September 15, 2012
The only thing that I would want to add here is that it’s not just a matter of projects being able to expand or sustain themselves with little capital (although that is a factor). It’s also a matter of the way in which both emerging distributed technologies in general, and peer production projects in particular, facilitate the aggregation of dispersed capital — without it having to pass through a single capitalist chokepoint, like a commercial bank or a venture capital fund. Because of the way that peer production projects distribute and amortize their costs of operation, entrepreneurs can afford to bypass existing financial operators and go directly to people with $20 or $50 to give away and take the money in in small donations, because they no longer need to get multimillion dollar cash infusions all at once just to keep themselves running: the peer production model allows greater flexibility by dispersing fixed costs among many peers (and allowing new entrepreneurs to easily step in and take over the project, if one has to bow out due to the pressures imposed by fixed costs), rather than by concentrating them into the bottom line of a single, precarious legal entity. Meanwhile, because of the way that peer production projects distribute their labor, peer-production entrepreneurs can also take advantage of “spare cycles” on existing, widely-distributed capital goods — tools like computers, facilities like offices and houses, software, etc. which contributors own, which they still would have owned personally or professionally whether or not they were contributing to the peer production project, and which can be put to use as a direct contribution of a small amount of fractional shares of capital goods directly to the peer production project. So it’s not just a matter of cutting total aggregate costs for capital goods (although that’s an important element); it’s also, importantly, a matter of new models of aggregating the capital goods to meet whatever costs you may have, so that small bits of available capital can be rounded up without the intervention of money-men and other intermediaries.I like the point about the improved aggregation of capital, that is quite possibly as important as the reduction in capital requirements.
This gets me thinking more about the importance of reduced coordination costs (aggregation of capital being a special case). Clearly computers and networks contribute enormously to improving the productivity of coordination. However I don’t think we have good models for the costs of coordination, or the effects of improved coordination, so its importance tends to be underestimated.
I guess cheaper / easier / faster coordination is a special case of (what economists call) “technology” — changes with big economic impact, that are outside the economic model. From another point of view, coordination costs and delays are a special case of (what economists call) “frictions” which are also hard for them to model well. So trends in coordination may well affect the economy in major ways, but are none the less mostly invisible in economic models.
And in fact we’d expect coordination costs to fall and speed and capacity to rise on an exponential trend, riding Moore’s law. Given that changes in coordination have significant economic impact (how could they not?) there’s a huge long term economic trend that’s formally invisible to economists.
One aspect of this that’s perhaps subtle, but often important, and that shows up strongly in capital aggregation, is how “technology” changes the risk of cooperation. One of the big sources of risk is that someone you’re cooperating with will “defect” (in the prisoner’s dilemma sense) — that the cooperative situation will give them ways to benefit by hurting you. In fund raising this risk is obvious, but working with people, letting others use your “spare cycles”, etc. have risks too. Ways of coordinating have been evolving to counteract or at least mitigate these risks — clearer norms for response to bad actors, online reputations, large scale community reactions to serious bad behavior, and so forth. Wikipedia’s mechanisms for quick reversion of vandalism is an example. Even spam filtering is a case in point, reducing our costs and the benefits to the bad actors. It is too early to know for sure, but right now there are enough success stories that I’d guess that the space of defensible and sustainable cooperation is pretty big — maybe even big enough to “embrace and extend” important parts of the current economy.