The European Dream

by Jeremy Rifkin

  Nor did Americans have to wrestle with competing cultural affiliations in the forging of a national identity. Immigrants that fled to America from Europe were anxious to leave many of the old ties behind. Starting over meant accepting the American Dream—free markets and representative government. That’s why they came here. The fact that English was established as the lingua franca made assimilation easier among immigrants who, in their native lands, had long been separated from one another by language barriers.

  The Americanization of the New World wasn’t friction-free. There were already Native Americans here when Europeans arrived. The genocide of the American Indian and the internment of their remaining numbers have continued to haunt Americans, undermining any claim we might have about our special moral status among the peoples of the world. So, too, with regard to slavery. The forced transport and enslavement of millions of Africans in the American South all but nullified any pretense we might have entertained about the nobility of the American experiment.

  By and large, however, the American project was as free of traditional encumbrances and conflicting interests as it is possible to be. The capitalist class and the government of the country were rarely at odds. It was simply assumed that the primary role of government was to protect the private property interests of its citizens, which meant safeguarding a capitalist free-market economy. In Europe, however, governments eventually, if not reluctantly, took on the role of tempering the excesses of the market by redistributing wealth more equitably to ensure that no one was left behind.

  So, if Americans are the most passionate capitalists and the most patriotic people on Earth, it’s because we view our free-market economy and American government as the guarantors of the American Dream. Were either of these two institutions to begin to fail, or were Americans to come to believe that either the capitalist system or our representative form of government were no longer fostering the American Dream but, rather, undermining it, the stability of the system itself would be cast in doubt—which is just what’s beginning to happen in the wake of increasing corporate influence over the political affairs of government, the growing divide between rich and poor, and the steady downward mobility of middle- and working-class Americans.

  Political observers worry that increasing numbers of Americans are alienated from the American political process and have come to believe that special interests—especially big business—run the country. They are forever pouring over election turnouts for signs of whether Americans are disengaging from the political process. The numbers are not encouraging. Nearly 70 percent of all eligible adults voted in the national election in 1964. By 2000, only 55 percent of eligible adults cast a vote in the national election.33 More important than the slippage in the number of people voting is the steep decline in the number of people who still believe in the American Dream. Recall that one out of three Americans say they no longer believe in the American Dream. If that figure continues to free-fall, America is in deep trouble. Without the American Dream to bolster us, there is little left of the public psyche to maintain the American bond.

  The problem, however, is that the fall of the American Dream may be inevitable. In a world that is moving beyond the kind of eighteenth-century ideological assumptions that gave rise to the American Dream, we Americans may find ourselves like the proverbial “odd man out,” grossly out of step with the changes taking place all around us as the human race enters a global era.

  THE COMING GLOBAL ERA

  8

  Network Commerce in a Globalized Economy

  HUMANITY FINDS ITSELF, once again, at a crossroad between a dying old order and the rise of a new age. Revolutionary new technologies are forcing a fundamental change in our spatial and temporal consciousness. After two hundred years of living under the dominion of national markets and territorial nation-states, human relationships are bursting out of the old institutional seams. A new man and woman are emerging whose sense of self and perception of the world are as different from the autonomous, propertied individual of the modern age as the latter was to the communal individual of the medieval era. The new consciousness is far more expansive and global in outlook.

  The national market and the nation-state suddenly feel a bit too small and limited to accommodate a world where more and more human activity—both economic and social—spill over the old edges and spread out onto the entire globe.

  The birth of a new economic system is driving the changes in governance models, just as it did in the early modern era, when market capitalism uprooted the feudal economy and forced a shift in governing models from city-states and principalities to modern nation-states. This time around, it’s the national market economy that is being challenged by a global network economy and the nation-state that is being partially subsumed by regional political spaces like the European Union. Network commerce is too quick, too dense, and too globally encompassing to be constrained by national borders. Nation-states are too geographically limited to oversee inter-regional and global commerce and harmonize the growing social and environmental risks that accompany a globalized world.

  Every country is facing the pressures of an ever more connected and interdependent world. But it is European society that appears to be at the vanguard of the changes taking place, making it the world’s classroom for rethinking the future.

  What’s pushing all of these institutional changes is a communication revolution that is increasing the speed, pace, flow, density, and connectivity of commercial and social life. Software, computers, the digitalization of media, the Internet, and mobile and wireless communications have, in less than two decades, connected the central nervous system of nearly 20 percent of the human race, at the speed of light, twenty-four hours a day, seven days a week. Today, one is instantaneously connected, via the World Wide Web, to literally a billion or more people, and able to communicate directly with any one of them. Incredibly, the total amount of information a peasant farmer or an inhabitant of a small village might have been exposed to in a lifetime two hundred years ago would not be as great as the information contained in a single online Sunday edition of The New York Times.

  It’s not only the expanded reach and greater access to information that have been so fundamentally altered but also the speed of exchange between people. Recall that the standard hour didn’t come into play in people’s lives until the thirteenth century. Before that time, economic and social exchange was not dense enough to warrant the segmentation of the day into twenty-four standard units of measurement. In the medieval era, one’s daily rounds were as limited and unhurried as they might have been in antiquity and required only a handful of natural benchmarks to mark the passage from one activity to another—the medieval day was divided into sunrise, high noon, and sunset. As human population grew, scattered hamlets metamorphosed into larger towns and cities, and commerce, trade, and social intercourse quickened, making it necessary to establish the hour and then the minute and the second, to organize the dramatic increase in the density and volume of human exchanges.

  Over the past decade, two new time segments have been introduced into social life, both the result of the quickened pace of communication between people brought on by the computer and telecommunications revolutions. The nanosecond and picosecond are so short in duration that they exist far below the realm of human perception. One second in duration represents the passage of one billion nanoseconds. While it’s impossible for the human mind to grasp a nanosecond experientially, information is now flowing at that speed everywhere in the world.

  The market-exchange economy and territory-bound nation-state were not designed to accommodate a communication revolution that can envelop the globe and connect everyone and everything on the planet simultaneously. The result is that we are witnessing the birth of a new economic system and new governing institutions that are as different from market capitalism and the modern territorial state as the latter were from the feudal economy and dynastic rule of an earlier era. (We’ll turn our attenti
on to new governing institutions in the next chapter.)

  The Birth of a New Economic System

  The market economy is far too slow to take full advantage of the speed and productive potential made possible by the software, communications, and telecom revolutions. Nor is it just a matter of finding new organizational formats to upgrade the conduct of business in a market economy. It’s the market-exchange mechanism itself that is becoming outmoded.

  Markets are linear, discrete, and discontinuous modes of operation. Sellers and buyers come together for a short moment of time to exchange goods and services, then part. The lapsed time between the completion of one exchange and the introduction of the next exchange represents the lost productivity and added cost of doing business that eventually make markets obsolete.

  The new communication technologies, by contrast, are cybernetic, not linear. They allow for continuous activity. That means that the start-and-stop mechanism of market exchanges can be replaced with the idea of establishing an ongoing commercial relationship between parties over time.

  For example, consider the Amazon.com way of selling versus the new music company models for marketing music. Amazon.com operates in a conventional market-exchange relationship with customers even though the computer and World Wide Web are used to make the purchase. The buyer pays for an individual compact disc, and the seller ships it by mail.

  By contrast, in the new network model used by music companies such as Napster, the user pays a monthly subscription fee that gives him unlimited access to the music company’s library. In the old Amazon.com model, the physical CD—the property—is exchanged between seller and buyer, whereas in the new network model, the user is paying for the time for which he has access to the music.

  In pure networks, property still exists, but it stays with the producer and is accessed in time segments by the user. Subscriptions, memberships, rentals, time-shares, retainers, leases, and licensing agreements become the new medium of exchange. The music company creates a 24/7 commodified relationship with the client, making him part of a music network. Now the user is paying for access to the music when he is asleep, awake, working, as well as when he is listening to the music. The music company prefers commercializing an ongoing relationship with the user over a period of time, rather than having to sell each CD as a separate market transaction. It’s a matter of time and cost.

  The music companies maintain a fast, efficient, smooth, and continuous relationship with the client over time, while Amazon.com is slogging along, having to negotiate each and every transaction as a discrete closed-end process. In a world where everyone is connected via cyberspace and information is being exchanged at the speed of light, time—not materials—becomes the most scarce and valuable resource. In pure networks, providers and users replace sellers and buyers, and access to the use of goods in extended time segments substitutes for the physical exchange of goods between sellers and buyers.

  The music companies also favor the network model over discrete market transactions because the relationship with the user is more likely to be sustained into the future. In other words, users are less likely to take their business elsewhere, as they would were they to enter into a discrete market-exchange transaction. That’s why automobile companies such as General Motors and DaimlerChrysler, if they had their way, would never sell another car again. They would much prefer to keep the car and have the user pay for access to the driving experience through a leasing agreement. This way, they create a relationship with the client that is more likely to be sustained than if the buyer purchased an automobile. At Ford, the renewal rate for leasing cars is nearly 50 percent, while 24 percent of customers who bought their last car from Ford are likely to buy their next car from the company.1

  Transaction costs and margins also come into play in the shift from market-exchange models to network models. In a market-exchange economy, sellers make profit on their margins, and margins are dependent on transaction costs. But most corporate executives I work with tell me that their margins are continuing to go down, mainly because of the introduction of new communications and production technologies, as well as new methods of organization that are reducing their transaction costs. When transaction costs approach zero, margins virtually disappear, and market exchanges are no longer viable ways of conducting business.

  Book publishing is a case in point. In a market, I sell my book to a publisher, who then sends it to a printer. From there, it is shipped to a wholesaler and then to a retailer, where the customer pays for the product. At each stage of the process, the seller is marking up the cost to the buyer to reflect his or her transaction costs. But now, an increasing number of publishers—especially of textbooks and research books, which require continuous updating—are bypassing all the intermediate steps in publishing a physical book and the transaction costs involved at each stage of the process. While Encyclopedia Britannica still charges $1,395 for its twenty-two-volume set of books, the company sells far fewer physical books. Instead, the company puts the books’ contents on the World Wide Web, where information can be updated and accessed continuously. Users now pay a subscription fee to access the information over an extended period of time. Encyclopedia Britannica eliminates virtually all the remaining transaction costs of getting the information to its subscribers. The company has made the transition from selling a physical product to a buyer to providing the user access to a service over time. How does a physical book compete with an online book in the future, when the latter has reduced the transaction costs so dramatically? The same process is at work across many industries. (See The Age of Access for a more detailed analysis.)

  In every industry, there are scattered operational examples of “pure” network models. There are many more instances in which partial networks already exist. In these cases, multiple parties come together to share expertise, knowledge, research facilities, production lines, and marketing channels. The idea behind the networks is to pool resources and share risks while improving quality and reducing the time necessary to get goods and services to end users.

  What all these networks have in common is a way of doing business that differs fundamentally from the market-exchange model articulated by Adam Smith and the classical economists and their neoclassical successors in the twentieth century. The operational assumptions that guide networks turn much of orthodox market-based economic theory on its head and open up a new window for rethinking political governance as well.

  Recall, Adam Smith argued that the superiority of a market-exchange economy lies in the ability of each individual to pursue his or her own self-interest. In An Inquiry into the Nature and Causes of the Wealth of Nations, Smith writes:

  Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of society which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society.2

  Markets, by their very nature, are adversarial forums. They are arm’s-length exchanges where each party enters into the negotiation with the idea of maximizing his own self-interest at the expense of the other party. Buy cheap, sell dear, and caveat emptor—let the buyer beware—have been guiding behavioral principles from the very beginning of modern market relations.

  Networks operate on an entirely different principle. Each party enters into the relationship based on the supposition that by optimizing the benefits of the other parties and the group as a whole, one’s self-interest will be maximized in the process.

  Networks are made up of autonomous firms that give up some of their sovereignty in return for the benefits of sharing resources and risks in an extended field of operations. In a network, each party is dependent on resources controlled by another party. The parties become, in effect, a single entity engaged in a common task for a period of time.

  The film industry was one of the first to shift into a
network way of conducting business. The big studios disaggregated their operations in the late 1940s and early 1950s. Skilled craftsmen and creative personnel, who were previously employed in-house, set up their own independent companies. Now, when a film is done, the major movie studios partially finance the film and market it, while the executive producers bring together all of the individual subcontracting firms—the cinematographers, set designers, editors, etc.—in a short-lived network to make the movie. Often, the risks are distributed among the key entities, and they each share in the revenue stream once the film is released.

  Sociologist Manuel Castells identifies five primary kinds of networks: supplier networks, in which firms subcontract for a range of inputs from design operations to the manufacturing of component parts; producer networks, composed of companies that pool their production facilities, financial resources, and human resources to expand their portfolio of goods and services, broaden geographic markets, and reduce up-front risk costs; customer networks, which link together manufacturers, distributors, marketing channels, value-added resellers, and end users; standard coalitions, which bring together as many firms as possible in a given field with the purpose of binding them to the technical standards established by an industry leader; and technology cooperation networks, which allow firms to share valuable knowledge and expertise in the research and development of product lines.3

  Cooperative Commerce

  The keys to a successful network are reciprocity and trust. Each member of the network operates out of a sense of “goodwill,” feeling an obligation to cooperate and assist rather than take advantage of the other parties. Trust is at the core of network relationships. Caveat emptor is replaced with the notion that none of the parties “will exploit the vulnerabilities that partnerships create.”4 When companies enter into networks, they give up some of the control they enjoy in markets. They have to share knowledge, make their operations transparent, and allow their partners to know a lot more about how they conduct business. In short, they give up some of their autonomy to become part of an extended commercial activity. In the process, they become exposed and vulnerable. In the market arena, by contrast, sharing knowledge and making one’s operations transparent would be seen as an error in judgment, allowing competitors to take advantage of one’s weaknesses. In a network, however, vulnerability is considered a strength, not a weakness, a signal of trust and a willingness to work together to everyone’s mutual benefit.