The cost of gathering information determines the size of organizations.
– Ronald Coase, quoted by Everett Ehrlich in
yesterday’s Washington Post
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Samizdata slogan of the dayDecember 15th, 2003 |
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An interesting insight on a developing theme. Reading it on Samizdata saved me all the effort of searching that out myself. Just like the article says…
This has many corrallary effects, which I thought I might talk about for a moment.
Smaller organizations increase the relative power of the individual. No longer a cog in the big machine, the individual (with work and effort) can affect the whole. Charisma and personality will once again be affective, because everyone is just a few cubicles (or a Video conferance) away.
He doesn’t need to be the CEO or the owner to do it either. The power of idividuals within an organization is increased. Their influence is leveraged with the decreased cost of information flow. Whereas an engineer who would never be heard can now post his ideas to a company message board and get them seen by others.
Smaller organizations also means more organizations in a constant population. An increase in the number of organizations increases the amount of competition – increasing the rate of growth and productivity. Therefore lower information costs doesn’t just save on dollars – it increases the rate of accumulation and creation of dollars (and pounds too, of course).
Some people might then say that the key to growth in the coming century (the Information Age) will be government policies that spur efficiency growth in acquiring information. This would be wrong for two reasons.
The first and more obvious reason is easily understood. Governments are nortoriously lousy at finding the cost-deflator with the highest utility. Only markets are half-decent at that. Ergo, Information Age governments should dedicate their energies to getting out of the way of individuals and private organizations competing to create the said technology/process. Governments shouldn’t worry about creating it. Adopting it a few years down the line (after the market shakeout answers the hard question (e.g. Which one is best?)) will probably be challenging enough.
The second, less obvious reason is that there is more to growth than just staying out of people’s way. Government is needed to protect the innovators and owners of [Intellectual] property. It took Agrarian societies a long time to come up with Real Property laws that would effectively protect the land owners. The societies that did this the best prospered the most before the Industrial Revolution.
Similarly in the Industrial Revolution new law was needed to protect the wealth creators (like Henry Ford). The Patent Office is the most obvious exampke, along with a host of others, such as advanced Contract and Commercial Law.
The recognition and enforcement of new legal regimes is one of the few things which government is uniquely suited to do. It is now upon them to adapt and move into the next Age. The Patent Office in the USA has already shown itself to be inadaquate to the task. The DMCA and other laws have shown themselves to be the wrong tools for the job. A new legal regime is needed to efficiently harness the power of the Iformation Age.
It is a postive feature of the US legal regime of Corporate and Commercial Law that it looks to the market to see what private participants are doing. A caveat in most Deleware corporate law* is “if a large enough number of free actors are doing something, it must be inherantly fair and efficient – and therefore deserves recognition by the Courts.” This allows legal and contractual innovation to discover the new legal regime. Congress/ State Legislatures can come in and codify later.
Common Law creating Civil Law in a large, experimental laboratory with hundreds of mad scientists working 24/7.
The World’s developing nations may come to a crisis in the near future. Just as some of them are getting the hang of this whole “Industrial Revolution” thing, the USA and certain other nations are gearing up to move into the next Age, leaving them behind once again. The developing nations will face a choice regarding “How do we keep up?” Some of them are bound to get it wrong.
Like industrial development during the 20th century, there will be some who do it “right” (i.e Japan, South Korea), some who get it Left…pardon, I mean “wrong” (i.e. North Korea, Communist China) and some who are in between (i.e. most of South America). Using China as an example, we can see that they have been really getting Industrial Development ‘right’ for the last decade or so. However, there are worrying signs that they will not get any further. Intellectual property rights are virtually non-existent, and IP piracy is rampant. This doesn’t just make it’s trading partners upset – it also retards China’s ability to move beyond being the manufacturing center of the global economy.
As the West (and Japan) move towards fully automated manufacturing China will find itself slowly squeazed out of one manufacturing sector after another. It’s growth will top out, and if it doesn’t adapt, it will shrink. Look no further than post-Soviet Russia for an example of this phenomena.
China, Russia and other developing nations must commit themselve to the protection of IP rights if they plan on capitalizing on the benefits of lower information costs. They probably don’t have the resources to develop such legal regimes on their own, but it would behoove them to copy whatever system the USA, Germany or Japan cobbles together. If they don’t they will once again find themsevles to be relics of an earlier Age.
And India will leap-frog their ass. How’s that for motivation?
*-Deleware is the 2nd smallest State in the USA geographically, but it has leveraged it’s legal flexibility to great effect. Currently 80% of all US corporations are Incorporated in Deleware. This was a historical accident created by Woodrow Wilson’s governorship of New Jersey – but it’s no accidenct that they have held onto their commanding margin for almost 90 years now.