The following is a draft editorial I would like to see published in the mainstream press.
In the meantime, here’s an overview of how a social innovation policy could mitigate the effects of the meltdown. I’m addressing this to a hypotethical Asian audience, but it could be applied anywhere.
According to the Asian Development Bank the fall in the value of financial assets may have reached $50,000bn, with estimated losses in Asia (excluding Japan), of at $9,625bn. Developing countries faced a financing gap of between $270bn and $700bn a year as capital flows out of their countries. Clearly, what the global economy is facing is not just a recession, but a long process of de-leveraging and deflation, which may last between a half and a full decennium to be resolved (it may also last a lot longer, as previous Depressions have shown).
Two things are also equally certain: the export-based models of Asia will catch a serious flu, and the necessary restructuring to more internal market dynamics will take a lot of time in a under-capitalized environment. This is the bad news about the financial tsunami that we are all familiar with, but perhaps push away to easily to focus on the good times which may come back eventually.
The question is however: what do we do in the meantime, in particular with the hundreds of thousands of university graduates that will come out of the educational system, and that will face the prospects of a number of years without a job? Such a long period of inactivity may be very detrimental, not just as wasted potential for the country, but also because it disempowers those graduates from the needed experience to keep and augment their expertise. Not to speak of the social dislocation which disaffected youth may produce to fragile societies.
When the world of business falters, is there another way? Is there a policy which may obtain large positive externalities, i.e. the highest possible value for public investments?
The positive and hopeful answers is: yes there is, and it all has to do with the new potential of what we can call “social innovation”, or “social production”.
To understand the logic of this promise, we can look to a less severe, but nevertheless serious crisis: that of the internet bubble collapse in 2000-1. As an internet entrepreneur, I personally experienced both the manic phase, and the downturn, and the experience was life changing because of the important discovery I and others made at that time. All the pundits where predicting, then as now, that without capital, innovation would stop, and that the era of high internet growth was over for a foreseeable time. In actual fact, the reality was the very opposite, and something apparently very strange happened. In fact, almost everything we know, the Web 2.0, the emergence of social and participatory media, was born in the crucible of that downturn. In other words, innovation did not slow down, but actually increased during the downturn in investment. This showed the following new tendency at work: capitalism is increasingly being divorced from entrepreneurship, and entrepreneurship becomes a networked activity taking place through open platforms of collaboration.
The reason is that internet technology fundamentally changes the relationship between innovation and capital. Before the internet, in the Schumpeterian world, innovators need capital for their research, that research is then protected through copyright and patents, and further funds create the necessary factories. In the post-schumpeterian world, creative souls congregate through the internet, create new software, or any kind of knowledge, create collaboration platforms on the cheap, and paradoxically, only need capital when they are successful, and the servers risk crashing from overload. As an example, think about Bittorrent, the most important software for exchanging multimedia content over the internet, which was created by a single programmer, surviving through a creative use of some credit cards, with zero funding. But the internet is not just for creative individual souls, but enables large communities to cooperate over platforms. Very importantly, it is not limited to knowledge and software, but to everything that knowledge and software enables, which includes manufacturing. Anything that needs to be physically produced, needs to be ‘virtually designed’ in the first place.
This phenomena is called social innovation or social production, and is increasingly responsible for most innovation. In an era where most educated people have their brains interconnected through multiple networks of their choice, having an isolating vision of “us”, active producers, vs. them, ‘passive consumers” is a dangerous conceit. In fact, no single closed company can compete with an open business ecology practicing co-design, co-creation, or crowdsourcing in all their forms. An important corollary of enabling such open business ecologies is a new attitude to intellectual property. If you want to privatise the work of the collectivity, no one is willing to collaborate for your exclusive private gain!! Therefore, those companies that enable and empower social innovation, that use open forms of intellectual property, are more successful in attracting cooperation, and can built their business on the basis of a thriving knowledge commons. This has the additional benefit that everyone can benefit from every innovation. Does it work? Of course, the Linux economy is now estimated to be a
$36b economy, and that is just one of countless free software-based sectors. Chris Anderson of Wired magazine estimates the annual total value of this type of economy at $300 billion. Think also about user-generated content as a subsector: the new successful companies, like Google, Youtube, Flickr, Twitter, etc.. are not creating value themselves, but rather enabling user communities to create value through their platforms. As a rule, all successful social production efforts end up creating a vibrant business ecology that both sustains it and profits from it. Already in countries like Latin America (like Ecuador), and in some states in India (Kerala), it is said that nearly every free software programmers has a job (note that I haven’t verified this empirically, but it was stated by free software developers at two local conferences I attended at the end of last year).
But what does this all mean for the Asian economic crisis and the plight of the young people that we touched upon at the beginning? The good news is this: first, the strong distinction between working productively for a wage, and idly waiting for one, is melting. All the technical and intellectual tools are available to allow young people, and older people for that matter, to continue being engage in value production, and hence also to continue to build their experience (knowledge capital), their social life (relationship capital) and reputation. All three of which will be crucial in keeping them not just employable, but will actually substantially increase their potential and capabilities. The role of business must be clear: it can, on top of the knowledge, software or design commons created by social production, create added value services that are needed and demanded by the market of users of such products (which includes other businesses), and can in turn sustain the commons from which it benefits, making the ecology sustainable. While the full community of developers create value for businesses to build upon, the businesses in term help sustain the infrastructure of cooperation which makes continued development possible.
But what can and should be the role of the state in this process? I’m advocating the concept of a partner state, which enables and empowers social production to occur.
First of all, public authorities should make a high priority to establish a fully functional broadband infrastructure, which also reaches the rural majority, and without which scalable cooperation is impossible.
Second, public authorities have an important educational role regarding the commons and the public good. It should create a Commons Institute, which promotes such practices in key areas of social life, teaching users about open licences and their benefits. In Brest, France, the city authorities have been instrumental in supporting and sustaining the cultural production of their citizens, which has not only enriched the local cultural life, but attracted more tourists. This general support of social innovation may and should include the creation of public co-working spaces that are linked to processes of business incubation.
Third, public authorities should be a business incubator. In Toronto, for example, the Open Source Business Resource has been instrumental in supporting free software start-ups, creating a local business ecology and open source service industry that support local businesses in their adaptive processes.
Fourth, public authorities should reward, under the forms of awards, prizes and various forms of public patronage, the work of the key individuals who drive the commons forward. The situation of open knowledge, software, and design is very similar to 18th century science, which was supported by a network of patrons. For every collaborative social production process, there is a core of individuals driving it forward, often propelled by motivations that are related to the creation of a public good, and without whose engagement, no business ecology can grow. It therefore makes good sense, both in business and in policy terms, to create avenues for such public patronage.
Finally, social innovation should not be seen in isolation, but as part of a growing and interconnected set of trends towards ‘peer to peer’ infrastructures.
Next to the well-known internet based ICT infrastructure, the following are also coming into play, and also offer important suggestions for anti-crisis measures. They are important to increase the resilience of local economies in periods of globalized crisis:
– Peer to peer energy grids: Obama’s Green Stimulus shows the emergent understanding that the energy infrastructure needs to change in an era that combines Climate Change and Peak Oil as major challenges for the survival of human society. In particular, resilient societies cannot afford a unique dependency of depletable fossil fuels. A p2p energy grid allows citizens to invest in home and neighborhood-based energy production based on renewable energy, which can be sold back to the grid or shared with others more in need. It strengthens local communities in times of energy crises. Think of the enormous advances that could be made, if Thai engineers were stimulated to work on open designs for solar energy, which could become the basis of a thriving new production sector!
– Complementary peer to peer monetary systems: as shown by the success of the WIR system in Switzerland (which has proven counter-cyclical effects in times of economic crisis), and by the proliferation of regional currencies in the Germanic-language countries of Europe, but also Thailand’s very own Santi Suk, such systems are crucial to protect and sustain local economies in time of duress. Such currencies allow a much greater part of local value to stay within the community that produces it, strengthening the resilience against social and economic crises. They are immune to the pressures that may affect the national currency.
In conclusion, what does a social innovation stimulus plan achieve?
In times of capital scarcity, it allows the continuation of the process of value creation, improves the human capital of graduates but also of the whole participating population, and creates a resilient ecology of businesses that cooperate with the social innovation communities. If public authorities sustain the growth of this new fourth sector, it creates much stronger and resilient economies that can withstand the storms of globalization. Value that is created in sectors relying on social production and open licensing, is not destroyed if a intellectual-property holding company goes belly-up, but remains usable to the other businesses and participants of the knowledge commons.