The Direct Economy puts us in a world that goes far beyond collaborative consumption or SMEs empowered by technology: we’re talking about a world where production and community are joined and knowledge replaces capital.
Around the year 2010, John Robb, known for his efforts in the theoretical development of resilience, decided to develop a consultancy. He presented himself as an economic agent and discovered that he had different resources he wasn’t using. Incorporating them into his activity would contribute to diminishing his dependence on his main economic source—consulting. John Robb designed a set of activities, and concentrated on get them moving. He became a small agricultural producer and rented out different spaces in his house, besides selling advisory hours through tele-presence, writing books, and writing his blog. He started to refer to this phenomenon as the “direct economy,” a formula that allowed him distribute his income across different activities, all of them disintermediated.
While John was coming to this approach by seeking the reinvention of the North American family as a productive unit that is resistant to crises, in las Indias, at the same time, we were starting to lay the foundation for the direct economy as a result of the application of free knowledge and the reduction of the scale of production.
In our view, the direct economy brought together a whole series of productive and commercial activities of tiny scale that, thanks to the Internet, were gaining a large scope with very little need for financing. In fact, the combination of software and free knowledge, online advance sales and “crowdfunding,” was saving already a growing number of projects the search for shareholders and credit. On the other hand, the flourishing world of mobile apps was serving as a model for a whole new sector of micro-industrial SMEs. This was a sector centered above all, though not solely, on consumer electronics, that used traditional industry as a sort of gigantic 3D printer to manufacture ever-shorter runs of all kinds of products at low prices.
That is, the power of the direct economy does not reside in the possibility of getting extra income from underused consumer goods (house, car, tools…), which is the core of collaborative consumption, but rather in the possibilities offered by networks, disintermediation, definancialization and the “commodification” of the industrial work of entering the market with innovative products despite having a very small scale.
Why does the direct economy push society towards abundance?
The direct economy is the most radical expression of the reduction of the optimum scale of business. The development of technologies over the last decades of the twentieth century and of what we’ve seen of the twenty-first century has made it possible for the manufacture of sophisticated objects, from cellphones to electric cars, to be accessible for really small groups of people. The changes this holds in store are as radical as they are surprising.
In the first place, while it seems obvious, for the creators of an industrial project to be able to finance their production without the need to give up ownership is a true historical novelty. Ultimately, the economic system that we have known and lived with our entire lives was called capitalist because those who provided the capital were considered the legitimate owners of a company.
Secondly, this is possible thanks not only to advance sales or private donations that arrive via the Internet. It is also due to the fact that the large majority of these companies intensively use free software, which is to say, they benefit from existing capital, which they access freely and for free. What replaces monetary capital is less the value of the creative and technical contribution of the entrepreneurs, and more the prior knowledge accumulated communally and freely.
To put it another way, in the core of the direct economy, we already see the transformation of capital into free knowledge, the direct application of knowledge to production with no need for the formerly necessary mediator of social capital and credit.
This is more than a happy historical coincidence. The direct economy is the change in the modes of productive organization that take place among when the optimum scale of production approaches the community dimension. If we look at the structure of businesses in the direct economy, we’ll find they’re mostly made up of groups of 6 to 10 people. They transfer the knowledge that they possess, and design and offer products in the market. The community of concrete knowledge and the community of production begin to merge, while accumulated knowledge takes a directly useful, free and accessible form: the commons.
What are big companies doing?
Before getting into the social and philosophical consequences of all this, which are very important from the point of view of abundance, it’s interesting to pause for a moment to observe how big, multinational businesses have joined this movement as a way of relieving the growing inefficiencies of their own over-scaling.
As for products, it’s more and more common to hear announcements of pre-sale campaigns or even of production on demand: these minimize up-front investment at the same time that they make it possible to try out a new product in the market. Today, companies like Sony routinely measure the success of new lines of business with secondary brands on “crowdfunding” platforms, looking to minimize even the reputational risk of a possible failure. The use of crowdfunding as a way to capitalize a project has become natural.
Another growing trend in the incorporation of the direct economy by the giants of scale is to carry out direct public offerings (“DPOs”). This is a formula that allows a company create and administrate shares directly, without resorting to an intermediary. Businesses like Ben&Jerry’s used it as the way to finance their expansion in the US and into Europe. The company has the possibility to choose who the offer is directed to—so, for example, it could be exclusive to their workers and family, or citizens of the city where it’s based. At the level of local development, the use of direct public offerings by businesses opens up the possibility of locally organizing funding systems that local businesses join and in which citizens-investors own shares of the business. That way, not only would funds be created to promote development, social and democratic control of the businesses would also increase.
What about scales below the optimum?
Meanwhile, the supply of services available on the Internet is being taken advantage of by language teachers, personal trainers, therapists, nutritionists… access to services at a click has become more and more frequent. The Internet operates as disintermediating agent between client and provider. An increase of supply is produced, which incentivizes price differentiation between competitors, but it also encourages them to innovate in the design of services or in user experience.
Big businesses and professionals are two sides of the same coin. Both benefit from the reduction of the optimum scale of production as it approaches a community dimension. But this is not, by far, the most relevant thing.
Where the Direct Economy is leading us
We’re talking about small groups in which the difference between knowledge, applied knowledge, and practice starts to break down. In these groups, making the leap to production doesn’t require capital like something external and superior, which is capable of reorganizing the whole process in its image and likeness. In such groups, the division of labor and hierarchy fade in a way they never would in commercial businesses. The direct economy is the natural place for “multispecialization.”
The convergence point of the trends in the direct economy is the “productive community”: a group of people whose knowledge is converted directly into production, and whose process of generation of knowledge is difficult to distinguish from the productive process.
But beyond this, there’s still more. Theres a space that’s still closer to abundance, which is fed by this new communal world: P2P production. We’ll talk about that in the next post.
Translated by Steve Herrick from the original (in Spanish)
It may not be very all that instructive to think of Ben & Jerry’s in relation to the growing trend by the giants of scale to carry out direct public offerings. Large organizations as well as small ones today face a very different world than that in which Ben & Jerry’s operated in 1984, the time of its first and limited Vermont-only offering.
Although at the time the offering was a very creative financial move, Ben & Jerry’s size and production was minuscule compared to other ice cream producers and continued to be so for some time, despite the direct public offering. In fact, in 1986, just two years after their direct public offering, Ben & Jerry’s contracted with Dreyer’s Grand Ice Cream to produce and distribute Ben & Jerry’s products in markets outside of northeastern United States.
Ben & Jerry’s also had another equity offering in 1985. This was a more traditional SEC-regulated offering with an underwriter and Ben & Jerry’s was subsequently listed on the NASDAQ national market.