Netarchical Capitalism

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Netarchical capitalism is a hypothesis about the emergence of a new segment of the capitalist class (the owners of financial or other capital), which is no longer dependent on the ownership of intellectual property rights (hypothesis of cognitive capitalism), nor on the control of the media vectors (hypothesis of MacKenzie Wark in his book The Hacker's Manifesto), but rather on the development and control of participatory platforms.


Contents

Description

Here's an extensive citation from the manuscript on P2P Theory (see the Foundational Essay):

Michel Bauwens, section 3.5:

“Above I have summarized the key theses about the new ‘class configuration’. In this section I offer my own take on the matter, since I am convinced that both main interpretations miss something important, that the peer to peer era is creating a new type of capitalists, which are not based on the accumulation of knowledge assets or vectors of information, but on the enablement and ‘exploitation’ of the networks of participatory culture. The invention of service-based business strategies based on the use of collective-produced open source code may be considered a subset of this development.

Recall the following: the thesis of Cognitive Capitalism says that we have entered a new phase of capitalism based on the accumulation of knowledge assets, rather than the capital involved in physical production tools. The vectoralist thesis says that a new class has arisen which controls the vectors of information, i.e. the means through which information and creative products have to pass, for them to realize their exchange value. They both describe the processes of the last 40 years, say the post-1968 period, which saw a furious competition through knowledge-based competition and for the acquisition of knowledge assets, which led to the extraordinary weakening of the scientific and technical commons. And they do this rather well.

But in my opinion, both these hypotheses fail to account for the newest of the new, i.e. to take into account the emergence of peer to peer as social format. What is happening?

In terms of knowledge creation, a vast new information commons is being created, which is increasingly out of the control of cognitive capitalism. And the new information infrastructure, cannot be said to ‘belong’ in any real sense to the vectoralist class.

Therefore, my hypothesis is that a new capitalist class is emerging, which I propose to call the netarchists (since netocracy ‘is already taken’ by Alexander Bard, and I reject his interpretation, see above). These are the forces which both ‘enable’ and exploit the participatory networks arising in the peer to peer era. Examples abound:

1) Red Hat: it makes a living through associated services around open source and free software which, and this is crucial, it doesn’t own, and doesn’t need to own. We now have not only the spectacle of firms divesting their physical capital (the famous example of Alcatel divesting itself from any and all manufacturing, Nike not producing any shoe itself), but also of their intellectual capital, witness the recent gift of IBM of many patents to the open source ‘patents commons’ or the strategy of SUN Microsystems[i].

2) Amazon: yes, it does sell books, but its force comes from being the intermediary between the publishers and the consumers of books. But crucially, it success comes from enabling knowledge exchange between these customers. Without it, Amazon wouldn’t quite be Amazon. It’s the key to its success and valuation otherwise it would just be another bookseller.

3) Google: yes, it does own the search algorithms and the vast machinery of distributed computers. BUT, just as crucially, its value lies in the vast content created by users on the internet. Without it, Google would be nothing substantial, just another firm selling search engines to corporations. And the ranking algorithm is crucially dependent on the links towards document, i.e. the ‘collective wisdom’ of internet users

4) EBay: it sells nothing, it just enables, and exploits, the myriad interactions between users creating markets.

5) Skype mobilizes the processing resources of the computers of its participating clients

6) Yahoo: gets its value for being a portal and intermediary

So we can clearly see that for these firms, accumulating knowledge assets is not crucial, owning patents is not crucial, though, driven by the profit motive and the desire to obtain monopolies, they use it as a secondary strategy. You could argue that they are ‘vectors’ in the sense of Wark, but they do not have a monopoly on it, as in the mass media age. Rather they are ‘acceptable’ intermediaries for the actors of the participatory culture. They exploit the economy of attention of the networks, even as they enable it. They are crucially dependent on the trust of the user communities. Yet, as private for-profit companies they try to rig the game, but they can only get away with so much, because, if they loose the trust, users would leave in droves, as we have seen in the extraordinary volatility of the search engine market before Google’s dominance. Such companies reflect a deeper change into the general practices of business, which is increasingly being re-organized around participatory customer cultures — see section 3.1.B about the cooperative nature of cognitive capitalism, where this shift is already discussed.

Knowledge and other workers using participatory platforms will generally use both the commons and the market, the latter in order to make a living, and forms of distributed capitalism, which lessen their dependence on the larger firms and the salary dependence, may appeal to them. Such workers do have access to their own information machines, but need platforms to connect. Obviously they are drawn to the participatory platforms devised by these new types of companies, even feeling an allegiance to them. At the same time ,the relationship is uneasy since these firms will generally try to evolve towards monopolistic practices, or at least, towards short-term for-profit strategies and tactics which may not be in their interests. Knowledge workers and other forces creating the P2P commons can take a variety of roles in the economy, and in present circumstances clearly need a market, but which they are trying to mold to their own interest. Thus the new forms of distributed capitalism are needed and supported because it lessens the dependence on classic firms and monopolies. The trend fulfills a desire for ‘autonomy within the market’, and allows for various forms of ‘consumer aggregation’ that were hitherto difficult to achieve[ii]. Similarly, many of the new netarchical leaders are vocal in their general support for participation[iii].

In section five, where we examine the ‘physical laws’ operating in networks, and following the summary of David Reed, we see how the linear value growth of individual membership creates a economy of attention where portals and new intermediaries emerge; how the square value growth of interactions creates the transactional web and the associated platforms; and how the exponential growth of the Group-Forming-Networks quality of networks creates infinite autonomous content for ever-shifting ‘infinite’ affinity groups, thereby transcending the ‘economy of attention’ characteristics in significant ways. (Ebay profits from the three properties: as an intermediary to content (i.e. what is available where), from the transactions amongst its members, and from their ability to form auction groups themselves.)

My conclusion is that the emergence of P2P begets a new capitalist sub-class, which accommodates itself with the networks, places itself at crucial nodes and proposes itself as voluntary hubs, rather than living off knowledge assets. In this sense, vectoralists, even as they ascend to the heights of power through restrictive copyright legislation, have already reached the zenith of their power, and they will eventually be replaced by new formats of capitalist exploitation, which accommodate themselves in much more intelligent ways to the peer to peer realities. The fact that large infrastructural companies such as eBay and Google get a lot of attention should not blind us to the fact that this also is a bottom-up process that enables for a much wider spread of entrepreneurship, sometimes called ‘minipreneurs’. For such minipreneurs, a whole infrastructure is in the process of being set up. A first layer of websites and services allows for the distribution and eventually sale of digital material, i.e. publishing of text through self-publishing (lulu.com, booksurge), of self-produced music (PureVolume.com), and digital art (Deviant Art.com). It is also possible to create and sell self-made physical products such as designs (CafePress.com) and even to use online tools for designing products who ‘first physical models’ can be outsourced, such as with eMachineShop.com. Personal fabricators are an extension of this model but are not yet available; in the meantime sites like iFabricate attempt to fill the gap[iv]. A related growing trend is the use of personal outsourcing where by individuals can easily find assistance in the developing countries. There is also a financial infrastructure being on offer. The creation of the Zopabank, where any ‘consumer’ can also be a lender, is an important development as well[v]. Others are experiment with a ‘Corporate Digital Commons’ format to pool resources. EBay, with its 64 million active users and 260,000 associated stores (and similar initiatives by Amazon.com) have create a whole parallel economy of primary or secondary earnings.

Related to the trend of netarchical capitalism is the user-driven innovation process that we explained before. This can happen within companies but also through the creation of new kinds of exchanges where companies offer incentives to communities of researchers to come up with technical or scientific solutions. Among the examples are Innocentive.com. These initiatives blur the distinction between the commons and the market, since the supply is organized with P2P formats, but the corporate incentives create competition for the resources offered, and eventual payment is involved[vi].

At the same time, we might except peer to peer exchanges that fall outside of any for-profit priorities, and businesses from the social economy sector, for whom profit is a subsidiary concern. This new sector may seem marginal today, but is in my opinion, ‘the next wave’ in terms of new types of corporations[vii].

What seems important in a possible evolution towards a participatory society is the following. Although the large netarchical corporations do enable participatory networks, their for-profit nature makes them dangerous trustees of commons-favorable protocols. Their will be a continuous tension between their need to retain the trust of their user base, and the pressure of advertisers as well as their own bottom-line needs. It would be preferable that minipreneurs and those who need platforms to transform use value into exchange value, to have access to open platforms. Projects like the Broadcast Machine[viii] of the Participatory Culture Group, or the Prodigal[ix] marketplace seem to go into that direction.

There is another aspect in which the concept of netarchy is useful. Throughout this essay we always stress the double nature of P2P: a form in which it is the infrastructure (technical, collaborative, etc..) of the current system; and a form in which it transcends the current system pointing towards an alternative economic organization. In one way, distributed networks and P2P-like processes can be used to re-enforce Empire, in another way, to combat it. Ideologically, there will be those who favor P2P but see capitalism as the endgame of history, who cannot imagine an alternative; while others, including myself, see it as the premise of radical social change. It is easy to see how the first position can be termed netarchical, since it inevitable accepts and glorifies the for-profit appropriation of the participatory networks, while the latter will favors autonomous cooperation.

This is not to say that netarchy does not play a useful role. New classes at first usually play a progressive role, riding on the back of new productive possibilities. And such is the role of netarchy. Compared to the cognitive capitalists and vectoralists, who respectively monopolize knowledge assets and information vectors, netarchists need neither one nor the other. Thus they do not necessarily side with the forces trying to rig computers with digital rights management restrictions, nor with the forces putting young people who share music in jail. Rather they will try to both enable and use the new practices, on the one hand ‘making them safe for capitalism’, but also funding, technologically developing and enabling new P2P processes. Acting as intermediaries between both worlds, they look for ‘reformist’ solutions as it were.


3.5.D. The emergence of a netarchical ideology

The emergence of the netarchy is accompanied by a new ‘ideology’ which both embraces participation, but crucially sees capitalism as the only conceivable horizon for the future of humanity. It is the kind of ideology one can identify with the “California ideology" expressed in Wired magazine.

The netarchical ideology has its expression especially in the international political economy, especially in the form of ‘bottom-of-the-pyramid’ economic development, as championed by C.H. Prahalad. Prahalad and the movement he inspired[x] recognize that the one billion people at the bottom of the pyramid manage to have a cash flow of $2 per day, even though they do not have the capital. And Hernando de Soto, with the social capital movement in general[xi], shows how this capital can be partly generated by ‘formalizing’ the informal capital that they often do have, but that the current institutional framework cannot recognize. Thus Prahalad and others try to convince capital and development institutions to develop solutions like micro-banking, creating bottom-up collectives of the most poor and a virtuous cycle[xii]. A bottom-up, distributed form of capitalism if you like, which shows an uncanny resemblance to P2P processes, and this is why we consider this position to be netarchical. The problem with these solutions is that they often aim to ‘capitalize’ everything, and do not have any regard for the surviving forms of the commons which are still very much alive in certain areas of the South, destroying the traditional social fabric. The profit requirement – and one cannot see how the current 15% profit requirement of financial investors and multinational corporations can lead to any permanent engagement of these forces in B.O.P projects.

Jock Gill of the Greater Democracy weblog has criticized BOP schemes for these reasons, and has offered an alternative approach: namely citizen-to-citizen or ‘edge to edge’ development partnerships. Whereby collectives of individuals with capital, would directly provide collectives of individuals without capital, with the necessary amounts of small capital, and without imposing the profit requirement. Such practices are already widespread within the U.S. themselves, in the form of Gifting Circles, whereby local groups collate gifting money of its members, study options for giving together, and decide on appropriate local initiatives to support."


Discussion

Key to netarchical capitalism is the tension between the sharing economy of the users, and the monetisation of attention by the proprietary Web 2.0 platform owners.

Bauwens & Kostakis book

Read the second part of the Network Society and Future Scenarios for a Collaborative Economy co-authored by Vasilis Kostakis and Michel Bauwens.

Mark Pesce on Sharing vs. Profits

From http://blog.futurestreetconsulting.com/?p=24 :

"Sharing information carries its own costs and rewards. Much of the work of arbitrageurs draws from some “inside information,” which, were it widely known, would rectify the market inequity the arbitrageur profits from. Thus, there are some situations where sharing presents such a great threat to profit that the drive to fairness is effectively silenced. In most other situations, the sharing of information confers benefit both on the individual offering up the information and the community which receives the information. Individuals identified as experts in a particular area gain in social standing within their communities; this is a form of wealth in itself, and though less tangible than cash, should never be discounted. This social calculus serves as the foundation for many communities, and it is both delicate and constantly in flux: members in every social network are constantly jockeying for position by sharing, aggregating, or critiquing the information.

When the wealth of a community leaves that community – when it is committed to print, or licensed out a commercial organization – problems immediately arise. The first of these is the question of authorship: is the creator of the information being recognized as the author the work? If so, the social calculus of expertise expands into a new sphere. If not, it will feel like theft. Next comes the question of money: who profits from the work of another? Qui bono? If the host of the community takes the content generated by that community and realizes profit from that content, the creators of that content will immediately be afflicted with a number of conflicting feelings. Assuming that attribution has been passed along, there is no loss in social standing. But to see someone else making profit from work freely shared strikes at the very heart of fairness. More significantly, this problem will not be solved simply by offering content creators a license fee for their content. They’re not in it for the money. They are not professionals. Their motivations have everything to do with the sharing of expertise in a context that is all about social standing and not about commerce. Mixing these diametrically opposed influences will quickly result in a spiraling series of crises, leading inevitably to the collapse of the community, once its members realize that they’re being “ripped off.”

The only possible solution that would satisfy both the desire to share and the desire for profit relies on a persistent transparency of motives. The host must enter into a negotiated agreement with the members of the community which sets all ground rules for the use of community-generated content. Furthermore, these agreements must be negotiated on an individual basis, so that every participant in a community has the ability to opt-in or opt-out of the exterior financial arrangements of the community. This doesn’t make the situation any less fraught, because financial motives will still come into conflict with the intent of the community, but it does ensure that everyone understands and accepts the rules before they participate in the process of knowledge creation. That will go a long way toward keeping tempers cool when conflicts arise." (http://blog.futurestreetconsulting.com/?p=24)


Mark Deuze

From http://mailman.thing.net/pipermail/idc/2007-July/002652.html :

"The key to understanding the currently emerging relationships between media consumers and producers, or between media owners and media workers (whether paid or voluntarist) for that matter, is their complexity, their reciprocity as well as animosity: their liquidity. Such relationships are seldom stable, generally temporary, and at the very least unpredictable. Yochai Benkler and others articulate in this context a hybrid or new mixed media ecology, typified by a global digital culture that can be understood in terms of what Lev Manovich calls a culture of remix and remixability, where user-generated content exists both within and outside of commercial contexts, and supports as well as subverts corporate control. So while one can indeed see the End User Licensing Agreements and Terms of Service of the major user-created content sites (including but not limited to game modding platforms, corporate citizen journalism initiatives, and viral marketing sites) as informal labor contracts, it would be a mistake to presume that the collective intelligence of the user community thus is "controlled" by the corporation (or vice versa). For example, as part of my research I talk with professionals throughout the news and entertainment industries (both in the U.S. and elsewhere), and many if not most of them express openly the fear that they have lost control over their own brands and properties as they get taken up and deployed by consumers and users in diverse, disorganized, decentralized, but very public ways."

"research within such 'media giant' organizations (for News Corp consider Tim Marjoribank's or Eric Louw's work for example) show that creativity, commercialism and management operate in much more complex ways than the singular/monolithic way you suggest, and not only do many if not most workers in such organizations also just want to tell great stories - within constraints of commercial and corporate pressures, granted – now we see consumers (former audiences) move in and out of these organizations and their creative processes as well. In a world without any media literacy, that would be a real problem - but frankly, I am doubtful whether we are still living in such a world. If anything, consumers-turned-users should be educated/trained to enable them to engage the "media giants" much more on their own turf. And simply earning a lot of money does not make a company unethical. There are important concerns regarding the increased outsourcing (“crowdsourcing”) of media production to media consumers – not in the least because it seems to correlate with an increase in lay-offs throughout the media industries. So education works at least in two ways: in order to survive in a competitive, globally networked and niche-driven world, media organizations have to invest in their talent and reconsider crowdsourcing as a cost-cutting measure, and the people formerly known as the audience (Jay Rosen’s apt expression) need to become literate regarding the effective exploitation of their labor. Perhaps we need a global union for unsalaried media employees?

transparency and media literacy are key, and it is our responsibility as media educators and their corporate responsibility as good business practitioners to work with users rather than trying to co-opt or control them. The pre-World Wide Web experience with fan cultures has already shown us that such business strategies simply do not hold, and ultimately contribute to a brand’s downfall and loss of credibility. On the other hand: it is difficult for big mass media enterprises to retool, to reinvent – since they are used to be in control of the media marketplace in a context of information and channel scarcity. We should therefore not forget that most of these companies are still new at the online/converged/interactive game, so perhaps we cannot blame them for trying to cut and paste their top down control model onto the World Wide Web (that does not mean its okay - its just a more grounded perspective on the current staple of co-opting practices). I operate under the assumption that such a strategy will fail, and that a new one, as advocated by Sambrook and others, of transparency, co-creation and participation will prevail. Indeed, I find it more inspiring to search for instances, examples, initiatives, values and praxis within (or: at the margins of) the professional media world where there is diverse and complex co-creative collaboration and exchange, rather than just lamenting those evil corporations that just do not tell you in all honesty that all they want is to control you and the dollars you spend.

Facebook users are not "captive" (nobody is forcing them in or out), but the observation that users increasingly enact some kind of critical agency in the face of less-than-convenient features of social networks (especially the often complete lack of transportability in migrating avatars, content and databases between different sites). Again, I would hesitate to frame all things occurring in this media environment in terms of binary oppositions. Sure, companies are trying to monetize the collective intelligence of cyberspace. And yes, users sometimes accept, and sometimes reject the conditions under which their participation is enabled. But the interdependency of all the actors involved makes for a more complex and liquid reality than simply one of all-powerful professional producers versus hapless, captive and easily exploitable users." (http://mailman.thing.net/pipermail/idc/2007-July/002652.html)


Trebor Scholz's critique of value capture by proprietary platforms

The excerpt above were already taking from an interview/conversation between Trebor Scholz and Mark Deuze. For the arguments by Trebor, read the questions/debating points in the interview.

URL = http://mailman.thing.net/pipermail/idc/2007-July/002652.html


The market domination strategies of the netarchical platforms

Richard Eskow:

“Despite its self-promoted reputation for “disruption” and invention, Microsoft’s monopoly approach is Silicon Valley’s real business model – and it’s been faithfully followed, in one form or another, by all of the massively successful tech ventures that have come since. (As a note: We use “monopoly” as shorthand, although in many cases – including Microsoft’s – we’re also describing monopsony practices.)

Facebook is the textbook example. Although it was never distinguished by smart design or ease of use, Facebook moved aggressively to capture a monopolistic share of the social media market. Then came the ads, the interference, the invasions of privacy, manipulation of users’ news feeds for the corporation’s own purposes – not to mention invasions of privacy and the sale of personal data to third parties.

Facebook builds nothing, manufactures nothing, creates nothing. Instead it encourages its users to do the creating, then “charges” them in invisible ways – by redirecting their time and attention to produce profits for itself. YouTube, like Facebook, never generated its own content. It built its monopoly position by offering free access to the creative work of others. Once firmly established on its monopolistic throne, it began forcing viewers to watch advertisements before viewing videos.

That’s the model: First lure them in and establish your monopoly, then monetize. YouTube is now owned by Google, which also commands a monopoly share of its market. Unlike some of its less-gifted peers, Google is a genuinely inventive and talented company. But, like its peers, it has relied heavily on government-funded technology (the Internet, computers, smartphones) and government-funded research to capture its monopoly share. It has used its monopoly to redirect users’ attention, and to exert frightening levels of control over users’ experience of the world.

Now a new generation of would-be monopolies is on the move. The most aggressive of them is the martially named “Uber,” which recently distinguished itself by earning an “F” rating from the Better Business Bureau. Uber is following the path laid down by its forebears: First, identify a core market. Second, establish a monopoly position. Then capitalize on that position, either by squeezing customers and/or vendors or by using it to expand into additional markets.”

So, how does this strategy work ? Richard Escow explains:

” It’s true that Amazon isn’t a monopoly or monopsony in anything except books – yet. But it has demonstrated through its actions that it intends to become one in every market it serves. It has used its enormous cash flow – cash flow based on government-provided tax breaks – in order to act proactively and ruthlessly to eliminate future competitors. While it’s far from a monopoly in diapers, for example, it used its revenue base to engage in brutal price competition with Diapers.com (which it then acquired).

This strategy could be described as “serial monopoly” and “serial monopsony.” It enters a market, leverages an economic advantage (sales tax exemptions, revenues from other product lines) and then preys on competitors until it reaches something like a monopoly position. Serial monopolists are always thinking about the next market to be dominated. Today’s revenues are often directed toward that end, rather than to short-term profits.

That’s why arguments like Yglesias’ miss the mark. When Yglesias writes that “’low and often non-existent ‘profits’ and ‘monopoly’ are not really concepts that go together,” he’s working from an old playbook. In the new “serial monopoly” model, they go together very well.

Uber’s leaders may not be as shrewd as Bezos, and their early move to “surge pricing” may have tipped their hand too soon. But “serial monopoly” is Uber’s model, too. That’s what those ice cream cones and kittens were really all about.

In one way the serial monopolists are a new creature, spawned from technology that allows them to enter new markets without initially manufacturing or warehousing the merchandise themselves. In another sense theirs is an old tactic, one that would have been familiar to the railroad tycoons who were setting the price of grain in 19th century America.

These corporations are monopolists – and much more. They’ve quickly assumed extraordinary influence over our lives. They control what we know, what we see and how we spend our time. They decide who knows our most intimate secrets. They are acquiring the kind of power totalitarian governments of the past could only dream about.

Why have we been so quick to idolize the tech economy? Why have we accepted their claims so uncritically and paid so little attention to what they were actually doing? There’s the excitement of the new, and the cachet that comes with great wealth. There may also be an element of the phenomenon South American educator Paulo Freire called “the internalization of the oppressor consciousness,” where it becomes more comfortable to accept the values of the powerful than to confront the fear and sense of responsibility that arise when you challenge them. Whatever its causes, our credulous embrace of the tech culture has left us vulnerable to its seemingly endless appetites and ambitions. Those ambitions, as expressed by everyone from its pundit and economist supporters to its own leading executives, add up to nothing less than the remaking of our economy and culture in their own neolibertarian image.

If that pink dolphin city is anything like the society the tech corporations are creating, then things we take for granted – things like privacy, competition and a thriving middle class – may not exist there. Google’s motto is “Don’t be evil,” and by its own lights these tech entrepreneurs probably aren’t.

Still, Silicon Valley represents a set of values that is amoral by commonly held standards. It’s rapidly taking control of the distribution systems for music, literature and arts. And it’s increasingly manipulating our access to information, even as it absorbs an ever-increasing share of our economy.

Scoff at the word “monopoly” if you like. But if these developments don’t concern you, you’re not paying attention.” (http://www.salon.com/2014/10/24/silicon_valley_will_destroy_your_job_amazon_facebook_and_our_sick_new_economy/)

Key Books to Read

Galloway, Alexander. Protocol: How Control Exists after Decentralization MIT Press, 2004

On the new type of power in networks


Wark, McKenzie. A Hacker Manifesto. Harvard University Press, 2004

Develops the hypothesis of the Vectoral Class and the Hacker Class.


Richard Barbrook. The Class of the New.

Available online at http://www.theclassofthenew.net/3.html


Alexander Bard and Jan Söderqvist. Netocracy: the new power elite and life after capitalism, Pearson Education, London 2002.

Michel Bauwens: I totally disagree with this book, which sees the controllers of networks as the new elite and argues that we no longer have a capitalist society.


Richard Florida. The Rise of the Creative Class: And How It's Transforming Work, Leisure, Community and Everyday Life, Basic, New York 2002.


More Information

  1. Read Adam Arvidsson's masterly essay, The Crisis of Value and the Ethical Economy, as well as the response by Michel Bauwens in the Dornbirn Manifesto
  2. Gillespie, Tarleton L., The Politics of Platforms (May 1, 2010). New Media & Society, Vol. 12, No. 3, 2010. [1]
  3. Protocollary Power