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Networks versus Hierarchies
Harvard, August 22, 2014
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Study ques5ons
1. Are you a hierarch or are you networked?
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Study ques5ons
1. Are you a hierarch or are you networked? 2. Do you think the social and other networks
created by the Internet will ul5mately prove more powerful than the tradi5onal hierarchies of business and poli5cs?
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Study ques5ons
1. Are you a hierarch or are you networked? 2. Do you think the social and other networks
created by the Internet will ul5mately prove more powerful than the tradi5onal hierarchies of business and poli5cs?
3. Which markets will be the next to be disrupted by innova5ons in informa5on technology?
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Study ques5ons
1. Are you a hierarch or are you networked? 2. Do you think the social and other networks
created by the Internet will ul5mately prove more powerful than the tradi5onal hierarchies of business and poli5cs?
3. Which markets will be the next to be disrupted by innova5ons in informa5on technology?
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Lang’s Metropolis as metaphor
The city, the revolu5on, the flood
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Lang’s Metropolis as metaphor
The city, the revolu5on, the flood
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Lang’s Metropolis as metaphor
The city, the revolu5on, the flood
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Lang’s Metropolis as metaphor
Hierarchy, network, nature
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Our 21st century predicament
Hierarchy, network, nature
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The axes of history
Hierarchy
Networks
Environment
Plus the Fourth Axis: Time
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The three axes
Nature The material
constraints over which we have no control
Hierarchies Ver5cal
organiza5ons with command and control
Spontaneously self-‐organizing horizontal structures
Networks
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Nature
1. Physics 2. Geography 3. Geology 4. Climate 5. Disease 6. Evolu5on 7. Fer5lity 8. Bell curve
The environment is not wholly a given; it can be
shaped by, as well as shape, humanity
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Networks
1. Knowledge / Memes 2. Migra5on 3. Miscegena5on 4. Informa5on Technology 5. Markets 6. Clubs 7. Ci5es 8. Cults 9. Movements 10. Crazes
Networks are spontaneously self-‐organizing; they are the main source of innova?on, but they are quite fragile
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Hierarchies
1. Clans 2. Tribes 3. Castes 4. Classes 5. Armies 6. States 7. Churches 8. Bureaucracies 9. Corpora5ons 10. Par5es 11. Universi5es 12. Empires
Hierarchies exist primarily because of the economies of
scale and scope in security, but also to extract rents from
networks
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History explained
• Environmental changes oben incen5vize innova5on by networks
• Networks tend to disrupt established hierarchies
• Hierarchies seek to exploit the benefits of networks
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History explained
• Environmental changes oben incen5vize innova5on by networks
• Networks tend to disrupt established hierarchies
• Hierarchies seek to exploit the benefits of networks
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History explained
• Environmental changes oben incen5vize innova5on by networks
• Networks tend to disrupt established hierarchies
• Hierarchies seek to exploit the benefits of networks
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History explained
• Environmental changes oben incen5vize innova5on by networks
• Networks tend to disrupt established hierarchies
• Hierarchies seek to exploit the benefits of networks
This is not some kind of determinis?c sequence
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Example 1: From the Black Death …
The “Black Death” (Yersinia pes5s bacterium carried by rat fleas) killed 30-‐60% of Europe’s popula5on: peak years 1348-‐50.
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… to rising real wages in western Europe
Survivors’ real wages rose by a factor of around 3 in the following century
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But already medieval Europe was more networked
The Guildhall, home of the City of London Corpora5on (C12th)
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… than hierarchical imperial China
Chinese imperial civil service examina5on, reign of Emperor Renzong (Song dynasty, 1010-‐1063)
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Example 2: From the print revolu5on …
Johannes Gutenberg (c. 1440-‐50) “invents” prin5ng press in Strasbourg
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… to the Reforma5on
Joachim Vadian, humanist polymath who brought the Reforma5on to St. Gallen
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The print revolu5on …
Volume of books increased a hundredfold between 1495 and 1635; the price of a book fell 99%
Source: Dinmar (2012)
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… looks familiar
Source: Dinmar (2012)
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Example 3: From wars of religion …
St. Bartholomew’s Day massacre of Huguenots, Paris, 1572
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… to hierarchical order
The Peace of Westphalia (Treaty of Munster, 1648)
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Western empires: Networks …
Major telegraph lines, submarine and overland, 1902
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… plus hierarchies
Delhi Durbar, 1903
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Example 4: Triumph of the hierarchies
Alfred Sloan’s “Organiza5on Study” for GM, 1921.
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Empire-‐states: Great Helmsmen …
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… and mass mobiliza5on of youth
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The planner’s dream: The economy as model
Bill Phillips with MONIAC (the Monetary Na5onal Income Analogue Computer), a hydraulic computer built in 1949 to simulate the UK economy
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The 21st century: Revolt of the networks?
Cairo, February 2011
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The 21st century: Revolt of the networks?
São Paulo, June 2013
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Today’s networks do pose a real challenge
Source: Pew
0" 20" 40" 60" 80" 100"
Cellphone"ownership"
Use"cellphone"for"Internet"
Use"cellphone"for"Internet"(18929)"
Use"phone"for"social"networking"
Use"social"networks"(18929)"
Use"phone"for"poli?cal"news"
Use"social"networks"to"share"views"on"poli?cs"
China"
US"
Egypt"
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But not all ne5zens are equal
>$500m 2,700 >$100m 29,000
Source: Credit Suisse
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Some are much more equal than others
0"
50"
100"
150"
200"
250"
300"
350"
400"
Google" Facebook"
Masters'of'the'Internet'
Market"capitaliza8on"($BN)"
Founders'"stake"($BN)"
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And the old hierarchy knows how to use the new
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What not to expect
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Metropolis lives!
© Niall Ferguson 2014