The following examples tell us something:
- The explosive growth of the Internet and e-commerce
- GATT and the emergence and growth of many regional common markets: European Union, ECOWAS, MERCOSUR, GCC, CACM, AFTA, NAFTA, APEC, SARCC, SADC, EAC, ECOW, SAPTA, CARICOM, CER, Andean Community, etc.
- The emergence of new social networks and practices, together with a slew of new terms: “crowd sourcing”, “peer production”, “collective intelligence networks”, “massively distributed collaboration”, “wiki and collaborative authoring”, “prediction markets”, “open source communities”, “weapons of mass collaboration”, “peering”, etc.
- Networks being bought and sold: Yahoo bought Flickr for $30 million; News Corp. bought Myspace.com for $580 million; Google bought YouTube for $1.65 billion!
These examples all tell us that networks, connectivity or relationships create value. Social capital, like other forms of metacapital, create value. The examples in the last bullet point prove that networks do create market value.
The secret of success behind the large varieties of fast-emerging network-based business models are the following four principles:
- 1- Positive network externalities: additional network members create potential benefit to all network members
- 2- Metcalf’s Law: the value of a many-to-many network is proportional to n2 (the square of n, where n is the number of network members)
- 3- Information and knowledge are shareable resources: copying and sharing to many others do not diminish the utility of the original to the sharer.
- 4- Trust between members.
Conversely, lack of trust can destroy value. The main point by Stephen M. R. Covey in his new book “The Speed of Trust: The One Thing That Changes Everything” is simple: when trust goes down, speed of work performance and transactions goes down, and business costs go up. Trust and goodwill are among the most important intangible assets for good business. Again, using the KM framework introduced earlier in this blog series:
When an organization is plagued by rivalry and factionalism, its performance suffers. Bad relationships and distrust can destroy value. Trust underpins relationship capital, one of the three components of intellectual capital of an organization.
When a nation is at war with itself: in Congo, Georgia, the Philippines, Somalia, Sri Lanka and many other places, millions and billions of dollars are diverted away from production to maintain armed forces. GNP suffers. This is negative social capital. No wonder that Francis Fukuyama in his book “Trust: The Social Virtues and The Creation of Prosperity” observed that developed economies are also societies characterized by high social trust.
At worst, when relationships between militarily powerful nations deteriorate, and a regional or global nuclear war threatens Planet Earth, we risk the destruction of all other forms of capital, natural and man-made, that have grown or been built over our home planet over the last centuries. Trust and goodwill are among the most important intangible assets for world peace.