greentheo

Not every bit of news about the current 'economic climate' is all that bad.  Consider the proposition that we are entering a post capitalist economy.  What could be so bad about the empowerment of the average citizen and the downfall of the robber barons that have ruled for so long?  Here's why I believe the day of the capitalist ruler may be coming to an end (for now at least).

Traditionally there have been 3 costs for doing business:

1. Research and Development - the cost of developing the first of a new technology or product.  Traditionally, R&D is done by scientists and engineers.  Several prototypes would be created and tested in the real world.  But as computers have gotten cheaper (very nearly free these days), simulations have replaced trial and error experimentation.  It is now possible to run through millions of versions of the product before even a single physical prototype is made.  Advances in statistics, AI, and computer science along with open sourcing and crowd sourcing are quickly dropping the time and cost involved for birthing an idea into the world.
2. Manufacture/Raw goods - this is the actual cost of the inputs for the product including labor, raw materials, and energy required to shape those raw materials.   Traditionally humans were used in all of the stages of production.  From digging up the coal and metals to chopping down and hewing the trees to pounding the rivets and welding the metal, humans did everything.  But humans are not machines.  Humans are living, thinking and creating beings.  With the advent of cheap energy and increasingly intelligent machinery one man can now do the job of 100 men (probably more).   If we continue our progress towards free energy and intelligent machinery, manufacturing will become virtually free.
3. Transaction Cost -   the cost of matching up the product with a buyer.  Traditionally this cost has been prohibitive for the average home business / individual producer.  In fact, in order to overcome the high cost of finding a buyer for the widget one had to gather the capital required to first oduce the good at the cheapest price and then to reach the largest audience possible[1]. But the transaction cost is dropping more and more as the tools to reach the exact buyer (e.g. Google) are being developed.  The internet and home PC has quickly been revolutionizing the way buyers and sellers complete their exchange of goods.

Amongst other things the sharp decline in the cost of doing business is the reason why the economy is currently faultering... or rather it is shifting.  It's faultering for the outdated and outmoded companies that have failed to transition to a faster, more agile and flexible market, a market easier for small businesses to thrive in.

Whereas GMC needs loans of billions to stay afloat, specialty electric car company Tesla has a back order of hundreds of cars.  Whereas Lehman Brothers and AIG are collapsing under their own weight, Paypal, community lending sites and internet banks like ING are thriving.   The New York Times and similar news papers are folding across the nation, but there have never been so many journalists (bloggers are journalists too right?).

Even scientists who have previously been restricted to working only for governments and corporations wealthy enough to afford the hundreds of thousands of dollars of computational and laboratory equipment can start their own enterprise with Amazon's EC2 and the latest 'labs on a chip'.  If the business model is correct, the scientist could potentially scale his company over night, especially with services like Amazon's EC2 computational time sharing service.

It is in this business climate that the behemoths are starting to fall.  They're not quick enough, and their products are not good enough.  For too long they've relied on the muscled advantage that large amounts of capital brought them.  Now as the barriers to entry lower, and more competition arises the only outcome can be cheaper better goods produced exactly for those who want/need them.  In other words, this downfall indicates that we are moving towards a more open and efficient market (the downfall also indicates that massive greed and corruption can in fact bankrupt an industry).

And that's great news, unless, of course, you are a robber baron!

1. Seth Godin calls this the 'average product for the average person' way of business [↩]