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Toward a More Collaborative Economy

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The credit crisis has taught us that the old way of producing and consuming is broken. We need a new model.

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MINYANVILLE ORIGINAL

May you live in interesting times.
-- Chinese proverb

May you live in interesting times. Sounds catchy. I don't think people have had a real good sense of what the word "interesting" meant in that old Chinese proverb until the events from the past five years. Because, man, these have been interesting times.

The question is why. What is it, exactly, that has made these times so interesting? We can point to failures like Bear Stearns and Lehman Brothers, but that doesn't feel too satisfying. We can talk about the debt of nations and the debt of individuals but that doesn't really capture why these times are so interesting, either -- at least not to me.

The failures of banks and brokers along with the political rancour both here and abroad is emblematic of one thing: a breakdown of trust. Tyler Cowen recently wrote the following on the breakdown of institutional trust (emphasis mine):
The slow cure for this problem is to allow asset prices, along with perceived wealth and trust, to return to or exceed the previous levels over time. Americans would then spend and invest more money, bolstering both aggregate demand and supply, and in both the private and public sectors. But the process would be cumbersome, partly because trust is more easily destroyed than restored.

Various policies that are being put on the table, including forms of fiscal and monetary stimulus, try to accelerate this repair process. They would all be likely to underperform, partly because the public, rightly or wrongly, doesn't see them as ways to rebuild confidence. We have become skeptical of our own macroeconomic authorities and abilities, and that, in turn, makes successful policy harder to pull off.

That pretty much sums up the state of our economy in two paragraphs, 130 words. We're in the middle of a slow, uneven curing process and it's going to take time to restore trust between individuals, companies, and governments. Some of those connections are healing faster than others and the result has been an economy that feels like it's running to stand still: For every build-up/re-establishment of trust that occurs, we read or hear about another breakdown somewhere else. But for the bonds that are recovering, we are seeing those relationships -- those connections, in fact -- being forged in ways that are new and different than what we saw in the past.

Consider this story surrounding the production of Follow Friday the Film. A movie, seeking funding on Kickstarter, gets sponsored by a major car brand in Audi by having a discussion over Twitter. Twenty-five years ago this would have been the stuff of a science-fiction novel, with the characters wearing clothes that are only suitable for space travel and getting around cities in maglev-esque Segways. But this isn't science fiction; consider projects like Kickstarter.

But let's take a closer look at what's happening here. What does Kickstarter do? It allows someone who has an idea to crowdsource funding and support. Even if you don't contribute money to the idea, you can support them in other ways, specifically by getting the message out on various social networks so that someone else can either spread the word or give money. It's a matter of transparency. Put together an honest idea, and then spread the word.

But the real kicker in this whole story is Audi (NSU.DE). Audi responded in a transparent manner, asking questions about the project and learning more in the process. And in the process, a company got personal with a whole bunch of people. You could hear people reacting to what was going on and brand allegiances started changing. That Storify post is a great narrative on the power of word-of-mouth marketing.

Brands should take note: To talk to a new cohort of consumers, you need to reach them on platforms they use and talk to them in ways they want to be talked to. The days of just putting together a mass-market blitz on TV, radio, and newspaper are fading. Older generations grew up with mass media and are used to the platform and the message. But is it worth it to keep doing what has always been done simply because it feels safe? That's pretty much the definition of insanity -- continuing to do things that do not work. Success comes from taking a chance on something that's different from what the crowd/prevailing social mood tells us to do.

This whole story is a microcosm for a new way our economy can operate. Transactions don't have to involve money, but they do have to involve trust and a measure of goodwill. Audi did not try to sell a car to the makers of the movie since the film's makers weren't looking to buy one. A push to try and sell a car here would have been counterproductive and colored people's image of the car brand for a long time. After all, trust is more easily destroyed than restored.

So what's the way to restore or build credibility in this day and age? Well, it seems the way forward is now more about redistributing and improving access to the abundance that exists rather than trying to figure out what we need to make/consume more of. Vivek Wadhwa put it this way:
Why am I so optimistic? Because of the wide assortment of technologies that are advancing at exponential rates and converging. They are enabling small teams to do what was once only possible for governments and large corporations. These exponential technologies will help us solve many of humanity's grand challenges, including energy, education, water, food, and health.

Indeed. The new economy is not about bigness or vastness of production, but rather about how much can be done with very little. Economies have always been about efficiency, but we're in a day and age now where the amount one individual can produce in very short periods of time is truly staggering. And because we have these gains in productivity that have accumulated over decades, thinking about a consumption-based economy quickly becomes irrelevant.

In the same way, you can see the appeal of companies like Zipcar (ZIP) -- a framework that is more crowdsourced and on-demand in nature. It's a far cry from the world of consumption for consumption's sake. And you can see how a car brand giving a film crew a car to make their film is in the same vein: Audi has an abundance of cars it needs to sell, a film crew needs one for a defined period of time to make their film, so why not just let them use it to do just that? A redistribution of abundance just happened.

I'm going to close with this snippet from Wadhwa:
I can go on and on and on, but the bottom line is that we are innovating at an unprecedented rate. In this and the next decade, we will begin to make energy and food abundant, inexpensively purify and sanitize water from any source, cure disease, and educate the world's masses. The best part: it isn't governments that will lead this charge; it will be the world's entrepreneurs.

Entrepreneurs that can build businesses around redistributing abundance in a way that empowers small groups of people are going to be the ones leading the way forward. And rather than arguing whether or not that trend is bullish or bearish in a consumption-based 20th century economy, I think it's better to think of it as a trend to be bullish on in a 21st century collaborative, on-demand world.

Twitter: @japhychron
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No positions in stocks mentioned.
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