4. The Economics of Social Production

From Yochai Benkler - Wealth of Networks
Revision as of 18:06, 20 August 2009 by Iwearshoess (talk | contribs) (Added notes to the Key Concepts section)
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Table Of Contents


Summary of the chapter



Social Production: Feasibility Conditions and Organizational Form

Transaction Costs and Efficiency

The Emergence of Social Production in the Digitially Networked Environment

The Interface of Social Production and Market-Based Businesses


Sources cited in the chapter

Other relevant readings

Case Studies

Supporting examples

From page 120-121

"... Goods, services, and resources that, in the industrial stage of the information economy required large-scale, concentrated capital investment to provision, are now subject to a changing technological environment that can make sharing a better way of achieving the same results than can states, markets, or their hybrid, regulated industries..."

John Seely Brown makes the point for sharing even in capital-intensive markets such as the auto industry where he contrasts Toyota's cooperation between and among its suppliers to Detroit's command and control relationships with its suppliers. This is talked about in his new book "The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization" (Amazon link here[1]). I have not read the book yet, but he talks about it in a podcast which is available at ITConversations.com (link here[2])

One other point. Sharing presumes more transparency in the production process and results in types of sharing that not only involve contributions of inputs/goods/time, but contributions of better methods of achieving the goal of sharing. Think cooperative networks of faculty sharing their course notes and the result that this makes it easier for new entrants into the community (those teaching new courses and those new to teaching).

A better example is the use of Linux to teach Computer Science students. Before open source software, the no code was available for students to study (or to contribute to). The ability to share and the incumbent transparency it presumes is a motivator for new entrants to join the community vs. closed communities that you cannot join or contribute to - even if you wanted to.


Key Concepts

Why do people participate and collaborate outside of the profit motive? Why is this becoming a factor now? Is it really efficient? (91)


  • Extrinsic Motivations: Imposed from the outside such as money, rewards, of threats of punishment. (94)
  • Intrinsic Motivations: Come from within such as pleasure or pain (94)

Some studies have shown that adding money value to activities previously done for intrinsic motivations actually lowers the level of activity. (94)

Sociology-based view of motivation- two ultimate rewards for humans in a social structure (95):

  • Economic Standing
  • Social Standing

Some resources are more efficiently mobilized by social forces rather than monetary wealth (95). However, such resources are culturally contingent and cross-culturally diverse (96) as well as the relationship between economic and social rewards.

The amount which individuals are motivated by social rewards also varies between people. Yet, due to technological innovation, there are now conditions under which these social motivations can be turned into an important modality of economic production (98).

Social Production: Feasibility Conditions and Organizational Form

All technological factors necessary for production activities are under the control of individual users, yet people still must operate within the profit motive (we have to work to put food on the table). However, both human creativity and computational power exist in large quantities of excess. This excess is now able to be harbored through social networked technologies (99, 100).

Two characteristics that underly the success of social networked technologies:

  • Modularity: The extent to which a project can be broken down into smaller components, or modules, before it is assembled into a whole.
  • Granularity: The size of the modules in terms of time effort needed for production- fine grained modules can be created quickly and simply, while large-grained modules require more time and effort.

A successful peer-production project must have a significant portion of its modules be fine-grained (101). Not all chunks, however, must be fine-grained, as they can be structured so that different individuals can contribute diverse levels of effort based on interest, availability, and abilities. In fact, the entire World Wide Web is organized in this way (102). Yet the Web's modules (website) require far less cooperation between parts than peer-production processes.

Peer-Production cooperation is usually maintained by a combination of (104):

  • Technical architecture
  • Social norms
  • Legal rules
  • Technically backed hierarchy validated by social norms

3 characteristics make non-proprietary, non-monetary production outside the traditional market or firm possible (105):

  • 1. Ubiquitous hardware- The physical machinery required to participate is distributed nearly equally throughout the population
  • 2. Raw materials are public goods, and their marginal cost is zero- The product in created from existing information, knowledge, or culture
  • 3. Platforms, models and social norms are modular- Allows people to participate different amounts based on diverse motivations

Transaction Costs and Efficiency

Commons-based peer production and social production are sometimes more efficient than market-based production (106)

2 scarce resources in information production (107):

  • 1. Human creativity, time and attention
  • 2. Computation and communications resources

Human Creativity, Time and Attention

  • In a firm or organization, individual effort is difficult to price, and therefore market mechanisms become more costly to maintain efficiently (110).
  • In a commons-based peer production model on the other hand, the larger available talent pool is better structured to identify the best person to produce a specific component of a project (111).

Computation and Communications Resources

  • The lack of specification in human-power also translates to physical resources (112).
  • Computers, wireless transcievers, and Internet connections are “shareable goods.” Users in a wealthy society purchase computational power in discrete, “lumpy,” units. Therefore, they buy more computational power at a relatively low price than what they need on a daily basis, leaving the extra power unused. The ability to share this excess capacity makes personal computing “shareable.” (114)

Because social sharing requires less cost per transaction, it has an advantage over market-based mechanisms for reallocating the excess capacity. (114). This is reinforced by the “motivation crowding out theory:” Fewer owners will be willing to sell their excess capacity cheaply than to give it away for free in the right social context (115).

The Emergence of Social Production In The Digitally Networked Environment

Although culturally driven and cross-culturally diverse, sharing based on social norms and social capitol has always existed. Yet changes in technology has caused social sharing and exchange to become a viable mode of production by lowering the capitol costs required for effective individual action (121).

The Interface of Social Production and Market-Based Business

The rise of social production does not require a decline in market-based production, yet it will effect the shape and conditions of market action (122):

  • New sources of competition- Peer-produced products compete against firm-produced ones
  • Change in opportunity spaces- Anyone can, and many will participate
  • Different relationships between firms and users- Consumers are also producers
  • Redefine the boundaries of the firm- Bringing peer producers into the firm
  • Redefine the role of management- Must identify patterns in the community and trust that they are correctly judging the patterns from the perspective of the users rather than the desires of the firm

It will be more effective for companies to adapt to and adopt rather than to fight these emerging changes(123). As businesses begin to adapt, the platforms and tools for collaboration improve, the opportunities and salience of social production increases, and the political economy begins to shift (127).