11/ For information to stick around it must be accumulated in solids. From a physical perspective, a solid is “frozen” because its structure is stable to the thermal fluctuations of the environment. Information has no way to endure and grow in a scalding world like the sun.
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22/ In a metaphorical sense, the world is populated by ghosts. Faraday’, Tesla and many others live in electrical products.
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23/ It also allows us to transform our ideas into shareable reality. Crystallizing our thoughts into tangible and digital objects is what allows us to share our thoughts with others. It augments us.
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24/ Therefore economy can be seen as a system that amplifies the practical uses of knowledge and knowhow through the physical embodiment of information. It is a sociotechnical system by which humans make information grow.
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25/ A “personbyte” is defined as the maximum knowledge and knowhow carrying capacity of a human. At the individual level, there is a limit to the amount of knowledge and knowhow we can accumulate in our brain and nervous system.
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26/ Therefore, it not only requires that we break up knowledge and knowhow into chunks that are smaller than the ones an individual can hold but also a structure to reconstitute it: a network.
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27/ Our collective ability to accumulate knowledge is therefore limited by both the finite capacity of individuals and the problem of connecting individuals in a network.
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28/ A successful band not only requires each musician to have a deep knowledge of his instrument but also requires musicians to know how to play together. Practice time is required when replacing one of the musician.
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29/ Bonding social capital understood as ability to connect people is as important as human capital defined as knowledge and knowhow that is embodied in humans.
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30/ The basics of social network formation is based on three simple ideas: shared social foci, triadic closure, and homophily.
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31/ A shared social foci means simply that links are more likely to form among people who share a social focus (i.e., classmates, workmates…)
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32/ Triadic closure means that links are more likely to form among people who share friends.
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33/ Homophily, on the other hand, attempts to explain the links that stick—it is the idea that links are more likely to form among people who have similar interests and characteristics.
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34/ An outcome of these tie formation mechanisms is that social networks are composed of clusters of similar people, who often have highly overlapping knowledge and information.
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35/ Social networks help drive the formation of professional networks and tend to bring into a firm people who are similar to the ones already there. Deloitte got 49 percent of its experienced hires from referrals.
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36/ Firms, networks of individuals, developed according to the classical view of Adam Smith’s division of labor and scale economies.
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37/ Simply put, cooking dinner for one is more expensive than cooking for a family of five: cooking for five does not take five times the effort or ingredients than cooking for one.
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38/ Nevertheless, firms don’t grow endlessly and analogously to the “personbyte” have also a quantization limit: the “firmbyte”.
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39/ Transaction cost theory study the cost of economic links and the ways in which people organize to deal with commercial interactions.
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40/ When the external transactions become less costly than the internal transactions, firms stop growing since it is better for them to buy things from the market than to produce these internally: the cheaper the link, the larger the network.
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41/ Williamson’s classifies the links (ie transactions) in two axes: by frequency (recurrent and occasional) and specificity (nonspecific to idiosyncratic).
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42/ Buying coffee is a nonspecific recurrent transaction. Purchasing a home is an occasional and specific interaction. It is easy to understand the difference in term of paperwork and people needed to establish a commercial link.
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43/ During the last decades the cost of market transactions has fallen due to for examples transportation costs but a as well as emergence of standards.
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44/ Language is the quintessential standard. While still linguistically fragmented, language allows people to weave networks by empowering them with the ability to communicate complex ideas and coordinate their actions.
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45/ While those costs decrease, a network of firms is developing, increasing our ability to accumulate knowledge in networks of markets interactions.
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46/ Nevertheless, links requiring large amount of paperwork and people’s time can be a bureaucratic burden and very costly.
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47/ Extreme levels of inefficiency can only be supported by organizations whose revenue stream does not depend on their interactions with others. In a government, most of the personbytes available are consumed by internal procedures.
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48/ Bureaucratic transactions costs (detailed contracts, insurance …) can be significantly reduced with trust. Trust makes links cheaper, allowing networks to grow larger. Trusts is the large networks’ glue.
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49/ At a macro level, we can observe a diversification toward related varieties. There is a bias favoring the emergence of an industry in the places, or networks of people, that already have accumulated much of the knowledge and knowhow needed for that industry.
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50/ Places producing curtains are preadapted to produce tablecloths but not espresso machines. By analogy, a zebra and a crocodile might be similar in terms of overall complexity, but evolving a horse from a zebra is easier than evolving a horse from a crocodile.
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51/ Another good example of this nestedness of industry-location data is the Silicon Valley. If HP, Atari, and Xerox PARC had not been located in the valley, it is likely that the knowledge and knowhow needed to get Apple started would not have been there.
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