Dave Pollard et Al: Open Source World

Some good stuff by David Pollard in the past few weeks on Open Source Business. Here he defines the concept:

A radically transparent organization which (a) operates through open collaborative partnerships with customers, employees, suppliers, and the communities in which it does business, (b) shares its sources of information, designs, specifications and processes with them, and (c) allows open participation in and makes public all decisions it makes, all operating information, and all documents it produces, on a creative commons basis.

In a follow-up post, he describes its functioning in the marketplace:

To remain competitive, at least as long as the 'market' economy remains in place, an OSB must be small enough to stay below the interest radar of potential larger competitors, or choose to operate on a zero- or small-profit basis, so that larger enterprises will be unwilling to match its price. So OSB is best suited to those who are looking for something other than big money in the way they make a living. That's not to say an OSB cannot be very profitable. Profit, however, is not the intention of the business, and, because growth is not the intention of an OSB either, any surplus would normally be returned to the community and the customers. Not-for-profit businesses are not volunteer organizations. Its members earn a market-rate salary, but not more.

Businesses that are not-for-profit and which have no ambitions for growth are not of much interest to banks or investors, but may well be of interest to credit unions or fraternal financial institutions, which also operate on a not-for-profit basis (though generally they do aspire to growth).

Take a look through the standard industrial classification of businesses and other organizations... and you'll have a hard time coming up with any business that doesn't lend itself to operating as an OSB. The toughest are probably mineral exploration and pharmaceuticals, industries with a huge investment required and a substantial risk of having nothing to show for it. Just about any other type of organization, it seems to me (including government, transportation, health and education), could just as easily be community based, small, and not-for-profit, with what Jon Husband calls 'wirearchy' coordinating their actions with similar organizations in other communities. Size and hierarchy are unnecessary.

Industries like mineral exploration and pharmaceuticals could manage that risk the same way all other large risks are managed -- by pooling their collective risks against failure, making the search a networked 'joint venture'. The result for those in the risky businesses is the elimination of both profit and loss. For example, suppose there were 50 tiny pharma companies looking for an antiviral for Poultry Flu. All but one of the 50 invests $1M and comes up empty. One invests $1M and comes up with the answer. The drug is valued at $50M. All the small community governments (say a million of them) in the world split that cost by paying $50 each for an unlimited amount of the drug (cost of manufacture of the drug itself is usually negligible) and offer their members the drug for nothing -- the $50 is part of the community's health care budget. The $50M goes equally to the 50 pharma companies, eliminating their loss by covering all their costs. Nobody makes a profit, but no one suffers a loss, either. The people in the pharma companies get their standard 'salary' costs paid for, and the satisfaction of knowing they participated in finding a cure for a horrific disease.

Compare this to Eric Raymond's response to a Marxist who denounced him as "right-wing":

...you know, it’s not like I’ve made any secret of the fact that I believe open-source thinking has radical political consequences in the longer term. I’ve said many times that the economic-efficiency arguments for open-source decentralization should sufficient to get people to do it without buying my politics. Then I’ve turned around and observed that learning how to do without centralization and big management in one area provides people with both working models and efficiency arguments for getting rid of authority hierarchies elsewhere. Yeah, sure, that’s a conservative prescription!

I’ve even argued — in front of Wall Street analysts, and had them buy it! — that we’re entering an era in which the traditional capital-intensive, management-intensive corporate form is less and less appropriate for managing production in which the main bottleneck is skilled human attention. I don’t use the term “workers’ cooperative” for what’s replacing it, but hello…hello? Can’t any of the so-called “progressive” thinkers in the Marxist camp put two and two together?

“Right-wing”. It is to laugh. It is to laugh exceedingly.

In another post, Pollard applies his open source vision specifically to the information and entertainment industries:

I believe we are less than a decade from reaching the point when all software and all content (information and entertainment) will be file-shared and quickly and simply downloadable free of charge as soon as it is released. By that time there will be some revolutionary changes to hardware as well -- it will get much smaller, faster, cheaper (though not free) and wireless, to the point that you won't bother to keep any content on your personal devices at all (though we may all share our content peer-to-peer through our cast-off wire-anchored PCs, part of a huge distributed network of global file servers, data warehousers that we will be oblivious to, and which will interact only with other machines). The plunging price of hardware and bandwidth and the ubiquity of free content will perhaps, at last, awaken us to the abominably low value of most of this stuff, and the horrific amount of time we spend paying attention to it -- and we may (we can only hope) rediscover the superiority of personal, self-created entertainment, conversation, live performances, imagination-provoking fiction, art and poetry, and contemplation of the real world on this side of the screen.

But there will be some other implications, less important socially but more important economically. With the disappearance of advertising, current producers of media content will need to find another business model to fund their productions. That model may vary from a Gift Economy (many of the baby boomers will have retired, and may be willing to write and produce good quality entertainment for the sheer creative joy of it), to a personalization model (sell tickets to the live performance, with a chance to meet the cast afterwards, and give the taped version away free). Those who entertain but don't perform live (studio musicians, authors who don't do readings and Q&As, and animated film producers) will need to be more creative in financing their careers (such as teaching -- long an admirable and accepted vocation for entertainers, and making customized products). It's hard to say whether corporate sponsorships (mainstay of US public broadcasting), and product placement will remain viable financing mechanisms. Private 'memberships' are doomed to be circumvented, unless they are altruistic and (also like US public broadcasting) bestow no special 'bit-access' privileges. Overpaid superstars will be a thing of the past.

The implications for media intermediaries (television and radio networks and print newspapers and other content aggregators) are more dire. These groups simply do not add enough value to justify their cost. I predict that unless they reinvent themselves (and they have shown themselves quite uninventive) they will soon go the way of ticket-punchers, tellers and bellboys ("thanks, I can look after that myself").

That reminds me of some brilliant remarks Steve Koppelman made in a comment thread at Reason Hit & Run:

Before the mid 19th century, when mass-market sheet music and piano roll sales created a "music industry" in which selling widgets and collecting royalties became sources of income, there was still plenty of music being made. People played fiddles and lutes and whistles and whatever around the kitchen table and the campfire. Some made money at it playing in party bands. Traveling musicians and buskers could earn a modest income. Other professionals played in theaters and traveling shows, and still others earned money through composing pieces on commission.

The music industry as we've come to know it in the last century and a half is a fairly new development. Music isn't. It came into being because printing sheet music, producing piano rolls, and later, manufacruring cylinders and discs and tapes was expensive and required costly equipment. The only entities that could afford do it were serious businesses, so the business models they created around copyright, publishing rights and manufacturing a physical product were viable. It was easy to use copyright to protect your interests because serious piracy required serious capital. Piracy that impacted the industry generally came from big operations run by organized crime . Cracking down was the relatively simple matter of radiing factories and warehouses and stopping big trucks full of bootlegs.

Now the "music industry" is unnecessary. Anyone can produce a flawless CD for about forty cents at home. Maintaining the industry in its current state is simply propping up an old cartel out of a misguided sense that it's the rightful gatekeeper to music distribution.

We're not rushing to ban or tax the hell out of digital cameras because Kodak and Polariod are suffering. They haven't asked government to do so, and they'd be laughed out of town if they did.

The record industry is obsolete. It's time for all those people to find another line of work. Musicians will keep making music. They just won't have an easy time making money from selling recordings. We had music for thousands of years before Edison's wax cylinders, and the inevitable end of the music industry -- pay-per-track download sites included -- won't put a stop to it. It may signal an end to the top-down star system, though, and a return to local and personal musicmaking.

cooperatives , open source , creative commons , counter-economics ,