepts that he would use to support his final theory on hierarchy, complexity and near decomposability. I'll leave the quotes to digest later and write a few thoughts about his conclusion.

We can view the matter quite symmetrically. An artifact can be thought of as a meeting point-an "interface" in today's terms-between an "inner" environment, the substance and organization of the artifact itself, and an "outer" environment, the surroundings in which it operates. p. 6

We might look toward a science of the artificial that would depend on the relative simplicity of the interface as its primary source of abstraction and generality. p. 9

In a benign environment we would learn from the motor only what it had been called upon to do; in a taxing environment we would learn something about its internal structure-specifically about those aspects of the internal structure that were chiefly instrumental in limiting performance. P. 12

The computer is a member of an important family of artifacts called symbol systems, or more explicitly, physical symbol systems. Another important member of the family is the human mind and brain. p. 21

Intelligence as Computation intelligence is the work of symbol systems…a physical symbol system…has the necessary and sufficient means for general intelligent action…p. 23

Chapter 2 Economic Rationality: Adaptive Artifice Economics illustrates well how outer and inner environment interact and, in particular, how an intelligent system's adjustment to its outer environment (its substantive rationality) is limited by its ability, through knowledge and computation, to discover appropriate adaptive behavior (its procedural rationality). p. 25

Today several branches of applied science assist the firm to achieve procedural rationality. One of them is operations research (OR); another is artificial intelligence (AI). p. 27

OR being linear and AI being heuristic

A large body of evidence shows that human choices are not consistent and transitive, as they would be if the utility function existed. p. 29

To deal with these phenomena, psychology employs the concept of aspiration level…A theory of choice employing these mechanisms acknowledges the limits of human computation and fits our empirical observations of human decision making far better than the utility maximization theory. p. 30

Roughly eighty percent of the human economic activity in the American economy, usually regarded as almost the epitome of a "market" economy, takes place in the internal environments of business and other organizations and not in the external, between-organization environments of markets. To avoid misunderstanding, it would be appropriate to call such a society an organization-&-market economy; for in order to give account of it we have to pay as much attention to organization as to markets. pp. 31-32

The key question here, one much discussed in "the new institutional economics" (NIE), is: what determines the boundary between organizations and markets; when will one be used, and when the other, to organize economic activity? p. 40