When it comes to the Web 2.0 and the process of “creative destruction”, a lot of people associate it more with the latter word than the former. After all, we hear story after story of entire industries being washed away – and what replaces them simply doesn’t provide a livelihood for nearly as many people.

So I find it nice to think about cases where the Web 2.0 is helping businesses in way people may not have been anticipated several years ago. One such case is in relation to small restaurants (and other proverbial “Mom & Pop” shops). They might well learn that the combination of Web 2.0 and mobile devices will help them – a lot. And in the process, it could unleash a wave of creative destruction that society in general may appreciate a lot more than what many see currently taking place.

It’s not a complicated story by any means, and a simple personal story will suffice as an illustration. I eat a lot of sushi. There are tons of sushi places between my office and my house that I can go to. From experience, I know that some are good, and some are bad – but many remain unknown. And I also know from experience that outward appearances are not a particularly good indicator of which ones are which.

So, I recently popped on to Yelp on my iPhone. Within a couple of seconds I scanned through the reviews of various Sushi places. Was surprised to see one very highly rated one, which I’ve walked by numerous times thinking “I’d never go there.” Interesting tidbits in there about how it’s a family run business, and how personal the service can be. Tried it. It’s great. And I probably never would have done so otherwise.

If you extend that little example out across all kinds of local service providers, you can potentially see a beautiful process of creative destruction taking place. Most of us have heard countless story of small, independent places not surviving. Often, it’s because, no matter how great they are, they can’t get enough sustained attention to support themselves. Thanks to services like Yelp, more and more might be able to – perhaps without even spending a penny on direct advertising (i.e. what you actually do means more, how much you spend communicating that means less). Net result: the best places get rewarded, the bar is raised, and every service provider has to get better and better.

A much nicer thing to think about then (say) entire industries being washed away, non?

On Monday my colleague Naumi Haque sent me a link to an interesting article by Professor Francis Heylighen titled “Why is Open Access Development is so successful? Stigmergic organization and the economics of information“. It provides a great overview of open access / self-organizing systems in relation to traditional economic theory, but the part I found most interesting was in relation to the two different types of stigmergy.

I will now admit that I didn’t actually know what that word meant before reading the article. According to Wikipedia, “Stigmergy is a form of self-organization. It produces complex, apparently intelligent structures, without need for any planning, control, or even communication between the agents. As such it supports efficient collaboration between extremely simple agents, who lack any memory, intelligence or even awareness of each other.” More simply, Heylighen says “a process is stigmergic if the work done by one agent provides a stimulus that entices other agents to continue the job.”

You can start seeing the link between stigmergy, community building, and social media from that description. But to highlight the difference between direct and indirect stigmergy, Heylighen used termite and ant examples.

Direct stigmergy: exemplified by termite hill-building, it is the “work-in-progress” itself that directs subsequent contributions.

Indirect stigmergy: exemplified by the way ants create trails of pheremones that direct other ants to food sources. The trails are left as “side effects” of the actual work being performed.

I thought about these differences, and how they might relate to companies in terms of community building and social media strategies. It occurred to me that building a community is primarily driven by direct stigmergy, while the use of social media is the indirect stigmergy that draws people to you.

The reason is simple. In the termite (direct) example, the little critters go around dropping bits of mud randomly, and where the heaps are formed stimulate other termites to add to them – causing them to grow and grow. By definition, the termite can’t add to the heap without being there. So while no centrally controlled plan is needed, the community must already be there. In an organizational context, the company /moderators start by dropping little heaps of information here and there, hopefully others do to, and where the heaps “pile up” emerge as the key focal point.

The challenge (from an organization context) is, obviously, that this approach doesn’t work if you don’t have a critical mass of termites. You can drop all the heaps you want, but if no one else is there, they’re not going to grow. This is where the indirect stigmergy / social media tie comes in. Using platforms like Facebook, Twitter, WordPress, etc., organizations (and early contributors) leave “trails” that direct people back to the (in the ant case) the “food source”.

So it’s obviously a little bit awkward trying to elegantly merge the termite and ant examples together – right now I’d end up with a bunch of ants piling in to eat the Termite hills. But if you squint a bit I think you’ll see what I’m saying. Organizations need to think about direct stigmergy principles in order to build up their own community from within, and indirect stigmergy principles in order to draw people to them. It’s a subtle, but important, distinction.

Yesterday the Globe and Mail had a story about how the wealth of Canadian households had rebounded last quarter, after declines for most of the last year. While this is seen as positive news in regards to our economic health, I believe there’s an important element the report leaves out – wealth of Canadian households by age-group. My hunch is that older Canadians got a fair bit wealthier during this time period, but younger Canadians – on aggregate – treaded water while lurching into ever-greater debt. And it is this group of Canadians that I’m concerned about.

The reason I started thinking about this was simple. The article presents two key facts:

1. The resulting increase in the value of household financial assets (including shares, mutual funds, and pension assets) was the principal factor behind the rise in household net worth.

2. The use of credit also rose more quickly in the quarter, with notable borrowing for mortgages as resale housing markets picked up.

Now the argument is that, on aggregate, the increase in #1 more than offset the increase in #2. But think about it in terms of age-groups. The increase in the value of household financial assets (shares, mutual funds, etc.) flows disproportionately to older Canadians. After all, on average they have far more invested than younger Canadians. In contrast, the increased use of credit (i.e. getting mortgages) is likely driven by younger Canadians – more likely to be buying their first home, upgrading, etc.

So while it’s all fine and good to say that, overall, household debt and a percentage of net worth decreased in the quarter (good news!), what I’d really like to see is this broken out by age group. My hunch is that household debt as a percentage of net worth for older Canadians declined by a fair bit, while the household debt as a percentage of net worth for younger Canadians might have even increased.

Why this matters is because debt as a percentage of net worth as a good indicator of the risk our economy is facing – particularly if interest rates start to rise (which Garth Turner, among others, believes is absolutely going to happen) again someday. If- and again I say if because it’s just a hunch – we’re in a situation where the younger Canadians are racking up huge piles of debt to buy houses and things, and in general they have very few other financial assets, this “rebound in wealth” might be a bit of an illusion. And if it is an illusion created by nothing other than the dramatic decline in interest rates, we have more than a few data points from recent history indicating that it will not end well.

I’ve been involved in research tied to the principles of wikinomics for quote some time. Most of the stories that emerge tend to be positive in terms of the transformation taking place, both within the economy and society in general. But there is a definite dark side to it as well – one that I try to touch on every once in a while, but perhaps not enough. That dark side is that while openness, sharing and all the rest create many new opportunities, they can also lead to massive job losses, and destroy the business models that support things that are important to society – such as newspapers.

I was reminded of this today when I was enjoying one of my favorite diversions from work – a Sports Guy column. Bill Simmons, one of the most popular sports writers on the web, is a die-hard Boston Celtics fan, and the column was primarily about how the recent news that Kevin Garnett will be sitting out the playoffs. But in his second reaction to the story, he provided a great articulation of the hidden sub-story, centered around the fall of newspapers – and the journalists who find the real stories behind what’s going on.

As he points out, while professional sports in general shouldn’t be taken too seriously, they are important to a lot of people – and there would certainly seem to be enough interest in the topic to sustain a business of reporting on what’s happening. The Kevin Garnett injury story – he’s been sitting out for basically two months, while the team said all along he’d be back for the playoffs, and now it is clear he won’t be – is a big enough deal, particularly in Boston, that SOMEONE should have cracked this. But no one did – not even close. Everyone just talked about whatever the “official” message was, being managed by “official” sources.

Everyone knows the reason – newspapers are dying quickly as their business model evaporates. The economics just seem to not be working in terms of paying for people to do the digging anymore. Instead, what we end up with are more people like Bill Simmons – fabulously entertaining writers, offering their opinions on stuff on the web, but not doing REAL reporting.

And again as Simmons points out, the implications of this are not good. If nobody can crack the real story behind an injury to the top player on the defending champs in a sports-mad market with a massive target audience, who is going to crack all the other real stories that have far greater implications for society, but which people are generally even less likely to pay for? What does it mean when the economics behind finding the facts dissolve to the point where, on a micro level, no one seeks them out anymore – so on a macro level, we all end up shouting increasingly uninformed opinions back and forth at each other?

I know this isn’t a new topic, and millions of people are talking about it. But it’s something that really hits home with me, because when I dissect the issue it sure seems like how the principles of wikinomics are being applied here, an important part of society is falling apart, and there is no obvious solution for it. And as I referenced in the opening, it makes me think about some of the other problems wikinomics can cause as what LOOK to be positive things (more openness, transparency, sharing, efficiency, etc.) cause massive short-term, and maybe even long-term, dislocations in terms of employment, innovation, etc.

One example I’ve mentioned before on this front ties right back to that first story in Wikinomics – GoldCorp – and also applies to Innocentive, and a variety of others. Many of these examples boil down to winner-takes-all contests, where numerous people compete to create a solution, and only the winner (at the discretion of the company) gets paid. The economic case for companies to take such an approach is very, very strong – particularly in today’s economic climate. But what does it mean for society if the trend continues? While only paying for proven success looks good on short-term income statements, what are the long-term implications of the model? Will the number of people innovating shrink and shrink because everyone that doesn’t win doesn’t get paid, leading to less and less innovation, etc.?

There are many more I could ask, but I need to end it there. After all, this is just me offering an opinion on my blog, and there isn’t much of a business model in that right now either – have to get back to my real job.

As my “about me” section covers, I’ve got a few side projects – and chTONGUEeek is one of my favorites. This post is for the economics types – and like the Jewish Dentist in Seinfeld, my economics training gives me the leeway to take these jabs. Anyone else might be accused of being an anti-economidite .

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.