Mother was right. Sharing is good. At least that seems to be the consensus of thought leaders who gathered in February to discuss the "Economics of Sharing," and how the rise of the global network has rendered protectionist practices obsolete.

Panelists in the Participation Age event at Sun's Santa Clara campus included Sun CEO Scott McNealy, Timothy Bresnahan, professor of economics, Stanford University; Philip Evans, senior vice president, Boston Consulting Group; Raman Khanna, founding managing director, Diamondhead Ventures; and Elisabeth Rhyne, senior vice president of international operations and policy, ACCION International. Andreas Kluth, technology correspondent for The Economist, moderated the discussion.

Click here for the full Webcast including audience Q&A.

Andreas: Scott, you recently wrote a piece called "The Economics of Sharing" where you talk about the new Participation Age and whether or not a protectionist business model in the past century is over. Tell us more about this.

Scott: There is a lot of conversation about open source, community development, proprietary intellectual property, the issues of Napster and music being downloaded for free, software patents — basically a lot of issues around intellectual property. The world is different now than it was in the olden days, like when my dad was working and you had barriers to entry to markets that were quite significant (geographic, cultural, time-based) where folks could create a market niche that was defensible over time.

With the network, technology, and wireless, those barriers are gone and now you've got to compete globally and you'd better specialize, be good at what you do, and you'd better share, participate, and partner in ways that were not necessary back then. Nobody started a computer company since 1982 that is still around in any meaningful way. When we got started in '82 there were some entrenched enterprise players like Intel, Microsoft, and IBM. If we had gone proprietary, we could've become the next Microsoft. But let me tell you, there are way more DECs in the world than there are Microsofts.

So for entrepreneurs and start-ups and anybody who is not in the position of Intel, Microsoft, or IBM, you have to ask yourself, "How do I share? How do I participate? How do I build a community?" I tell customers all the time, "He or she who dies with the most rich and/or smart folks in your online directory wins." You've got to build that community and build trust with it such that you are open, transparent, fair, and level. We have been driving that model for a long time and I think it's important for people to understand that it's not about free open source Linux — that is such a tiny, insignificant component of what's going on in sharing and community development. The whole idea here is to uplevel the conversation and make it a much broader one.

Andreas: Timothy, you're an economics professor. What do you say about the economics of sharing from that perspective?

Timothy: I agree with Scott to such an extraordinary degree that it is a challenge to come up with controversy here. I'll emphasize the downside. Starting with the area of agreement — open source, sharing, community development are incredibly powerful organization modes because they bring in diverse talents from all over the world. In the history of computing, this has meant diverse talent from people who are still students, from people who are in small companies and big, successful commercial houses. That diversity needs to be different in a market economy because the customer can ultimately choose if the outsiders are developing different components in an open, modular system.

I think there are some serious threats and not everyone is going to agree with Scott that this is the wave of the future for every vendor in the computer business. Today, as in the late '70s when the PC business was founded, the successful standard-setting companies — IBM then, Microsoft today — left a gap between what is technologically possible and what is in their products. Customers get irked by that big gap and put time and energy into creating components that aren't there. Many folks who did that in the PC business were disappointed that the fruits of their labor didn't stay in open systems and ultimately ended up being appropriated by big commercial companies.

There have been really important changes, and I want to applaud firms like Sun and the modern IBM, in that some of the big successful commercial companies have adopted a model of collaborating with these bottoms-up movements of customers and independent developers bringing many different things to power. That collaboration has opportunities for real power. You've got the distribution muscle of the large corporate firm, and you've got the inventiveness of the people out in the field.

You won't see any of the big firms that have a defensible monopoly position embracing this. Sharing and collaboration make the pie bigger for those firms that would lose if there were a level playing field. It also can make their slice smaller. I think we are going to see substantial variety in whether enterprises collaborate with community development. The leverage of that collaboration, however, is potentially very important for the economic development of the computer IT network and communications business at a time when it would be good to get all of that invention going.

Andreas: Beth, you come at this from a different perspective — the microfinance and developing world. How do you approach this subject?

Beth: I think there are a lot of interesting analogies here. If you talk about the concept of participation from the viewpoint of those customers that you are looking at, there's no customer in the world who've been less well treated than poor people in developing countries. That's the microfinance customer. What we've seen in microfinance is an amazing success story of how to engage that disenfranchised group, and one of the things that's very interesting about the story of microfinance is that women got together and pooled money and moved it around.

Microfinance connected into those kinds of communities and then asked, "How can we make those communities function better?" For example, people would pool money, but they would lose money if someone experienced a disaster. By being connected to a financial institution, there is an ongoing source of connection to financial systems. You see interplay and informal arrangements among the community.

Also of import is how microfinance developed, because it developed in an open source kind of a way. There was always lots of sharing in the microfinance community internationally. Everybody knew what everybody else was doing and everyone talked freely about their trade secrets, and the reason that was possible was because it was driven by philanthropy. Now, as the microfinance field advances, the commercial sector is moving in. So for the first time, issues of protecting intellectual property become relevant. I think the core knowledge can be available, but you can still be successful as a service provider by being very good at using that core knowledge.

Andreas: Raman, you're a venture capitalist. What would happen if a business plan came across your desk and said, "We plan to share everything?"

Raman: 2005 was the year of "open source everything." I came from 16 years at the university in IT where we believed in open source sharing all along, because a lot of Internet development came from that mentality — it was driven not by profit, but by the advancing state of the art and I think the model worked very successfully.

It's about leveraging resources because you only have so many smart people on your payroll and there are a lot of very creative people. As a venture capitalist, I believe it is about survival. You have limited resources. You have to leverage the work that's been done by others. As a new company, how do you gain this direct sales model of calling on Fortune 500 and selling directly — it doesn't work.

So more and more companies are not about open sourcing all their stuff, but are taking some key part of the technology, building an ecosystem with larger corporations, and giving some of it out to enable adoption. Your stuff gets out there and then you build value on top of it, because at the end of the day it's all about building customer value. And I think you have to rely on your partners. I personally feel it's even more critical for start-ups than larger companies to use that model.

Andreas: Philip, you've been advising companies in different industries and have done some fascinating work that approaches this question differently.

Philip: I think there's a myth that the kinds of ideas we've been talking about are restricted to peripheral left-wing businesses such as Wikipedia or the blogging world or open source software. And while the most visible examples unquestionably are in those realms, what has struck me is how profoundly relevant these self-same ideas are to very traditional companies.

Let me share with you an example. About four or five years ago there was a fire that burned down a major component factory for Toyota. And because the particular component was manufactured entirely at this particular plant, the result was that the entire Toyota production system in Japan faced a six-month shutdown. What in fact happened was that eight days later the entire supply chain was back up to 100 percent production. About 62 companies in the Toyota supply chain essentially swarmed over the problem, collaborated at a very granular level, shared intellectual property, shared resources, shared people, shared facilities, shared machinery, and fixed the problem.

We saw a similar story in the open source world where a security hack had been managed by a similar group of 50 or 60 people who didn't know each other, but who collaborated. We looked in detail at these two stories and what was so striking about them was how extraordinarily parallel they were. In other words, the principles you might expect to see in the world of hackers were also being followed by clean-cut, tea-drinking Japanese auto engineers in a business that has nothing to do with open source — at least at first blush.

What was really going on in both cases was precisely parallel. In both organizations, there is a "way of working" which is defined around a small number of increments into a common pool of knowledge, rather than the usual pattern where one works on something for years and then reveals it to the world. It is a world based on a model of "broadcast and subscribe."

The presumption is that everybody knows everything, and it's up to people to decide what information they want to receive. Because of these complex and continuing interactions, it is a world based on the accumulation of close, common knowledge. It's a world based on a high level of trust — trust that emerges from the many broadcast transactions that people publicly engage in. It's a world that depends on elements of technology to make that continuous granular sharing possible. And it's a world that depends on some element of common intellectual property.

In the case of open source we understand this, but in the case of Toyota it is much more subtle. The designs are not open sourced, the cars are not open sourced, but process knowledge is. Process knowledge, in the Toyota production system, is a shared good which all of the companies in the supply chain contribute to and draw from. And the principle of sharing, applied to process knowledge, is the basis on which much of their competitive advantage is built. Toyota would do the exact same thing in North America.

The most productive plant in their system is in Canada. There is a set of principles here and they translate into massive competitive advantage. It drives down what economists would call "transaction costs," and if you measure "transaction costs" in the automotive industry, you see that for Toyota they are about 1/12th of what they are in a company like General Motors. More importantly, it translates into diffusion of innovation, diffusion of productivity improvements. The rate of improvement in the Toyota supply chain has been comparable to that of Toyota itself over the last 30 years. The rate of improvement in the U.S. OEM supply chain has been almost negligible over that same period of time. This is 50 percent of the cost of manufacturing a car, getting no productivity improvements for lack of one simple but fundamental piece of economics: the economics of sharing.