It's cold outside a firm

The network economy is as much a mirage as the new economy - the plc endures.

by Richard Reeves, director of Intelligence Agency, an ideas consultancy; richard@intelligenceagency.co.uk
Last Updated: 31 Aug 2010

Remember the network economy? Round about now, the boring old plc was scheduled for the dustbin of history, to be replaced by global chains of IT-enabled, flexible workers. If the firm was the organising economic unit of 20th-century capitalism, the network was to provide the economic architecture of the 21st.

Well, it's early days, but so far it looks as though the network hype had the same shelf-life as many new-economy stocks. In most areas of economic life, we remain resolutely non-network - wedded to old-style organisations, big-firm brands and standard jobs. The network society described so brilliantly by super-guru Manuel Castells is still on the social analysts' drawing board.

This is not to deny the profound changes in the structure of some capitalist dynamics, especially in finance. The problem, in fact, is that whereas financial capitalism has altered significantly, ordinary economic processes and social systems have not. And the term network economy has been used as a label for a number of separate issues, including globalisation, the impact of IT, corporate organisation, and labour market change.

There is no question that the financial markets have changed. Since 1987, the year of Big Bang in the City, the speed and scale of international capital flows have increased exponentially. The combination of deregulation and the use of computerised trading systems has taken all the stickiness out of money. Around the world, finance ministers and businesspeople are worrying about the undervaluation of the dollar - and with good reason.

In financial terms, the world is a village, and it trades in greenbacks.

But the other elements of the network economy have yet to emerge. Far from fading away, the joint stock company is alive and well. Far from breaking up into networks, firms are gobbling each other up to make even bigger corporations: there's not much sign of the network economy on the UK high street. Even within firms, there are signs of greater centralisation, with HQs expanding and, in multinational firms, global policies being put in place.

There are two reasons why the traditional company is trumping more flexible, networked entities. The first is that employees like to belong and to feel part of a community. A firm provides a solidity that most people welcome. Companies may not be as sexy as networks but they are - or they feel - more secure.

The second advantage of a firm over a network, even a network of highly talented individuals, is brand value. There is a deep truth in the adage that 'no-one ever got fired for hiring McKinsey'. The brand value of a name provides protection for the purchaser. If you are cautious, it is much easier to hire an established name than an individual, or network of individuals. And most purchasers are very cautious.

From an economic standpoint, this leads to gross inefficiencies. Take advertising companies. Big firms need big brands, so they invest in grand offices, lavish hospitality, sponsorship and so on. The costs of all these marble receptions, of course, end up in the customer's lap, through higher fees, but no-one will fire you for using an agency with a great name and a big office.

The irony is that many of the most creative people in the advertising business can't bear to work in large firms, so they go solo. But without the brand behind them, they can struggle. A new initiative - the Gallery (gallerynetwork.co.uk) - is an attempt to square the circle. The 'club' handpicks the best creatives, gives them some working space and a sense of community, and then projects a brand into the marketplace: a brand without the cost of the marble.

There are similar attempts in the consultancy world. The jury is out on whether these halfway houses work, but they stand more chance than pure, brandless networks.

And outside of creative industries, the working pattern of most people is essentially unchanged. In the years since Big Bang, the finance market, both in the UK and globally, has been transformed, but the labour market has not. In 1987, three and half million people were self-employed; today, three and a half million people are self-employed.

And although IT has revolutionised capital markets, its potential to reconfigure the world of work remains almost entirely unrealised. The presumption that IT would turn us all into 'knowledge workers' was misplaced. As the economist Deborah Cameron points out, many of the jobs created as a result of computer technology are less knowledge-based than pre-industrial farming. Using the highly proscribed work carried out in call centres as an example, she argues in the journal New Formations that 'if we actually look at what is involved in many kinds of contemporary service jobs, we will soon have cause to ask whether the rhetorical upskilling of these jobs masks a real deskilling of the workers who do them'.

In strictly empirical terms, the network economy is as much a mirage as the new economy. But we should be careful not to throw away all the benefits of network thinking, of which the principal one is the ability to pass off agreeable social occasions as important business - especially over the recent festive season. But we all know, deep down, that the difference between networking and not working is just one vowel.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

When spying on your staff backfires

As Barclays' recently-scrapped tracking software shows, snooping on your colleagues is never a good idea....

A CEO’s guide to smart decision-making

You spend enough time doing it, but have you ever thought about how you do...

What Tinder can teach you about recruitment

How to make sure top talent swipes right on your business.

An Orwellian nightmare for mice: Pest control in the digital age

Case study: Rentokil’s smart mouse traps use real-time surveillance, transforming the company’s service offer.

Public failure can be the best thing that happens to you

But too often businesses stigmatise it.

Andrew Strauss: Leadership lessons from an international cricket captain

"It's more important to make the decision right than make the right decision."