P2P practices as condition for the next long wave

This article, previously published in Re-public (and written in cooperation with Franz Nahrada and Gleb Tyurin), takes at hypothesis that a new long wave of strong capitalist growth is still in the realm of possibilities. My own position is that this still can happen, provided strong structural reforms would be undertaken, which is not very likely at this very moment, but could still take place a few years down the road under stronger social pressure. I do not believe however, that humanity has the time for a full Kondratieff wave of 50-60 years, given present danger signs for the biopsphere, and energy and resource depletion generally. In other words, if a there is a uptake of Kondratieff, it is likely to go only half-way before a truly systemic crisis occurs, and humanity has to choose between either regression, or a phase transition to a new political economy.

Michel Bauwens:

“The economic crisis, which slowly affects all activities globally starting from the United States, is neither a “regular” crisis nor is it a “final” crisis; it is a period of fundamental changes that affect everything from economy to politics to culture. That’s why I would like to speak in more detail about the nature of the present crisis, and how we can realistically expect a renewed period of growth (and which type of growth). Second, what this could mean with special attention to the role of rural villages in this process of renewal. My understanding of the present crisis is inspired by the works of the famous Russian economist Nikolai Kondratieff, whose ideas nowadays are developed and updated by Carlota Perez, Lucy Badalian and Viktor Krivorotov. The essential understanding of these approaches that economic history can be understood as a series of long waves of technological development, embedded in a particular supportive institutional framework. These long waves inevitably end up in crisis, in a Sudden System Shock, a sign that the old framework is no longer operative.

Why is that so?

These waves have a certain internal logic. They start with a period of gestation, in which the new technology is established, creates enthusiasm and bubbles, but cannot really emerge because the institutional framework still reflects older realities. This is followed by a period of maturation, marked by institutional adaptation, massive investment by the state, and productive investment by business, leading to a growth cycle. Finally, a period of decline and saturation, in which the state retreats, business investments become parasitic, leading to a contraction cycle with speculative financial bubbles, which ends in a Sudden Systemic Shock (1797, 1847, 1893, 1929 or 2008).

What are the elements of a long wave?

Historically, we can observe that each long wave cycle was interplay of several factors:

1) A new form of energy: the UK domination was based on coal; the US domination was based on oil

2) Some radical technological innovations (no more than 3 according to the authors); The 3 last ones:

* 1830: Steam and railways
* 1870: Heavy engineering
* 1920: Automotive and mass production

3) A new ‘hyper-productive’ way to ‘exploit the territory’; this is where land use comes in. In the last period: industrial agriculture and the ‘Green Revolution’ where responsible for a hyper-productive agriculture. (However, there are serious problems of sustainability in this model which need to be solved for the next wave.)

4) An appropriate financial system: the new public companies, New Deal type investments (such as the Marshall Plan) in the growth cycle phase, morphing into the parasitic investments of casino capitalism in the second phase. In this latter phase, the financial system overshoots the capabilities of the productive economy, becomes separated from it, and starts investing in parasitic investments. At that point financial capital tends to be disruptive to production to maintain capitalization.

5) A particular social contract. Here also, we can see waves of more intensive ‘socialization’. For example, the Fordist social contract created the mass consumer in the first phase, based on social peace with labour, while in the second parasitic phase, the part going to worker’s was drastically reduced, but replaced by a systemic indebtedness, leading to the current Sudden System Shock.

6) As we mentioned above, each wave has been dominated by a particular great political power as well, and in the second phase of expansion, a new periphery is awakened, creating the seeds for a future wave of potential hegemony of new players.

Roots of the current crisis

It is important not to forget the essential characteristics of the contraction cycle: what enables growth in a first phase, becomes an unproductive burden in the second, declining phase of the wave.

If we review the 6 factors, it’s easy to see where the problems are:

– The era of cheap abundant fossil fuels is coming to an end; they will be increasingly supplemented by renewable energies, though the countries that have supplies of increasingly scarce supplies will play an essential role in the transition period and have special options to manage the transition.

– The era of mass production, based on the car, requires a too heavy environmental burden to be sustainable.

– The present-day way of using land and soil (which is mostly industrial) is not sustainable in the long term because it causes the exhaustion of soil and is based on depletable petroleum derivatives. It’s too intensive exploitation while leaving millions of hectares are not used at all. It will need to be augmented by smart more precision-based agricultural techniques that use IT and global collective learning; these new techniques will allow the exploitation of new, formerly unproductive territories, as was the case in previous long waves.

– The financial system is broken and the $10 trillion bailout enacted in Western countries drains productive investments towards unproductive parasitic investments. Similarly to a losing gambler in a casino, existing players will tend to play for higher and higher stakes hoping to undo their inevitable defeat, thereby destroying valuable means that could be used for the productive economy. A good example is the “saving of the car industry” which is structurally conservative.

– The Fordist social contract, broken in the 80s, has led to the increased weakening of the Western middle class and a generalized precarity, is no longer functioning after Sudden System Shock and may lead to a renewed period of civil unrest.

– The old dominant power, the U.S. can no longer afford its dominance, and has awakened the periphery. The powers that see the opportunity to compete are looking for new societal structures that help them emerge. They cannot rely on the strategies and dwindling resources of the dying long wave to achieve these goals, but must invent new ones.

Seeds of the new

Smart precision-based energy usage will make more use of renewable energy to supplement the slowly declining stock of fossil fuels. Solar energy will be the backbone of renewables but can be supplemented by other forms. Countries with heavy exposure to solar input and large reserves of land and biomass will be particularly well placed in this transition.

The era of mass production is ready to be replaced by more local production in small series, based on developments such as flexible and rapid prototyping based manufacturing, mass customization, personal fabrication and additive fabrication, multi-purpose machinery. This flexible system of manufacturing is faster, cheaper, more adaptive, more compatible with the solar and renewable energy and can only thrive by deepening participative engagement, thus requiring the re-awakening of production intelligence and personal initiative that were discouraged by the various forms of the industrial system, including the systems based on central planning.

The new economy will be an economy of renewable resources, that’s why access to land and soil will become one of the main sources of abundance again if it will be combined with access to new information technologies and information exchange. Cybernetic – inspired approaches to agriculture such as permaculture (based on organic production) use diversity as its backbone and work with the most sophisticated feedback cycles of nature and rely more strongly on the specific knowledge of local farming communities. The combination of global internetworked learning of these farming communities along with the judicious use of IT infrastructures, and the increased use of distributed agricultural machinery (with a lower threshold of access) will allow the exploitation of new lands. Every previous long wave has been marked by the exploitation of formerly unproductive land. Smart agriculture will both allow more intensive use of existing land and more extensive development of new lands.

The periphery of newly emergent countries has been awakened and will in all likelihood lead to a dominance of the East-Asian region. However, opportunities for other emergent players are still open, providing they find the appropriate local integration of their abundant productive resources of the new long wave. In this context, we can see the emerging success of Brazil, while Russia has its enormous landmass as immense and still under-exploited productive resource.

Peer to peer and the new social contract

A new long phase has been historically associated with an upsurge of the role of the state and the public sector, which alone can undertake the necessary investments which private investment cannot take up in the early phases.

The global neoliberal capitalism which started in the 80?s under Western dominance has effectively collapsed. Many important business sectors cannot survive without substantial governmental support. Even the icon of the American free market economy of the previous long wave- General Motors, has become largely government property. We see the return of state regulations and as they say, “we are all Keynesians now”. But the state alone will not be able to carry the full burden for finding solutions to the existing problems. A new contract (a ‘new’ New Deal) of the State with business and society is needed. The biggest interest and biggest benefit of this new state is its ability to make society more active and more self-sufficient.

So, we need to be aware of one of the fundamental characteristics of the new period, which is a revival of the role of local as well as affinity-based communities. The internet is enabling the self-aggregation of communities in the creation of common value, i.e. through peer production, crowdsourcing, co-design and other forms of ‘open innovation’. Global communities have shown themselves capable to be hyper-productive in the creation of complex knowledge products, free and open source software, and increasingly, through open design associated with distributed manufacturing.

This means that a hybrid form of production has emerged that combines the existence of global self-managed open design communities, for-benefit associations in the form of Foundations which manage the infrastructure of cooperation, and an ecology of associated businesses which benefit and contribute from this commons-based peer production. No matter how strong a company or government research institute, it will always be outcompeted by global networks of innovation – and therefore more and more companies worldwide are switching to this “open innovation” model.

As both centralized planning and low-regulation neoliberal markets have shown their limitations, the state is acquiring a new role as enabler of these integrated forms of production, which require complex integration. No state can compete globally without enabling social innovation and expanding its support not just for private companies but to the innovation networks that sustain them. These innovations networks are both global, but at the same time they enable a relocalization of the productive economy, with many small companies producing more for local markets and re-invigorating domestic economies.

Knowledge transfer in this mode does require an infrastructure and literacy that have to be built over time, both by cooperation between communities, interlinking with the global networks, but also crucially with support of an enabling infrastructure and education and training which are a proper function of public authorities.

It requires special agencies that can work with innovations, providing training, enabling information exchange, and what is called social design (they help to create new institutions, structures), adopting and enabling new practices. These agencies act like hubs, and they are crucial elements of development. They are similar to the endeavors like those of Franz Nahrada and Gleb Tyurin in Russia.

The lead that the Russia has already undertaken in the development of free and open source software shows that it is entirely possible to envisage a pro-active role in this respect. What needs to be understood is that the pattern to promote software development can be generalized to the promotion of open design development, including applications in the field of farming and land use.

In Western countries, especially the U.S., a new type of companies, which enable and empower the social production of value, has become the seeds for the dominant companies of the future (Google, eBay, etc). Companies will need to open up to co-design and co-creation, while the distribution (miniaturization) of the means of physical production, increases the possibilities for smaller more localized production units to play more essential roles.

There are increasing signs that the role of solely profit driven multinational companies, without any roots in local communities, is reaching its historical end, and will be replaced increasingly by new models of entities combining profit with the realization of social and public goods. The sole focus on income and profit-maximization needs to be supplemented by a focus on outcomes and purpose, which is itself a condition to obtain the necessary mass participation in open innovation.

The emerging model is that open innovation communities, foundations, or public institutions set the context for purpose-driven outcomes (for example the successful complex development of the Linux core development), which are then brought to the market by businesses. Socially-conscious investment, sovereign wealth funds, micro-finance, social entrepreneurship, fair trade and the emergence of for-benefit entities point to this new institutional future of entrepreneurship. For the state form, this means morphing from the welfare or neoliberal state models, to that of the Partner State, which enables and empowers social production. In this Partner State model, the state sees itself as steering, supporting and enabling local communities and business ecologies and their intersection with global networks of information exchange, through supportive development agencies.

In this scenario, we combine the necessity of a strong state, which is itself strengthened by the existence of horizontal competitive innovation networks (some of them supranational by their very nature); this in turn creates a stronger, locally-based domestic economy based on distributed manufacturing that now reaches the rural areas and leads to unprecedented growth there. The infusion of knowledge and IT in local communities, breaks their cultural and scientific isolation, and makes them attractive places to live, while still being related to urban centers for cultural diffusion.

We started this essay with pointing out that each long wave is also characterized by a new, more inclusive, social contract.

The new social contract will, therefore, mean:

– Expanding entrepreneurship to local communities and the base of the pyramid; this can rely on both horizontal linkages and the ‘vertical’ support of the public authorities.

– New institutions that do well by doing good (purpose-driven, outcome ‘for-benefit’ based institutions), i.e. income and profit are used in the context of providing social goods

– Social financing mechanisms based on peer to peer aggregation which can both obtain and distribute financing on a more fine grained level

– Mechanisms that sustain social innovation (co-design, co-creation) and peer production, organized by public authorities

– Focus on more localized precision-based physical production in small series, but linked to global open design communities

– Less discussed but also important is the spiritual dimension. Because post-industrial development is akin to pre-industrial development in its attention to the ‘immaterial’ aspects of development, (as well as localization and the stress on land-use) it connects back to the traditional pre-modern value systems, which are still very much alive in large parts of the world. Examples of this are the success of Islamic banking, the revival of Buddhist economics in the Himalayan belt (including the royally-inspired self-sufficiency economics in Thailand), all of which point to this connection with what we could call ‘neo-traditional economics’. Successful sustainability of the new economic forms will be co-dependent on ethical and spiritual reform, which can be inspired by the self-sufficiency basis of the traditional spiritual forms.”

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