11 The Law of Churn

Seek sustainable disequilibrium

In the industrial perspective, the economy was a machine that was to be tweaked to optimal efficiency, and, once finely tuned, maintained in productive harmony. Companies or industries especially productive of jobs or goods had to be protected and cherished at all costs, as if these firms were rare watches in a glass case.

As networks have permeated our world, the economy has come to resemble an ecology of organisms, interlinked and coevolving, constantly in flux, deeply tangled, ever expanding at its edges. As we know from recent ecological studies, no balance exists in nature; rather, as evolution proceeds, there is perpetual disruption as new species displace old, as natural biomes shift in their makeup, and as organisms and environments transform each other. So it is with the network perspective: companies come and go quickly, careers are patchworks of vocations, industries are indefinite groupings of fluctuating firms.

Change is no stranger to the industrial economy or the embryonic information economy; Alvin Toffler coined the term future shock in 1970 as the sane response of humans to accelerating change. But the Network Economy has moved from change to churn.

Change, even in its toxic form, is rapid difference. Churn, on the other hand, is more like the Hindu god Shiva, a creative force of destruction and genesis. Churn topples the incumbent and creates a platform ideal for more innovation and birth. It is «compounded rebirth.» And this genesis hovers on the edge of chaos.

Donald Hicks of the University of Texas studied the half-life of Texan businesses for the past 22 years and found that their longevity has dropped by half since 1970. That’s change. But Austin, the city in Texas that has the shortest expected life spans for new businesses, also has the fastest-growing number of jobs and the highest wages. That’s churn.

Hicks told his sponsors in Texas that «the vast majority of the employers and employment on which Texans will depend in the year 2026 — or even 2006 — do not yet exist.» In order to produce 3 million new jobs by 2020, 15 million new jobs must be created in all, because of churn. «Rather than considering jobs as a fixed sum to be protected and augmented, Hicks argued, the state should focus on encouraging economic churning — on continually re-creating the state’s economy,» writes Jerry Useem in Inc., a small- business magazine that featured Hicks’s report. Ironically, only by promoting churn can long-term stability be achieved.

This notion of constant churn is familiar to ecologists and those who manage large networks. The sustained vitality of a complex network requires that the net keep provoking itself out of balance. If the system settles into harmony and equilibrium, it will eventually stagnate and die.

Innovation is a disruption; constant innovation is perpetual disruption. This seems to be the goal of a well-made network: to sustain a perpetual disequilibrium. As economists (such as Paul Romer and Brian Arthur) begin to study the Network Economy, they see that it, too, operates by poising itself on the edge of constant chaos. In this chaotic churn is life-giving renewal and growth.

The difference between chaos and the edge of chaos is subtle. Apple Computer, in its attempt to seek persistent disequilibrium and stay innovative, may have leaned too far off-balance and unraveled toward extinction. Or, if its luck holds, after a near-death experience in devolution it may be burrowing toward a new mountain to climb.

The dark side of churn in the Network Economy is that the new economy builds on the constant extinction of individual companies as they’re outpaced or morphed into yet newer companies in new fields. Industries and occupations also experience this churn. Even a sequence of rapid job changes for workers — let alone lifetime employment — is on its way out. Instead, careers — if that is the word for them — will increasingly resemble networks of multiple and simultaneous commitments with a constant churn of new skills and outmoded roles.

Networks are turbulent and uncertain. The prospect of constantly tearing down what is now working will make future shock seem tame. We, of course, will challenge the need to undo established successes, but we’ll also find exhausting the constant, fierce birthing of so much that is new. The Network Economy is so primed to generate self-making newness that we may find this ceaseless tide of birth a type of violence.

Nonetheless, in the coming churn, the industrial age’s titans will fall. In a poetic sense, the prime task of the Network Economy is to destroy — company by company, industry by industry — the industrial economy. While it undoes industry at its peak, it weaves a larger web of new, more agile, more tightly linked organizations between its spaces.

Effective churning will be an art. In any case, promoting stability, defending productivity, and protecting success can only prolong the misery. When in doubt, churn. In the Network Economy, seek sustainable disequilibrium.

Рубрики: | Дата публикации: 12.07.2010

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