Exploring social business strategy

For the last few weeks I’ve spent a fair bit of time thinking about the Keynesian “Paradox of Thrift“, which has become particularly relevant in today’s turbulent economy. As everyone knows by now, one of the driving forces of the problems revealed in 2008 was that consumers took on too much debt. The natural anecdote for this is for consumers to stop borrowing, and start saving – but that’s where the paradox lies. If everyone does that, aggregate demand will fall, the economy crashes, and the savings rate falls further still (also noting that when one saves by putting money in bank, it has to become debt for someone else in order to earn interest). Thus, we have a problem.

So it’s a case where doing what looks like the right thing for the long-term success of the economy has some perilous implications – at least in the short-term. In turn, it got me thinking about whether there is a similar, and potentially much larger, “Paradox of Wikinomics” as well. What I mean by this is that while application of the wikinomics principles might appear to  be the right thing for many companies and industries acting in their own self-interest, everyone adopting them at once could have similarly dire consequences – again, at least in the short-term.

In order to explain, let’s start again (also used in the wisdom of crowds vs. uniquely qualified minds post) with the first story in the book – GoldCorp. The gist was that the company ran a contest to find the best methods for identifying gold on their property, to great success. In theory, the methods they identified are probably the best for many such potential mines around the world. A logical extension would be that there are probably thousands upon thousands of people employed trying to discover ore deposits, that might very well now be redundant, if all similar companies adopted such approaches – transparency, information sharing, etc. – simultaneously. The old model, while less “efficient”, created more jobs.

So fine – one small subset of workers in the world potentially losing their jobs would barely cause a ripple in the global economy. But as you extend the principle of what made the GoldCorp story a success to other industries, such job loses can pile up. Other ideagoras (like Innocentive) would be an easy example, as companies start only paying for successful results (and a winner-takes-all economy takes hold) in R&D, while numerous people can no longer earn a living. But on a much larger scale, transparency and information sharing within the enterprise could make an extraordinary number of jobs redundant – jobs companies might be less resistant to cutting in the current economic climate than before. One easy example is “white collar grunt work” replaced by more effective, collaborative technologies – but there are many others.

And it of course doesn’t stop there. We’re already witnessing the demise of many newspapers, with the hyper-efficient Craigslist model being held responsible by many people. While I’m confident that the creation and dissemination of news will figure itself out again in the long run (and check out this excellent Clay Shirky interview for more thoughts on this), we’re seeing tremendous pressure on all creators of content tied to an advertising supported model. As the popularity of social media continues to increase, I expect that this trend will continue – and a lot of current jobs will be threatened.

I could go on, but I think you get my point by now. In the long run, what drives the wealth and success of an economy is productivity and efficiency. In my opinion, many of the principles of wikinomics continue to hold the promise of an extraordinary amount of efficiency and productivity to be unleashed, which should/ could have amazing long-term benefits. But in the short to medium term, I see the potential for a very difficult paradox – what makes the economy more efficient and productive as a whole causing a major dislocation of workers, who as we all know are also the consumers, and as they have less to spend the economy potentially shrivels up in a way similar to the paradox of thrift.

Given that the tagline of wikinomics is that mass collaboration changes everything, this dislocation could be on such a scale to make it a much tougher paradox to deal with. In such a case, the challenge is to ensure that the wave of innovation that can be unleashed through applying the wikinomics principles creates enough economic growth, and jobs, to compensate – and make sure the displaced workers can be re-trained to do them.