A talk delivered at Interfest II
"The Economics of the Internet"
The Aspen Institute
October 1995

Nets and Mirrors:
How the Internet Both Affects and Reflects
the Global Economy

By Christopher Locke

The Internet is too often viewed as an entirely unique phenomenon that has only recently burst into the economic mainstream. At best, its history is supplied in the form of a strictly technological genealogy, often beginning with its roots in the Advanced Research Projects Agency of the US Department of Defense. This conception obscures significant contextual relationships the Internet bears to broad economic forces long at work. More crucially, such a narrow perspective often leads to unfounded conjectures that can radically skew predictions about the direction and potential of this new medium.

The following is an attempt to situate the Internet -- and the communication modality it represents -- within a far broader economic framework. Granted, the view presented here is from 40,000 feet. However, absent such a panoramic outlook, it is often extremely difficult to accurately perceive what we are looking at from a historical distance of mere inches.

Critical Mass

Well over 100 years ago, the United States was already headed toward becoming the living definition of a mass market. It had a wealth of natural resources, a fast-growing population, and a contiguous geography generally unbounded by tariff restrictions. By the end of the 19th Century, cheap iron -- coupled of course with a voracious appetite for industrial expansion -- enabled a railway transportation system capable of cost-effectively delivering goods to nearly every part of a captive domestic market. Think of this system -- and later roads and air traffic -- as the Transport Layer prerequisite to the birth of true mass production.

As compared to previous modes of production, such as craft work and cottage industry, mass production was an attractive proposition. The more widgets a factory could turn out (and presumably sell), the lower the unit cost and the greater the margin of profit. Given the high cost of entry into such enterprises, and without appreciable foreign competition (oceans helped immensely in this regard), manufacturers had little concern with product differentiation. Perhaps the most famous adage from the heyday of mass production is Henry Ford's dictum regarding consumer preferences: "They can have any color they want as long as it's black." More than for his wit, Ford is remembered for designing the first high-volume assembly lines, which he used to automate the construction of automobiles. The economies of scale involved led to enormous profits because they enabled selling a far cheaper product to a far wider market.

Ford was greatly influenced by Frederick Taylor and his theories of "Scientific Management." In essence, Taylor's time-and-motion metrics sought to bring regularity and prediction to bear on the increasingly detailed division of labor. Under such a regimen, previously holistic craft expertise rapidly gave way to the mindless execution of single repetitive tasks, with each worker performing merely one operation in the linear sequence that resulted in a final product. Because of its effect on workers' knowledge, "deskilling" is a term strongly associated with mass production methodologies.

With a mass market on tap, and mass production well underway, the next requirement was a way to advertise the availability of products. To a large extent, mass media arose to increase "market pull" on rapidly expanding production capacity. While journalism as we know it today has a long and (mostly) noble history, it has also been joined at the hip with commercial concerns from its inception. And although a "Church-and-State" division of editorial and advertising departments is loudly proclaimed by the "legitimate press," the very volume of these proclamations fuels a lurking suspicion that information may not be published for its ability to inform the populace so much as for its efficacy in moving the merchandise.

Scale and Scope

Mass production, mass markets, mass media. These have constituted the Holy Trinity of American business for at least 100 years. The payoffs were so huge that the mindset became an addiction, a drug blinding its users to changes that began to erode the old axiom base attaching to economies of scale.

These changes were gradual at first. Even early on, "economies of scope" began to be perceived. General Motors broke Ford's run on the Model-T -- an impossibly long product cycle by today's standards -- by offering cars that were not black, and even came in different styles to suit different tastes and pocketbooks. Heinz discovered it could make not just, say, mustard, but "57 Varieties" of condiments in the same factory. Consumers began to have a wider range of choice, and they warmed quickly to their new options.

Things got a bit more complicated, though, on the production side. In mono-product mass production, the organization was elegantly simple, if not terribly humane. Atop the hierarchy resided near-omniscient knowledge of the product and the techniques for its production. In the case of Ford, for instance, product design, production design, marketing strategy and many other critical functions were chiefly the province of one man, Henry. This knowledge was translated into directives that were executed by an increasingly layered cadre of managers and overseers who directed -- dictated is a better word -- the efforts of a large but largely unskilled workforce. This style of command-and-control management obviously worked best for single product lines with relatively few and simple parts and processes.

As these economies of scope were perceived, and therefore more products launched, management began to become more bureaucratic, and business functions more isolated from each other. This was deskilling of a higher order: design, production and marketing knowledge began to fractionate, and in some cases, to atrophy.

The real watershed, however, came as formerly secure US markets began to be penetrated by foreign producers well after WW II. With the oil embargo of the early '70s, for example, small fuel-efficient cars began looking awfully attractive to people stalled in long gas lines. Companies like Honda, Toyota and Volkswagen -- which had gained a toe-hold niche with students and suburban housewives in the '60s -- exploded into the US market like a tsunami. Suddenly, it was not a matter of General Motors magnanimously offering its customers trivial feature alternatives, but whole new designs. In a classic reversal of fortunes, what was suddenly good for America, was anything but for General Motors. The company didn't see these changes coming and as a result lost enormous market share, much of which it will never recover.


As if overnight, global competition had become a reality -- and on a scale never imagined by most US firms. Not just in the car industry either. Nike now makes well over 400 separate styles of sports shoes -- a phenomenon labeled "sneakerization" by one writer in the Wall Street Journal, but affecting companies across nearly every industry.

Competition is healthy, we had been told from birth, because it breeds greater choice. But now competition was literally out of control and old-guard notions of "brand allegiance" evaporated like mist in the rising-sun onslaught from Japan, Southeast Asia and Europe. Choice ruled the day, and consumer enthusiasm for the resulting array of new product options has forever undermined the foundations of yesterday's mass-market economy.

Aside from direct pressure on sales, this had another and more profound effect. The relentless search for new market niches dictated a vastly increased array of products. And this in turn required an exponential increase in design and process knowledge. The rub here was twofold. First, mass-production oriented business processes had been "stove-piped" into non-communicating departments, each of which performed its function linearly and with little knowledge of, or communication with, the others. Second, workers, long trained to "check their brains at the door," were ill-equipped for the dynamic changes about to wreak havoc on the unsuspecting corporation.

In short, command-and-control management didn't work so well anymore. In some cases, it simply didn't work at all, and companies that couldn't adjust fast enough -- or that were culturally unwilling to shift gears -- bellied up as a result. With vastly varying results, the survivors pursued three notable approaches in an attempt to alleviate the problems caused by the sudden need for more, better, and better distributed knowledge.

Looking for a New Approach

The first approach was called concurrent engineering. Wouldn't it be better if formerly separate functions -- say design and manufacturing -- talked to each other from the very inception of a product cycle? Duh! Why hadn't such an obvious idea occurred to anyone before? The answer is that market hegemony and mass production had made it appear unnecessary. If you only made one product, and it had a long life-cycle, there was no problem. However, as products proliferated and life-cycles accelerated in response to fragmenting markets and increased competition, the requirement for efficiently utilizing distributed knowledge became increasingly intense. Concurrent engineering was a step in the right direction and worked pretty well, as far as it went. Which was often not too far.

As is so often the case, the problem lay in ungrounded assumptions. In this case, the assumption was that sufficient knowledge resided in top-down control functions to specify detailed commands to many thousands of workers and machines, now producing hundreds or thousands of different products. To make matters worse, the life cycles of these products were precipitously shortening; last year's model simply couldn't cut it in the marketplace.

The second approach -- announced with Messianic fanfare in the '80s -- was artificial intelligence. If scientific management had enhanced productivity through the division of physical labor, why not apply the same techniques to the division of intellectual labor? Three good reasons occur in hindsight: a) if industrial automation is deskilling, AI is like giving your company a frontal lobotomy -- expert systems tended to lock up all available knowledge in an impregnable computer vault and encode the combination in LISP; b) it seemed to require some form of magic that all the hysterical handwaving could never quite bring off; and c) in most cases, it simply didn't work. All three stem from one irreducible fact: human knowledge worthy of the term requires deep understanding, not just rules and algorithms, and it is highly dynamic. For the most part, machines have been lousy at this sort of thing. People, on the other hand, are remarkably adaptive and intelligent.

So the third approach -- the one that has held the most promise and turned in the best results -- suggested the unthinkable: why not look to your people? No self-respecting management philosophy can survive without an acronym and the one for this is TQM. Total Quality Management is a big subject with a lengthy history, but for our purposes it pivots on the idea of empowering the person who performs the process. Knowledge resides within practice -- a truth AI forgot to its fatal detriment. And in healthy companies, business practices began once again to resemble older notions of craft instead of the brain-numbing repetition of preordained procedures.

Understanding, learning, exploration, curiosity, context, collaboration -- all those qualities that had been bred out of workers by the command-and-control paradigm, were now being desperately elicited by The All-New, Culturally Revolutionized Organization. Many spouted the new religion, but secretly tried to hedge their old bureaucratic bets. A handful walked the talk, and discovered the future in the process.

While the preceding whirlwind historical tour has manufacturing as its prime focus -- because this sector was the first to experience these changes -- the same forces are also reshaping service industries and what we have come to loosely refer to as "the information economy."

Enter the Internet

The net has not only arrived into this global economic context, it has been profoundly shaped by it. People are seeking the same choices in their information sources as they once did with respect to cars and stereo equipment. Consider the possibility that Walt Disney is the moral equivalent of General Motors circa 1969 -- looking to get bigger just when bigger is no longer where it's at. Looking for that next mass market just when markets have fractionated into a thousand different mirror-shard audiences, many of them asking for something altogether different from the mindless razzle-dazzle of The Tube.

This is not to single out any particular media company; pick your "favorite." Rather, it is to throw cold water on the notion that the Internet is poised to become a mass market. Mass medium? Definitely, and sooner than most suspect. Mass market? Never happen. Yet marketeers now publicly drool over the prospect of the net replicating the top-down broadcast model wherein glitzy content is developed at great cost in remote studios and jammed down a one-way pipe into your living room. TV with a BUY button! Wowee!

If the history outlined here has any relevance at all, it provides, to my mind, a pretty good clue that this is not what people want. And not what they need to accept any longer. The net represents cheap natural resources (information), cheap transport (the pipe itself), and perhaps most important, cheap and efficient access to distributed expertise. The barriers to entry have fallen so low that a huge proportion of companies can now compete here for a niche. This influx of new producers echoes the entry of Asian and European competitors into US markets over the past few decades. But this is more like an invasion from outer space -- 10,000 saucers just landed and they're just the advance wave!

It's not even clear these "competitors" are companies in the traditional sense, though any website is surely competing for a slice of ever more finite audience attention. Much of what is being offered today -- especially by the large online presences and online-wannabees -- is flashy entertainments of the bread-and-circus variety. This so-called content has the classic earmarks of the mass market come-on: lowest-common-denominator "programming" developed to "package and deliver" market segments to mass merchandisers. Perhaps the new-breed competitors will offer low-mileage websites in stark contrast to these big-fin gas guzzlers. Just as GM didn't take the Hondas and VWs seriously until it was too late, what opportunities are our traditional companies missing today with respect to the Internet?

I suspect it has something to do with the person-to-person exchange of experience, perspectives and knowledge -- especially knowledge relating to professional practice and livelihood. In the computer world, the archetypal "killer app" was Lotus 1-2-3. This software almost single-handedly drove the PC revolution in its early days because it delivered personal career advantage: the ability to end-run the MIS bottleneck in larger corporations. Something similar is needed today, but the requirement now is less for computational technique (e.g., spreadsheet number crunching) than it is for detailed knowledge relating to specific professions and how to get things done there.

Developments in the industrial sector strongly suggest that something akin to craft is reemerging of necessity. For the same reasons, we need something like guilds to promote the development and propagation of true expertise -- and these guilds need to be online. While efforts like "benchmarking" and the search for "best practices" have been driven by corporations, nothing like genuine guilds have yet emerged from traditional business organizations, neither companies nor unions. But they will. In an era when corporate paternalism and lifetime employment are fast-fading memories, individuals must live more by their wits than they have had to for a century. And in an era when companies need recombinant teams of highly skilled workers to stay competitive, wits are going for a premium. The killer app of the Internet will not be anybody's browser/server technology or anybody else's online shopping mall.

Guilds and Communities

The "killer app" well may turn out to be a cyberspatial locus where people meet to collaboratively develop and digest their own content relating to how they make their respective livings. Will this constitute some kind of business-to-business info-drudgery? If so, it won't be worth a tinker's dam. Knowledge worth having is garnered from engaged and volitional experience, not from slavishly following someone else's orders. Innovation based on such knowledge is exciting, inflammatory, even "dangerous" -- because it tends to vigorously challenge fixed procedures, inflexible policies, and petrified party lines.

While the opportunity here is not aimed at any imagined mass market, it could entail very large economies of scale. Few of the small contestants in this new arena have the clout to garner critical attention amid the welter of voices on the net. Large companies with vision (if that's not an impossible oxymoron) could provide the framework for the emergence of networked guilds -- and profit handsomely in the process. Not by dominating and prescribing, but by facilitating. While mentoring, collaboration and mutual support have come in for much discussion (and more lip service) within corporations, few if any have attempted such radical practices beyond their own borders. The paradox is that those that remain "secure" within those borders will be cut off from the global marketplace with which they must engage in order to survive and prosper in the years ahead.

And this engagement must be fearless and far-reaching. Markets must come to have recognizable faces in place of statistical profiles. Suppliers must become trusted allies in developing new products and framing new strategies. And workers must become fully empowered autonomous agents, plying their insight and knowledge on behalf of client-companies outside the restrictive boundaries these companies, in their belated wisdom, have finally and totally abandoned.

If this sounds threateningly alien or hopelessly utopian, it's no great wonder. For many, the new landscape is barely recognizable, on-line or off. But what real bearing do these various matters have on economic realities in general, or on the economics of the Internet? Is it simply more net.mysticism to suggest that this may be one of those questions that, if you really need to ask, you'll never fully grasp the answer? Perhaps so, but in one way or another the koan keeps insinuating itself: is the net a mirror to the world at large, or is the world rapidly accommodating itself to the new realities of the net? While the structure and balance of economic power has shifted irrevocably in directions that were certainly not determined by the Internet, it just as certainly appears that the Internet will be the arena in which these long-wave historical causes manifest their myriad and unpredictable effects.

From where I sit, the future lies not in mass production, mass merchandising, mass markets, mass media or mass culture.

The future business of businesses that have a future will be about subtle differences, not wholesale conformity; about diversity, not homogeneity; about breaking rules, not enforcing them; about pushing the envelope, not punching the clock; about engagement, not protection; about doing it first, not doing it "right"; about making it better, not making it perfect; about telling the truth, not spinning bigger lies; about turning people on, not "packaging" them; and perhaps above all, about building convivial communities and knowledge ecologies online, not leveraging demographic sectors there.

Make something of it if you can.