Network Society:

Changing Production and Consumption

table of contents

Introduction
The new economy
Informational
Networked
Network externalities/effect
Valuation of networks
Networks and production and consumption
Production
Consumption
Conclusion
Reference:

Introduction

The Network Society is a far-reaching topic; the
seminal work on this topic is the 3-volume work by Manuel Castells (1996)
called The Information Age. It is proposed in these works that the innovations
and distribution of Information and Communications Technology (ICT) have
led to changes in the material, social structure and culture of modern society.
It is also proposed (Castells, 2000) that these changes in ICT have created
a new economy that is capitalist in nature and global in scope.

It has been proposed that the innovations and distribution
of ICT is a seismic change in technology in our world. Some have used past
leaps in technologies to try and quantify the importance of the current change
in technology, for example the printing press, radio, television, the telephone
an even the written word (Wall-Smith, 2000).

The term Network Society suggests
society can be defined by the dominant technology. Allain Touraine
([1984] 1998: 104) has argued against this technologically deterministic
perspective, proposing the idea that calling a society a steam-engine society
or electric motor society is as superficial as calling our society a network
society. It can be argued that if a technology can change the way humans
know or think, then surely it can be used as a prefix to describe the cognitive
mode of that society. An example would be when humans interiorized writing
and moved from being an oral society to a literate society; this change in
technology was a fundamental change in not just in communication technology
but also in cognitive technology (Ong, 1982).

Castells (2000) position is that a new society
emerges when a technology effects transformations in the structure of relationships
of production, power and experience (in later papers production is replaced
by production/consumption.)

This paper focuses on the network, the economy
and society’s relationship to production and consumption. If the network
changes the means of economic production, as it has been suggested (Castells,
1998 and Smartt, 2000), then society could change based upon its relationship
to it.

The new economy

The economy is a fundamental underpinning of society,
and in a capitalistic society it is a rich source of definition and identity(Smartt,
2000). As we move from an industrial society toward a possible new Network
Society, a fundamental component of that society is the economy. The
concept of a New Economy has been proposed by both scholars and business
people over the last 10 years or so, but in the last 5 years it has become
much more popular and mainstream. There are many who argue that the
economy is not necessarily new but just moving faster due to communication
technology (Bosworth and Triplett, 2000). Others argue that the economy becoming
informational and becoming networked enables new economic rules i.e. increasing
returns and network effects (Arthur 1996 and Reed 1999).

The new economy has been characterized as
an information economy and a network economy (Shapiro and Varian 1999, Hagel
and Armstrong 1997). Castells (2000) describes the new economy as having
3 fundamental features, that it is informational, networked and global. It
could be argued that the global nature of the economy is not fundamental;
as for it to be global it is dependent on the network being global. If the
network is not global than the economy cannot be global either. The economic
effects of a network do change based on scale but they are not dependent
upon global-ness, they are dependent upon the number of nodes (Reed, 1999).

Informational

An informational economy is where productivity
of economic units is based upon their capacity to generate knowledge and
process or manage information (Castells, 2000).

Marx (1973 [1857]) spoke of how science was ‘pressed
into the service of capital’ to increase productivity and illustrates that
it is not just a contemporary perspective.

Information can also be an end product like a computer
program, or some specialized knowledge that can be sold, like knowledge of
a better business process. The economics of informational (digital) products
that can be distributed over a network are also significantly different and
novel (Shapiro and Varian, 1999). It is only with the advent of informational
products that the law of diminishing returns was overturned and the possibility
of increasing returns came about (Arthur, 1996).

Networked

The networked nature of the new economy is significant
for several reasons, it enables new organizational structures and enables
certain economic markets to operate in real-time, worldwide. Castells
asserts that it enables new forms of economic organization, the network enterprise,
a network of organizations or portions of organizations that work together
on specific business projects.

The idea of a networked organization has been referred
to by other business writers with regard to business models, Hamel (2000)
refers to a value network as suppliers, partners and coalitions that surround
the firm complementing and amplifying the firm’s resources. A significant
potential part of a network enterprise that is barely written about is that
the customers are increasingly part of the network and adding value to the
company beyond being a faceless consumer (Hagel and Armstrong 1997).

Beyond the new forms of economic organization are
the older economic markets that are now networked and able to operate in
real-time. Currency markets and stock exchanges in the network economy are
very significant aspects of the economy. It has been suggested that the networked
currency markets actually undermine the primacy of the nation state; the
nation state loses its power over local currency. The currency acts as a
voting mechanism for the rest of the world to vote on how they think a region
is doing (Soros, 1997). The networking of stock markets and currency
markets does not necessarily change the value of those markets, they might
move quicker, become more volatile, become more global (Soros, 1998) but
they follow still ?old? economy rules. The novel aspect of networks from
an economic standpoint is when the networks value is affected by network
externalities.

Network externalities/effect

The network effect is the concept that members
of a network affect other members of a network in a positive or negative
fashion.

The difference between network effects and network
externalities really comes down to network ownership or beneficiary of the
networks value. If a network is not owned or there is no beneficiary of changes
in the network value etc. then the term network externality is appropriate,
if there is an owner or beneficiary of the network then it is called the
network effect (Liebowitz and Margolis,1995 and Katz and Shapiro 1994).

A classic example of the network effect is the
success of Microsoft (Liebowitz and Margolis, 2001). The dominance that Microsoft
enjoys has been encouraged by the fact that more people use Microsoft products.
Once Microsoft had a large amount of users it attracted developers who created
more useful applications that attracted more users. The more users that used
Microsoft then effected peoples decision on what operating system they should
buy, obviously if they used the Microsoft operating system they could communicate
with other people using Microsoft applications and so on. This can be called
the network effect and in addition it is a virtuous loop so it is continually
getting stronger (Arthur, 1996).

One thing that might help temper the positive review
that the network effect is from Arthur (2000), in a paper about the myths
of high tech economy:

myth #1 “All Networks are Subject to Network
Effects.”

Valuation of networks

Most discussions on network society focus on networks
as groups of nodes, when the network society is a network of networks. The
value of networks is important then if we start to conceptualize society
as a network of competing networks, including network enterprises but also
networks of consumers.

Three theories have been presented that come from
such people as NBC network pioneers to inventers of important computer standards
like Ethernet. The three theories are from Sarnoff, Metcalfe and Reed, (Reed,
1999).

These formulas are supposed to help us see the
power of the network effect but they do not represent reality. Network effects
have many other variables beyond the number of nodes on a network. Other
variables like switching costs, transaction costs, value derived over time
will also influence network effects and increasing returns.

(see: ebusiness
and network effects)

Networks and production and consumption

Society’s relationship to production and consumption
is one of the primary ingredients of social change (Catells, 2000). Society
becoming part of the global ICT network dramatically shifts society’s relationship
to production and consumption (Stehr, 2000).

From the beginning of the industrial revolution
to the post industrial society, it is proposed that society has moved from
experiencing itself primarily through production to the post industrial society
that experiences itself primarily in relation to consumption.

What happens when society becomes part of the same
network as the other economic units, when the boundaries of companies blur,
when the consumers have access to communication technology at the same level
of capitalist elite. As the economy becomes more informational and increasingly
networked the primacy of capital and labor is diminished and access to capital
and labor is not a prime request to become a producer.

It seems that the distinction between consumer
and producer in the network society blurs can. As consumers gain access to
mass media that has traditionally been owned by the capitalist elite.

Freedom of the
press is limited to those who own one.

H.L. Mencken (1880-1956)

Production

Production and the means of production are different
in a network society than in an industrial society (Stalder, 1998). Capital
and labor are no longer the major sources of productivity information and
applied knowledge is and in the instances where the product is informational
as well then the capital requirements for distribution are minimized as well.
In the network society the means of production can be primarily information/applied
knowledge and a network. Society being a part of the ICT network then brings
the means of production to a level where it is almost accessible to anyone;
the barriers to entry are very low. Even capital in some circumstances is
not a significant barrier.

The open source software movement is a good example
of a new unit of production that has been enabled through the traits of a
network society. Even though it is called a movement it is not necessarily
opposed to anything (Castells, 2000) or is it supporting or supported by
a particular ideology (socialism for instance). Open source software is a
piece of software that is free for people to copy, use or improve, the only
stipulation is that improvements get rolled back into the program and it
remains free. A good open source program will attract a large collaboration
of people that will participate in the creation or improvement of a free
software program. Two significant examples of free software that is successfully
competing against products of a more traditional mode of production are linux
and apache. Linux is a free operating system that since its launch in 1991
has gained such recognition it is actually installed and shipped on computers
from companies such as IBM, HP, and Dell. Apache is a free web server that
is installed on over 50% of the servers on the internet (in May 1999 it was
running on 57% of all web servers).

Production of free software is a good example of
production enabled by changes in the means of production.

Consumption

Consumer’s relationships with producers change
as the consumers become part of the global ICT network. Consumers can no
longer be seen as passive, but actively in a dialogue with the producers
and other consumers on a significant scale. Consumers are producing information
and knowledge in an environment where information and knowledge is a key
source of productivity.

As consumers become part of networks and start
forming there own networks and producing there own information they start
to become a force of production, even a new mode of production. Books such
as ?net gain? (Hagel and Armstrong, 1997) and the Cluetrain manafesto (Levine
et al, 2000) suggest that the online communities of consumers will be such
a significant trend that producers that ignore it will fail.

A major consideration when looking at networked
groups and their significance and sustainability is to see if they exhibit
any network effects. By definition these prosumer networks exhibit
characteristics of Reed group forming networks that benefit from significant
network effects. It seems that network enterprises are unlikely to experience
beneficial network effects, as a loose affiliation of departments and workers
that are networked, unless the network enterprise expands its definition
to become part of the consumer/prosumer networks.

Conclusion

It is proposed in the Cluetrain manifesto (Levine
et al, 2000) that the consumer’s access to global ICT will significantly
change the dynamic of consumption in the network society.

It could be said that the network changes many
aspects of what we have come to accept as the norm. The relationship between
producers and consumers, the means of production, how companies compete,
maybe even what a company is.

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