Physical Technologies vs. Social Technologies:
“Physical technologies – methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal.” (p. 244)
Example: Larry takes a couple of rocks (matter) and burns some calories smashing them up (energy) to create a hand ax (a design) in order to have a tool for chopping animal bones (a goal).
“Social technologies – methods and designs for organizing people in pursuit of a goal or goals.” (p. 262)
Example: A group of people might come together and organize themselves to start a company, to form a religion, or to create a Friday night bowling league. Such acts of organizing are always in pursuit of a goal, whether it is profits, spiritual enlightenment, or a bit of fun.
“In 2002, William Easterly of the Institute for international Economics and Ross Levine of the University of Minnesota conducted a detailed study of seventy-two rich and poor countries and asked, ‘What makes one country richer than another?’ One might assume that the major determinants of national wealth include factors such as the existence of natural resources, the competence of government policies, and the relative sophistication of a country’s Physical Technologies. Easterly and Levine found that while these factors all mattered to a degree, the most significant factor was the state of a nation’s Social Technology. The rule of law, the existence of property rights, a well-organized banking system, economic transparency, a lack of corruption, and other social and institutional factors played a far greater role in determining national economic success than did any other category of factors. Even countries with few resources and incompetent governments did reasonably well if they had strong, well-developed Social Technologies. On the flip side, no countries with poor Social Technologies performed well, no matter how well endowed they were with resources or how disciplined their macroeconomic policies were.
“Not only do Social Technologies affect the performance of a nation-state, but they also explain differences in performance at the more granular levels of industries and companies. During the late 1990’s, economists began to notice a rapid rise in the productivity of the US economy. At first, researchers looked to PT’s for an explanation. There had been massive investments in computing power over the previous two decades, and a leading hypothesis was that the economy was at long last seeing the payoff from that investment. However, my colleagues at McKinsey & Company’s Global Institute were skeptical and delved underneath the headline productivity figures. They found that the real driver of increased productivity was changes in how companies were organizing and managing themselves – in other words, innovations in Social Technologies.
“One of the industries the McKinsey team examined in depth was retail, and in particular the impact of Wal-Mart on overall sector productivity. Wal-Mart’s innovations in large-store formats and highly efficient logistical systems in the 1980’s and early 1990’s enabled the company to be 40 percent more productive than its competitors. This challenge in turn forced its competitors to imitate Wal-Mart’s organizational innovations and raise their own productivity 28 percent in the late 1990’s. Meanwhile, Wal-Mart continued to increase its own productivity a further 22 percent. This particular innovation race in Social Technologies in the retail sector alone accounted for nearly a quarter of the growth in overall US productivity during the period. Similar Social Technology innovation races in five other sectors made up virtually all the rest. Computers certainly played a vital role in this story; without them, Wal-Mart’s sophisticated logistics processes would not be possible. But computer technology played an enabling rather than a primary role; it was the innovations in organization and processes that yielded the dramatic productivity gains.” (p. 261-262)
Considering the the impact that one company can potentially have on an entire economy, it cannot be overemphasized how important proper organization is. A study of human history shows how we’ve evolved in complexity from basic family units to tribal units, developing into political and business units. And as we continue to grow in complexity, international organizations, such as the United Nations and the International Monetary Fund, have evolved from the ashes of world wars, and multi-national corporations operating without political borders dominate the business world today. Although these and many such complex organizations are far from perfect, they are wildly successful in simply the fact that they can exist and do the things that they do. For example, how could anyone have ever imagined a mere hundred years ago that a single political organization such as the UN would come about uniting the world under a single name, allocating billions, if not trillions in resources, and holding political and military sway over every nation on Earth. Few would have imagined that a single company, such as Exxon Mobile (perhaps it was Standard Oil back in those days) would grow to such proportions as to be larger than most individual countries.
The power of such organization does not come from how much money or other resources it controls. If economic or political endeavors such as the UN and Exxon Mobile were not successful in what they did, resources would eventually be withdrawn from these institutions and allocated elsewhere. They are able to collect and command the resources they have under their control precisely because they are successful in what they do. In other words, the control of their resources is an effect of their success, not the cause of it. How then, are they able to succeed at what they do, if not for the control of the resources at their disposal? One of the more important factors of their success comes from the benefit of non-zero sum gains. In simplest terms, it is a form of “1+1=3” logic. Although this may sound like a paradox, it is in fact true. An example given in “The Origin of Wealth” is, “you scratch my back, and I’ll scratch yours, and together we will do something that neither of us could have done alone.” Military tacticians have also made use of this seemingly illogical logic. Highly trained operatives, such as the Navy SEALs understand the fact that a four-man infantry unit is not merely twice as effective then a two-man unit; it is at least four times as effective, if not more so. If applied efficiently, proper organization allows for greater extraction of non-zero sum gains.
