foggs

What has value in the digital and network economy? 

From scarcity to short-lived innovation and to the lack of safe assets 

 

10 January 2014 | by Pyrros Papadimitriou 
 

The concept of economic value has a long history in economic and philosophical thought and has puzzled economists since the beginning of the discipline. In recent years, however, the ability to determine the real value of assets has become even more difficult. The bubble in asset prices in the pre-2008 period and the collapse thereafter, the large volatility and nervousness in the markets, the fact that most indices of stocks, commodities and other assets are correlated, the large swings in the price of gold, dollar and real estate in the last thirty five years, are examples of an inability of the markets to valuate properly. Moreover for an increasing number of assets the values are maintained for a short period of time and decrease rapidly afterwards.

Although one could give a series of reasonable explanations for each of the above mentioned cases, the fact that they coincide, indicates that something bigger is at work, something probably related to the dynamics of value formation. People and markets in the 21st century seem to have changed drastically the way of how and why they value things. Nowadays there is lack of safe assets to an extent that has never been the case in the past. The purpose of this paper is to show that a large part of the changes in value formation can be attributed to the digital and network economy (DNE for short). In this new economy the relative importance of innovation in the creation of value has increased drastically at the expense of scarcity and labour. However, the value that can be acquired through innovation lasts only for a limited period of time.

Economy

 

The intellectual constructs and economic paradigms of the present seem unable to reflect current realities and to provide direction for the future, attached as they are to ideologies of the past. In the digital economy the “invisible” hand model seems increasingly detached from the real economy, trying to navigate without vision and theory. An increasing number of sectors exhibit natural monopoly characteristics. Over-indebtedness and decreasing competitiveness of the western economies is leading to a gradual fall in their relative power. The share of middle class in the total population of these countries is inevitably declining, thus creating new tensions in the system. The lack of safe assets in recent years is the outcome of the structural changes that are taking place and the fact in the new world the notion of value has changed substantially. A new model will emerge sooner or later, although its characteristics are still unknown. Hopefully, large-scale war, which was a way of solving similar economic problems in the past, is out of the question today. But the major challenge remains of modifying the system, in motion, without losing the many gains of globalization, but mitigating its negative consequences.

This strand of activity of FOGGS will focus on the merits and shortcoming of the prevailing economic model, with proposals for additional or alternative models of organizing today’s globalized economy.