Hotdogs and Buns

It’s been a while since I’ve added another entry to my enumeration of cartoons models of open source.  I love it when I get another one.

I recently read one of Paul Krugman’s old essays from back when he was writing for Slate.  The essay is a three corner shot.  He presents a little cartoon model, advocates for for humor in science, and closes with is a bit of snarky attack on a book writing journo/pundit who’s fixated on a single model, a model Paul dislikes.  In the days since I read this I have been chewing on the example model.

Here is Paul’s amusing cartoon model:

Imagine an economy that produces only two things: hot dogs and buns. Consumers in this economy insist that every hot dog come with a bun, and vice versa. And labor is the only input to production.

… Suppose that our economy initially employs 120 million workers, which corresponds more or less to full employment. It takes two person-days to produce either a hot dog or a bun. (Hey, realism is not the point here.) Assuming that the economy produces what consumers want, it must be producing 30 million hot dogs and 30 million buns each day; 60 million workers will be employed in each sector.

Now, suppose that improved technology allows a worker to produce a hot dog in one day rather than two. And suppose that the economy makes use of this increased productivity to increase consumption to 40 million hot dogs with buns a day. This requires some reallocation of labor, with only 40 million workers now producing hot dogs, 80 million producing buns.

This is an analogy for the shift from manufacturing to services.  If productivity gains enable the production of more goods (i.e. hotdogs), then the consumption of complementary services which wrap those goods will increase.  I’ll forgive Paul for glossing over the displacement issues.

That model is a prefect fit for what Open Source has done to the software industry.  For a shockingly wide range of software systems open source has turned out to be a radically more productive means of production.    If that’s the meat then the business models that have risen up around this shift emphasis services; ala Redhat, WordPress, MySQL, Elgg (org/com).

Let me add one more observation, a point about complements.  There is always an pressure between complements.  It leads to one becoming commoditized.  Presumably as services become more dominate in the economy they seek ways to lower the profit margins of manufacturing.    And so, if your a software services firm, you might want to encourage Open Source.

So my new addtion to my collection of open source cartoons is that it’s a hotdog and bun economy, where we give away the hotdogs.

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