Third Factor of Productivity
Highlights from the Abstract, (also see Full Text (.pdf))
For decades our understanding of economic production has been that individuals order their productive activities in one of two ways: either as employees in firms, following the directions of managers, or as individuals in markets, following price signals...
...This phenomenon, called free software or open source software, involves thousands or even tens of thousands of programmers contributing to large and small scale project, where the central organizing principle is that the software remains free of most constraints on copying and use common to proprietary materials...
In this paper I explain that while free software is highly visible, it is in fact only one example of a much broader social-economic phenomenon. I suggest that we are seeing is the broad and deep emergence of a new, third mode of production in the digitally networked environment. I call this mode "commons-based peer-production," to distinguish it from the property- and contract-based models of firms and markets.
Its central characteristic is that groups of individuals successfully collaborate on large-scale projects following a diverse cluster of motivational drives and social signals, rather than either market prices or managerial commands.
...In particular, this mode of production is better than firms and markets for two reasons. First, it is better at identifying and assigning human capital to information and cultural production processes. In this regard, peer-production has an advantage in what I call "information opportunity cost." That is, it loses less information about who the best person for a given job might be than do either of the other two organizational modes. Second, there are substantial increasing returns to allow very larger clusters of potential contributors to interact with very large clusters of information resources in search of new projects and collaboration enterprises. Removing property and contract as the organizing principles of collaboration substantially reduces transaction costs involved in allowing these large clusters of potential contributors to review and select which resources to work on, for which projects, and with which collaborators. This results in allocation gains, that increase more than proportionately with the increase in the number of individuals and resources that are part of the system...
[source: webcommunities mailing list]
This is a serious contribution and one that will take awhile to truely digest. His concept of Information Opportunity Cost could be a core model for defining the value proposition of social network analysis, but let me focus on the more generic benefits of this model.
Removing property and contract structures is a method of decentralization and transaction cost analysis may provide a method of defining the value proposition of decentralization. A scalable model of production with low transaction costs. However, in lieu of formal contracts, many structures will at least require social contracts.
Open spectrum works by removing property from the market structure (reducing a significant component of the total cost). Formal contracts, or licenses are replaced with open standards-based rules and definitions for minimizing interference. These standards are in essence a social contract between the firm and the state as a representative of the people. The social contract boils down to the firm gaining the benefit of the commons and state services provided they pay taxes and act as good citizens by not infringing upon the commons. Benkler may have hit upon a method of rationalizing how open distribution of public property rights increases productivity.
When the structure is not at the market level, but that of an ad hoc organization, social contracts serve as a governing principle between people. While it may be similar to a contract-based model of a market, it is helpful at least in abstract to think in terms of social contracts between individuals negotiating over social credits. When an individual makes a contribution to an open source project they do so for a social purpose. The prestige, feedback, validation and relationships they gain in return for their contribution is continually valued. The valuation of social credits is not explicit, the valuation methodology varies widely from person to person and in many cases takes place in the subconcious. Individuals monetize these credits in a variety of ways. But it nonetheless exists, motivates and is at the core of emergent structures.
In many ways this model is analagous to how philanthropy works. The public sector is governed by a managerial model. The private sector by both contract and managerial. Productivity in both sectors can be relatively measured. But the non-profit sector, whose output of production is social goods, currently lacks a generic method to relatively value its productivity. Why would anyone work for little or no pay but for the social credit? Why would someone donate their money, aside from tax breaks, except to recieve social credit from their peers? You can call it something else, but the social aspect is dominant.