09 November 2007

The Post-Information, Post-Revolutionary Entrepreneurial Economy

It’s popular to point out that we’re in an information economy. Popular but a little dated. By 1900, we had universities producing knowledge workers, albeit in small numbers. By 1900, we had telegraph and telephone. Credit and retail and their interdependent relationship had already begun. The rest of the century was a ride on this wave of information, knowledge work, and credit-fueled consumption.

It’s true that information matters today, but in a way very different from how it mattered in 1900. Back then, the point was to get more information. From telephone to IBM to Google, fortunes were made by companies able to provide more information since that time. Like water to a person living in Death Valley, it didn’t ever seem possible to get too much information. By contrast, in today’s world we’ve reached a tipping point. It is no longer information that limits but, rather, attention. We have too much information. The life of person living in Death Valley and a person living in Puget Sound are both defined by water, but the relationship is very different. Information matters, but not as something that is scarce and that limits.

The question now is how to live in a world with a glut of information. Once the information has been dispersed, how to again make progress? Not by dispersing more information but, rather, by dispersing decision making. This is going to radically change the distribution of power and the role of the employee within corporations. It will lead to the popularization of entrepreneurship

This tipping point of information will no more lead to the entrepreneurial economy than the growing complexity of the industrial economy led to the information economy. Other factors will come into play. But basically, the shift is the same. By about 1900, the limit to progress had shifted from industrial capital to knowledge workers, from factories to information. Today, the limit to progress has shifted from knowledge workers to entrepreneurs, from the worker as someone handed a script to the worker as someone expected to improvise.

In the most advanced economies – like the U.S. – more than 90% of the work force is employed within an organization. It’s doubtful that we’ll ever return to the days of the 17th century when each person was his own agent. The entrepreneurial economy will build on the advances of corporations and specialists just as the information economy built on the advances of factories and financial markets. It is not plausible that even 10% of the current employee population will leave organizations to form their own business. It is plausible that their roles within these organizations will fundamentally change.

In today’s world, the choice between employee and entrepreneur is quite binary. You either take the risk of starting your own business or you remain an employee. Left unexplored is the vast space between those two extremes. One of the main social innovations in the next decade will be an attempt to create way stations between those two extremes, offering employees more of the risk – return profile, and autonomy, of an entrepreneur and, for the particularly savvy corporations, offering entrepreneurs more of the infrastructure support and relative security of an employee.

But this matter of popularizing entrepreneurship is deeper still, getting as it does to the crux of progress.

Entrepreneurs as we normally think of them create and define a business. They perhaps don’t have as much freedom as we’d like to imagine – they do, in fact, have to meet a market need and run a business efficiently enough to make a profit. But they do get to define the business. For many, they represent the epitome of freedom. If they’re successful, they don’t even have to work in the business – it generates an income for them. But even if they have to – or choose to – immerse themselves in the work of the business, it is of their own defining. They don’t impose upon themselves any of the incessant meetings, odd tasks, and stupid policies that knowledge workers within so many corporations grate against.

And progress as its been embraced by the West is not about higher levels of enlightenment, more sex appeal, lower body fat, more knowledge, or more wealth. That is, it could be about any of these things but isn’t about any one of these things. Progress is about autonomy for the individual. If you have a car, you have more autonomy than a person with only shoes. If you have shoes, you have more autonomy than a person who is barefoot.

In this sense, the popularization of entrepreneurship represents a natural culmination of progress. And even the very notion of entrepreneurship is set to rapidly mature in this next economy.

Much of the progress of the last 700 years has come in the form of social invention – creating new institutions like the modern corporation, bank, church, or nation-state. This kind of progress has itself been a series of entrepreneurial acts, the creation of institutions that house new behaviors and create new value, new outcomes. These new institutions have emerged in a series of revolutionary acts, social earthquakes that disrupt families, cities, borders, and normal practices.

One of the things that will be so fascinating about the fourth economy, the entrepreneurial economy, is that it’ll make this act of entrepreneurship the norm. The culmination of economic progress is autonomy for the individual, something that will come about through the popularization of entrepreneurship. What this will mean in practical terms is that the individual will be living within custom institutions – a transformation of the very notion of institution. As we move towards a world in which more and more people are taking on the role of entrepreneur – creating or customizing institutions as a means to realize their potential and match their own passions – we’ll be moving towards a world in which social invention is no more an act of revolution than is investing in a mutual fund. The final revolution will be to mass manufacture revolution, the final product of the market economy.

6 comments:

Anonymous said...

I'm glad to read that you think in the lines of The Transaction Company. Whatever the name, this is the way forward :-)

But hey, do you seriously believe that we live "in a world with a glut of information"?

If this was true, then how come the banks and the financial markets didn't have information to see the current US mortgage bubble coming? And still don't know the exact extent of the problem?

How come the world got fooled that Iraq had nuclear WMD?

And a lot of other things in this line of thought ;-)

Life Hiker said...

Ron, your posts on this topic are always interesting and hopeful. We all would like to see our society evolve to a higher state of increased autonomy for the individual.

From my point of view, it is a bit ludicrous that we Americans see ourselved as living in the "land of the free". In fact, our own government and its extensions such as the public education system appear to me to be the primary impediments limiting personal autonomy and entrepreneurship.

If we want to see more autonomy and entrepreneurship in the U.S., our government needs to make rewarding those things a priority. But at present, government regulation over everything from what being "educated" means to what constitutes a "house" severely limits the creativity of our citizens.

Ron Paul has a lot to say, and I'm glad he's getting some exposure for his common sense views on many issues.

Ron Davison said...

Vladimir,
Indeed, your transaction company and my entrepreneurial economy do have lots of overlap, lots of compatibility. Whoever gets the new economy seminar going first will have to invite the other as a speaker.

A glut of information doesn't make one prescient. Wall Street has been abuzz with mortgage bubble talk for a year, but no one really knows just when this kind of thing will happen. What's the gradation - data to information to knowledge to understanding to wisdom? (Might be time to post about that.)

LH,
I would say that there is plenty of reward for being an entrepreneur - and plenty of risk. It is true that government regulations can make the already complex act of starting a business onerous to an individual. More could be done to simplify the process, but I don' think that more needs to be done to make it more rewarding.

Anonymous said...

Ok, deal :)

How about calling the seminar "The New Economy 2.0" :)))

My immediate plan is to test the concept in a existing business. Five months ago I nearly got to this point, but it didn't happen because a friend of mine, person X decided not to leave his job at Y to become CEO at Z (the company in question).

This month I'll put some time aside to write a simple program for the transactions management so that at least in terms of software I'm prepared for such an experiment.

Ron Davison said...

Vlad,
I'm a little hesitant about the name - Business 2.0 didn't fare too well at the newstands.

Systems change is a slow, laborious process. It's sad to remember that there was about a 100 year gap between the Glorious Revolution and John Locke's writing (that inspired so many of our founding fathers) and the time we ratified the U.S. constitution.

Anonymous said...

Ron, I was joking about the name :)

None of the fundamental principles of the economy have changed, so the adjective "new" and the version number are just stupid pretence :)

As for systems change: today we have a system whose agents are better interconnected and signals and feedback travel faster than 250 years ago. The social network "CPU" is running at a higher frequency. Change in future, therefore, should consume less "processor" time.

Perhaps you could think of a law akin to Moore's that applies to the speed of social change :)