Chiang Mai, Thailand – The competitive dynamics of industrial capitalism are well-known, and they are all about scale.

Producing more of a unit enables companies to drive the unit price down and thus outcompete the competition. Multinational corporations and global brands now have very complex value chains, in which various parts of a product are mass-produced in different parts of the world.

Nevertheless, the system has obvious weaknesses. One weakness is that it tends towards monocultures, both agricultural and industrial. One example is the dependence of the Chinese coastal economy on exports.

Because competition drives prices down, the dominant western players changed their strategy in the 1980s. They abandoned costly western workers, moved low-profit industrial production to low-wage countries, and expanded the intellectual property (IP) regime using patents, copyrights and trademarks. As Thijs Markus has written, if you want to sell $5 shoes for $150 in the West, you’d better have one heck of a repressive IP regime in place. Hence the need for SOPA, PIPA, ACTA and other attempts to criminalise the right to share.

ACTA, the new SOPA?

But there is, of course, a more fundamental problem: the whole system of globalising the advantages of scale fundamentally rests on cheap global transportation and, thus, the continuous availability of fossil fuels. Once the era of cheap oil ends, it is more than likely that the whole regime will come tumbling down. Competing on the basis of scale, even if it is still effective today, ultimately can only be played by those who do not care about the destruction of our planet. What game can the others play? Rising fossil fuel prices mean that innovation and competition have to find another outlet. Actually, it’s about inventing another game altogether.

This type of economic transition has played out before.

The fall of Rome

In the late fifth century, as the Roman Empire was coming to an end, Christian communities prefigured the values of a coming era of relocalisation based not on an economy of scale, but on an economy of scope – in which the cost of production becomes lower through shared infrastructure costs.

As the Roman Empire decayed and supplies of gold and slaves became gradually more problematic, the smarter landowners started to free their slaves, but bound them contractually to the land as “coloni”, or serfs. Meanwhile, the increasingly taxed and bankrupted freeholders sought protection from the very same landowners. Thus, one side of the equation was localisation, since the system could no longer bear the global scale of the empire. But the new post-Roman system also invented a new system of innovation, based on the advantages of scope, not scale.

Indeed, as the cities were emptying out, the Christians invented monasteries as a new type of agrarian knowledge centre. The Christian Church actually functioned as a global open design community. Monks and manuscripts travelled, and with it the many innovations of the worker-monks. While Europe initially decayed as the remnants of the Roman empire crumbled, eventually, after the first European social revolution in the 10th century, this new system created the seeds for the first medieval industrial revolution.

Between the 10th and 13th centuries, Europe started blossoming once again, based on a unified culture of knowledge. Its population doubled and its beautiful cities, many of which were run democratically by the guild councils, grew again. Peer-to-peer universities were founded in Bologna in the 11th century. This first renaissance was based on economies of scope, a unified body of knowledge that European intellectuals and artisans could build on. The guilds may have had their secrets, but they took them with them wherever cathedrals were built.

Cuban innovations

The same experience happened in 1989, when isolated Cuba was no longer able to rely on the Soviet system’s advantages of scale. The Cuban crisis of 1989 prefigured the current world situation: the country experienced its very own peak oil situation when the Soviets abruptly stopped delivering oil at below world market prices.

While the Cubans initially went back to using donkeys, its government launched several interesting initiatives. It allowed some entrepreneurship by granting more autonomy to local agricultural co-operatives, and mobilised the population’s grassroots knowledge. But perhaps most importantly, Cuba created several agricultural institutes with the goal of spreading local innovations. Whatever the other faults of the country’s totalitarian system, this open design experiment succeeded beyond all expectations. As documented by Bill McKibben and a number of documentaries, Cuba now produces more nutritious and organic food, using less fossil fuel – because sharing knowledge created economies of scope. Agricultural innovations could spread quickly across the country and be adopted by everyone.

Indeed, economies of scale work well in periods of energy “ascent”, when the supply of energy increases, but work less well in periods of energy “descent”. In these circumstances, economies of scope are needed. These types of economies are exactly what peer production (which encompasses open knowledge, free culture, free software, open and shared designs, open hardware and distributed manufacturing) is all about.

Our current system is based on the belief of infinite growth and the endless availability of resources, despite the fact that we live on a finite planet. Let’s call this “pseudo-abundance”. The system also holds that innovations should be privatised and only available by permission or for a hefty price, making sharing of knowledge and culture a crime, Let’s call this “enforced artificial scarcity”.

Peer production methodologies are based on the exact opposite tenets. Peer production communities believe that knowledge is a commons, for all to share. Therefore, no innovation can be withheld from the human population as a whole. In fact, withholding a life-saving or world-saving innovation is seen as distinctly unethical. Peer production designs for distribution, inclusion and small-scale fabrication. Planned obsolescence – which is a feature and not a bug, of the current system – is totally alien to peer production logics. In other words, sustainability is a feature of open design communities, not a bug.

So what are the economies of scope of this new age? They come in two flavours: the mutualising of knowledge and the mutualising of tangible resources.

The first principle is easy to understand. When an individual doesn’t know something, it’s more likely that a community – whether local or virtual – does know. Hence, the mutualising of knowledge and “crowd-accelerated innovation” is now a well-known feature of the collaborative economy. But the advantage of scope is created when that knowledge is shared, and can be used by others. With this social innovation, the cost of production that depends on knowledge can be dramatically reduced.

Take the example of the Nutrient Dense Project. This global community of agrarian workers and citizen scientists experiments with better nutrients to obtain better quality food. They carry out joint research on nutrients in various soils and climate zones, which can benefit not just the participating community, but, potentially, the whole of humankind. Strategies based on privatising intellectual property cannot obtain such advantages of scope – at least, not at that level. Or take the example of the urban homestead of the Dervaes family in Los Angeles, who managed to produce 6,000 pounds of food annually on a tiny city plot. Because they share their productivity innovations, many other people have learned how to improve their own lots.

“What will the new system look like if economies of scope become the norm, replacing economies of scale as the primary driver of the economy and social system?”

The second principle, of sharing physical resources, is exemplified by the trend towards collaborative consumption. The general idea is the same. I may lack a certain tool, skill or service, but it is likely that someone else in a community has it, and that other person could share, rent or barter it. There’s no need to all possess the same tool if we can access it when we need it. Hence the proliferation of “peer-to-peer marketplaces”.

Let’s take an illustrative example: car-sharing. Car-sharing projects can be mutualised through the intermediary of a private company which owns the cars (like ZipCar), through peer-to-peer marketplaces that link car users to one another (like RelayRides), or through public entities (like Autolib, in Paris). But they all achieve economies of scope. According to a study cited by ZipCar, for every rented car, there are 15 fewer owned cars on the road. Furthermore, car-sharing members change drove 31 per cent less than when they owned a vehicle. So, in 2009 alone, car-sharing diminished global carbon dioxide emissions by nearly half a million tonnes.

What will the new system look like if economies of scope become the norm, replacing economies of scale as the primary driver of the economy?

Global open design communities could be accompanied by a global network of micro-factories producing locally, such as the ones that open-source car companies like Local Motors and Wikispeed are proposing.

This would require organisations to organise our material activities in order to minimise the “common costs” of the various networks and not just in terms of sharing knowledge. In other words, who will play the role that the Catholic Church and its roaming monks played in the Middle Ages? This was not just an open design community, but an effective material organisation giving leadership to a whole continent-wide cultural sphere. Do we have a potential peer-to-peer version of this that can operate globally? The answer will be for a future contribution.

Michel Bauwens is a theorist, writer and a founder of the P2P (Peer-to-Peer) Foundation.

Follow him on Twitter: @MBauwens