Wednesday, March 3, 2010

21st Century Problems - 19th Century Thinking

For the past few years I have been arguing that the biggest problem we face as a nation isn't bad government, evil politicians or anything else. The problem is that we are trying to solve 21st Century problems using 19th Century thinking.

We have transitioned into the Information Age but we are still trying to solve all our problems with Industrial Age thinking. We still see everything from the perspective of the Industrial Revolution where more is better and larger is stronger. Bigger, better, best!

The industrial economy was all about the laws of decreasing return. Growth was linear and always based on effort. Small efforts got small returns. Economies of scale (AKA large efforts) were critical for costs to come down enough to earn high profits.

The entire history of economic development since the birth of the Industrial Revolution is based on growth. More people means more consumers means more profits. More, more, more -- always more. Wall Street must see constant profits or stocks decline. When stocks decline, the economy suffers. A suffering economy means there is less money moving and everyone suffers. Rinse and repeat.

I think the Great Recession is a sign of this problem. It's short-term thinking based on out-dated business models that brought us to the precipice. It's massive mega-corporations so ponderous they cannot change to face a new reality.

The music industry and other businesses based on controlling content are dying. There's nothing to be done for it. The rules have changed and there is no resistance to sharing information anymore. And they never did a good enough job of earning the permission and attention from their customers. Instead they sued them in court for impossible fines.

The reality is we are in a new economy - a network economy. For the first time in human history it is possible to become an overnight global success. Every viral internet phenomenon is just more proof. Suddenly remarkable ideas can spread globally without concern for distance or language barriers.

For better or worse, the economic system has been turned on its head.  Networks work exponentially so small efforts can yield enormous results. Just like the last viral video you watched.

Businesses that harness the network will see small early gains until they hit their tipping point, then growth accelerates with minimal additional energy. A real-life example: my ebook took 6 months to break 10,000 downloads. Four months later it surpassed 50,000. (Update: 8/1/10 - Over 110,000!)

When minimal effort creates enormous results, the industrial economy is in trouble. It means the paradigms have changed. It doesn't mean the old rules don't apply, it means they apply in different ways. Wall Street will always need profits but economies of scale will change. Intangible assets will become more important than tangibles, such as attention, permission and relationships.

Are you ready for the network economy?

R-Squared Computing - Business Technology Experts

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