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Open Systems Lead to ‘Economies of Scope’

The ‘economies of scope’ is an appealing concept implying that if we share knowledge in an open way we can create new, healthy economies that do not just depend on ‘scale’.

As we have seen, over the last decade in particular, some of the companies that are trying to achieve exponential growth can endanger the economy and society in general—the global financial crisis surrounding the large financial institutions, the scandals around News Corp, the political lobbying (bullying) by the super rich and the destruction of the environment by some developers. And there are plenty more examples also in the telecoms industries, as well as looming problems associated with building scale by the large new internet media companies in relation to privacy and security.

By creating flatter, more cooperative and transparent peer-to-peer systems we can significantly increase the level of innovation, and we will be able to maintain healthy economies and societies without the negative effect of the exponential growth needed for economies of scale. Populations or systems growing progressively by higher amounts is an illustration of the problem of exponential growth.

On the other hand, sharing models are far more sustainable for the future. In situations where resources are becoming scarce and economies of scale are reaching their limit, we need to change tactics and be more innovative within the existing resources; and that is where the advantages of the concept of economies of scope kicks in.

It is also interesting to consider what happens in times of exponential growth—and the last 50 years has surely been such a period. When do you notice that exponential growth is leading to sustainability problems? Not at the start, when the effects of exponential growth are relatively small—but later, when a doubling of growth suddenly makes an enormous impact. When I was born there were 2.5 billion people in the world. Now there are 7 billion. And if I were to reach 100 years of age there could be 9 billion.

The impact of the type of growth that has occurred in the last half century is only now starting to kick in and we are noticing the negative effects of this in many aspects of our societies and economies. So we obviously need to change the ways in which we manage our affairs. It is beginning to become clear that planet earth is not necessarily infinite.

I have been a long-term advocate of what is called the trans-sector approach. Led from the top, by political and business leaders, silos need to be demolished to create flatter structures where people can much easier share information in a horizontal way—and thus build scope—and try to find solutions and new opportunities through collaboration between sectors.

Within ICT infrastructure datacentres, broadband, cloud computing and social media are all elements of such a new structure. Key, of course, is an open flow of information between the people involved. Rather than monopolising innovations, ideas, thoughts, etc, we should open them up and allow others to participate in their development. This will produce results far more quickly than when developments are monopolised, or when penalties are attached to collaboration and sharing (intellectual property rights). We do recognise such rights but better structures need to de be developed to ensure that such rights don’t stop innovation and sustainable developments.

Developments in the pharmaceutical industry, for instance, clearly show the limitations of the patent monopolies that exist today. This is now hampering the growth of the industry, since far more niche products and far quicker innovations are needed to cope with the wellbeing of 7 billion people.

On the other hand, we have seen the outer-galaxy research from NASA, based on shared citizen e- science. Over two million people became involved in this project—staring at the universe from their computers—and this enormously increased the capacity of research within this organisation. Universities, R&D;companies and a large number of NGOs have developed their own peer-to-peer projects with great success—in data capacity, sharing and analysing; medical research; education; agricultural developments and so on. These projects are also of great importance to the developing countries—India in particular, but China, Brazil, Kenya and others are also heavily involved in collaborative projects.

In the developing world there is already more of a sharing culture, which makes these peer-to-peer networks a natural way of making progress within these societies.

BuddeComm (my company) also uses these peer-to-peer knowledge-sharing concepts in some of the work in which we are involved. The Digital Economy Work Group that we set up to develop the trans-sector concept with the NBN in Australia, Smart Grid Australia—bringing together the energy ecosystem, and the reports that we wrote for the Obama Government and the United Nations were all based on this concept.

In all of these situations it is obvious that no individual—no matter how knowledgeable he or she is—will be able to address some of the complex issues that our societies are facing. However, together, we can address these issues—what one person does not know, somebody else in that peer-to-peer community will.

Another interesting development in this context is that of ‘OpenFlow’. This open source system allows for the development of software-defined networks. It creates virtual networks that are ideal for collaboration and at the same time it considerably reduces the cost of infrastructure. Google recently re-engineered its network based on ‘OpenFlow’. The company actively canvasses others to participate in ‘OpenFlow’ as it recognises that it can benefit from such collaboration.

Facebook is another company that abandoned the traditional proprietary-based approach and embraced open source structures—having figured out that by opening up its network and encouraging the industry to actively participate in this process it can far more easily tap into new developments. Interestingly, a large number of the equipment modules needed in these open networks are produced in China—on a cheap utility basis—bypassing the traditional proprietary vendors—who, by the way, are also looking at these new opportunities.

There is no doubt that the future development of our societies and economies will have to be based on models framed around the economies of scope.

At the same time the policies and governance needed on national and international levels need to be changed as well. As becomes clear from the political upheaval around the globe, the old way of organising societies around political (politicised) groups no longer works—nor does populist opposition. Voters are becoming disengaged.. It will be essential for politicians to open up their systems and structures and get the people, rather than the parties, involved in the decision-making processes.

While national politics might still be carried out within an oppositional framework, the rest of society understands that collaboration is needed to move ahead. Simple populist solutions based on the premise that ‘they are wrong and only we are right’ are not going to solve the complexities of modern societies and modern economies.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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