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

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58th. Conference of the ISSS July 2014

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Keynote "Learning Across Boundaries: Exploring the Diversity of Systemic Theory and Practice". Presented at the 58th Conference of the ISSS at GWU School of Business at George Washington University, Washington, DC., from the 27th of July to the 1st of August, 2014.

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

  • 58th. Conference of the ISSS July 2014
  • On Network Capitalism By Ernesto van Peborgh
  • This is Paul Baran, a Polish-American engineer who was a pioneer in the development of computer networks.
  • At the most critical and tense moment in the Cold War and in the face of an imminent nuclear attack, the Department of Defense of the United States asked Baran to develop a means of communication capable of resisting a such attack.
  • His logic evolved from that of a centralized network to a distributed one. These are the drawings Baran published in his work On Distributed Communications.
  • He was able to prove that, even when 50% of the distributed networks nodes were destroyed, the system did not collapse. Whats more, it was much more resilient than the previous network.
  • by Paul Butler Fifty years later, humankind has braided itself into a networked of interconnected minds. This is Facebook almost 1.5 billion people connected exchanging knowledge, ideas and solutions without pause. by Paul Butler
  • by Paul Butler This photograph marks the change and speed of the times. In just eight years, each one of us is carrying an amazingly high-tech communications device connected to a cloud of minds. ! Vatican City, 2007, Benedicto Vatican City, 2013, Francisco
  • Our underlying Matrix has evolved, as Barans did. We are standing on a new behavioral matrix for humankind, and this affects all our social, economic and cultural processes. !
  • 2007 Time magazine clearly illustrates this with its person of the year; in 2007 We (You, Me) became the person of the year Broadcasting shifted into the hands of citizens, we acquired the ability to reach the world from our computers. A Home computer had the same communications potential as a TV Broadcasting Channel, both in audience scope and editing capabilities.
  • 2011 In 2011, the same magazine shows a new character: the protester, a person who understood how social networks could be used for organizing oneself differently it began with the Indignados in Puerta del Sol, Tahir Square, Zuccoty Park with OWS, and recently in Brazil. Below the traditional medias radar are people organizing themselves to generate a change.
  • Our socioeconomic and cultural structures dont change in a linear manner they do so in exponential leaps. We are now experiencing new normals: knowledge and communication capabilities that did not exist ten years ago, today have become a necessity. WhatsApp was hardly known six months ago today its valued at US$ 19 billion and over 500 million people using it. Towards a new balance system 2000 2010 2020
  • We drive into the future using only our rearview mirror. Marshall McLuhan
  • Marshall McLuhan, perhaps the nest theorist of communications in the last century, said that we go towards the future gripping the rearview mirror, because we cant, we are unable or we dont want to see that the world has changed and we are unable to leave the ancient logic.
  • At present a new communications and organization matrix is replacing our logic. As a result, a new cosmology rules our social order and this change has essential implications for our culture and our socioeconomic structures.
  • This change in the matrix will have a deep impact on the structure of one of the most powerful forces dominating humankind capitalism.
  • Capitalism is at a crossroad .or so the Capitalists are saying.
  • Thinking Capitalism as a System In order to understand its scope and assess its effects, we need to analyze it from a systemic perspective. Thinking of capitalism as a system will enable us to understand how a change in its underlying matrix impacts its morphology and workings.
  • Elements Interconnected PurposeSystem = * * A system is a group of interconnected elements that fullls a purpose
  • Elements Interconnected PurposeSystem = * * ! The systems theory argues that when one of the elements is changed there is a change in the system. A change in the system triggers feedback loops that again change the elements and again change the purpose. !
  • Elements Interconnected PurposeSystem = * * ! We are in the midst of the greatest interconnectivity process ever experienced by civilization in such a short time. ! The I is what is driving the system at this time. !
  • The great difference between these two paradigms is interconnectivity. In the one on the left everything has to go through a central node. ! ! How will that affect capitalism?
  • Our organizations all the companies all our communications in the last century were based on this matrix logic.
  • This centralized structure not only enabled the accommodation of the hierarchical rationale and power dynamics of capitalism, but also drove its vertical integration and economies of scale.
  • Interconnectivity is limited, since communication ows must pass through the central node.
  • Broadcasting replicates this logic: It consists of mass messages issued from a powerful power central node to passive nodes which do not communicate with each other and which receive the message without being able to modify or retransmit it.
  • Our new distributed matrix on the other hand, has far ampler and deeper possibilities and derivations, not just at the communications and organizational levels, but also because of the potential generated by the interaction among the networks nodes.
  • In the distributed matrix communication ows independently of the nodes, as Paul Baran demonstrated with his experiment.
  • Elements Interconnections Emergent A systems greatest property is not found in its separate elements, but that which emerges from the system. The emergent is the systems unique property. ! Emergence is the systems unique property
  • Elements Interconnections Emergent properties are found for example in Water: oxygen and hydrogen cannot separately achieve the properties of water. ! H2 O Emergent
  • We are in the midst of the greatest interconnectivity process ever experienced by civilization. by Paul Butler The I is what is driving the system at this time.
  • It is impossible for Capitalism to remain outside the impact of this matrix structure. As an open system it shall necessarily be affected in its logics and primordial function. The dramatic changes we are experiencing in interconnectivity imply a dramatic impact on Capitalism as a system.
  • Internet of knowledge Internet of Collaboration This impact can be analyzed from a dual perspective: the Internet of knowledge and Internet of Collaboration
  • Internet of knowledge
  • Elinor Ostrom was awarded the Nobel Prize in Economics in 2009 On the basis of tools present the Web 2.0 she resolved some Governance issues of what is known as the tragedy of the commons. What is the tragedy of the commons? Any system human beings use, where the benets are individual, but the cost is shared among everyone, deteriorates: a meadow, a shing area, an irrigation area, the oceans, the Amazonia, the planet This lady installed in our agendas a new governance system which goes beyond the State and the Markets.
  • In her new book, Understanding Knowledge as a Commons Ostrom argues that there is an emergent in the networks which is being created by humankind a collective knowledge which is a commons available for everyone.
  • Networks are not just about interconnectivity between persons (which is what traditional marketing seeks) but the emergent of this system, which is a new capital. Its a social capital that didnt exist 4 or 5 years ago, which today is available for everyone and which may be managed from system level.
  • 0 10.000.000 20.000.000 30.000.000 40.000.000 2007 2012 2020 Volume of information humans shall be creating in the next eight years (MM GB) This is the volume of information which we humans shall be creating in the next eight years; it is exponential and being created collectively. Each piece of information is uniting persons and creating a collective consensus on that knowledge. It is a knowledge that is different, it is a knowledge emerging from the network. Those of us who have been raised under the centric logic dont really see it, but there is a generation who does; Lets see some examples.
  • This is Jack Andraka, who was 15 years old last year. He created a device for detecting early pancreatic cancer. When they ask him, How did you do it?, he replied: All the information is on Wikipedia or Google.
  • Easton LaChappelle created a kind of bionic arm which he operates from his phone But since it was too expensive to produce, He turned to a 3D printer, and for US$ 300, he himself created this device, exemplifying a new trend: the democratization of production.
  • This girl created a ashlight that is turned on by a hands energy. . she is fteen years old.
  • Examples abound for this generation that is demonstrating that the information necessary to hack science is available today from a collective knowledge commons. They are also demonstrating that knowledge for innovation is a commodity and that there is a logic and a language for detecting it. This generation of young people who dont yet occupy spaces of power in governments, markets or companies will very soon be there.
  • Thebasic economic resourceis no longer capital, nor naturalresources, nor labour. It is and will beknowledge. ! Peter Drucker Knowledge is Capital Capital is knowledge but the question is this: if knowledge is available to everyone, where will differentiation come from? ! In order to access knowledge we need a different language and logic.
  • Internet of Collaboration
  • by Paul Butler Again, a cortex of minds this huge network is exchanging ideas and solutions.
  • Something else is exchanged over this network: and here lies the basis of change in nancial industry. The network is exchanging collaborative money. The Pebble watch hit the market before the Samsung Gear 2, 68,929 people invested on this idea to make it possible. 15,482 comments, which show that these people did not only provide money, but also knowledge and ideas to improve that product.
  • 2013
  • Through the Lending Club people lend money to others. Its growth is exponential. 83% of this money renances bank money thus, there is a migration of individuals who, through this platform, are renancing money formerly nanced by banks.
  • This little device recently appeared on Kickstarter when one aims it towards any kind of food, in this case cheese, it tells us we have 28 grams of cheese, 71 calories, 6 grams of fat. This will change our diets, we will start seeing people strolling along supermarket aisles with their little devices, checking the apples for pesticides or ripeness levels. And all that information will be on the cloud.
  • Moores law is Flat Cost of human genome sequencing Gordon Moore, CEO of Intel, popularized Moores Law, which holds that a microchip doubles its capacity and halves its price every 18 month. This is the curve of the cost of human genome sequencing. This is the new Moores curve. Supercomputers plus new and intelligent algorithms have made the cost of sequencing genome disappear. !
  • We need to understand how this new Matrix works. It works under a different logic, what Jeremy Rifkin in his new book calls zero marginal cost. The marginal cost of production is practically zero. Lets look at some examples:
  • The New York Times stock price dropped 87% by 2009 after Facebook appeared; like every broadcast company they are currently trying to nd an economic model. The charts to the right show 70% drops in newspaper advertising and the production of CDs. Information and the production of information became free, and its very difcult to charge for that. ! In the information model:
  • The same impact was felt in the music and entertainment industry with Napster or uTorrent. The paradigmatic issue here is not that we have free access to music or movies. If you have ever downloaded a movie from uTorrent you know that these are movie parts that hundreds of people have in their computers, which arrive in your computer from different sources, after which an algorithm assembles the movie instantly. This is the DNA of collaboration that we should be willing to use our computers as sharing nodes in a network. The Paul Baran logic makes this system superior to former models. Today it is the nodes that carry the information and are willing to create a construct and emergent resource from it. ! iTunes found its business model from the long tail theory: it is much more protable to sell single tracks than CDs.
  • The economy of apps exploded, without which today we wouldnt be able to even call a taxi in some cities. Last year, over 70 billion apps were downloaded just from Apple; this meant US$ 10 billion in revenue. But perhaps the most surprising issue is the number of jobs generated by Apple for young people creating apps. There are around 700,000 people in the United States today whose business is the creation of new software App systems. A new generation that manages a new language, the language of code, which well probably consider the alphabet of the future. !
  • As regards to platforms, the most interesting one, challenging mainstream models is Etsy. Its a platform where 30 million people are exchanging products whose average value is US$ 15, mostly of the DIY type handicrafts, jewels, items of scant value. US$ 1 billion is transacted through this platform every year. Now, what happens when these craftsmen access a 3D printer at home? (which today can be bought for US$ 1000.) The democratization of production is already with us, and this platform will prove it as 3D printers get better and cheaper.
  • The advent of Crypto currencies to this new matrix is currently redening our monetary system as a whole. Ripple is a breakthrough worth mentioning: its purpose is to create a platform where all crypto and traditional currencies may be transacted without cost. !
  • Amazon is in the process of creating its Amazon Coins, so when we want to buy a book from Amazon we will probably be asked to use their currency, and there will be a platform for exchanging our dollars for that currency. The same could happen with Etsy Suddenly currencies might lie behind the ideology of a group of people or communities that transact their business or goods in a certain associated currency, since the cost of going into or out of another currency is zero, Etsy might decide to create Etsy" currency for its Etsy community. ++ Is it possible that we start seeing niche coins?
  • The opportunity here is to create a new social capital, a Knowledge Commons, in constant evolution and perfectioning, driven by the commitment of a community, a system, made up of interconnected elements with a purpose: Their purpose is simple, to better a resource. Give people the purpose of creating a Commons, the protocols and the organizational tools to manage it, and they will create and sustain this new capital which is a collective knowledge resource. Ellinor Ostrom and the Knowledge Commons
  • Each time the human race faced an overload of information, it had to create a new operational system, a new language. Humankind has created a new operational system
  • Hominids trying to hunt down a mammoth needed the spoken word as an order-providing system: at least four words right, left, attack or run in order to cut down that huge beast.
  • In Sumer, when there were agricultural surpluses, someone came up with the idea that, if three sacks of wheat were brought, three marks should be made on a clay tablet, which was dried in the sun, and there came writing and maths as two new languages. Not so as communication languages but as organization languages. A glorious period of innovation ourished: ceramics, architecture, plowing. All this happened over short period of time when diversity and information overload came together and created the need of new organizational languages.
  • Writing and mathematics brought a new overload which only science could solve. Today, every one of us who has attended a university has his or her own science degree.
  • Computers and informatics solved the science overload. In the face of what we have just analyzed, this new language, Internet, appeared and evolved very rapidly towards our current network language.
  • If we understand that there is a new network language, a new Matrix on which we now operate, we have 50% of the answer. Capitalism will probably soon understand this, and as a system, it will very rapidly change the conscience of its elements and its purpose.
  • www.ernestovanpeborgh.com Thanks www.elviajedeodiseo.com