Concept independetnly developed by Xavier Comtesse, to describe a consumer-know-how led economy, in analogy with the direct democracy model ; and by John Robb
- 1 Definition
- 2 Xavier Comtesse's Direct Economy Concept
- 3 John Robb's Concept of the Direct Economy
- 4 Example
- 5 Discussion
As proposed by Las Indias, David de Ugarte:
"The direct economy is the change in the modes of productive organization that take place among when the optimum scale of production approaches the community dimension.
We’re talking about small groups in which the difference between knowledge, applied knowledge, and practice starts to break down. In these groups, making the leap to production doesn’t require capital like something external and superior, which is capable of reorganizing the whole process in its image and likeness. In such groups, the division of labor and hierarchy fade in a way they never would in commercial businesses. The direct economy is the natural place for “multispecialization.”
The convergence point of the trends in the direct economy is the “productive community”: a group of people whose knowledge is converted directly into production, and whose process of generation of knowledge is difficult to distinguish from the productive process." (http://english.lasindias.com/the-direct-economy-and-abundance)
Xavier Comtesse's Direct Economy Concept
Summary from Bruno Giussani at http://giussani.typepad.com/loip/2006/08/direct_economy.html
"Could "direct democracy" provide a proper metaphor to describe the current economic transformation?
Are we heading towards a "direct economy"?
In a system of direct democracy, sovereignty is lodged with the citizens - or at least, with those among them that choose to actively participate in the system. They can not only pick among prepackaged options (vote) or candidates (election) but they also can deeply co-shape the policy process. Switzerland is probably the strongest case: here new laws can be put forth, and even the Constitution modified, by citizens' initiative.
Translate that into business terms and we have a description of a system where consumers have a direct influence on what companies develop and produce for them. The more informed, opinionated and wired (socially connected) they are, the more they are likely to make use of this influence and to try to organize it - exactly as in a direct democracy system.
On this premise Xavier Comtesse, who heads the Geneva branch of think-tank Avenir Suisse, is writing a book on the idea of "direct economy". "We're exiting an economic system based on the producer's know-how and heading towards one centered on the customer's know-how" (http://giussani.typepad.com/loip/2006/08/direct_economy.html)
Knowledge transfer from firms to customers
Additional commentary from Bruno Giussani at http://giussani.typepad.com/loip/2006/08/direct_economy.html
"in order to interact and participate and co-create, people need to develop or acquire specific know-how.
Assembling a bookshelf may require a relatively limited know-how (although for some people it may be overwhelming), but booking a flight ticket online or creating a blog are tasks of a higher complexity, and customizing a laptop is more complex still. Some of this knowledge is purely practical, other is highly conceptual, but in order to benefit from these products or services the customers have to acquire it.
How do people acquire this know-how? Mostly by what Xavier calls "transfer", which can be implicit or explicit. Implicit: "When Dell offers me a way to customize a laptop, they also encourage - or force - me to acquire new knowledge: in a way they operate a transfer of know-how to me", he writes in the draft of his book. Explicit: online forums and websites, eBay's University, Swissquote's 'trading seminars', communities or practice, etc.
Secondly, Xavier points out that often many of these developments (most notably in the airline business, but also elsewhere) are labeled as "low cost", but that's the wrong label, he contends, and the wrong way to look at it: they should be called "high productivity" - because that's the impact of the active role of the customers: productivity gains. Lower prices in the production process are the result, but the systemic change, he says, is mostly about raising productivity by involving the customers." (http://giussani.typepad.com/loip/2006/08/direct_economy.html)
Level of Interactivity Typology
4.1 Passive consumption:
The consumer is getting products or services with no real interaction and no real choice. He has to take whatever is available.
4.2 Self Service
The consumer is now given the ability to choose between various products or services. This first step is already a huge step forward, as the consumer can go around the vendor to pick and choose what he wants.
4.3 DIY: Do It Yourself
At this level, the consumer starts getting involved in the value chain. This is what IKEA offers, where you are not just buying a product, you are actually also delivering it to your home and building it yourself. This case is an example of the first disruption from the standard retail value chain.
At this level, the consumer starts adding value by customizing the product and therefore defining his needs himself (as opposed to buying a product defined by the product management team). This is what Dell is asking from customers when they have to pick and choose options to build a computer.
This is the ultimate level of involvement, where the consumer is actually involved in the design of the product or service itself. This is what Open Source does for developers, and what Wikipedia does for knowledge consumers. Similarly Procter and Gamble has a “Connect and Develop” program that lets innovators define products.
The View by Las Indias
David de Ugarte:
"While the “P2P mode of production” is a fascinating path for a transition from capitalism to abundance, its direct impact—how many people live directly from the commons—is relatively small. As in Asia, Europe, and the US, structural change will begin in an intermediate space that is also based on the digital commons: the Direct Economy.
The Direct Economy is all those small groups of friends—and therefore, a basically egalitarian organization—that design a product that generally incorporates software and free knowledge into itself or its process of creation, sell it in advance on a crowdfunding platform (making bank financing or “shareholders” unnecessary), produce it in short runs of a few thousands in a factory, whether in China or on the side of their house, and use the proceeds to improve the design or create a new product.
The Direct Economy is bar owners who invest 10,000 euros in equipment and begin to produce beer 100 liters at a time, or a few tens of thousands of euros and gain capacity to prepare almost 1,500 liters every 12 hours in continuous production—and then go on to bottle and begin distributing nearby and in networks of beer artisanal lovers. And of course, they will have more varieties than the big brewery in their are, higher quality, and a better quality/price ratio.
The Direct Economy is the academy or the high school that installs a MOOC or Moodle to be able offer its students services over the summer, independent app developers, the role-playing bookstore that buys a 3D printer and starts selling their own figurines, or the children’s clothes store that starts designing and producing their own strollers, toys, or maternity bags.
All of them are small-scale producers making things that, until recently, only big businesses or institutions were able to make. All of them have more scope than the scale model. All of them, at some point in the process, use free software and knowledge, which reduces their capital needs even further. All of them take advantage of the Internet to reach providers and customers for low costs—for example, by being able to reach very geographically dispersed niches or find very specialized providers. Most will not have to resort to banks or investors to finance themselves, but rather, will use pre-sale and donation systems on the network to raise money. And some of them use the “commodification” of the manufacturing industry and its flexible production chains for the process.
As for internal organizing, we’re generally looking at models that are much “flatter” and more democratic than conventional businesses. While traditional businesses are autocracies, or at best aristocracies based on hierarchical command and responsibility, the large majority of projects in the Direct Economy are “ad-hocracies,” in which the needs of the moment shape teams and responsibilities. This even happens in cases where big businesses decide to take a gamble on creating a spin-off and competing in a new field. Instead of an org chart, there are task maps. Rather than “participation in management,” there emerges the type of energy that characterizes any group of friends that make something “spontaneously.” If the legal process wasn’t still so arduous, if it didn’t require notaries and endless paperwork, we would say that the natural way to the Direct Economy is worker cooperativism." (https://english.lasindias.com/why-producing-in-common-is-the-starting-point)
Limitations of the Model
In my own understanding, we have to clearly distinguish two participative models, depending on the level of engagement. When consumers engage on individual expressive endeavour on participatory platforms, we have weak links amongst consumers, and platform-dependent strategies. When consumers/producers actively build a common project (such as Linux and Wikipedia), using strong Commons-oriented licenses, we have strong links amongst participants, who usually have their own platforms. Here we have commons-oriented strategies.
But the model from Xavier Comtesee does not focus on either one of this possibilities, but rather on the consumer that is still secondary to the corporation. Hence it is a corporate-centric model, and does not apply to the more bottom-up peer to peer oriented alternatives. It's really a model of extended externalization that does not quite fully embrace the reality of autonomous particpation. But within these limits it is very valuable for understanding corporate strategies.
John Robb's Concept of the Direct Economy
"We thus define the direct economy as a series of production methodologies based on the binding of alternative funding schemes (such as crowdsourcing or selling in advance), the globalization of the small (producing at low cost in large facilities anywhere in the world) and the potential to increase marketing scope through the Internet. A cocktail that allows for astonishing productivity in small-scale organizations." (http://english.lasindias.com/sharing-economy-direct-economy-p2p-production-what-a-mess)
"What comes after the industrial economy? The economic system that will power us through the 21st Century? It’s not a post-industrial economy (that only tells us what it isn’t). I’ve been thinking about this for a long, long time. I believe it’s best termed the direct economy.
It’s an economic system we can see emerging all around us if you look in the right places. The reason it’s been so hard to see is because it’s not merely an economic system that pushes industrial processes to the edge, it’s an economic system that minimizes the formal structures used for bureaucratic and market based decision making.
Making this jump is the hard part. It’s an economic system that is organized on a person to person level. A place where the method of peering person to person is dynamically determined by the software platform used (read this as many different ways to interconnect!).
Let that sink in a bit. The direct economy allows almost unlimited variation in the methods used for peering. It can be sharing based. It can be a competitive game. It can be collaborative or constructive. It can be event driven. It can even be left to the individuals connected to it to determine.
So, what does this mean?
- It minimizes the role of middlemen. Finance. Retail. Lawyers. Government. The toll takers of the old system.
- It unbundles stuff we used to relied upon industrialized bureaucracy for in the past. From education to science to manufacturing to…
- Blindness. It is something the entire edifice of the old economy can’t even see, so don’t even bother trying to explain it to them. There’s also crossover between the two economies, but sooner than later, the direct economy will dwarf the old (in terms of value to participants and the rate of innovation that occurs).
So, why does this matter to my exploration the future of the American dream on HomeFree?
The direct economy is extremely fluid. It’s also granular (it works at close to the level of the individual rather than the company, town, or nation). A system that fluid and that innovative is dangerous (it can devolve into toxic noise very easily) if it doesn’t have a stable foundation upon which to operate.
One idea I’m trying to suss out here, is whether it’s possible to build a home that serves this purpose. A home that provides the stable base that allows you to not only survive the ongoing decline of the old economy, but the rise of the next." (http://www.homefreeamerica.us/the-direct-economy/)
"Unbundling, and the economic vigor it enables is at the core of the direct economy. That’s an economy where everyone directly interconnects to get things done and many of the traditional middlemen get cut out. If we’re going to rebuild the American dream, we need to leverage the direct economy to do it.
One portion of the direct economy is white hot right now. It’s called the “sharing economy.” As you will see, it’s poorly named. Mainly because it doesn’t have anything to do with sharing and it’s only a sliver of what’s coming via the direct economy. Sharing economy apps/sites make it easy to turn your house/car/stuff into a source of income." (http://www.homefreeamerica.us/using-sharing-apps-to-bootstrap-a-living-income/)
"beyond this brilliant idea, John, concerned by the breakdown of the American middle class, began to prioritize the most basic resilience in his proposals, incorporating low-productivity yet useful elements for generating cash and income in case of the total destruction of the market. Things like putting a chicken farm in the yard or using “sharing economy” platforms in order to transform a room, a car, etc. into a tool for generating small amounts of income.
It was from this second interpretation by John that our friends from ARssa! and SomosReding incorporated the concept of direct economy to their conceptualization of the “Route of artisan entrepreneurs“: microentrepreneurs doing arts and crafts as a way of generating additional income. Domestic production was at the forefront.
The truth is we never felt comfortable with that idea. In another post, Nat insisted on the capacity for innovation as the key for the model beyond small tools in order to strengthen resilience or a more rational use of resources. The fear of a loss of meaning of that conceptual treasure that is the direct economy was definitely present there." (http://english.lasindias.com/sharing-economy-direct-economy-p2p-production-what-a-mess)
"Here’s an interesting example of the direct economy in action. A couple of entrepreneurs I know wanted to build a mushroom business in part of a home they own. They do their research and feel it is a business they would have fun running, particularly since they plan to use coffee grounds and spent hops from local businesses as a growing medium.
In order to do it, they need some funds to build a “clean room” and growing facility that’s necessary for the production process. To finance it, they go to Kickstarter to pitch potential customers on the value of grow your own mushroom kits.
The idea of supporting a smart team on their path towards the achievement of the American Dream was something that appealed to me. Further, the idea of growing mushrooms in my kitchen sounded like fun, particularly since I like to eat/cook with fresh mushrooms. To top it all off, it made economic sense. This kit was priced at a level that made it competitive with store bought product.
I bought one. They shipped it six or so months later. When it arrived a couple of days ago, I tore off the two tabs on the front and cut a + in the plastic wrap with a clean knife. Since then, I’ve been spritzing it with a water a couple of times a day using the enclosed spray bottle. As you can see in the pic, it’s sprouted a couple of stalks already. Very cool.
Upshot, I get to participate in the growth of a business. The team at Logrocal didn’t have to take out a loan or go to a financier to build their farm. Second, my family and I get an economical source of very fresh (much fresher than the store) produce. Thirdly, it’s a cool experience that is really teaching me something about the entire process of mushroom growing." (http://www.homefreeamerica.us/direct-economy-in-action-mushroom-micro-farming/)
David de Ugarte:
"Around the year 2010, John Robb, known for his efforts in the theoretical development of resilience, decided to develop a consultancy. He presented himself as an economic agent and discovered that he had different resources he wasn’t using. Incorporating them into his activity would contribute to diminishing his dependence on his main economic source—consulting. John Robb designed a set of activities, and concentrated on get them moving. He became a small agricultural producer and rented out different spaces in his house, besides selling advisory hours through tele-presence, writing books, and writing his blog. He started to refer to this phenomenon as the “direct economy,” a formula that allowed him distribute his income across different activities, all of them disintermediated.
John was coming to this approach by seeking the reinvention of the North American family as a productive unit that is resistant to crises, in las Indias, at the same time, we were starting to lay the foundation for the direct economy as a result of the application of free knowledge and the reduction of the scale of production.
In our view, the direct economy brought together a whole series of productive and commercial activities of tiny scale that, thanks to the Internet, were gaining a large scope with very little need for financing. In fact, the combination of software and free knowledge, online advance sales and “crowdfunding,” was saving already a growing number of projects the search for shareholders and credit. On the other hand, the flourishing world of mobile apps was serving as a model for a whole new sector of micro-industrial SMEs. This was a sector centered above all, though not solely, on consumer electronics, that used traditional industry as a sort of gigantic 3D printer to manufacture ever-shorter runs of all kinds of products at low prices.
That is, the power of the direct economy does not reside in the possibility of getting extra income from underused consumer goods (house, car, tools…), which is the core of collaborative consumption, but rather in the possibilities offered by networks, disintermediation, definancialization and the “commodification” of the industrial work of entering the market with innovative products despite having a very small scale." (http://english.lasindias.com/the-direct-economy-and-abundance)
Why does the direct economy push society towards abundance?
David de Ugarte:
"The direct economy is the most radical expression of the reduction of the optimum scale of business. The development of technologies over the last decades of the twentieth century and of what we’ve seen of the twenty-first century has made it possible for the manufacture of sophisticated objects, from cellphones to electric cars, to be accessible for really small groups of people. The changes this holds in store are as radical as they are surprising.
In the first place, while it seems obvious, for the creators of an industrial project to be able to finance their production without the need to give up ownership is a true historical novelty. Ultimately, the economic system that we have known and lived with our entire lives was called capitalist because those who provided the capital were considered the legitimate owners of a company.
Secondly, this is possible thanks not only to advance sales or private donations that arrive via the Internet. It is also due to the fact that the large majority of these companies intensively use free software, which is to say, they benefit from existing capital, which they access freely and for free. What replaces monetary capital is less the value of the creative and technical contribution of the entrepreneurs, and more the prior knowledge accumulated communally and freely.
To put it another way, in the core of the direct economy, we already see the transformation of capital into free knowledge, the direct application of knowledge to production with no need for the formerly necessary mediator of social capital and credit.
This is more than a happy historical coincidence. The direct economy is the change in the modes of productive organization that take place among when the optimum scale of production approaches the community dimension. If we look at the structure of businesses in the direct economy, we’ll find they’re mostly made up of groups of 6 to 10 people. They transfer the knowledge that they possess, and design and offer products in the market. The community of concrete knowledge and the community of production begin to merge, while accumulated knowledge takes a directly useful, free and accessible form: the commons." (http://english.lasindias.com/the-direct-economy-and-abundance)