The European Dream

by Jeremy Rifkin

  Networks rely as much on the informal social ties of the participants as on the formal arrangements between the parties. The more embedded individual players become with each other, the more likely they will be willing to open up and share valuable knowledge, expertise, and often vital business data with others. One prominent CEO put the value of embeddedness this way:

  Of course [opportunism] can be a problem, but do you think that I would ever have made such a close relationship with this guy over so many years if I thought he would screw me if he had a chance? That’s why he has so much business. I can trust him.5

  The close relationships between the players in a network often give them the lead over companies engaged in old-fashioned adversarial arm’s-length market exchanges. Brian Uzzi, writing on the value of structured embeddedness in the American Sociological Review, notes,

  Embedded ties promote, and enable the greatest access to, certain kinds of exchanges that are particularly beneficial for reducing monitoring costs, quickening decision-making, and enhancing organizational learning and adaptation. These benefits not only accrue to the individual firms of a network connected via embedded ties, but to the network as a whole.6

  The advantages of embeddedness become apparent when many companies work together on a common project that is complex and requires putting everyone’s heads together. The more each knows about the others’ expertise, perspectives, and approaches, and the more each member is willing to share his or her own ideas, the greater the likelihood of success. In cutting-edge high-technology industries and in the retail sector, where being first to market with an innovation is critical to success, being able to pool knowledge among a broad group of players, each of whom understands a specific part of the process, can result in quicker problem-solving. Said another CEO,

  When you deal with a guy you don’t have a long relationship with, it can be a big problem. Things go wrong and there’s no telling what will happen. With my guys [referring to embedded ties], if something goes wrong, I know we’ll be able to work it out. I know his business and he knows mine.7

  Networks also facilitate the exchange of vital industry information that would not necessarily be available to a firm operating as an autonomous agent in an adversarial market. Uzzi reports on one manufacturer who “passes on critical information about next season’s hot sellers only to his close (network) ties; thus giving them an advantage in meeting future demands.”8

  In a global economy where competition is stiff and the difference between success and failure often hinges on subtle variations in the quality of goods and services, networks often enjoy an advantage over individual market players. One clothing manufacturer said,

  If we have a factory that is used to making our stuff, they know how it’s supposed to look. They know a particular style. It is not always easy to make a garment just from the pattern, especially if we rushed the pattern. But a factory that we have a relationship with will see the problem when the garment starts to go together. They will know how to work the fabric to make it look the way we intended.9

  A sense of indebtedness is at the heart of the network model. It’s the feeling that “we’re all in this thing together” and need to go the extra mile to support others in the network, in good times as well as bad. One CEO explained what indebtedness means in his own firm’s relationships with its network partners.

  I tell them [subcontractors] that in two weeks I won’t have much work. You better start to find other work. [At other times] . . . when they are not so busy we try to find work . . . for our key contractors. We will put a dress into work . . . to keep the contractor going . . . where we put work depends on [who] needs to work [to survive].10

  What’s ultimately driving the shift to a network model is time scarcity. Organizational theorists Candace Jones and Stephen Borgatti of Boston College and William Hesterly of Utah’s David Eccles School of Business observe that the old economic model that relies on sequential market exchanges between clients, suppliers, and distributors to coordinate complex tasks and get new products to end users is just too slow and outdated. Networks that coordinate the expertise of all the players in the commercial mix, from suppliers upstream to distributors and even end users downstream, in a single team approach, have the clear edge in reducing the lead time in getting new products and services out the door. Certainly that has been the case in the semiconductor, computer, film, and fashion fields, where product life cycles are often measured in weeks and months rather than years. Networks are also better positioned to reduce costs in competitive markets like the auto industry.11

  Networks spawn greater creativity and innovation for the simple reason that they have a larger pool of the best minds to draw from. Walter W. Powell says that when one compares the advantages and disadvantages of the various business models, it becomes clear that

  passing information up or down a corporate hierarchy or purchasing information in the marketplace is merely a way of processing information or acquiring a commodity. In either case the flow of information is controlled. No new meanings or interpretations are generated. In contrast, networks provide a context for learning by doing. As information passes through a network, it is both freer and richer; new connections and new meanings are generated, debated, and evaluated.12

  When commercial transactions were fewer, when the lead time for a new product introduction was longer, and when there was still plenty of untapped and unexploited consumer market potential, market exchanges and hierarchical ways of organizing business made sense. Giant, vertically configured companies with hierarchically controlled management could produce standardized products with long life cycles, allowing them to amortize their costs while maintaining centralized control over research and development, production schedules, and distribution channels. And the slow pace of discrete and discontinuous market exchanges was still sufficient to keep up with consumer demand.

  In the past twenty years, a number of factors have changed the commercial context. The dramatic increase in the cost of energy, the escalating costs and risks associated with research and development, the ever shorter life cycle of goods and services, increased labor costs, the consumer preference for more customized just-in-time products, global competition, and smaller profit margins have all contributed to making the market-exchange and hierarchical models increasingly obsolete.

  Global commerce is becoming more dense and sped up. No single firm can effectively compete as an autonomous agent working solely through a market-exchange mechanism. Today, going it alone is a prescription for extinction. Only by pooling resources and sharing risks and revenue streams in network-based relationships can firms survive. This means giving up some autonomy in return for the entrepreneurial advantages and security that come with networked arrangements. While competition still exists among firms—markets aren’t disappearing any time soon—cooperation in the form of outsourcing, co-sourcing, gain-sharing, and shared saving agreements are increasingly becoming the norm.

  In a globalized economy where everyone is connected and ever more interdependent, the idea of autonomous free agents maximizing their individual self-interests in simple exchange transactions in markets seems woefully out of date. A network, in a very real sense, is the only corporate model capable of organizing a world of such speed, complexity, and diversity.

  Although the network model is becoming more popular, little attention has been paid to the way networks change our very concept of the role of property and the philosophy of commerce. There has been even less discussion of the long-term implications that flow from a deep change in personal behavior that goes with the transition to the new economic model.

  The first thing to understand about the shift from markets to networks is that borders become less fixed and more porous. In markets, borders are critical. A possession is an extension of one’s personal territory. It is exclusive to the owner. Sir William Blackstone, in his Commentaries on the Laws of England, wrote that property is “that despotic dominion that on
e man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe.”13

  In a market-based regime, property is rarely meant to be shared but only possessed or exchanged. The status of property is unimpeachable. It is either “mine or thine.” The time and place of the exchange between seller and buyer represent the frontier where the property leaves one hand and is transferred into another. The negotiation of the transaction is an adversarial event. Both parties hope to gain at the other’s expense. That’s why it’s called competition. To win is to come away from the exchange with greater value in personal holdings. The goal of market exchange of property is to enlarge one’s territorial dominion.

  In networks, both physical and intellectual property stay with the producer and are shared with one or more other parties. Knowledge, information, and know-how, which are all forms of property, are similarly shared. What’s mine is also thine. The clear territorial boundaries that mark private property regimes in an age of market transactions melt. What was once a frontier separating the parties becomes common ground. Unlike market exchanges, which are expected to result in winners and losers, in network relationships, shared activity is expected to result in what is now called “win-win” situations.

  The more conventional idea that competition for scarce resources is the essential nature of human behavior—the Hobbes/Darwin ethic—gives way to the radical notion that cooperation is more vital to one’s survival and advancement. If that is the case, then what are the implications for how we define personal freedom?

  Belongings vs. Belonging

  Recall that in the market era, freedom is defined as autonomy. One is free to the extent one is not dependent or beholden on another. To be independent, one needs to be propertied. With property, one can enjoy exclusivity and freedom. How does one secure property? By competing with others in an adversarial market setting. Network commerce suggests the very opposite definition of freedom. One’s freedom is secured by belonging, not by belongings. To belong, one needs access. With access, one can enjoy the freedom that goes with inclusivity. Freedom is found in shared relationships rather than isolation.

  If freedom means the power to experience the full potential of one’s being in the world, is that potential fulfilled by being walled off from others and surrounded by territorial boundaries, or by deep communion with others on common ground? The “deathbed” test is the best judge of which of the two definitions of freedom is closer to the mark. Contrast the man or woman who spent a lifetime collecting possessions and pursuing autonomy with the man or woman who spent a lifetime exploring relationships and pursuing intimacy. Which of these two can be said to have optimized the full potential of their being, resulting in the most freedom?

  Network commerce has consequences that go far beyond just a business model. Its assumptions about how best to optimize the individual good are deeply at odds with how we have come to define appropriate behavior and the good life in the modern era. Markets are based on mistrust, networks on trust. Markets are based on the pursuit of self-interest, networks on shared interest. Markets are arm’s-length transactions, networks are intimate relationships. Markets are competitive, networks are cooperative.

  The changing nature of how we think about our relationship to property is forcing a fundamental re-appraisal of the human condition, just as it did in the early modern era, when our ideas about property radically changed. The “great transformation” from proprietary obligations on the feudal commons to property exchange in a market economy marked a watershed in our thinking about the nature and purpose of human intercourse. Likewise, today the transition from property exchange in markets to access relationships in networks is again changing the assumptions about the nature of human activity.

  Unfortunately, there’s been scant discussion, either in academia or in public policy circles, about how to reconstruct our theories of property relations to bring them in line with the reality of network commerce operating in a globalized economy. A few scholars, however, have made attempts at revising our notions of property. The most important contribution to the discussion, thus far, comes from the late University of Toronto professor Crawford MacPherson, considered by many of his colleagues to be one of the distinguished contemporary authorities on the philosophy and history of property. (I first introduced MacPherson’s ideas in The Age of Access, published in 2000.)

  MacPherson starts his analysis by reminding us that our current concept of property is largely an invention of the seventeenth and eighteenth centuries. We are so used to thinking of property as the right to exclude others from the use or benefit of something, says MacPherson, that we’ve lost sight of the fact that in previous times, property was also defined as the right not to be excluded from the use or enjoyment of something. MacPherson resurrects the older sense of property, the right of access to property held in common—the right to navigate waterways, walk along commonly used country lanes, and enjoy access to the public square.

  While this dual notion of property still exists, the right of public access and inclusion is becoming increasingly marginalized and diminished by the right of private ownership and exclusion, as the market economy comes to dominate more and more of the social domain. Consider the example of the changing pattern of home ownership in the U.S. Over the past forty years, growing numbers of Americans have taken up ownership in what are called common interest developments (CIDs). In these gated communities, not only are the homes privately owned, but even the streets, sidewalks, town squares, and parks are privately owned by the members who live there. Nonmembers often must seek permission at the gates to drive down the streets, walk on the sidewalks, stroll in the parks, or visit shops in the square. More than forty-seven million Americans—nearly one-sixth of the American population—already live in these private communities, and the numbers are growing dramatically.14 CIDs may become the dominant living arrangement by mid-century.

  We Americans have, in just two centuries, come up against a basic contradiction that lies at the heart of the American Dream. We have long sought both autonomy and mobility and believe that the two are mutually reinforcing. Now millions of Americans have transformed large swaths of America’s public space into privatized communities, denying millions of other Americans access to and mobility through whole parts of America. A country that once prided itself on its openness and expansiveness—its lack of boundaries—is being systematically walled off into exclusive domains at an alarming rate, changing the very character of the American landscape and the American experience. There is nothing comparable to this vast privatization of living space in Europe.

  MacPherson notes that a private property regime was used for structuring human relationships in a world of physical scarcity. Now, notes MacPherson, at least for the top 20 percent of income earners, securing the right to a material revenue has been solved, and therefore their interest is turning to the more expansive and deeper issue of securing a quality of life. MacPherson argues, in turn, that property needs to be redefined to include the “right to an immaterial revenue, a revenue of enjoyment of the quality of life.”15 He suggests that “such a revenue can only be reckoned as a right to participate in a satisfying set of social relations.”16

  In a society of true abundance, the idea of excluding others becomes increasingly unimportant in structuring property relationships. If everyone has more than he or she needs, then what practical benefit is there in excluding others? In a society that has vanquished scarcity, immaterial values assume greater importance, especially the pursuit of self-fulfillment and personal transformation. The right not to be excluded from “a full life” becomes the most important property value people hold. Property in the new era, argues MacPherson, “needs to become a right to participate in a system of power relations which will enable the individual to live a fully human life.”17

  Of course, for the four-fifths of the human race who still labor under conditions of abject poverty or bare su
bsistence, economist Hernando de Soto’s plea to catch up with the wealthy nations by establishing a private property regime, like the one Europe and America have enjoyed for the last two hundred years, makes some sense.

  There is, however, another reason why the developed societies find themselves between an old property regime based on the exchange of products in markets and a new property regime based on the right of access to one another’s assets in networks—that is, the increase in vulnerability that inevitably accompanies the change in the complexity and density of human interactions and the shrinking of space and time in a globalized world.

  I had the opportunity, twenty-three years ago, to visit with the late Ilya Prigogine, the Belgian physical chemist. His theory of “dissipative structures,” for which he won a Nobel Prize, offers some guidelines as to why our thinking about property relations and our notions of freedom are radically changing.