As the name suggests, this book is an outburst of irreverent iconoclasm, reminiscent of the manic outbursts we expect from those attention-deficit-disordered hyperactive uber-creative types, whom teachers and managers everywhere recognize as banes of ordered working environments despite their occasional creative genius. The book resonates in every paragraph with the voice of prima donnas who hugely overestimate the value of their work, its value not withstanding. Euphoria is the marketing hype employed here. Ironically, it is the hype chosen by four authors ostensibly united in their rejection of marketing hype.
More pointedly, however, the firm is not dead, nor is business-as-usual banished to bad old pre-wired days, as they wishfully proclaim. Let us examine the logic of their claims.
Free markets fail in three ways. First, there are never an infinite number of buyers and sellers. Even commodity markets are comprised of a finite number of individuals.
Second, there is never perfect knowledge among all traders.
Third, markets ignore externalities. These are the costs and benefits that do not enter the pricing mechanism; goods taken from (or given to) the commons. Unregulated markets allocate to the commons fewer resources than would be pareto-efficient. As Ronald Coase (Nobel prize, economics) pointed out, when all parties affected by the commons are able to negotiate - especially when catalyzed by their rights as set out in the law - efficient outcomes can be approached. These externalities are brought into a market constituted of collective entities.
The efficiency of a Coasian market is limited by the costs of organizing, negotiating and coming to an agreement. These costs are highest when many independent parties share the costs and benefits of the commons. Furthermore, this process breaks down to the degree that free riders prevent (or at least, undermine) collective bargaining, which is seen by Coase as another kind of transaction cost. Hence there are limits to the degree to which Coasean bargains can bring externalities into a pricing mechanism.
Ronald Coase showed that firms exist because groups are able to achieve some ends more efficiently than free markets. When groups of people get together to pool their resources and bargaining strength, they are effectively decreasing the transaction costs associated with making a Coasean bargain. The legal structures that make modern corporations possible (conventions such as limited liability, for example) decrease the transactions costs of organizing. Read John Roberts, "The Modern Firm", published by Oxford University Press, for an outstanding discourse on the where, when, why and how choices that managers of firms must understand in order to succeed. The firms that get these right are not about to disappear.
The Internet enables market mechanisms to function more efficiently.
First, the Internet increases the number of traders. Markets that were once local are now global.
Second, it provides more and better knowledge of the competing goods being offered and the relative prices of all possible trades. It does not always do this; most of us are aware of the vast volume of disinformation out there. Nevertheless, it often does this.
However, this does not alter the other mechanism responsible for market failure which the Internet leaves more or less untouched: That markets ignore externalities not internalized because of high transaction costs. And that Coaseian bargaining is depressed when free loader problems appear. That is why we need governments, police, law courts, partnerships, corporate entities, copyrights and patents; and we need methods of management for all of them.
Indeed, the Internet is itself a victim of these market failures. That is why we have spam, viruses, worms, spyware, phishing and so on. The transaction costs associated with getting everyone who suffers from spam to negotiate with the spammers is impossibly high, so high that the bargain shall never be made.
However, the situation is not as hopeless as I have sketched. The Internet can be used to broker some Coaseian bargains not otherwise possible. This is what Google does, by connecting merchants preferentially to potentially interested customers; Amazon, too, by coordinating the opinions of many disparate buyers in the on-line reviews. One can call this a "conversation", and that is an attractive trendy phrase, but that misses the logic of how and why it works.
By failing to understand the logic of the Internet and the market place these authors have failed to show how the social and business innovations it has brought are changing the world in which we live. We are not standing on the lip of a revolution in human affairs; rather it is a rapid evolution according to well established economic principles.
Now, let me turn to style. We read: The point is what this latest technological wonder brings back into the world: the human story. A story that stretches back into our earliest prehistory. A story that's been in remission for two hundred years of industrial "progress."
The scare quotes are not mine. And this is flatulent nonsense; not only in the literal sense that prehistory is by definition the epoch before which the earliest `stories' are known, but in the suggestion that modern history is not a human story. Markets are about people making choices. Progress is about improvements in the human condition. Industrial activity is as quintessentially human as any activity taking place on this planet.
We read, for example, "Oh the new computer was nice and the usual customers would buy it, but the larger market ... could care less." The author means "...could NOT care less."
We read, "But an editor would rather insert a crab in his butt than a press release in their publication." So, is "an editor" a new kind of royal plural, or should that be "his (or her) publication"?
The book is crammed with this kind of illiteracy and poor copy editing. These errors - and the euphoric hype - make it difficult for a sympathetic though critical reader to suspend disbelief and enjoy the show. The ignorance of mechanisms that operate in social, political and economic systems, the mistaken perception of modern history, and the irritating slap dash style of this book - alas - spoil something that could have been much better.
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Barnaby Wynter
It may have been written sometime ago but it clearly ...
Reviewed in the United Kingdom 🇬🇧 on February 7, 2018
