A Case Study in The Network Effect: Language

I am currently writing another article on my thoughts on the future of global payments. I was using this case study in language to highlight the power of the network effect. The section became longer than I intended but I find it an interesting enough topic to give it its own post.

 

 

The network effect is a type of economy of scale in which the utility of a good is directly proportional to the amount of people using it. Every time a person adopts the good it becomes more generally useful without the person that adopted it consciously intending to have this effect on it. Famous examples of such goods are the telephone and social media platforms. The principle also applies to public goods such as language, money and regulatory standards.

 

This positive network externality is self-reinforcing: The more people that join the network of users of a certain good, the more attractive it becomes to non-users. This phenomenon in turn has a negative externality on the attractiveness of alternatives as there are strong incentives for people to leave less popular options and converge around a monopoly of one. Smaller networks that perform an identical function will only survive if there exist economic or cultural barriers to change. Even then, these networks are probably up against the sands of time.

 

Take the case of language. People don’t choose their mother tongue. They are born into it. The switching costs of moving to a language with a larger network are therefore considerable as they involve a large amount of cognitive energy and time. Further, since a language is often one of the most important ties that bind a community together, nation states generally enshrine “official” languages in statute further protecting it from the threat of defection to larger networks. Adopting a new language therefore is quite a different ball game to say deleting your Myspace account and switching to Facebook. Despite these substantial barriers to minority network dilution, many language networks are being diminished on a daily basis none-the-less.

 

If we restrict an analysis of the largest language network populations to native speakers, Mandarin is the largest, Spanish the second and English the third most spoken. However, when we expand the analysis to non-native speakers, English is the most widely spoken language in the world. It is estimated that there are now almost four times as many non-native English speakers as native English speakers globally and the number of English speakers is increasing by a substantially larger amount than any other language on the planet. This is happening despite population growth in native English-speaking countries lagging behind the global average. Over 500mn new speakers have been added in the last decade alone. The total amount of people that speak English is now estimated at 1.75bn. English is projected to be spoken by twice the amount of people that speak Mandarin  in as soon as two years’ time with the 100mn people learning Mandarin being dwarfed by the 1bn currently learning English.

 

At the other end of the scale a minority language becomes extinct on planet earth about once every two weeks. If this rate was maintained, humanity would be on course to speak only one language in just under 270 years’ time. That’s only three generations from now. Naturally this isn’t going to happen as at some point the only minority languages left will be ones with considerable networks and ones that benefit from state protection such as French, or Malay, or Russian. It is estimated that 10% of the world’s languages are currently relatively safe from extinction. What if nation states ceased to exist however? Why would a multitude of languages continue to exist?

 

If the proliferation of supranational institutions continues and nation states are gradually dismantled to the point humanity comes to exist under a one-world government with complete borderless free movement, network effect theory predicts that we would converge around one single dominant language and that that language would be English. For me this is probably a matter of when. Not if. The common counterargument against this is that ancient Greek, Latin, Farsi, Mandarin or even English itself failed to conquer the world during times of empire and that new powers are emerging today. However, the growth of language in those times was directly proportional to the extent of a tribe’s success in inter-tribe or later in inter-state conflict. When an empire fell, its language went into decline. Today English is not proliferating through violence and coercion. People are choosing to learn it in sovereign parts of the worlds far removed from England or English-speaking USA, the current global hegemon. They’re choosing to learn it at a time when the global share of native English speakers is actually in decline and when emerging powers like China, India and Brazil are rapidly rising. This is an historically unique occurrence.

 

The reason for this situation is that we live in an increasingly globalised world. The world has for some time been somewhat global for merchants and elites but with the advent of the internet, it’s increasingly global for everyone. Barriers to participation in the global economy continue to fall. The network of people that can communicate with each other has exploded in size and these people need a common language they can communicate in. A truly global world requires a global language and the world is in the process of choosing one. This is the reason pilots are required to speak English before they can be granted a licence. This is the reason all school-going children in China are learning English from the age of four – how many native English speakers are learning Mandarin? This is the reason Russian was replaced as the compulsory foreign language by English in schools in Mongolia. This is the reason multinational companies conduct cross-border meetings in English. This is the reason the EU institutions use English for official meetings.

 

When researchers recently conducted a wide-ranging study into the phenomenon of dying languages, economists well-versed in the network effect weren’t surprised by the results. Of all variables tested, economic development was most correlated with the death of a language. Minority languages are dying because people are defecting to larger language networks in order to reduce their friction in trading or participating in the workforce. They’re joining larger language networks to increase their quality of life. And they’re switching with success. Naturally it makes sense to defect to the majority language in your local jurisdiction. However, it also makes sense to join the largest language network of them all. The evidence supporting this is also clear: Countries with higher standards of English have a higher standard of living and a better quality of life.

 

The growth of English and the decline of minority languages is a perfect study in network theory. As the barriers to language network fragmentation have fallen, people have behaved exactly as the theory predicts they do. They’re gravitating towards the largest network. As they have joined the English language network, the value of the public good that is English to society has increased, as evidenced by the higher standards of living enjoyed by those that use it. The value of this large homogeneous network is significantly greater than the fragmented networks it is replacing. If English wasn’t the lingua franca of global commerce and there was no other language used as widely as English is today, the world would be a poorer place. Quite possibly substantially so. One only has to imagine all the commercial deals that wouldn’t be agreed, the tourist trips – including to non-native English-speaking countries – that wouldn’t be taken, or the people that couldn’t participate in the workforce due to a language barrier. As the English language network continues to grow, so too will global wellbeing.

 

The value of the network effect can be witnessed everywhere. From language (English), to regulatory standards (multi-jurisdictional common markets), to communication messaging standards (HTTP), to media of exchange/unit of account/store of value standards (USD). In my next post I’m going to outline how a new technology for securing value transfer between trading counterparties can join this growing list of global networks that are unlocking vast amounts of wealth.

 

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