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In The End of History and the Last Man, Fukuyama provided a brilliant and optimistic interpretation of the collapse of Communism, and the historical forces (both economic and psychological) that have shaped today's world. In The Great Disruption, his thesis is that today's social turmoil results from the shift from an industrial to a postindustrial economy. Surprisingly, the dynamics that were at the heart of the first book do not appear here or are muted and in the background. He takes a fresh look at today's social puzzle, and sets out to solve the mystery from scratch.
The first part of Disruption relies heavily on evidence from surveys -- using a ponderous academic style to prove points that could be presented as common sense. It reads like an account of the debates of professional sociologists, weighing the merits of various dubious statistics.
The second part is simply brilliant, based on observations from nature, philosophy, psychology, movies, popular culture, technology, economics, and business. Instead of a debate narrowly focused on a single topic, with evidence presented leading to a single conclusion, we have a series of inspired insights into modern life and business, including what it takes to be successful in the new Internet-based business environment.
Highlights:
Broad implications of anarchic, self-regulating Internet style: "Max Weber argued that rational, hierarchical authority in the form of bureaucracy was the essence of modernity. What we find in the second half of the twentieth century, instead, is that bureaucratic hierarchy has gone into decline in both politics and the economy, to be replaced by more informal, self-organized forms of coordination." (p. 194)
Online communities: "... if people know that they have to continue to live with one another in bounded communities where continued cooperation will be rewarded, they develop an interest in their own reputations, as well as in the monitoring and punishment of those who violate community rules." (p. 193) [cf. the success of the feedback system at eBay]
Fukuyama repeatedly emphasizes the importance of "social capital": "Social capital can be defined simply as a set of informal values or norms shared among members of a group that permits cooperation among them. If members of the group come to expect that others will behave reliably and honestly, then they will come to trust one another. Trust is like a lubricant that makes the running of any group or organization more efficient." (p. 16) And he defines "network" in terms of "social capital: " If we understand a network not as a type of formal organization, but as social capital, we will have much better insight into what a network's economic function really is. By this view, a network is a moral relationship of trust: A network is a group of individual agents who share informal norms or values beyond those necessary for ordinary market transactions." (p. 199) In other words, in a network people "are much more willing to engage in reciprocal exchange in addition to market exchange -- for example, conferring benefits without expecting immediate benefits in return. Although they may expect long-term individual returns, the exchange relationship is not simultaneous and is not dependent on a careful cost-benefit calculation as it is in a market transaction." (p. 201)
In other words, Fukuyama provides an interpretation of modern society in which the most bizarre aspects of the Internet environment (e.g., massive social and economic structures thriving with no central control; and companies competing to give away software and content, rather than charge for it) become instances of broad principles of human behavior. And the Internet style of business becomes an economic necessity -- the only way a company can survive.
In a hierarchical organization, "although it is in the organization's overall interest to promote the free flow of information, it is often not in the individual interests of the various people within the hierarchy to allow it to do so." (pp. 203-205). Networks are more flexible and better able to adapt to changing circumstances because "they provide alternative conduits for the flow of information through and into an organization. Friends do not typically stand on their intellectual property rights when sharing information with each other and therefore do not incur transaction costs. Friendships thus facilitate the free flow of information within the organization... A corporate culture ideally provides an individual worker with a group as well as an individual identity, encouraging effort toward group ends that again facilitate information flow within the organization." (pp. 204-205)
He sees the power of informal networks not just within large corporations, but also when the notion of long-term employment at the same company breaks down -- due to intense competition for highly skilled workers and also due to frequent layoffs and business failures. He cites Regional Advantage by Annalee Saxenian, with reference to Silicon Valley, "...beneath the surface of apparently unbridled individualistic competition were a wide array of social networks linking individuals in different companies in the semiconductor and computer businesses. These social networks had a variety of sources, including common educational background... and common employment histories..." (p. 208) Saxenian had contrasted the Silicon Valley culture with that of Boston's Route 128 area: "...the proprietary attitudes of a Route 128 firm like Digital Equipment proved to be a liability." (p. 209)
Fukuyama sees the ties of electronic networks as "weak" compared to those in the Silicon Valley: "...the whole of Silicon Valley can be seen as a single large network organization that can tap expertise and specialized skills unavailable to even the largest vertically integrated Japanese electronics firms and their keiretsu partners." (p. 210) He asks, "If information can now be readily shared over electronic networks, why is there not further geographical dispersal of industries? It would appear that the impersonal sharing of data over electronic networks is not enough to create the kind of mutual trust and respect evident in places like Silicon Valley; for that, face-to-face contact and the reciprocal engagement that comes about as a result of repeated social interaction is necessary." (p. 210) He concludes, "... it is hard to turn ideas into wealth in the absence of social connectedness, which in the age of the Internet still requires something more than bandwidth and high-speed connectivity." (p. 211)
In this passage (unlike the one about online communities quoted earlier), I believe that Fukuyama underestimates the socially cohesive power of interaction over the Internet. An electronic network and the software that runs on it are simply mechanisms that can be used in many ways -- some of which result in weak social ties and others of which lead to close personal relationships, strong feelings of loyalty, and vibrant businesses. The difference comes from the human, personal investment that a company puts into its online community efforts, as well as the overall structure they put into place to encourage the positive interaction of their visitors with one another.
Also, while this book was recently published, Fukuyama's comments about Digital and the Silicon Valley already sound dated. His principles are right on target and cogently explained, but the world has changed a bit since this book was written.
Digital at its peak (around 1987) had over 130,000 employees. It was swallowed by Compaq in 1998 and since that time the great majority of Digital people have either been laid off or left in disgust. In total there are today probably about a quarter million Digital alumni worldwide, all of whom shared a environment of common trust reinforced by free communication for all over the corporate computer network (long before the popularity of the Web). Now dispersed to numerous other companies, these people share a common culture and trust, common experiences, computer and Internet expertise, and shared values and experiences. In other words, the dissolution first of Digital and now of Compaq sets the preconditions for a unique human network of alums, (see the DEC Alumni Website at www.decalumni.org). Also the empty Digital/Compaq buildings, especially concentrated in Eastern Mass. and southern NH, means attractive business real estate is available at low cost. So the demise of Digital/Compaq sets the preconditions for the rise of Mass./NH as a high tech incubator, which today is far more attractive than the Silicon Valley. In fact, the Maynard Mill, a vast sprawling compex of buildings which served as a woolen mill in Civil War days, and later became the headquarters and symbol of Digital, has now become a mecca for high tech startup companies, especially Internet companies.
In the distant past, invading barbarian hordes blasted villagers out of the valleys where they would have stayed for countless generations, and dispersed the population, spreading social capital, and leading to the spread of civilization. And today we see massive layoffs and the failure of major corporations leading to a similar dispersal, creating new kinds of social relationships, making the silicon-valley style of human networking far more common in other parts of the world -- laying the foundation for future business success.
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