Ecology of Information Exchanges

René Passet, Professeur Emérite d'Economie, Université Paris-I Sorbonne

This abstract is a direct reaction to the Questions and background from July 22nd, 1998.

I- Information :

- The concept of information calls for further precision

Thinking about information exchanges centres on meaningful information, which is only a particular aspect of a more general concept of information, whose emergence characterizes contemporary societies.

Information, such as defined by Claude Shannon, that we could call circulating information, or message information, is not necessarily meaningful. It indicates only to the possible cancellation of the uncertainty linked to an event associated with some degree of probability. Taken with this meaning, it thus has a much more general scope.

Information gives structure (in its etymological sense: in-formare : to give form), measures the degree of complexity of an object or an organization.

All these meanings [of circulating information] are closely associated. They all refer to cancellation of uncertainty; but the last ones are related to entropy (since, for one thing, entropy is the "degree zero" of structure; and for another, Shannon's formula is identical to Boltzmann formula, apart from a constant multiplier).

It is with this more general meaning that I will discuss the phenomenon, because it is only when considered under this dimension that it characterizes the economical and social mutation of contemporary society.

- From this view point information is not a new phenomenon:

Objects that we call material, or tangible, include in reality the 3 dimensions: Energy itself, though it is not a material substance, can produce useful work (through transformation of potential energy to kinetic energy) only if it is associated with the minimal information structure lying in a difference of potential).

Along evolution, as observation instruments were perfected, humans have discovered the 3 dimensions described above: first matter directly perceptible through senses, then energy hidden in the walls of steam engine, then today's information.

Thus, we are not faced with a new object, but with the revelation of a dimension of nature, which is in itself very important.

With this view, information is not a separated object, but an ubiquitous phenomenon in nature, economy and society. It is at that level that its consequences can be evaluated in the economical field.

II The emergence of information is associated with a mutation of economy at large

By definition, it is a relation, it relates, it induces "networked" organization types, with companies as between them and their various social or natural environments. By its performance, it compresses (not to say "suppresses") time and space: each point of the world it linked, almost real-time to all others. We are no longer in a world with some interdependence, but in a world of interdependence. The economic consequences are of extreme importance. .

- Production becomes more and more a collective phenomenon

It is today impossible to evaluate the performance of a production unit independently of its network of interdependency. In just-in-time production, for instance,  the company performance depends on the performance of all its suppliers, of the transport networks, and through that on the administrative structures whose efficiency condition this performance.

Intellectual investment, which becomes primordial, rests on knowledge, this common patrimony of mankind.

Exchange of meaningful information is representative in this matter: an information good takes part in multiple exchanges (the supplier goes on possessing it after supplying it), in which there exists no competition  to lead the consumer to reveal his/her preferences, and it has no marginal cost (see below). This good does not meet the condition for formation of a true market price. Something else must be found.

- Allocation dissociates itself from the - now meaningless - productivity of factors

The finding in the background document that for many information goods such as software, only the first unit has a real production cost, and duplication is done for an almost null production cost, means that marginal cost and marginal productivity are no longer workable concepts. This finding can be generalized. In modern companies, 80 to 90% of costs are determined upstream of the production process (research, training, market studies, heavy investment, organization). Production is the result of ensembles integrating all factors, without it being possible to identify which part belongs to each of them.

The remuneration of each production factor can no longer be seen as the counterpart of its specific productivity. Thus allocation can no longer be discussed in terms of commutative justice but now in terms of distributive justice. For this, criteria are needed that cannot be exclusively economic.

- Under these conditions, the market acts no longer as a balancing control mechanism but amplifies disequilibrium

Constant global cost means decreasing unit cost. It is by raising production that production costs are lowered and competitiveness attained. In case of overproduction, each reacting in a similar manner, the market, contrarily to dogma, does not induces resorption of supply surpluses but amplifies them. This explains the endemic character of overproduction in several markets (car industry, agro-food industry, air transport, etc.) and the crucial phenomenon of struggle for the the defence or conquest of market shares. The economic language - reflecting a new reality - becomes military.

International exchanges are no longer trade between nations, but for the two thirds exchanges either within multinational firms or between a multinational firm and one of its subsidiaries. Traditional notions such as national supply in factors, or optimal resource allocation between nationas, at world wide scale, or automatic balancing of national imports and exports, lose much of their meaning.

There also a new logic is in place.

III. Finally, a new logic favouring the power of the financial sphere on the real economy accompanies the emergence of immaterial exchanges

What is circulating in world at light speed is not material currency (notes or metal) but money orders, immaterial information, 24 hours a day between the world financial markets. Computers, together with deregulation have favoured the automatisation, the hypertrophy, and the power of the financial sphere on the real economy. Consequences are enormous. One can only point to them, unless taking the risk of being seen as moving away from the core subject of information exchanges. But this the core of it.

One can nonetheless point to the dimension of the problem. Underlying all the detailed questions in the background document, is the question of the world's economy organization system.

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