How Media is lowering Transaction Costs, increasing Productivity
August 27th, 2007 by Chris
In our highly specialized economy the main value-added activity is actually the coordination of resources, such as brainpower, energy, raw and processed materials. In Economics we call the costs of organization transaction costs. Nobel laureate Douglas North (Economic History) managed to explain the path humanity took in world history according to lowering transaction costs (institutions) and thereby increasing productivity.
Why are we interested in media? It comes down to measuring and analyzing transaction costs, which is an information and communication activity. Social Sciences have been traditionally fairly bad at explaining human behavior. For one, it was the missing empirical evidence established, or it was the perspective applied, focusing on where things are broken. That’s why the discipline of Economics rightfully is called the “Queen of Social Science” - because it facilitates empirical evidence, it falsifies, as Sir Karl Popper demands from any scientific theory.
In Economics Grad School at University of Munich they told me: “it’s too expensive to measure human activity like in the hard sciences” and even “human behavior and psychology don’t matter - stick with macro”. And this is where the Internet steps in. Every communication activity, which is in one form or the other media, is measurable. We can lift the veil of not knowing what humans think, how they form opinions, how they form groups, how they communicate, and when, where etc. The human being has entered the laboratory.
Now it becomes possible to prove to large and small organizations how counterproductive their established organization and communication practices often are. The availability of more granular accessible data provided by the Internet changes everything. Instead of pushing products and services people don’t want, you produce on demand, according to what people are interested in. The data is readily available - Technorati, Google Search, Last.fm, Facebook, MySpace, Google Maps, Amazon recommendations, Flickr, Youtube. After the industrial revolution, digital media is lowering transaction costs once more - let’s see where the journey takes us… Media in Transition.