19/ Economic development is based not on the ability of a pocket of the economy to consume but on the ability of people to turn their dreams into reality. Economic development is not the ability to buy but the ability to make.
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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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52/ The idea of product space, a network connecting similar products, help understand the dynamics of industrial diversification and at a fundamental level explains the growth of economies as the growth of information.
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53/ As the universe moves on and entropy continues to increase, our planet continues its rebellious path marked by information rich pockets. Our lives compute forward in a universe that has no past.
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NOTE1: All credit goes to
@cesifoti, author of the most interesting book I read in 2017: "Why Information Grows: The Evolution of Order, from Atoms to Economies”.pic.twitter.com/mB7npNkggh
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