The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [122]
What’s more, information itself is a public good. A quotation from Thomas Jefferson making this point has become well known:
If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of everyone, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density at any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation.21
The extraordinary decline in the price of communicating information, and spread of access to information, has made this public good “problem” acute—as can be seen from the intense debates about the scope and enforcement of copyright in music and publishing. Consumers might not think about it in these terms, but “free” is the right price from the perspective of social efficiency given that the marginal cost of providing an extra copy of a song or album is zero.22
Taken together, these technological developments have altered somewhat the types of market failure that are most pressing. Some former natural monopolies have become much less relevant. On the other hand, in the weightless economy the scope of information asymmetries, consumption externalities, and economies of scale has become much greater. So the information revolution has contributed to the sense of government failure, has extended the scope of some important market failures—and has also posed new challenges for other institutions. As the work of Herbert Simon and Oliver Williamson highlights, businesses are important social institutions too.
THE WIDER CRISIS OF GOVERNANCE
The impact of very low-cost information is visible in the organization of companies as well. During the past two decades there has been an upheaval in the way business is organized. One aspect is the spread of supply chains around the globe, in increasingly specialized activities, to take advantage of lower costs for some components, or specialist knowledge and expertise for others. Adam Smith’s division of labor has become a global rather than a national phenomenon. Low-cost and efficient communications have made this possible by enabling the logistics and coordination needed.
Another aspect is the wave of restructuring in the corporate sector, the downsizing and “delayering” in some companies, the new mergers in other cases. The increased scope of economies of scale, described earlier, explains the merger wave that has occurred in each of the recent economic upswings. On the other hand, cheap information has changed the ideal corporate structure from the older model of a centralized hierarchy to the modern model of a networked or matrix organization. Why this should be so can be seen from a transport analogy: the costs of transportation explain why air travel follows a “hub and spoke” arrangement. Similarly, costly information processing made hierarchy the efficient corporate model. The radical reduction in those costs means companies are more efficient if decision-making is as decentralized as information.
The work of institutional economists explains the structure of organizations in terms of transactions costs. Relationships are brought within an institution when the costs of a transaction in a market