OK, the social media buzz is getting a little stale folks.

• Yes we know that social media is valuable.
• Yes we know that lots of folks are doing it.
• Yes we know that the predictive web is predicted.
• Yes we all know that all this activity will mysteriously “monetize”

Show me how everyone is related and I’ll show you a new economic paradigm. Here is how they are not related:

• They are not related by “earning” people’s trust today so you can shove your product down their throat tomorrow.
• They are not related to collecting thumbnails.
• They are not related to giving the g00gle alg00rithm an 00rgasm.
• They are not related by “The 6 Steps to [Fill in The Gap]”.

The next economic paradigm is related to transformation.

• People transform data into information
• People transform information into knowledge
• People transform knowledge into innovation
• People transform innovation into data

Under a set of fundamental assumptions that:

• All people are socially talented
• All people are intellectually talented
• All people are creatively talented
• All people are good at something
• Nobody is good at everything

This is how value is generated. This is where the mystery of monetization hides.

In continuation of our series on New Economic Paradigm, the famed environmentalist Dr. David Suzuki points the an outdated financial system where the biosphere is treated as an externality to economic growth.

“When economists and politicians met in Bretton Woods, Maine, in 1944, they faced a world where war had devastated countrysides, cities, and economies. So they tried to devise solutions. They pegged currency to the American greenback and looked to the (terrible) twins, the International Monetary Fund and the World Bank, to get economies going again.”

Whereas Bretton Woods (1) was tasked with rebuilding a war torn world, a new Financial Doctrine is needed to rebuild a war torn Biosphere. Economics as a discipline is based on the fundamental effects of selfishness and Bretton Woods demonstrated that we could in fact define “self” in terms of including the preservation of others. Now the task is to define “self” as including the Biosphere for which a new economic accord could certainly accommodate.

After all, the biosphere in an economic component. Like humans, it is selfish and will easily progress to a new “economic” state in response to economic inputs. In other words, don’t worry about destroying the World, it will take care of itself with or without humans.

Dr. Suzuki identifies two flaws in the current economic paradigm:

Flaw 1: Beyond its obvious value as the source of raw materials like fish, lumber, and food, nature performs all kinds of “services” that allow us to survive and flourish.

Flaw 2: To compound the problem, economists believe that because there are no limits to human creativity, there need be no limits to the economy.

These two points suggest that among all the great factories that define our great economy, we have left out the biggest one of them all. the Biosphere.

Maybe it’s time for an appropriately named Bretton Woods (2)

Dr. Suzuki’s original article can be found here – highly recommended for his compelling construction of the arguement for a new economic paradigm.

Dr. David Suzuki is a scientist, broadcaster, author, and chair of the David Suzuki Foundation and Dr. Faisal Moola is the Director of Science at the David Suzuki Foundation.

Take David Suzuki’s Nature Challenge and learn more at www.davidsuzuki.org.

Back atcha!

Everything is Connected:

The economic models and theories that prevailed through the 20th century are rapidly falling apart. Economists scramble to offer explanations and solutions. However, much of what has gone wrong was anticipated years ago by E. F. Schumacher (1911-1977), an Oxford economist and protégé of John Maynard Keynes who proposed a theory of “Buddhist Economics” following his interest and studies in Asian philosophies.

Schumacher was among the first to argue that economic production was too wasteful of the environment and non-renewable resources. But even more than that, he saw decades ago that ever-increasing production and consumption — the foundation of the modern economy — is unsustainable.

Never see what has been done; only see what remains to be done.

Schumacher wrote that western economics measures “standard of living” by “consumption” and assumes a person who consumes more is better off than one who consumes less. He also discusses the fact that employers consider their workers to be an “expense” to be reduced as much as possible.  He questioned the theory that some amount of unemployment might be better “for the economy.”

What we think, we become.

Schumacher argued that an economy should exist to serve the needs of people. But in a “materialist” economy, people exist to serve the economy.  Notably, he argued that labor should be about more than production because a person’s work has psychological and spiritual value that must be respected.

Instead we consider goods as more important than people and consumption as more important than creative activity. It means shifting the emphasis from the worker to the product of work, that is, “from the human to the subhuman.”  We have outsourced our soul.

Three things cannot be long hidden: the sun, the moon, and the truth.

Today, many enterprises – some entire industries – are failing and they cannot understand why.  Over time, they have crossed that philosophical line and now serve advertisers, not their customers.

Traditional media and journalism are an example; they scare people, feed on their anxieties, promote insecurities, and stoke desire.  Demographers trespass into people’s homes, collect statistics, run numbers, and design messages that steal the things people love about their self and sell it back for the price of the product.

We end up with no end of entertaining consumer products that soon end up in landfills, but we fail to provide for some basic human needs, like health care for everyone.

A jug fills drop by drop:

Top News in Business Week Print Edition v. Growth Rate for print media:

•    Pending Home Sales Rise for Third Straight Month
•    GM: A View from the Back Seat
•    U.S. Corporations Size Up Their Carbon Footprints
•    Move Over, Amazon? Google Aims to Sell e-Books

Top News in Business Week Exchange – Reader Chosen Topics vs. Growth rate.

•    Social Networking

•    Global Economy
•    US Economy
•    Green Energy

The Editor selected topics in the top chart are aligned with corporations, consumption, and large bailout efforts.  Meanwhile, the reader selected topics in the second category screams: “Hey, where are we and where are we going?”

It would seem that mainstream media should be asking the same question.

(ed note: special thanks Barbara O’Brian at about.com)

“Luke, use the Force”

Creativity is a mystery to many – like an invisible force that drives the universe but can only be seen in retrospect.  If so, then Hollywood is the master of retrospect.

Most movie viewers think that the credits at the end of a movie are for their benefit.  Then they get frustrated when the print is so small and scrolling impossibly fast.  Actually, the credits are for the benefit of Hollywood. This is their knowledge management system.  They know how to communicate the Force.

“Toto, I’ve got a feeling we’re not in Kansas any more”

Being listed in movie credits is by no means an easy task. Every creative job from lead actor to hairdresser has a category. It often takes many years, serious peer review, and marketable success.  However, once listed in the credits you become a managing partner, shareholder, and a currency in the Hollywood creative capital inventory.  This inventory is captured and categorized in the Internet Movie Database (IMDb).  This is their resume system.

As a credited creative worker, you are forever on public display; a good movie credit reflects well on your credits and a bad movie may reflect poorly.  You need to be somewhat selective over what projects to work on.  Likewise, everyone will check the credits of others that are working on the project.  Everyone cooperates fully and in the best interest of the production.  It is in everyone’s best interest to be correctly allocated in the creative capital pool.

“Here’s lookin’ at you, kid”

It’s all about who knows you. The Producers proactively seek and test the “secret sauce” for communicating drama, comedy, action, etc.  They reflect on past projects then attempt to capture strategic combinations of creative capital assets for future projects.  The project becomes the people. The people celebrate each other on award nights and through tangential media. They adopt technology, share ideas, and diversify readily.  As a result, creativity and innovation are quite predictable.

“You’re going to need a bigger boat”

Contrast this to the traditional American Corporation – the ones that we expect to float us out of this financial meltdown through vast new wisdom, creativity, and innovation.  Most are top-down command and control operations with many layers of management that all have the power to say “no”, but not the power to say “yes”.  Instead of arriving at the best decisions, they often arrive at the least-worst decisions.

“Theater is like a box of chocolates”

Now, reflect on this nascent social media industry unfolding all around us.  Readers harvest new ideas on public display from all over the world and apply them to local products.   Such products, by definition, reflect the goals, aspiration, talents, and interests of the people who create them.  The content improves information shared by many sources.  Content of merit with enough credits can elevate the author to the status of “thought leader”.  But something is still missing.

“What we’ve got here is a failure to communicate”

Social media needs a definite product that the whole industry can rally around – that product is ‘communication’.  Social media must produce, improve, and deliver communication. Very few problems are created by communication but many problems are solved with communication.  Communication improves information, knowledge and innovation.  Solved problems are defined as innovations. It is a simple matter of how we organize ourselves;  as a creative industry or as a control industry.

Credits:

Star Wars

Wizard of Oz

Casablanca

Jaws

Twitter

Cool Hand Luke

Throughout history, technological change has also brought changes in the organization of society around the new ways to allocate resources.  The industrial revolution spawned the two prevailing economic theories of our time; Capitalism and Socialism.  The current wave of technological change will likely spawn new economic theories and social organization systems as well.

Capitalism arose from feudalism and is roughly characterized by a merchant class that owns the factors of production (land, labor, and capital) and a working class whose physical toil adds value to natural resources.  The capitalist acting in their own best interest is ultimately acting in the best interest of society by creating jobs that employ people.

Then Karl Marx came along and noted the inherent conflict where the workers would seek to maximize their wages and the merchants would seek to minimize wages.  He argued that class struggle would ultimately result in a communist system replacing the capitalist system. The communist acting in the best interest of society is ultimately acting in their own best interest.  Socialism is widely regarded as the transitional stage between capitalism and communism.

But the struggle is really over the control of the means of production, or factors of production. Are land, labor, and capital private property or public property?

Today, computer enabled society engaged in an innovation economy presents an entirely new set of conditions.  What happens when the factors of production are social capital, creative capital, and intellectual capital?  How are these “means of production” going to be controlled and by whom?

This is a serious philosophical quandary that will be brought down upon us in the next generation of social media because neither socialism or capitalism are applicable in a traditional sense. Like Heisenberg’s theory of indeterminacy – the more control you have over one factor, the less control you have over the other.  This is not a condition related to the ability to control someone or something, rather, it is a condition related to the nature of the system itself.  That’s a big deal.

For the socialist: in order to control social capital, one must equalize society – as such, the system retains little innovation production value.  In order to control creative capital, one must standardize creativity – likewise, the system retains little innovation production value.  In order to control intellectual capital, one must control the intellectual development of another – again, the system retains little innovation production value.

Likewise for the capitalist, many people understand social capitalism to be capitalism with a social benefit.  While this is correct, it is likely not scalable in the current form.  There is no ROI to curb global warming, there is no ROI to educate the poor, there is no ROI for human rights, and there is no ROI on the national debt, etc. As such, the system is constrained by the social burden to innovate.

There is, however, a business plan to liberate social capital, creative capital, and intellectual capital as tangible financial instruments in their own right, by definition, reflecting social priorities in an innovation economy.  This is where the next generation of social media is leading to – and it scales magnificently.  Have you noticed? That is Social Capitalism.

There is an ongoing discussion about the rating system for articles posted to a business oriented social network site that I belong to.  While am not part of the discussion, my one and only post to that site had been rated very low despite the fact that I am recognized internationally in the subject matter of that particular article.  I stopped posting articles to rated sites because the rating systems are flawed at the core of logic – Frankly, it’s too risky.  As the creativity, originality, or controversy of the post increases, the disincentives to sharing it also increases.  I don’t want my customers googling me to see this rating without also being able to google my reviewer.  No sour grapes – I’d wear a D+ from Stephen Hawking as a badge of honor.

The objective of any business/social network in today’s world should be to make human knowledge more tangible outside the construct of the corporation, such that it emulates a financial instrument – at the end of the day, it’s about the money.  Otherwise Social Networking amounts to active recreation – like guitar hero, or tubing; fun but somewhat trivial.

ALL financial instruments, without exception, are described in terms of a quantity and a quality.  ALL quantity and quality measures for financial instruments are statistical in nature – that is, they fall on some kind of “bell curve”.  This is true for EVERYTHING from a stock valuation to credit score to marketing demographics to health/home/life/car/business insurance, baseball players, GPA,  etc. – the bell curve is ubiquitous.  Whoever is not minimally familiar with the simplest basic concepts of a Normal  Distribution, et al, is at a severe and unfortunate disadvantage in the innovation economy. This is how the world of money is organized, this is what money is, this is what Wall Street does – for better or worse, like it or not….it is what is.

One obvious failure of most Social network rating systems is the linear 1-5 “stars”.  If there were 6 stars then at least we could have a leg up on applying the most valuable mathematical tools available from the world of wealth and value creation (hence, Six Sigma).  Second – the bell curve is not linear and the reviewer needs to be aware of this. 6 stars would mean that a post falls (in some measure) between 97%-100% of all similar level posts ever read by the reviewer. 5 stars falls in the 85%-97% range; 4 stars, 50%-85%; 3 stars, 35%-50%; 2 stars, 3%-15%; 1 star 0-3%.

If Calculus isn’t your thing, consider this – the bell curve rating system makes the reviewer really think about who they are in the process, the responsibility they hold in the rating of others, and the implications of their ratings – too high, or too low.  It would be good to know how many articles the reviewer has read and rated, the average of their ratings, as well as their own rating on articles published (is this staring to sound like EBay? – it should, at 25B market cap, they’re not silly people).  Social accountability does wonders for market efficiency and wealth creation.

Social Networks are ideally suited for correctly rating their own knowledge inventories so that when their members go out in the new world trying to make a living, it is known to all that they have been vetted by a respected community.  This increases the value of the member and it increases the value of the community in the market. Communities that empower and release great talent to a market actually empower themselves; Harvard, GE, Frank Zappa.  This has happened at the local level since the stone ages.

What about our competitive instincts? There can only be one winner and the rest are losers, aren’t all good Capitalists supposed to decimate thy neighbor? Always remember, it is all about the perfect combination of average assets, not necessarily the single excessive asset that makes product most valuable in a market.  The market for Toyotas is far greater than the market for Ferraris, yet each are competitive in their respective market.  The studies of ‘beauty’ discovered a collection of perfectly average features – in the eye of the beholder, consistent with balance and harmony.  So we’ll need to drop the win-lose culture on this one and worry about competing with the real threats that lie before us.

Sure, most people will complain about such a system because it is too complicated, too math-ish, not the easy tweet (OMG CUL8R!). But this is the reality of how money is organized – and disorganized (did I mention Wall Street yet?). There is no exception, there is no rational alternative – the world does not care if people agree with the way things are or if they understand the math.

Fortunately, once people learn to roll over this metaphysical speed bump, the rest is real easy as a vast world of possibility for generating extreme wealth in social networks will unfold before our eyes!!  Knowledge tangibility is the Holy Grail of modern finance but Social Networks are at risk of squandering this unique and historical opportunity to paint this empty canvas in their own image.  Act now, please – this chance may never happen again.