Thursday, May 31, 2012

Connectivity is the New Capital

The initial public offering (IPO) of Facebook has been widely seen as a disaster, but it is actually a signal of fundamental and positive change.

To understand what has happened, we have to review some economic history.

In feudal times land was "capital." Tenant farmers monetized it and the landed gentry grew rich.

As advances in seafaring allowed merchants to engage in international trade, they created joint stock corporations to raise money and share risk: corporate funds became the "capital" of that era.

When corporations became the primary drivers of industrialization  "capital" evolved  into the capacity to bundle supplies, technology and labour into a productive and profitable process.

In each of those transitions, the concept of "capital" changed radically. Land gave way to money, which then became a factor of corporate organization.

Now, in the Information Age, the meaning of "capital" has changed once again. It is connectivity that drives profits. Corporate advertisers who monetize that connectivity are the tenant farmers of the Information Age.

In that context, Facebook represents a strange and troubling phenomenon for the corporate world: its connectivity cannot be easily monetized.
But for the rest of us non-corporate types, Facebook represents the future. The power of its connectivity holds huge potential for societies that have the vision to recognize that an epochal change has occurred.

The essence of that change lies in the obsolescence of the industrial corporation. Its top-down processses and command and control structures are inefficient in a networked age; its structures for raising, spending and monitoring funds are increasingly outmoded.

The real estate sector can be used to illustrates the change.

In feudal Europe ownership of land was concentrated in social elites. No one else had the resources to buy land, and those who sought ownership had to take out a "mortgage," a word that in its French original literally means "engaged to the death."

In the mercantilist and industrial periods land ownership became much easier for merchant princes and barons of industry, but free and clear ownership remained beyond the reach of most ordinary people in Europe (the home of all these definitions).

Today, when Connectivity is Capital, the situation is radically different: the buying power of the collective can be mobilized to allow everyone to own real estate.

Perhaps the best way to explain how that can happen is to look at the current depressed housing market in the United States, the aftermath of a "real estate bubble" inflated and burst by the irresponsible greed of bankers.

The main components of the depressed market are a large supply of overpriced houses and a newfound wariness of risk on the part of mortgage lenders.

Both those factors could be easily circumvented if houses were made prizes in existing state lotteries and winners had the option of taking possession or selling them at prices set by local realtors to facilitate easy sale.

Such a process would quickly reduce the overhang of unsold houses on the market while  liberating sellers from overpriced properties.

If the lottery system is institutionalized as the primary means to sell real estate, it would generate a steady flow of housing capital to fund new construction and refurbish old stock. The mortgage industry would die ignominiously, but only those who profit from it will see that as cause for lament.

Using the power of the collective for social good has the potential to revolutionize all areas of life. It could be used to conserve and protect the environment, to counter the power of moneyed elites in politics, to resist tyranny and to build a peaceful and prosperous world.

The Facebook IPO is not cause for mourning; it should be celebrated as the dawning of a new age of social capital.

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