Two seminal events happened in Youtube’s history last year. Firstly, a video by the nonprofit organisation Invisible Children about the warlord Joseph Kony went hugely viral, amassing 40 million views in approximately four days. Fast forward a few months and Youtube was in the news again, this time when Korean singer Psy became the first person to break the ‘billion views’ mark for his video ‘Gangnam Style’.
What both these instances highlight to me is not only the power of networks in our lives, but also a clear illustration that rationalism (in the classic sense) does not exist. These two examples provide useful illustrations that people do not operate in vacuums, that they do not always have access to the optimal information they need to make decisions, and they cannot always process this information to make the best choices. How else can you explain the fact that one in seven people worldwide* spent 4 minutes of their lives watching a man dance round like a horse?
This is a shame. This is a shame because economics, which also dominates our lives, definitely thinks that classical rationalism exists yet takes little notice of the power of networks. This is why I found Paul Ormerod’s book Positive linking: how networks can revolutionise the world so fascinating. In it he dismantles the hubris of classic economics and highlights why network theory is so important for understanding the world in which we live. But, bar a few exceptions, when I look round the social enterprise sector, I can’t help but think it’s dancing to the wrong tune.
This may seem a generalisation but take the recent G8 Social Investment Forum as an example – look at who attended and what they were talking about. How they were talking about it. The social enterprise sector still leans very heavily upon classic economic theory, despite the inherent contradiction of trying to tackle very human issues with a very de-humanised approach.
Traditionally, economics relies upon incentives. We can see this clearly at play in the UK social enterprise sector – incentivise new talent in to the market, social ventures to scale or innovate and commercial enterprises to convert, by flooding the market with capital. Except this is not necessarily what’s happening. In fact the complexity and influence of networks may mean several other things happen instead – still only a tiny percentage of social ventures have gone to scale and there is concern that organisations are mimicking social entrepreneurial qualities to access comparatively cheap capital. As Ormerod argues, the ‘rational’ way to respond to such incentives is to copy others, resulting in skewed outcomes that are not normally distributed across the population. This would explain some of the inequality in outcomes and opportunities that are concerning so many in the sector.
“The agents are not merely reacting to incentives. They are changing their behaviour directly in response to others. They are copying, imitating the opinions, choices, behaviours of others. Incentives may also still matter, but network effects dominate their impact”.
What Ormerod does is highlight the distortions that hinder the explanatory power of the dismal science – skews, mavens, mimicry to name but a few. As he also highlights, this thinking is not even new. John Maynard Keynes was talking about it in 1937.
Keynes argued that how, where and when someone chooses to act is, at least partially, influenced by the behaviour, opinions or decisions of others. As such he was concerned with the influence of people upon each other, and what happens when confidence in each other collapses (as it did somewhat prophetically for banks in 2008).
In terms of practical solutions, Ormerod recommends communities take responsibility for outcomes themselves rather than relying upon the state or another outside force. This will be music to the ears of many social entrepreneurs I’m sure.
“[Communities] themselves are in a much better position to realise the benefits of positive linking than some remote, would-be bureaucrat still burdened with the mind-set of a central planner.”
Yet what do we see happening with the social enterprise sector – central planning bureaucrats? If social enterprise really is a change from ‘business as usual’, the very essence of it needs to reflect this. Reverting back to old school economic theories and practices will not create the change that we are all hoping to see.
*that’s almost 1% of everyone who has ever been born by the way!