Coase cost and web 2.0 (explained by Cory Doctorow)

For the win” (2010), by Cory Doctorow, was an eye opener for me! I just love his explanation concerning the Coase cost and its relevance for the effects we see  today due to the mass communication device which is the web 2.0.

For the license terms see here.  You can find this starting from the page 103 in the book (page numbering from the pdf file version). I’ve added several  links in the text.

“Whether you’re a revolutionary, a factory owner, or a little-league hockey organizer, there’s one factor you can’t afford to ignore: the CoaseCost.

Ronald Coase was an American economist who changed everything with a paper he published in 1937 called “The Theory of the Firm.” Coase’s paper argued that the real business of *any* organization was getting people organized. A religion is a system for organizing people to pray and give money to build churches and pay priests or ministers or rabbis; a shoe factory is a system for organizing people to make shoes. A revolutionary conspiracy is a system for organizing people to overthrow the government.

Organizing is a kind of tax on human activity. For every minute you spend *doing stuff*, you have to spend a few seconds making sure that you’re not getting ahead or behind or to one side of the other people you’re doing stuff with. The seconds you tithe to an organization is the CoaseCost, the tax on your work that you pay for the fact that we’re human beings and not ants or bees or some other species that manages to all march in unison by sheer instinct.

Oh, you can beat the CoaseCost: just stick to doing projects that you don’t need anyone else’s help with. Like, um…Tying your shoes? (Nope, not unless you’re braiding your own shoelaces). Toasting your own sandwich (not unless you gathered the wood for the fire and the wheat for the bread and the milk for the cheese on your own).

The fact is, everything you do is collaborative — somewhere out there, someone else had a hand in it. And part of the cost of what you’re doing is spent on making sure that you’re coordinating right, that the cheese gets to your fridge and that the electricity hums through its wires.

You can’t eliminate Coase costs, but you can lower it. There’s two ways of doing this: get better organizational techniques (say, “double-entry book-keeping,” an Earth-shattering 13th-century invention that is at the heart of every money-making organization in the world, from churches to corporations to governments), or get better technology.

Take going out to the movies. It’s Friday night, and you’re thinking of seeing a movie, but you don’t want to go alone. Imagine that the year was 1950 — how would you solve this problem?

Well, you’d have to find a newspaper and see what’s playing. Then you’d have to call all your friends’ houses (no cellular phones, remember!) and leave messages for them. Then you’d have to wait for some or all of them to call you back and report on their movie preferences. Then you’d have to call them back in ones and twos and see if you could convince a critical mass of them to see the same movie. Then you’d have to get to the theater and locate each other and hope that the show wasn’t sold out.

How much does this cost? Well, first, let’s see how much the movie is worth: one way to do that is to look at how much someone would have to pay you to convince you to give up on going to the movies. Another is to raise the price of the tickets steadily until you decide not to see a movie after all.

Once you have that number, you can calculate your CoaseCost: you could ask how much it would cost you to pay someone else to make the arrangements for you, or how much you could earn at an after-school job if you weren’t playing phone tag with your friends.

You end up with an equation that looks like this:

[Value of the movie] – [Cost of getting your friends together to see it] = [Net value of an evening out]

That’s why you’ll do something less fun (stay in and watch TV) but simple, rather than going out and doing something more fun but more complicated. It’s not that movies aren’t fun — but if it’s too much of a pain in the ass to get your friends out to see them, then the number of movies you go to see goes way down.

Now think of an evening out at the movies these days. It’s 6:45PM on a Friday night and the movies are going to all start in the next 20-50 minutes. You pull out your phone and google the listings, sorted by proximity to you. Then you send out a broadcast text-message to your friends — if your phone’s very smart, you can send it to just those friends who are in the neighborhood — listing the movies and the films. They reply-all to one another, and after a couple volleys, you’ve found a bunch of people to see a flick with. You buy your tickets on the phone.

But then you get there and discover that the crowds are so huge you can’t find each other. So you call one another and arrange to meet by the snack bar and moments later, you’re in your seats, eating popcorn.

So what? Why should anyone care how much it costs to get stuff done? Because the CoaseCost is the price of being *superhuman*.

Back in the old days — the very, very old days — your ancestors were solitary monkeys. They worked in singles or couples to do everything a monkey needed, from gathering food to taking care of kids to watching for predators to building nests. This had its limitations: if you’re babysitting the kids, you can’t gather food. If you’re gathering food, you might miss the tiger — and lose the kids.

Enter the tribe: a group of monkeys that work together, dividing up the labor. Now they’re not just solitary monkeys, they’re groups of monkeys, and they can do more than a single monkey could do. They have transcended monkeyness. They are *supermonkeys*.

Being a supermonkey isn’t easy. If you’re an individual supermonkey, there are two ways to prosper: you can play along with all your monkey pals to get the kids fed and keep an eye out for tigers, or you can hide in the bushes and nap, pretending to work, only showing up at mealtimes.

From an individual perspective, it makes sense to be the lazy-jerk-monkey. In a big tribe of monkeys, one or two goof-offs aren’t going to bankrupt the group. If you can get away with napping instead of working, and still get fed, why not do it?

But if *everyone* does it, so much for supermonkeys. Now no one’s getting the fruit, no one’s taking care of the kids, and damn, I thought *you* were looking out for the tigers! Too many lazy monkeys plus tigers equals lunch.

So monkeys — and their hairless descendants like you — need some specialized hardware to detect cheaters and punish them before the idea catches on and the tigers show up. That specialized hardware is a layer of tissue wrapped around the top of your brain called the neo-cortex — the “new bark.” The neo-cortex is in charge of keeping track of the monkeys. It’s the part of your brain that organizes people, checks in on them, falls in love with them, establishes enmity with them. It’s the part of your brain that gets thoroughly lit up when you play with Facebook or other social networking sites, and it’s the part of your brain that houses the local copies of the people in your life. It’s where the voice of your mother telling you to brush your teeth emanates from.

The neocortex is the CoaseCost as applied to the brain. Every sip of air you breathe, every calorie you ingest, every lubdub of your heart goes to feed this new bark that keeps track of the other people in your group and what they’re doing, whether they’re in line or off the reservation.

The CoaseCost is the limit of your ability to be superhuman. If the CoaseCost of some activity is lower than the value that you’d get out of it, you can get some friends together and *do it*, transcend the limitations that nature has set on lone hairless monkeys and *become a superhuman*.

So it follows that high Coase costs make you less powerful and low Coase costs make you more powerful. What’s more, big institutions with a lot of money and power can overcome high Coase costs: a government can put 10,000 soldiers onto the battlefield with tanks and food and medics; you and your buddies cannot. So high Coase costs can limit *your* ability to be superhuman while leaving the rich and powerful in possession of super-powers that you could never attain.

And that’s the real reason the powerful fear open systems and networks. If anyone can set up a free voicecall to anyone else in the world, using the net, then we can all communicate with the same ease that’s standard for the high and mighty. If anyone can create and sell virtual wealth in a game, then we’re all in the same economic shoes as the multinational megacorps that start the games.

And if any worker, anywhere, can communicate with any other worker, anywhere, for free, instantaneously, without her boss’s permission, then, brother, look out, because the CoaseCost of demanding better pay, better working conditions and a slice of the pie just got a *lot* cheaper. And the people who have the power aren’t going to sit still and let a bunch of grunts take it away from them.”

Beautiful! Please let me know if I trespassed any rights.

Advertisements