13 May 2011

Three Types of Economic Interaction

Reposted in full from Symbionomics, 11 May 2011

'Economic interactions can be boiled down to three core patterns. I will make no attempt to take an ethical stance on any of them, though their ethical implications are obvious. Let me also say that this post is a gross over-simplification. However, sometimes, over-simplifications can be valuable tools for helping us see where opportunities for innovation lie. That is my intention here.

Pattern 1: You’ll do that

Otherwise known as brute force. Basically the point is to get someone else to do something that benefits you by threatening violence. Examples include slavery, serfdom, empire building, and extortion. People who engage in this behavior calculate, consciously or otherwise, that the *other* is so different from them that the trust needed for reciprocal trade is impossible. Since even the most rudimentary trades are based on unconscious cultural assumptions, one can see why the threat of violence might appear an easier way of getting value from people. However, violence requires the perpetrator to expend considerable resources in the process. While in the short term, the resources expended may seem worth it, this strategy is, overall, a relatively low-yield investment. History has shown again and again that societies that are built on this kind of economic interaction ultimately wind up self-destructing.

Pattern 2: I’ll do this IF you’ll do that

Otherwise known as trading. As people began to develop a basic trust in the *other*, they learned that they could expend considerably fewer resources to get things of value by engaging in reciprocal exchange. Once, long ago, this process was done with direct trade (asparagus for shirts). About five thousand years ago, we learned to substitute information tokens for actual goods, and money was born. Using this method of economic interaction requires that we share enough context with the “other” to trust that they won’t take what they want by force or flake on their end of the deal. Strong legal institutions have helped establish this kind of trust. Today this is the primary way we interact with society at large. But even with today’s light speed monetary transactions, the core remains about parting with something of value to get something of value.

I don’t want to talk this pattern down too much as it is a huge improvement from the “You’ll do that” way of doing things. However, there is still much inefficiency in a reciprocal economy. For instance, economic interaction doesn’t happen without agreeing on what each party will part with. And such blocks routinely prevent what would be valuable interactions. Also, this zero-sum logic usually results in people looking to get the most from others for the least of their own.

Pattern 3: I’ll do this

Otherwise known as gifting. Examples include tribal cultures, small villages, and what’s left of that today, families. When people share enough context and identity that the wellbeing of the other is seen as part of the wellbeing of the self, then gift economies become the most efficient way of interacting. Gone are any of the inefficiencies of force, or of haggling out a deal. When people are on the same team working for the same goal, reciprocity becomes irrelevant. How many times do you see basketball players striking deals on the court: “I’ll pass you the ball now, but you have to promise to pass it to me next time.” When people share common goals, reciprocity just gets in the way. This isn’t to say that some people on the team don’t pull more weight than others. In fact, when contributions are severely mismatched, other kinds of inefficiencies crop up. However, on a team everyone tends to see what everyone else contributes, so the process is highly self-regulating.

I believe this kind of economic interaction represents the future of the global economy. We must recognize our shared identity on this planet, both in terms of the impact we are having on the broader environment, and in terms of the impact we are having on each other. We must recognize ourselves as team humanity, and develop the information systems needed to make this third mode of economic interaction the primary driving force in the economy.'

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