Clay Shirky posted a much-discussed article on the inability of complex business models to adapt in the face of shifts in the economic or cultural climate, which goes directly to one of the points I made in Young World Rising about the hidden costs of legacy infrastructure.

Shirky, in analyzing Joseph Tainter's 1988 book The Collapse of Complex Societies, noted that complex societies "hadn't collapsed despite their cultural sophistication, they'd collapsed because of it."

This is an important observation because it is counterintuitive. Complex organizations are supposed to derive an advantage from their complexity, or at least from their size. That's the whole idea behind economies of scale, where large organizations benefit from the ability to amortize high up-front development costs with highly-efficient manufacturing and distribution. This is a concept we tend to associate with industrial mass production, but this advantage should be magnified in an information economy. The production of new information is a complex and sophisticated process. A giant broadcast network like NBC already has a critical mass of creative resources to produce new content, and should be better positioned to distribute it using new, less costly channels. They should be better at it than some random guys in their garage producing a webcast. And they are, at scale. So why are they having such a hard time?

Shirky talks about the problems that complex organizations have in changing their orientation toward changing tastes and market requirements. Cultural inertia has built up around certain processes and values within the organization, creating a kind of institutional osteoporosis that renders the business brittle in the face of changing conditions.

That's certainly true, but I think the bigger issue is the declining advantages of scale due to networks. Shirky touches on this, summing up Trainer's position: "Early on, the marginal value of complexity is positive-each additional bit of complexity more than pays for itself in improved output-but over time, the law of diminishing returns reduces the marginal value, until it disappears completely. At this point, any additional complexity is pure cost."

I made a similar point in the introduction of Young World Rising, in discussing why new knowledge-based businesses arising at the frontiers of the global economy find themselves in a better competitive position today, despite the persistence of the old limitations of poor governance, poverty and underdeveloped infrastructure:

In the past, the well-developed infrastructures of the Old World centers of production provided a consistent advantage in scale, knowledge and innovation. Today, the benefits of scale are mitigated by the power of networks to rapidly mobilize communities that don't require the overhead of organized management. The advantages of established infrastructure are diminished by the need to constantly overhaul aging capital and modernize outdated practices in work and government that have developed significant constituencies over the years. Innovation used to rely on proximity to the centers of knowledge and production, but now technology makes time and distance irrelevant.

In other words, the economics haven't changed: the idea of scale has. In the past, organizations had to aggregate all their resources within an institutional framework. They had to lock up their talent and impose a whole superstructure of management, reporting, distribution of authority, and hierarchy, which added enormous amounts of complexity and drained away enormous sums of money and manpower. If you wanted to be big and well-coordinated, you needed these kinds of systems, and you needed to build them yourself for your exclusive use. This was the cost of scale, but it was also handy as a barrier to entry for new competitors.

Now those costs have nearly vanished - and with them, the barriers to entry that kept insurgents at bay.

Whereas in the past, large organizations had to provide social capital and communication/collaboration infrastructure at their own expense (and were the only ones who could afford to do so), those resources now reside in the network platform, which is already built and common to all. Previous examples of organizations and societies that failed due to their complexity did not have to deal with this dynamic - at least not in the sense that it exists today with the rapid spread of ubiquitous, high-quality access to the Internet around the globe.

Startup organizations can use networks to "borrow" the scale they need when they need it, by assembling ad hoc teams and communities around specific projects, then take advantage of the same low-cost distribution networks as their larger competitors. Because the costs are so much lower, new organizations can survive at much lower levels of income, and devote proportionately more of their revenue to the creation of new content and new innovation, rather than the upkeep of outdated infrastructure.

The only remaining constraint facing organizations operating according to this model is that the practices for managing a networked, distributed organization are not well-established and many of the most senior, knowledgeable individuals are not familiar with, or comfortable in, that kind of environment. They will make a lot of mistakes, but they will make them fast and get better. And then, watch out.

As this happens, large-scale organizations will fall back on the only recourse available to them: naked power - the ability to influence governments and markets. Typically, the larger systemic collapse of complex societies result from the power struggle between incumbents desperate to protect their privileges and nimble upstarts pressing their claims for a higher share of resources. That appears to be the situation we are headed towards, and its outcome is by no means certain.