Lessons from the Great Depression and the Social Impact of P2P: Remarks from the Cosmos Club

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P2P By Design provides radical design thinking for brand builders and business leaders. It is dedicated to showing how design
can help businesses adapt to the peer-to-peer world rising from our networked culture. It takes a radical view, because, in this new world, the only path closed to us is the one where we turn back.

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July 10, 2012

A month ago, I was asked to deliver some remarks to a business forum at the Cosmos Club (wiki) regarding my work. It was a great opportunity to have conversations with people I might not have ever have met in the normal course of my work.

Here are my talking points.

As you noticed on the bio sheet, I’m not an economist, a policy maker, or a CEO. I’m a designer.

Some people think design is about making things prettier. Sure that happens, but often in the service of a larger purpose.

My job, as with all designers, is to see where the future is popping up and to give it forms that make it more effective, help people fall in love with it, and allow it to scale.

I always like to think of design’s purpose as being a catalyst of transformations.

Yesterday, John talked about our current economic crisis. I’d first like to build on that as it relates to what I and hundreds of other designers are shifting our work towards.

Then I’d like to close with why I think it has resonance with the inquiries of this club.

To build on John’s points, I’d like to reference a recent Vanity Fair article that highlights how I perceive our Great Recession.

The article was written by Joseph E. Stiglitz—recipient of the Nobel Memorial Prize in Economic Sciences and the former Chief economist of the World Bank.

In it, he argues that the Depression was not caused—as many people believe—by the Federal Reserve tightening the money supply.

Instead, he believes the Depression was the culmination of an economy fundamentally restructuring itself over many years and a workforce struggling to adapt with it.

He points out that in 1900, it took a large portion of the U.S. population to produce enough food for the country.

Over the next three decades, agricultural efficiency and productivity soared as better seeds and better fertilizer hit the market, better farming practices emerged, and more farmers adopted machine equipment allowing them to do more with less people.

Eventually output outpaced demand. Prices fell sharply.

As a result, farmers’ incomes shrank and agricultural jobs were destroyed or replaced by machinery.

To compensate, the adversely affected farmers borrowed heavily to sustain living standards and production. They hoped to push through those hard times on the farm in hopes of an eventual turnaround.

But because neither the farmers nor their bankers anticipated such steep price declines or prolonged unemployment, a credit crunch ensued.

Stiglitz argues that these loans and how they were used helped to maintain an outdated agricultural economy.

Eventually that economy collapsed.

What was needed instead was for government and business leaders to recognize that machinery, science, and technology were creating benefits and advancements that would underpin a future and robust economy.

Those loans that went to sustain and protect outmoded and unnecessary forms of economic activity should have been invested in efforts to grow a manufacturing economy and help the workforce transition into it.

Stiglitz argues that this is why we didn’t come out of the Depression until WWII.

WWII’s manufacturing boom eventually built the infrastructure needed for the new economy and the much needed reconfiguration of employment.

It pulled people off the farms and onto the factory floor. There they received the skills needed for working in the manufacturing economy.

Stiglitz posits our Great Recession is no different.

60 years ago, manufacturing jobs made up about a third of our work force.

But because of productivity gains brought by digital technology, automation, algorithms, and outsourcing, that number has shrunk from a third of our work force to less than a 10^th of it.

Those millions of jobless factory workers are the modern-day equivalent of those doomed farmers.

His conclusion is that our collective challenge is in helping our economy and our workforce transition faster into the new economic era.

So what is that era?

Stiglitz believes we’re move from a manufacturing economy into a service economy.

But I don’t think that’s precise enough or accurate enough.

Instead, I, and many others, believe our country is struggling through a transition from a “manufacturing economy” to a “Peer-to-Peer economy.”

Peer-to-peer refers to the relationships developed by networked and personal productivity technologies.

These technologies drive the creation of networked relationships that allow companies, organizations, and crowds of individuals with commons interests to do two things:

Easily share economic value with each other. (The popular example is sharing music files, but it can be with other things as well. Neighborgoods.com allows neighbors to shared everything within their homes from blenders to lawnmowers. IBM’s World Community Grid allows people all over the world to allow IBM to access their unused hard drive space to run calculation. The result is a distributed super computer that is making massive gains in medical research.)

Create value in collaboration with each other. (The popular example is Wikipedia, but in fact, it extends beyond publishing. One example is that an online group of car enthusiasts collaborated with each other to create a production car called the Rally Fighter. And yes you can buy it.)

At the fundamental level, Peer-to-Peer relationships expand the production of sophisticated economic value beyond the domain of businesses.

In the Peer-to-Peer economy, production expands from the warehouse to the home. And it’s led not just by teams of coworkers but communities of enthusiasts as well.

For those who haven’t experienced this new economic activity, there is a troubling sense that “Peer-to-Peer” is synonymous with “chaos” and “out-of-control” activity.

“How can I manage responsibly or keep costs low when I can’t control all the activity that I depend on?”

“How do such systems work?”

“I can’t afford to completely reinvent my company so how do I integrate such systems with what I’m currently doing?”

On a day-to-day basis, this is what I help companies understand and do.

Specifically I work with them to create new products and new services that leverage networked relationships and peer-to-peer modes of production.

It’s my task to help them see that the factory line isn’t the only model for creating value. There is a whole host of innovative models emerging in the Peer-to-Peer economy:

Mass customization
Open-source platforms
Crowdsourcing
Creative Commons
Crowdfunding
Crowdwisdom
Collaborative filtering
Wiki-production
Peer-to-peer renting

Now there is clearly a big economic upside to moving into this new economic activity. One need only look at the success of some well known players in this space:

Apple’s App Store (which shared resource)
IBM’s World Community Grid (which is a form of crowdfunding)
Nike’s recent moves to integrate networked technologies into their apparel and equipment for mass customization and data sharing between customers.

But the upside I’m most fascinated by is the civic and social benefits.

Many of the peer-to-peer innovations developed by businesses for the marketplace can easily be adopted by Governments and NGOs seeking to have greater civic and social impact. Let me give you one example from Haiti:

In the aftermath of the recent earthquake, millions of Haitians lacked food, water, and shelter. But they did have their cells phones and working cell phone towers.

Knowing this, the U.S. State department set up a text message hotline. They just needed to send a text message asking for assistance, aid and supplies.

In the first month, Haitians sent more than 40,000 texts.

The problem was that the aid workers primarily spoke English and all the texts were in Haitian creole. Not only that, but much of the directions such as landmarks and neighborhood were only known by locals.

Traditionally, governments would solve this problem by hiring contractors to build temporary call centers to handle and translate the calls. But doing this takes a long time to set up and they companies charge a lot for the premium of translating on a 24/7 basis.

Even if they did get one of these centers up and running, it didn’t solve the problem with the location information.

But because of the innovative systems developed in the Peer-to-Peer economy, the State Department had a faster, more effective, and cheaper option.

That option was to crowdsource the translations.

The Department worked with a few crowdsourcing services to create a website that allowed hundreds of thousands of Haitians living outside the country to translate texts from Port-au-Prince in real time, and for free.

Aid workers now knew who needed help, what they needed, and where they needed to deliver it.

A useful side effect was that the crowdsourcing effort provided hundreds of thousands of data points on what Haitians needed most. This allowed aids workers to better calibrate their supplies with the victims’ needs.

For me, the exciting part is that this is only one small example of the impact new modes of peer-to-peer production can have outside the marketplace.

And the truth is that efforts like this are only going to become more profound and effective as networked technologies, wireless technologies, and personal productivity technology continue to increase in capabilities and as designers and design thinkers become more sophisticated at integrating them into our society.

On a day-to-day basis, this is the type of world I try to bring about. My hope is that I can help this future economy come sooner so that the innovations developed in it can be used to drive profound social and civic impact.

Thank you