Nicholas Gruen says that while the "collaborative web ... can’t be easily explained within economists’ standard
framework," Adam Smith "would have
Adam Smith and Web 2.0, by Nicholas Gruen: History plays tricks on us.
The real internet revolution picked up after the internet bubble had burst.
And the economist whose framework helps most in thinking about the internet
revolution is none other than Adam Smith, who kicked off economics more than
200 years ago.
The internet boom involved companies using the net to broadcast to
customers — like ads on TV — or to automate the sales process: for instance,
with customers booking their own airline tickets or ordering books. Today
Web 2.0, or collaborative web, is enabling armies of volunteers to build a
better world. Some are building and giving away public goods such as
open-source software (Linux and Firefox) and reference resources
(Wikipedia). Others provide expert analysis and commentary on blogs, often
surpassing professional journalists. Others, such as Facebook, connect
people with something in common.
These phenomena can’t be easily explained within economists’ standard
framework, in which economic decision-makers are reduced to the ideal type
known in the trade as homo economicus. Homo economicus is a pure,
calculating egoist optimising his profit or “utility” without regard for
others’ views or conduct (except where they’re useful to his ends).
Homo economicus might not explain which films we see or with
whom we socialise. But a theory’s job is to highlight some aspects of
reality — by leaving out others. When you make investments or haggle for a
car or house, you’re probably doing the best homo economicus
impression you can.
Even here, however, something’s seriously wrong. We’re socially
comparative beings. We care deeply about the conduct, opinions and values of
our peers, using comparisons with them to orient our own ideas about what we
need or value and how wealthy we want or need to be. As for the subtler
aspects of our economy, from the motivation of employees to those amazing
things Web 2.0 is bringing forth, well, homo economicus doesn’t
seem to get close to what’s going on.
Enter Adam Smith’s Theory of Moral Sentiments, published 250
years ago last month, a book he intended partly as a theoretical foundation
for his later economics. As Smith sees it, we
begin our lives as blobs of infantile egoism — infans economicus,
if you like. But from then on Smith sees the process that we now call
socialisation deepening and transforming us.
We learn from our immediate family, on whom we are utterly dependent,
that some things win their approval and admiration, others their disapproval
and even disgust. Our craving of approval and dread of disapproval and our
ability to understand others by imagining ourselves in their shoes draw us
into a lifelong dialectical social drama.
In modern economics, the attraction of great power, fame or wealth is
simple greed for more. Smith’s richer psychology offers a more plausible
explanation. “(T)o what purpose is all the toil and bustle of this world?”
Smith asks. What human drive lies behind avarice and ambition?
Is it to supply the necessities of nature?
The wages of the meanest labourer can supply them. To be observed, to be
attended to, to be taken notice of with sympathy, complacency, and
approbation, are all the advantages which we can propose to derive from it.
It is the vanity, not the ease or the pleasure, which interests us.
Smith was an advocate of self-interest in human affairs, but in a much
richer, more interesting way than is usually thought. In advocating a larger
role for self-interest, Smith identified the public goods that are
prerequisites for self-interest becoming socially constructive. Within
economics the invisible hand only works in a peaceful, lawful society, and
with strong, free competition.
Within society more generally, self-interest becomes a rich ethical meal,
not the morally anorectic egoism of homo economicus. Our natural
sociality enriches and educates our self-interest. Craving esteem and
imagining ourselves as others see us, we gain some objective appreciation of
our own moral worth. And this is ultimately a spur towards virtue as we
strive to be worthy of the esteem we crave (although, of course, as we are
mere mortals there is much stumbling on our journey).
Web 2.0 is scaling up the scope for human sociality and opening up new
vistas for the expression of self-interest. And yet profit-seeking is only a
small part of how that self-interest is manifesting itself.
The way we express our self-interest on Web 2.0 is something new, and
also as old as humanity itself. Why do millions of us blog? For the same
reason we talk and write emails, text messages, instant messages and letters
(remember them?). We do it to communicate feelings, ideas, needs and
experiences with others who might understand us. They might even write back!
Whether it’s the evolution of language itself or the evolution of culture
and social mores, people’s interaction like this builds communities of
shared meaning and understanding.
Even Smith’s description of a market was inherently social — he toyed
with the idea that the fundamental human drive behind bargaining was the
desire we each have to persuade others to see it our way. Smith would have
understood the foundational proposition of an early Web 2.0 credo, “the
cluetrain manifesto” — “Markets are conversations”.
As Web 2.0 burgeons, its denizens pursue their interests like the
merchants in Smith’s Wealth of Nations, posting and commenting on
blogs, making and exchanging programming code and mash-ups of each other’s
content, making connections based on social or practical needs. Some serve
practical needs — perhaps they need some software bug fixed. Others are
“know-alls” proving their superior knowledge. Some express their love of a
And just as the miracle of a healthy market enables the merchant’s
self-interest to serve the common good, so this new alchemy of the web
aggregates individual efforts into freely available public goods. Likewise
this unruly mix of motives gives us glimpses of our better selves. To use
Smith’s description of the psychology of ambition, it lures us on our quest
for an “easy empire over the affections of mankind”, which is a hint, a
tease calling us on a quest for a more distant and difficult destination —