There is no better sign of water than to watch it fall

Last Friday, 2 July, sociologist Manuel Castells held a meeting in Barcelona with a small group of journalists during which he gave his views on what he called the new economy. Castells is, without doubt, one of the foremost thinkers in the world on the processes that are changing the world and is the author of the most thorough work in existence on the Information Age. He told us that he is about to publish a new edition which will include some new material. Since his three-volume work first appeared he has become a reference point in Silicon Valley as well as at numerous global forums whether corporate, political or social. At present, he spends most of his time in California. What follows is a synthesis of what he told us about the new networked economy (which we will abbreviate to NNE) and a couple of comments about his ideas, which he did not have time to answer. Hope we have another chance, Manhuel.

The new networked economy is a world-wide phenomenon, but it occurs mainly in the USA and consequently it still confuses many people who think it is only related specifically to US society. In fact, the NNE is the embodiment in the USA of the technology/business relationship of the global economy. No differences exist with Europe and Japan where this economy exists.
What are the predominant characteristics of the NNE?

1. The US economy is experiencing a healthy economic growth, no inflation, full employment and high profit and investment rates. This is due to the liberation of the productive potential of the technological revolution which was still being called into question at the beginning of this decade. In fact, numerous authors maintained then, examples in hand, that introducing technological innovations into business brought profits down. Castells explained that this analysis was erroneous because it continues to measure the way the economy works on the basis of categories belonging to the time of the Industrial Revolution, thus complicating understanding of present processes.

2. The move from technological innovation to economic productivity requires the modification of company structure and culture. In bureaucratised companies the introduction of computers did effectively reduce productivity. And vice versa. Companies with more flexible organisation showed an increase in productivity as technological innovations were introduced. This required, at the same time, improving the skills of the work force thereby altering the nature of the labour market.

Changes in these two factors, flexibility and skills, have taken place above all in various parts of the USA and South-East Asia, where the productivity explosion has been notorious. Increase in productivity in the USA stands at 4% at the moment, four times that of the 80s. And this is having a notable effect on economic calculations. The economy depends on investment and the criteria for investment have changed substantially. Companies are now capitalised through share sales on the stock market. This does not depend on the companies’ profit rates but on their capital gains growth prospects. Is this a virtual phenomenon without any equivalent in the real world? The answer is yes and no, says Castells. The value of shares can be realised at any time, in other words that value in practice continues to exist. However, since what counts are the prospects for their increase in value, we move in an economy of images rather than of realities.

For this reason (amongst others), few Internet companies make money. Amazon.com loses money constantly but, at the same time, generates money for investment all the time too. Everyone thinks it is going to go under, but that will happen tomorrow, like everything else connected to the Internet. At the moment the stock exchange value of Yahoo! is $37.000 million which is similar to that of Boeing. The only difference being that the former employs just 1.000 workers and the latter 30.000. The capital value of all Russian business is $12.000 million, half the market value of Amazon.com which employs 900. These examples, says Castells, show that the key to the NNE is technological skills, the processing of information and the type of networked company organisation.

According to this Spanish sociologist, the example par excellence of networked-business is Cisco systemswhich sells equipment and infrastructure for networks. The company was formed by a Stanford couple 14 years ago with the help of a $2 million loan. Today its capital value in the stock market is $190.000 million, here too three times that of General Motors (the couple by the way got a juicy cheque from new share-holders to abandon the ship some time ago). Cisco doesn’t produce anything. It has a web where clients say what they want. And it sends them to another part of the web to meet suppliers. The company, in reality, just designs information flows. 50% of the transactions in Cisco’s turnover are resolved automatically, without its intervention.
Castells, who took care to point out continually that he was not expressing personal opinions but the results of his analyses of the present situation, asked himself whether this economy was sustainable. He expressed his doubts based on three factors:

1.– The growing volatility of the world’s financial markets. Information turmoil easily produces crises. And each crisis means the destruction of markets and capital. None of these crises take on the characteristics of a “final crisis”as reconstruction is very quick thanks to the networks. But the question is, where the turning point lies between the part that is destroyed and the part that is created and how long the economy can carry on working like this.

2.– Someone has to buy everything that is produced. And, for the moment, there does not seem to be any increase in demand. Quite the contrary, in fact. The system works because the USA buys practically everything and maintains world demand. But there must be a limit to this.

3.– 57% of the planet will be left out of the NNE (according to Castells’ calculations), although he did not specify what this means exactly. To further exacerbate things, over the years to come the vast majority of the world’s population will live in cities only increasing social instability and, consequently, that of the information flows.

As far as prospects for Europe are concerned, Castells was dubious as to whether it would manage to get into the NNE. European companies have not yet developed the vital capacity needed for financing themselves on capital markets and need to undergo fundamental reorganisation to do so, something which it is not taking place (on a large and significant scale that is). In addition, the difficulty of making employment more flexible and the idea of the welfare state create a conservative ideological barrier which it will be very difficult to overcome.

Castells concludes that we are faced with a new triumphant economic model. Governments are overtaken by this kind of “financial robot” which we have created with a high capacity for self-regulation and which, at the same time, in the process of looking for “stability”, wipes out countries or parts of the world and takes up and destroys capital in different parts of the globe at a vertiginous rate. Ironically, according to Castells, the predominant ideology is a libertarian one based on the rule of the individual, the networks and a highly productive economy. The most obvious consequence is, according to him, the breakdown of the social fabric and of solidarity which could lead us down to disaster.

Logically enough, within this social, political and economic framework, the system of social representation (“that which we call democracy”, says Castells) has become seriously damaged. Everywhere people feel that the political system does not resolve their problems. Nevertheless, many people have great reserves of generosity and are prepared to participate in activities related to their circle of interests in order to attain specific objectives without institutional intervention. When it comes to voting, this attitude emerges as a defensive voting: people vote against things rather than in favour of their options. In this regard, the local has obvious advantages, although it must find a way to take the leap into the global. Participation in the Internet is, without doubt, the most obvious way and this is happening with the growth of social networks dealing with everything from the environment to women’s issues. These are universal experiences and point the way to democratic reconstruction.

So far, this has been a broad outline of what Castells said. Clearly, in the short time we had at our disposal it was impossible to present the ideas in depth. The subject under discussion here is the New Networked Economy and each concept is of such global importance that it would be very hard to sum them up briefly. Nevertheless, I would like to pose a couple of questions here that, as I see it, were left in the air. I hope Manuel will be able to answer more fully on the next occasion –which there will be, I’m sure– .

Castells often points out that categories from the era of the Industrial Revolution are not useful for understanding the NNE and that the latter is, logically enough, generating its own. Their dynamism is bringing about the phenomenal changes we are experiencing all over the world. However, Manuel considers the loss of certain categories, such as social fabric and solidarity, a disaster (both inherited from the Industrial Revolution), which is a remnant of a nostalgic view that prevents us from taking a real look at and analysing the social fabric –and the concept of solidarity– that should correspond to the NNE. What will the global social fabric be like? I don’t know but, if we take a look at what we are seeing now, it is clear that it has very little to do with that created by the Industrial Revolution. If we define it via concepts such as individualism, social disintegration and fragmentation, it begins to sound similar to attempts to define the socialisation of the means of production in the XIX century. The concept appears much greater than the events it is trying to explain. And, in the long term, its projections begin to make no sense. Individualism in a world which will contain 6,000 million in a few months time, 80% of whom will be living in cities, all of them, to a larger or smaller extent, connected by networks, clearly raises some interesting questions about social fabric and solidarity which cannot be understood through the lens of the Industrial Revolution. But let’s not go into that any deeper for the moment.

The second point is related to how the capital markets work and social participation via the Internet, which Castells highlights as a growing phenomenon of universal dimensions (this points the way to a possible answer to the previous question). If, on the one hand, the only way to become part of the NNE is through capital growth expectations on the stock exchange (investment funds, retirement funds, etc.), will capital markets and social participation find a meeting point? How will the NNE “capitalise” on the possible future wave of social activity on the Internet, like citizen networks, global urban movements of different kinds, digital politics, groups connected on the basis of cultural, ethnic, religious and sexual identity, new media created by people themselves from a wide range of backgrounds, public administration taken over by networked citizens, etc.? Will it be inexcusable to turn to the Stock Exchange in order to sustain and expand a society organised on the basis of networked information and knowledge?

Castells did not once refer to the role of barter in the new economy. I would like to know what he thinks of this. After all, we don’t pay Yahoo! a single dollar, but they reap the benefits from what they exchange with us: knowledge and information. Is the stock exchange the only way of capitalising on these relationships? Answering these questions will help us to better understand the fate of the 57% of the world’s countries that will be left out of the NNE and also what exactly being “left out” means. Today we know only too well what being left out of the Industrial Revolution has meant to 80% of the world’s population, probably forever in the case of many of them.

There are many more questions still to be asked, Manuel, and I hope we will have the opportunity to see one another soon to carry on debating them.

Translation: Bridget King