Friday, August 12, 2011

Social technologies create wealth

I want to divert for a second to another idea. Just as physical technologies have developed and evolved over time, so have social technologies. Eric Beinhocker, a McKinsey researcher, defines social technologies as "methods or designs for organizing people in pursuit of a goal or goals" in his book Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics, which I previously mentioned here. They are better ways for people to cooperate together.

As he points out, the idea is closely related to the Nobel-winning economic historian Douglass North's "institutions". North defines these as "the rules of the game in a society". (We'll come back to North's Structure and Change in Economic History another time.)

Social technologies include the rule of law and an independent judiciary, property rights, a functioning banking system, democracy and elections, the joint stock corporation, shareholder governance, double-entry bookkeeping and audit requirements, reciprocity norms and ways to prevent cheating. And one of the most fundamental social technologies is money, which Beinhocker says "in essence provides a universal utility converter - it enables one person's economic needs an wants to be translated into the same units as someone else's needs and wants."

People do get better at social technologies over time. They tend to evolve in the same way as physical technologies, and explain much of the difference in wealth between countries. Beinhocker argues improvements in organization and management were the underlying cause of the 1990s productivity boom, for example, not just increases in computing power.

What does this all mean here? We need to improve our social technologies to deal with many of our problems. Material accumulation alone does not do that. And money itself, which we takes much as defining much of the parameters of our existence, is one social technology among others. It has evolved over time, from gold stamped with the image of the local king to an immaterial entity held as bits in enormous computing networks and traceable back to book entries in a central bank computer.

(edited to fix spelling mistake I noticed)

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