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[jox] From economies of scale to economies of scope

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I think you may find this draft version of my fourth article for al jazeera
of interest. Embargoed until publication at the end of week.


 *The competitive dynamic of the p2p age is Scope, not Scale!*

 *(What do medieval monks, Cuban socialists, Jimmy Wales and Joe Justice
have in common?)*

 The competitive dynamics of industrial capitalism are well-known, and they
are all about scale.

  Following the international division of labour imposed by globalization,
the aim of the competition is to be able to produce more of a unit, so as
to drive the unit price down, and outcompete the competition. Multinational
corporations and global brands now have very complex value chains, where
various parts of a product are mass produced in different parts of the

 Nevertheless, the system has obvious weaknesses. One weakness is that it
drives towards monocultures, both of the agricultural type, but also
industrial monocultures such as the dependence of the Chinese coastal
economy to exports. And the latter example highlights a related second
problem. Competition drives prices relentlessly down, so, in the 1980's,
the domimant western players changed their strategy. They abandoned the
costly western workers to precarity, moved the low-profit industrial
production to low wage countries, and expanded the IP regime to extract
rent and superprofits via patents, copyrights and trademarks. As Thijs
Markus writes so eloquently about Nike in the Rick Falkvinge
if you want to sell $5 shoes for $150 in the West, you better have one heck
of a repressive IP regime in place. Hence the need for SOPA/PIPA , ACTA'S
and other attempts to criminalize the right to share.

 But there is of course a more fundamental problem: the whole system of
globalizing the advantages of scale fundamentally rests on cheap global
transportation and thus, the continuous availability of superabundant
fossil fuels. After the passage of Peak Oil, and thus the end of the era of
cheap oil and with still exploding demand from the exploding BRICS
countries, it is more than likely that the whole regime will come tumbling
down, not in one day of course, but gradually, though non-linear downward
jumps are to be expected as well. Punctuated equilibrium is indeed not just
a feature of biological systems, but of social systems as well! .This means
that competing on the basis of scale, even if it is still effective today,
is also ultimately a game that loses relevance and ultimately can only be
played by those who do not care about the destruction of our planet … What
game can the others play? Consistently increasing prices for fossil fuels
means that innovation and competition have to find another outlet.
Actually, it's about inventing another game altogether.

 But first, a short historical intermezzo, as this drama of transition has
been played out before …

 While the late fifth-century Romans were still fighting for the crown of
Cesar Augustus, the Germanic 'barbarians' were already at the gate, and the
Christian communities already prefigured the values of a coming era of
relocalization based not on an economy of scale, but on an economy of
scope. And what are economies of scope? As a teaser, for now, this short
definition: “"An economy of scope exists between the production of two
goods when two goods which share a CommonCost are produced together such
that the CommonCost is reduced2 <#sdfootnote2sym>.” In other words,
something that brings down the common cost of a factor of production, not
by producing more of a unit but through shared infrastructure costs.

 But let's resume our short historical excursion.

 As the Roman Empire could no longer bear the costs of its own scale and
complexity and supplies of gold and slaves became gradually more
problematic, the smarter landowners started to free their slaves, but
binding them contractually to the land as 'coloni' (serfs) while on the
other hand, the increasingly taxed and bankrupted freeholders sought
protection from the very same domain holders. Thus, one side of the
equation was pure and simple localization, since the system could no longer
bear the global scale of the Empire. But the new post-Roman system also
invented a new system of innovation, based on the advantages of scope, not
scale. Indeed, as the cities were emptying out, and with it its knowledge
system of urban libraries, elite home schooling and academies; the
Christians invented monasteries, as the new agrarian knowledge centers. But
the important thing is that while the physical system localized, the
Christian Church actually functioned as a global open design community.
Monks and manuscripts travelled, and with it the many innovations of the
worker-monks. While Europe initially decayed as the remnants of the Empire
crumbled, eventually, after the first European social revolution of
this new system created the seeds for the first medieval industrial
revolution. Between the 10th and the 13th century, based on a unified
culture of knowledge, Europe started once again blossoming, re-introduced
negative interest money which kept accumulation by elites in
doubled its population, regrew its beautiful cities many of which were run
democratically by the guild councils5 <#sdfootnote5sym>, and invented peer
to peer universities in Bologna in the 11th century6 <#sdfootnote6sym>.
This first Renaissance was all based on the economics of scope, the unified
body of knowledge that European intellectuals and artisans could build on.
The guilds may have had their secrets, but they took them with them
wherever Cathedrals were built.

 The same experience was reiterated in 1989, on a national scale, in the
most dire circumstances, when isolated Cuba could no longer rely on the
advantages of scale of the Soviet system. The Cuban crisis of 1989
prefigured the current world situation because they experienced their very
own Peak Oil situation when the Soviets abruptly stopped delivering oil at
below world market prices. While initially the Cubans went back to using
donkeys and the bodyweight of the population went in decline, the rulers
took a number of interesting initiatives. First, they liberated local
enterpreneurship by granting more autonomy to the local agricultural
cooperatives; and second, they mobillized the grassroots knowledge of the
population, including of urban dwellers. But thirdly and perhaps most
crucially, they created a number of agricultural institutes with the
overriding goal of emulating and spreading local innovations. Whatever the
other faults of the totalitarian system in Cuba, this open design
experiment worked beyond all expectation. As documented by Bill
McKibben7<#sdfootnote7sym>and a number of documentaries
8 <#sdfootnote8sym>, Cuba now produces more nutritious and organic food,
with a fraction of fossil fuels, and this for the same reason as the
earlier example regarding the Christian Church in the European Middle Ages:
sharing knowledge created economies of scope. Agricultural innovations
could quickly spread across the country and be adopted by everyone.

 Indeed, economies of scale work well in periods of energy 'ascent', when
more and more energy is coming online, but they work less and less in
periods of energy 'descent' when the overall supply of energy and resources
are diminishing. What you need then are economies of scope, when you can
'scale up from one', as with today's emerging “making on demand”
infrastructure. Economies of scope is exactly what peer production ( in its
different iterations of open knowledge, free culture, free software, open
and shared designs, open hardware and distributed manufacturing, …) is all

 Let's recap what is wrong with the current global system, which is
entirely predicated on economies of scale, and actually in many instances
makes economies of scope illegal.


   our current system is based on the belief of infinite growth and the
   endless availability of resources, despite the fact that we live on a
   finite planet; let's call this feature, runaway 'pseudo-abundance'

   the current system beliefs that innovations should be privatized and
   only available by permission or for a hefty price (the IP regime), making
   sharing of knowledge and culture a crime; let's call this feature, enforced
   'artificial scarcity'

 Peer production methodologies are based on the exact opposite economic and
social DNA. Peer production communities believe that knowledge is a
commons, for all to share, and hence, no innovation can be withheld from
the human population as a whole. In fact, withholding a life-saving or
world-saving innovation is seen as distinctly unethical, and this
represents a true 'value inversion'. And peer production designs for
'distribution' and inclusion, i.e. small scale, even 'personal'
fabrication. Planned obsolescence which is a feature and not a bug of the
current system, is totally alien to peer production logics9<#sdfootnote9sym>.
In other words, sustainability is a 'feature' of open design communities,
not a bug.

 Again, there are historical precedents to such value inversions. The
christian communities in the Roman Empire were not competing with Empire,
they were building their own institutions, based on a different and alien
logic. While Roman elites hated work, this was for the lowly slaves,
christian monks extolled work and tried to prefigure Eden in their earthly
Cities of God. Similarly, the French Sans-Culottes of 1789 were not
competing for feudal privileges, they abolished all of them in one single
day. It would therefore be wrong to see peer production simply as a set of
'competing' techniques … In fact, these evolutions are happening on a
different plane altogether. They live and co-exist in the same world, but
they do not really belong to the same world-logic.

 So what are the economies of scope of the new p2p age?

 They come in two flavours:


   the mutualizing of knowledge and immaterial resources


   the mutualizing of material productive resources

 The first principle is easy to understand. If we lack knowledge as
individuals, and nobody can know everything,as a community, local or
virtual, it is much more likely that someone knows. Hence, the mutualizing
of knowledge and 'crowd-accelerated innovation10 <#sdfootnote10sym>', now
already a well-known feature of the collaborative economy. But the
advantage of scope is created when that knowledge is shared, and thus, it
can be used by others. With this social innovation, the common cost of the
joint production factor that is knowledge, is dramatically reduced. Take
the example of the paradigmatic Nutrient Dense Project.

 This global community of agrarian workers and citizen scientists is
interested in experimenting with better nutrients to obtain better quality
food. Hence joint research can be carried out to test various nutrients in
various soils and climate zones, and they will instantly benefit not just
the whole participating community, but potentially, the whole of humankind.
Strategies that are based on privatizing intellectual property, cannot
obtain such advantages of scope, or at least, not at that level. Or take
the example of the urban homestead of the Dervaes family in Los
who succeed in producing 6,000 pounds of food annually on a tiny city plot.
Because they are sharing their productivity innovation, hundreds of
thousands have already learned to improve their own lots, but imagine the
speed of innovation that would occur if they were supported by Partner
State institutions12 <#sdfootnote12sym>, who would support and spread such
social innovations even further!

 The second principle, of mutualizing physical productive resources, is
exemplified by the trend towards collaborative consumption. The general
idea is the same. Alone, I may lack a certain tool, skill, or service, but
seen from the point of view of a community, it is likely someone else has
it, and that other person could share, rent or barter it. No need to all
possess the same tool if we can access it when we need it. Hence the
proliferation of 'p2p marketplaces'.

 Let's take an illustrative example: car-sharing. Car-sharing projects can
be mutualized through the intermediary of a private company which owns the
cars (fleetsharing, like ZipCar), through p2p marketplaces which link car
users to each other (RelayRides), or through nonprofits (San Francisco) or
public entities (Autolib in Paris). But they all achieve economies of
scope. According to a study cited by ZipCar, for every rented car, there
are 15 fewer owned cars on the road, but not just that carsharing members
change their behaviour and drove 31% less than when they owned a vehicle.
So, in 2009 alone, car-sharing diminished global carbon dioxide emissions
by nearly half a million tons13 <#sdfootnote13sym>.

 Imagine similar developments in every sector of production ….

 So, how will the new system look like, if economies of scope become the
norm and replace economies of scale as the primary driver of the economy
and social system?

 We already mentioned the global open design communities, and we suggest
that it will be accompanied by a global network of microfactories, who are
producing locally, such as the ones that the open source car companies like
Local Motors and Wikispeed are proposing and which are already prefigured
by the networks of hackerspaces, Fablabs and co-working spaces. This means
we also need global material organisations, not to produce on a global
scale, but to organize our material activities so as to minimize the
'common costs' of the various networks, and not just in terms of sharing
knowledge. In other words, who will play the role that the Catholic Church
and its roaming monks played in the Middle Ages? Let's not forget, it was
not just an open design community but an effective material organisation
giving leadership to a whole continent-wide cultural sphere. Do we have a
potential p2p version of this, that can operate globally? The answer will
be for a future contribution.

 1 <#sdfootnote1anc>Falkvinge is the founder and former President of the
Swedish Pirate Party, see

2 <#sdfootnote2anc>

3 <#sdfootnote3anc>R.I. Moore. The First European Revolution, 970-1250 .
Blackwell, 2000.

4 <#sdfootnote4anc>Bernard Lietaer and Stephen Belgin. New Money for a New
World <>. 2012

5 <#sdfootnote5anc>Bibliography of European Medieval Democracies, by Elliot

6 <#sdfootnote6anc>

7 <#sdfootnote7anc>

8 <#sdfootnote8anc>Megan Quinn on the Cuban experience,

9 <#sdfootnote9anc>Value inversions in peer production, an overview,

10 <#sdfootnote10anc>

11 <#sdfootnote11anc>

12 <#sdfootnote12anc>

13 <#sdfootnote13anc>

On Tue, Mar 20, 2012 at 7:14 AM, Toni Prug <tony> wrote:

How do we run a city without accounting? A region? A state? How do
we collect contributions, as we do in the forms of tax and money
today? We ask for tax to be voluntarily donated and hope for the

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