Macrowikinomics

No. 1: Rebooting the World

…These industrial age institutions brought us mass production of goods, mass media like newspapers, radio, and television, mass education and learning for everyone, mass marketing and mass democracy and government in which elected officials produced and distributed laws and services. As a mode of production the industrial economy was infinitely superior to what came before it (the agrarian craft society), dramatically advancing wealth, prosperity, and the standard of living for many. But this was a centralized, one-way, one-size-fits-all mass model controlled by the powerful owners of production and society.

Now because of the new Web the old industrial models are all being turned on their heads. There is now a new engine of innovation and wealth creation and a powerful new force that radically drops collaboration costs and as such enables communities to collaborate on shared concerns, endeavors, and challenges. Greater openness in innovation and science, for example, is creating more economic opportunity for citizens and businesses that learn how to tap into global innovation webs.

In the fight against climate change, ordinary people are forging a mass movement to bring greater consumer awareness and a sense of community to making ordinary household and business decisions that can reduce our carbon footprints. In education, leading universities are breaking down their ivory towers and building a global network for higher learning—a rich tapestry of world-class educational resources that every aspiring student on the planet can use and return to throughout his or her lifetime. Innovators across the public sector are harnessing the Web to generate more productive and equitable services, bolster public trust and legitimacy, and unlock new possibilities to co-innovate solutions to local, national, and global challenges. Put it all together and it becomes increasingly clear that we can rethink and rebuild many industries and sectors of society on a profoundly new, open, networked model. Indeed, for the first time in history, people everywhere can participate fully in achieving this new future.

In our previous book, Wikinomics (Portfolio 2006), we called this new force "mass collaboration" and argued that it was reaching a tipping point where social networking was becoming a new mode of social production that would forever change the way products and services are designed, manufactured, and marketed on a global basis. But, in the four years since penning the idea, it's clear that wikinomics has gone beyond a business or a technology trend to become a more encompassing societal shift. It's a bit like going from micro- to macroeconomics. In which case, wikinomics, defined as the art and science of mass collaboration in business, becomes macrowikinomics:the application of wikinomics and its core principles to society and all of it institutions. Just as millions have contributed to Wikipedia—and thousands still make ongoing contributions to large-scale collaborations like Linux and the human genome project—there is now a historic opportunity to marshal human skill, ingenuity, and intelligence on a mass scale to reevaluate and reposition many of our institutions for the coming decades and for future generations. After all, the potential for new models of collaboration does not end with the production of software, media, entertainment, and culture. Why not open-source government, education, science, the production of energy, and even health care? As we will discover in later chapters, these are not idle fantasies, but real opportunities that the new world of macrowikinomics makes possible.

…Many of our institutions are stalled, lacking vitality, leadership, and dynamism. It's like every last ounce of oxygen has been squeezed out, leaving a mess of deflated expectations and chronically underutilized resources. This apparent paralysis, in turn, begs some pretty fundamental questions: if the knowledge, leadership, and capability required to solve the really tough problems can't be found in the corporate headquarters and national capitals around the globe, will it be found at all? And if so, where will the new insights and leadership come from? Indeed, if our problems are not solvable by fine-tuning existing institutions, what new models and structures should replace them? Are you, wearing your various hats as an employee, manager, learner, teacher, entrepreneur, voter, consumer, community member, or citizen of the world, prepared to take on a larger role in reinventing our beleaguered institutions? What must be done to reboot business and the world and how can you participate?

These are just some of the tough questions we tackle in this book…. As citizens, and as leaders within our organizations, we need to look beyond the borders of nations and think about society in broad, global terms. If our problems are global in scale, then we need to come together as global citizens to solve them. A system erected around the primacy of national and corporate self-interests just isn't going to cut it for this century.

The good news is that while many institutions are in various stages of decline, for each we can now see the clear contours of fresh thinking, new approaches, and rebirth. To be sure, collaborative innovation can have downsides—including tough adjustments for industries whose business models were based on scarcities that no longer exist.…

The growing prominence of collaborative endeavors also raises a number of tough questions about the roles and responsibilities of different actors in society. Can we really rely on the self-organized masses to deliver criticalvservices such as compiling life-and-death information in a crisis? What happens if the funding dries up or people lose interest and move on to something else? Who will take responsibility if something goes wrong, or claim success when things go right? And who's ultimately accountable when everyone is on everyone else's turf?

In the old paradigm, there were clear roles and responsibilities. In the new world of wikinomics, the lines between sectors and institutions are blurring. Nonprofits increasingly act like entrepreneurial start-ups. Businesses are taking on some of the functions of government. Governments are caught in a network of powers and counterinfluences of which they are just a part. And though most people recognize that problems get solved more quickly when governments, businesses, nonprofits, and citizens work together, there is still a dearth of understanding about how to make partnerships across sectors work at the pace of wikinomics. These are just some of the genuine concerns that we will return to throughout the book.

No. 2: Opening Up the Financial Services Industry

In short, it is time to shine the light on the opaque products and activities of the financial sector that have threatened the entire economy and the Web provides a platform to do this. A digital response involving collaboration on a mass scale may be the best way to properly evaluate and assess the value and risk of new financial instruments as they are produced. New models based on openness, transparency and participation are already changing many parts of the industry from venture capital to mutual funds and even lending, so why not to apply the same thinking to the obscure mathematical models that value the risk and expected returns of the most complex instruments: expose them to the scrutiny of the thousands of experts who have the knowledge to vet the underlying assumptions?

Arguably, this is the perfect time for fresh and even radical thinking. When it comes to evaluating risk, this interconnected digital crowd comprises people who are financially sophisticated and can provide the fresh and innovative insight that will clarify the questionable dealings in the financial services business. A more open and collaborative approach would restore trust in banks, kick start venture capital, unfreeze the paralysis of lending markets and lay a foundation for a financial service industry that continues to underpin the growth and prosperity of the world's economies…

Financial scandals are a predictable part of the Wall Street landscape. They're typically followed by waves of fury—and demands for reparations from the banks, new taxes, criminal prosecutions, and as with the current crisis, breakups of the big banks and even nationalization of the industry. Many pundits have said the cause of the financial collapse was that regulation did not keep pace with innovation in the industry itself.

… Rregulation is only part of the solution to ensure that the marketplace is fair and that deposits in banks are safe…But in today's global financial environment, the current patchwork of regulation is not enough. "We have a perfectly networked financial industry but a much less networked regulatory community," says Peter Gruetter, former secretary general at the Swiss Federal Department of Finance. "At this point collaboration among various regulators involves a lot of physical meetings. What we need is the use of better communication and networked technologies to help facilitate the collaboration process."

It is one thing to coordinate banking reforms internationally through policy networks and multilateral forums like the G20. But for starters, collaboration can be extended much further to include real-time collaboration among regulatory agencies around the world. This would include a robust information platform that would allow various regulators to pool their resources and better sense and respond to potential threats to the stability of the global financial system. Common standards, like XBRL, will go a long way in helping shape such a platform.

Beyond this, collaboration can bring deeper changes to the whole operating model of the financial services industry. Regulators, bankers and everyone could also get transformative help from the new kinds of innovations made possible by Wikinomics. Collaboration on the web combined with increased transparency would have the power to reshape the industry by engaging external experts and concerned citizens in monitoring the soundness of the system…

… It is time for bankers to ask themselves a question that most have never considered: "Why should the technology, data and risk assessment models that are used to value products today be kept proprietary?" Can investors and others ever again believe the stated profits or losses of any financial institution, its purported capital base and financial soundness, when these numbers are based on secret and opaque models that are derived from mathematics so complex that even the company's executive management does not understand them?

Going forward, the mathematics behind the value and risk calculations for new financial instruments should be open and vetted by a crowd of experts, applying the wisdom of many to the problem…Surely, you might say, outsiders are poorly positioned to look into complicated instruments like CDOs… But there are plenty of financially sophisticated people around the world who do not necessarily work on Wall Street or in The City but have the requisite skills. For starters the tens of thousands of analysts, traders and other financial services professionals who lost their jobs during the financial turmoil comprise a rich talent pool eager to get back in the game. Similarly, thousands of academics, doctoral students and industry experts who study the workings of the financial markets currently have no way to contribute directly to the system. The digital crowd can also offer significant help to regulators who make rules and enforce them. If the financial system becomes more transparent, this can turn into a powerful network that links the digital crowd, the regulators and the enforcers. Through these digital networks, they can pool intelligence in the same way the law enforcement and national security services do.

No. 3: A Decentralized, Mass Collaboration Model for Cars

Jay Rogers, a Marine veteran of the recent war in Iraq, is going back into battle. But this time…Rogers' target is closer to home: the sclerotic industrial age automotive bureaucracy that has uniformly disappointed consumers, employees and investors and is just barely clinging to life thanks to a multi-billion dollar taxpayer-funded bailout.

The way Rogers sees it, Detroit's inability to transform itself from a lumbering manufacturer of gas guzzlers into an innovative, world-beating producer of clean transportation solutions is one of the reasons why he and his fellow soldiers found themselves fighting to secure oil supplies in the Iraqi desert. So now he's set out to build a revolutionary car company called Local Motors with a mission to set things straight….

Revolutionizing the auto industry, thought Rogers, could reduce American dependence on foreign oil and bring jobs back to the country's decaying manufacturing base. So he asked his general for permission to apply to Harvard Business School, where he hoped to accumulate the contacts and the know-how required to execute a plan that he readily admits is ambitious and perhaps even a little naive. Two years later in 2007 Rogers graduated at the top of his class and subsequently wasted no time founding Local Motors, a radical new form of car company. Indeed, if you want a broad-brush idea of what Local Motors is all about, picture GM or Chrysler, and then imagine it's polar opposite.

Rogers doesn't employ a design team and he doesn't do any in-house R&D. Instead, he has an online community of almost 5,000 designers from 121 countries that participate in contests and collectively design next generation cars. The car parts? Rogers doesn't plan to make any of them himself, except for the state of the art composite frames. He sources everything else on the secondary market from Ford, BMW, Mercedes—whoever has the right piece at the right price. Unlike its larger rivals, Local Motors doesn't own massive 3 million square foot manufacturing facilities and it doesn't have a conventional supply chain. Instead, Rogers is building a network of thirty five micro-factories around the country, each one employing local people and producing cars designed for that particular geography.

Local Motors doesn't even have dealerships: they sell cars directly from the micro-factories where they are made. Since the pie isn't divided numerous times along the chain, Local Motors can retain more of the sticker price. According to Rogers, that extra margin more than makes up for its comparatively higher productions costs. And, while Detroit's incumbents have carved out only the most circumscribed roles for car buyers, Local Motor's customers…help design, buy, service, and recycle their vehicle at a local micro-factory in their area. True enthusiasts can even elect to spend a couple of weekends helping to put it together!

Using this decentralized mass collaboration model, Rogers was able to design his first car in less than three months rather than the two years it would have taken Detroit. And rather than the typical six-year production cycle, it took just another 14 months and about $2 million to transform a sketch—chosen from tens of thousands submitted to his website from across the world—into the Rally Fighter, an extreme off-roader built for high-speed dirt racing.

Who would buy such a thing? Rogers is targeting race teams that compete in endurance competitions like the Baja 1000 in Mexico, and other lunatics in the western states with $50,000 to spend on a lightweight, street-legal racecar. Local Motors is confident it can sell the 250 Rally Fighters needed to break even, and will produce as many as 2,000 in total. Subsequent models developed by community members include the Boston Bullet, a car designed for a smooth ride in the city's narrow streets, and the slick Miami Roadster for urban racing enthusiasts. Some of these models will include engines that run on electric batteries and alternative fuel sources.

Of course with its current focus on niche markets, Local Motors will not revolutionize the auto industry singlehandedly. But then Rogers is not the only fresh-thinking entrepreneur trying to capitalize on Detroit's weaknesses. Unburdened by the legacies that encumber incumbent manufacturers like GM, American startups like Tesla Motors, Fisker Automotive, V-Vehicle and Coda Automotive are rolling out electric, hybrid and other innovative vehicles….

Together these companies are filling the void left behind by industrial age mammoths such as GM and Chrysler while creating new business models by involving their customers, creating genuine partnerships with suppliers and injecting much needed innovation into the whole process.… "The whole manufacturer-centric paradigm hasn't changed since the model T," says Rogers. And that inertia is at the heart of the industry's problems.

So what's the new model? Rogers sums it up. "It's about designing cars on the Web and building them out of advanced materials in factories of the future. There is a better, cooler American auto industry just ahead but it requires a complete paradigm shift. We don't need better record stores; we need to start designing iPods."

No. 4: How About an Open Energy Grid?

...What if there was a way to integrate new sources of renewable power, including the power the homeowners, businesses and buildings generate themselves? What if you could also provide better tools and better information to allow consumers to manage their energy usage and even pump energy they generate back into the grid? This same system would allow utilities to monitor and control their networks more effectively and make new business models and dynamic pricing schedules possible for the first time. And, on top of all that, you could also sharply reduce greenhouse-gas emissions and help save the planet.

A mere fantasy? It's not as farfetched as it sounds. We just need an energy grid that is intelligent, decentralized and transparent, and where people and devices everywhere create capability and value. It's a grid for the age of networked intelligence. Call it the open source grid. After all, there is already increasingly broad agreement that our electrical systems should do more than carry electricity. They should carry information. And once the grid carries information, there are few reasons, if any, why it shouldn't benefit from all of the rich possibilities for innovation, collaboration and wealth creation that the Internet has fostered in other sectors of the economy.

In many ways, the argument for a smart grid based on open standards parallels the argument for an open Internet. The old power grid is analogous to broadcast media with its bias towards centralised, one-way, one-to-many, one-size-fits-all communication. A smart grid, if it could be built, would leverage the Internet's connective tissue to weave millions, and eventually billions, of household appliances, substations and power generators around the planet into an intelligent and programmable network. And, just as open standards and "edge intelligence" helped unleash unparalleled creativity on the Internet, a similar ethos of openness will ensure the new energy grid becomes a platform for a vast array of new energy services, not just a computerised pipeline for delivering cleaner electricity.

Treating the grid like an open platform would, for example, allow software developers to build applications to help you conserve energy the same way developers build apps for the iPhone. A straightforward application could include a service that analyses a household's electricity usage data, identifies inefficient appliances or practices in the home, and offers tips on how to reduce energy or provides special discounts on efficient appliances or electronic equipment. So you need no longer worry if your son or daughter forgets to turn the lights out when they go to bed, no matter how many times you remind them. A smart grid equipped with sensors in your home will follow your instructions to turn the lights off automatically when it's 2am and no one has moved in the house for the last hour!

An intelligent grid can also change consumer behavior with smart appliances that would save money automatically. Armed with more information about tariffs, for example, the dishwasher would wait for the price to fall below a certain level before switching on or the air-conditioner would turn itself down when the price goes up....

To date, 8.3 million homes in America have been equipped with smart meters covering 6% of the population. The number is set to grow to 33 million by 2011, while the worldwide total will reach about 155m. Cisco Systems estimates that by the time it all gets built out, the energy grid will be 1,000 times larger than today's Internet. Meanwhile, a vast and growing number of companies are already lining up to offer consumers tools to help them make sense of the smart meter data.

Typically leadership does not come from the companies that dominated the old industrial era of energy, but from a new generation of companies that understands the age of networked intelligence. Predictably Google is in the vanguard. Google's PowerMeter is one of these much anticipated tools. ...Users will be able to compare their usage by neighborhood, zip code or even with friends on Facebook. Like other tech players in the emerging energy economy, Google is actively lobbying for open standards so that consumers are able to buy smart appliances, thermostats, or energy monitors from different companies and have them talk to each other.

Pilots underway in Europe show how far the open source grid concept could go. Homes across Europe, including Manchester, Birmingham, Bristol, Rousse, and Cluj, have been equipped with advanced smart meters and sensor networks that tracks energy usage, efficiency and overall household emissions to generate a real time carbon footprint. Users pull up a web-based interface to analyze the sources of their emissions, compare their home with the neighborhood, forecast household savings, or control their energy use remotely from a PC or a mobile phone. Like Google's PowerMeter, the system developed by Manchester City Council and its partners is an open platform, which means it can be seamlessly integrated with other applications for mobiles, TV, and social networks.

No. 5: The Case for Collaborative Health Care

In 1997, Stephen Heywood, a twenty-eight-year-old custom home builder from Palo Alto, California, noticed that he couldn't turn a key with his right hand. A year later, he was diagnosed with Lou Gehrig's disease (also called amyotrophic lateral sclerosis, or ALS). It's a neurodegenerative disease that paralyzes and eventually kills its victim. As soon as the diagnosis was made, Stephen's brothers, James and Ben, both MIT engineers, struggled to learn as much as they could about the disease. But they were stunned by the paucity of information available to them, even as members of the academic community with broad access to information resources. With thirty thousand cases in the United States, ALS is not as common as the better-known multiple sclerosis, but it's just as debilitating. Yet ALS patients had no efficient way to share information about their disease with one another, or with their doctors, so both diagnosis and treatment were delayed. What's more, it was extraordinarily hard to find patients just like Stephen, who by his thirty-fifth birthday was breathing on a ventilator and confined to a wheelchair.

What these patients needed, the Heywood brothers thought, was good data on their condition and treatment options. In particular, they needed answers to two questions: Given my status, what's the best outcome I could hope for? And how do I achieve it? Doctors couldn't help, because they saw so few patients with these afflictions. Yet if they could gather people with rare conditions together, they'd form a community, and if they aggregated information from that community, they could provide meaningful clinical data to patients and their doctors. This would help both doctors and patients make more informed treatment decisions.

Stephen died in 2006 when his ventilator disconnected in the middle of the night. Yet the Heywood brothers were determined to improve the lives of thousands of people with ALS—by forming a new online community. Two years before Stephen's death, in 2004, with the help of longtime friend Jeff Cole they launched PatientsLikeMe, a Web-based community of patients with rare or life-altering disease states such as ALS, progressive supra-nuclear palsy, and corticobasal degeneration.

PatientsLikeMe took off and has become one of the Web's most vibrant health care communities. Its members—sixty thousand and growing—share personal details of their medical history with fellow members. The data they contribute is aggregated to track patterns and responses to various reported treatments. "People think we are a social networking site," says cofounder Ben Heywood. "But we're an open medical framework. This is a large-scale research project."

Whereas most health care sites fervently guard their patients' data, the Heywoods believe sharing health care experiences and outcomes is good, and perhaps even integral, to speeding up the pace of research and fixing a broken health care system. Why? Because when patients share real-world data, collaboration on a global scale becomes possible. The health care system becomes more open and this in turn improves outcomes for patients, doctors, and drug makers. New treatments can be evaluated and brought to market more quickly. Patients can learn about what's working for other patients like them and, in consultation with their doctors, make adjustments to their own treatment plans.

An example of this is David Knowles, a fifty-nine-year-old property manager who lives in the U.S. Virgin Islands, who has struggled with multiple sclerosis (MS) for ten years. Knowles was searching online for information about a new treatment for MS when he came across Patients-LikeMe. …Knowles wanted to know more about a drug called Tysabri. …One of his doctors was suggesting the drug, and PatientsLikeMe offered data from hundreds of patients taking Tysabri. After reviewing their results, Knowles decided that in his case the risks outweighed the rewards, and he went to his doctor with a list of other treatments he wanted to explore instead. "I feel like I'm in charge of my medical care now," he says. "Of course, I still listen to my neurologists, but now it's more of a team approach."

Knowles represents the future of medicine, with engaged patients becoming prosumers of wellness rather than passive consumers. This is a dramatic change from current practice. For centuries the medical industry operated under the following proposition: doctors are smart because they have education and hands-on experience, and patients are medically dumb because they have no relevant knowledge.

No. 6: The Music Industry's Deaf Ear to Digital

…Just about everywhere, the Web and the principles of wikinomics are changing the way music is produced and disseminated, deepening the bond between performers and music lovers. In this chapter we document: a radical new idea for a streaming music service that would give listeners access to all recorded music on any combination of devices they like; a new online community where music fans take over the A&R function of major labels; emerging creative platforms where amateur community members remix one another's artistic works into powerful new combinations; and a rising indie label called Nettwerk that is finding clever new ways to monetize the emotional connection fans make with the music its artists produce.

All of this and much more would be possible on a larger scale today except the foundation of the contemporary music industry, the major record labels, is standing in the way. Instead of seeing the Web as an opportunity, the record companies cling belligerently to their old analog business model, and the industry has become the poster child of failed digital opportunities.

The percentage of Americans labeled "active music buyers" (those who purchase more than four CDs per year) has plummeted to just under 20 percent a year for the past three years. Despite the efforts of Apple and Steve Jobs, online music sales, initially opposed by the record labels, make up a tiny portion of the lost revenue. Only a fraction of the billions of songs downloaded in the United States every year are paid for. The International Federation of the Phonographic Industry, a trade body, estimates that 95 percent of music downloads worldwide are illegal. And industry insiders tell us that after sales of CDs and online songs, lawsuits against customers are the third largest source of revenue. The labels' attitude toward digital disruption causes them to engage in one irrational behavior after another….

The labels' problems predated the Internet. Recorded music is a bloated industry with huge costs from its physical distribution model. It also has many intermediaries, such as distributors and promoters, looking for a cut of the action. To take a band from obscurity to popularity is hugely expensive, but that's what companies have had to do to be given coveted shelf space at the record store. The upshot is that the record companies have been in constant quest of superstars, since less than 10 percent of CDs released actually make a profit. Revenues generated by the best sellers cover the losses incurred by their poorer-selling cousins.

It's as if the game of baseball only counted home runs. Anything less is considered a strikeout, so if you don't look like a home run hitter, you don't get to play. In this context, the Internet should have been a godsend, allowing labels to distribute a digital copy of a song to hundreds of millions of listeners at virtually no cost. By sidestepping the industrial age infrastructure, many more musicians can be profitable. Continuing the baseball analogy, suddenly players capable of hitting only singles or doubles are moneymakers.

Even a musician who only bunts could make a living. Record companies, reinvented as digital networks of artists, fans, and entrepreneurs, could nurture many small artists, rather than focusing all their energies on potential superstars. As a society and culture, we would be much better served by such an approach.

The solution to restoring the music industry to economic health is not to sell songs at a dollar a pop. Instead of clinging to late-twentieth-century distribution technologies, like the digital disk and the downloaded file, the music business should move into the twenty-first century with a revamped business model using innovative technology. The industry needs to think wikinomics. As we've advocated for many years, there is one obvious solution: music should stop being a product that you buy and instead be a service that you subscribe to. Instead of purchasing tunes, listeners would pay a small fee—say $4 per month—for access to all the songs in the world. Recordings would be streamed to them via the Internet to any appliance of their choosing—such as their laptop, mobile device, car, or home stereo. …

Musicians, songwriters, and even their labels would be compensated through systems that track their popularity. But this would require collaboration and even sharing. All the music would be pooled, and using actuarial economics, the total pie would be divided up according to the number of times the songs of a given artist were streamed. Technologies and companies already exist that can do this.

No. 7: The Rise of The Citizen Regulator

…Some of the issues that challenge today's regulators include the sclerotic pace of rule making, growing economic complexity, increasing international interdependency, the corrosive influence of "junk science" and industry lobbying, and a broadly insufficient capacity for effective oversight.

Arguably some of today's troubles are self-inflicted. After dismantling or circumscribing centralized regulatory agencies in the 1980s and 1990s, many governments handed industry the power to police itself in areas ranging from toxic emissions to financial services. The thinking was that government regulation was too burdensome and costly, and the mechanics of updating it were clunky. Delegating rule making to industry bodies would make regulation more responsive to the needs of industries that were evolving quickly and becoming increasingly global in scope. Governments were to be the "regulators of last resort"—stepping in only after self-regulation was deemed to have failed.

The problem, in practice, is that most instances of industry self-regulation have deficiencies (like lax rules or inadequate enforcement) and governments (for the most part) have proven unable or unwilling to take swift action when market failures become evident. Indeed, after years of chronic underfunding, it should be no surprise that many regulatory agencies are ill equipped to pick up the slack, let alone confront novel challenges for which they have neither the resources nor the expertise….

So if the old model of command-and-control regulation is broken, what could replace it and how would it work? We believe effective regulation is more likely to stem from efforts that increase transparency and public participation in a broad swath of areas that affect the health of our children, families, and communities. This isn't the same as allowing a small group of powerful companies to police their own activities. Our proposal is the reverse. We say open up the regulatory process: make everything transparent on the Web and let citizens and other parties contribute their own data and observations. Where possible, let citizens help enforce regulations too, perhaps by changing their buying behavior or by organizing public campaigns that name and shame offenders. …

There is some precedent for this idea. For several decades, transparency has been used to spur behavior change in areas ranging from corporate accounting to nuclear disarmament. In her edited volume The Right to Know, for example, Brookings Institution scholar Ann Florini argues that citizens in all parts of the world have shown themselves to be unwilling to tolerate secretive decision making. "As a result," she says, "India, South Africa, the UK, Japan, Mexico and a host of other countries have all adopted major freedom of information laws; intergovernmental organizations such as the World Bank and the IMF have adopted sweeping new disclosure policies; and hundreds of major multinational corporations have adopted voluntary codes that require them to disclose a wide range of information about their environmental, labor, and other practices." Even NGOs and charities are routinely providing more information about their policies and activities to members and stakeholders.

The idea behind this transparency trend is fairly simple: revealing information about the activities of powerful institutions is a potent deterrent to misbehavior. The more people can find out, inform others, and organize, the less politicians and corporate leaders can pursue self-serving behavior or act against the public interest. As a tool of regulation, transparency helps provide reassurance that others are doing what they are supposed to. Investors can be reassured of the quality of their investments, the international community can be certain that no individual nation is polluting beyond its CO2 emission quotas under Kyoto, while NGOs can be satisfied that the companies they scrutinize are meeting their commitments to ethical conduct.

More rigorous and accessible financial disclosure will also allow society to assert some control over a global financial system that has become so large, complex, and opaque that it remains beyond the capacity of even the largest actor in the markets to understand. Even George Soros, the legendary master investor, is said to have been wary of derivatives because he didn't "really understand how they work." If enough individual and institutional investors followed the Soros rule, it would have quickly disciplined the markets. In other words, offer more transparency or you don't get my money.

Skeptics may doubt the capacity of citizens and advocacy groups to help regulatory bodies develop more effective systems of monitoring and enforcement.

But a growing number of regulatory agencies are already convinced, as evidenced by the U.S. Environmental Protection Agency's efforts to open up its rule-making processes and the SEC's recent announcement that it is developing new systems for collecting anonymous tips in the investment community. Even when inertia prevails in government, other organizations are taking the lead. The FDA may not require manufacturers of processed foods to label where a product came from, whether it contains genetically modified organisms, or was produced using synthetic hormones, antibiotics, and pesticides. But retailers like Tesco and a legion of online product guides are making this information available anyway. Why? Because customers are demanding transparency! …

…We're not saying transparency is a substitute for better regulation by national governments and international institutions, but we are convinced that more disclosure and increased civic participation in regulatory systems could be a formidable complement to traditional command-and-control systems. …

- Excerpted from Macrowikinomics: Rebooting Business and the World by Don Tapscott and Anthony D. Williams by arrangement with Portfolio, a member of Penguin Group (USA), Inc., Copyright © Don Tapscott and Anthony D. Williams, 2010.