The Hacker Economy

Many people assume that evolution is about the survival of the fittest.  It’s not.  What really drives evolution is adaptation to changing environments.

That’s why our planet is made up of more than just one super-fit organism.  Instead, we have a complex ecosystem.  New things come in and displace old ones, but the old ones tend to stick around somehow.  Some have survived for millions of years.

We can imagine sharks and algae thumbing their nose.  For all the newfangled organisms that have come along in the past million years, they still thrive.  To them, not much has changed.  Yet it surely has.  In much the same way, as old industrial giants are just getting used to the knowledge and information economies, a new hacker economy is emerging.

The Craft Economy

The first consumer product was probably the Acheulean hand axe, the “killer app” of the Stone Age that enjoyed market dominance in Africa, Europe and Asia for more than a million years.   It was simple and useful, made of accessible raw materials and easy to distribute and became the “killer app” of the prehistoric world.

People made it themselves, used it and then created a new one when it wore out or when they moved on to another place.  Most of human history was like that, people made what they needed, sometimes got help from friends or family members, but were mostly self sufficient.  There was some trade, but not much.

The craft economy was quaint, but incredibly inefficient.  The lack of trade meant that people couldn’t specialize on what they did best or take time to come up with improvements.  There was some advancement, but progress was incredibly slow.

The Industrial Economy

When James Watt invented the steam engine, he unleashed the industrial revolution. Human and animal muscle power would be multiplied by machines, making products that were cheaper and more uniform.  Incomes rose dramatically.

Frederick Winslow Taylor then led the efficiency movement, which broke down processes to simple basic tasks and sought to constantly improve performance.  Progress led to improvements in life conditions.  Production in mass quantities lowered prices further which created more demand.  A virtuous cycle ensued where more wealth led to more productivity.

Eventually, a new type of organization arose, the corporation.  Alfred Sloan at General Motors perfected it by emulating the centralized and hierarchical setup of the military. Even greater mass production led to mass marketing and the consumer culture.

However, the industrial economy was drab and boring.  Uniformity was the order of the day.  It was the era of smokestacks and the man in the gray flannel suit.

The Knowledge Economy

While industrialization brought great strides and created enormous wealth, eventually it became clear that that creating efficiency is not the same as creating value.  Businesses needed to innovate to increase productivity and stay ahead.

That led Peter Drucker to introduce the concept of the knowledge economy, where workers were not valued for their labor as much as they were for their expertise. Recognizing the shift, companies as diverse as McDonalds and General Electric invested heavily in corporate universities.

The knowledge economy was paired with two other trends: Decentralization and globalization.  Workers who are valued for their expertise can’t be supervised in the same way as ordinary laborers, because they know things their managers don’t.  Globalization made it possible to leverage that knowledge across many markets.

The Information Economy

Often confused with the knowledge economy, the information economy is profoundly different.  While the industrial economy was primarily about moving around men and materiel and the knowledge economy helped to do so more productively, the information economy represented a shift from atoms to bits.

Just as machines multiplied muscle power, information technology augments intellectual power.  Information, rather than knowledge possessed by an individual, is fungible. Today, however, we prize products that move information well.  Google’s algorithms don’t cost any more to run than anybody else’s nor do they depend on special materials.

What’s special about the information economy is its ability to create accelerating returns. We routinely expect that our products will get exponentially better and cheaper all the time and, as the power of information expands, that trend is becoming increasingly present in industries ranging from healthcare to energy.

The next phase of the information economy will be digital-to-analog technologies like 3D printing and programmable matter, which transform information directly into physical products.

The Hacker Economy

The new economy that’s emerging now is the hacker economy, where brands become platforms rather than products.  An iPhone is valuable not so much for the hardware, but for the apps created by third parties and, increasingly, those third parties are small entities or individuals.

The irony here is that the hacker economy is, in a very real sense, fostering a return to the craft economy.  As Chris Anderson explains in his new book Makers, there is a large movement of people using open source technology to create their own products, although many are doing it for fun and enrichment rather than necessity.

And that’s what’s important.  As economies evolve, choice expands.  It is mass production, combined with knowledge and information, which has created such enormous wealth that we can choose our own possibilities.

Evolution, after all, thrives in niches.

– Greg