The Third Wave Economy

If you are at all into coffee, then you are probably aware of something called “Third Wave” coffee. Coined in 2002, Third Wave Coffee refers to “a current movement to produce high-quality coffee, and consider coffee as an artisanal foodstuff, like wine, rather than a commodity. This involves improvements at all stages of production, from improving coffee plant growing, harvesting, and processing, to stronger relationships between coffee growers, traders, and roasters, to higher quality and fresh roasting, at times called “microroasting” (by analogy with microbrew beer), to skilled brewing.”

I would like to propose that Third Wave Coffee is emblematic of a much larger movement in our global economy. In many ways it is the embodiment of and answer to many of the ideas presented by Toffler back in 1980. We are past theory and now live firmly in the rising of the Third Wave Economy and can take a richer and more nuanced look at what is really emerging.

The First Wave: Massification

Both the first (“Folgers”) and second (“Starbucks”) waves of coffee were the natural consequence of three major drivers of the 19th and 20th Centuries:

1. Mass production (factories, automation) where relatively capital-intensive methods of production were able to (re) produce commodity goods at historically unprecedented volumes and low prices.
2. Mass transit (trains, interstate trucking, shipping containers) that was able to connect an eventually globalized market with economically efficient centers of production along the entire supply chain.
3. Mass media (newspaper, radio, television) that was able to focus more and more attention to fewer and fewer messages in a “winner take all” reduction.

Combined, these drivers influenced a generalized movement of our global economy towards concentrated, commodified and normalized production. The dynamics of coffee is typical: if you bring in coffee beans from around the world and “normalize” them into a standard blend you can take advantage of industrial production to output a commodity product at very low cost. You can then package them for shipping in a vaccum sealed can and ship them globally from your centralized factory. The final step: use mass media to point attention to your product in a way that more local or more niche competitors simply can’t do at any meaningful scale.

Cheaper, easier and with more mindshare than the competition, these new “industrial scale” products were peak predators in the (super)marketplace. And, the more market-share they won, the more they could benefit from economies of scale and the more advertising they could afford. A feedback loop that led to their eventual dominance of the global market.

It is only a slight exaggeration to suggest that this movement of concentration and commodification was the dominant economic trend over the century from 1850 to 1950. Everything that could benefit from massification evolved in this general direction. Beer and corn. Cars and Airplanes. Textiles and tires. Books and newspapers. Film studios, radio stations. Banks.

There was significant upside: suddenly coffee moved from a luxury reserved for the few to something that everyone could have every day. Indeed, massification was responsible for much of the vast production of material wealth of the 20th Century. It delivered on the promise of a chicken in every pot and a car (or three) in every garage.

There were also downsides. The concentration of wealth and market hegemony in a small number of very large companies. The collapse of local and artisinal producers and a sharp narrowing of quality and diversity. Wonder bread, lite beer, folgers coffee. A world of lots and lots of stuff and less and less delight.

The Second Wave: The Rise of Brands

By the 1960's the first wave had broken and the second wave was surging forward. The explosion of wealth in the developed world moved the center of scarcity away from merely producing material goods into a new domain: our limited time and attention and our desire to be fulfilled.

The houses and supermarkets of the 60's and 70's were filled to overwhelming, and so were our lives. As a consequence, to win in the second half of the 20th Century, a product had to do more than simply compete on price and ease. It had to somehow convince us (through increasingly noisy and fragmented mass media) that it would make our lives simultaneously easier and better. Thus were born the “lifestyle brands.”

A brand is about trust. Trust not just in a product or a family of products, but in the manufacturer itself — and in principle any of the products it creates. In a mass media landscape, brand is a killer app. If you have a known and trusted brand, every product you create has a competitive advantage. And if you are careful about your brand, every product and service you deliver generates equity back to the brand. A regenerating virtuous cycle that became the center of the second wave.

Starbucks is perhaps the poster child of this era. The genius of Starbucks was that it wasn’t about the coffee. It was about the coffee lifestyle, or, more specifically the brand of the “coffee house experience.” What Folgers had done a century earlier to the coffee bean, Starbucks did to a whole experience: made it a reproducible commodity.

The coffee house experience goes all the way back to the Enlightenment era where a unique mixture of thinkers, adventurers, aristocrats and mavericks rubbed elbows while sharing their favorite addiction. It was a conviviality that generated an amazing portion of the innovations of that most innovative age.

Birthed among the burgeoning Pacific Northwest coffee house culture, Starbucks took as much from that culture as it could consistently and efficiently reproduce and turned the crank. No matter that the dark Starbucks roast destroyed the nuance of their “speciality coffee”, or that the machinic same-ness of their increasingly ubiquitous stores lacked the richness and lived community of a local coffee house. Starbucks had hit a sweet spot. By focusing on a consistent brand, each and every Starbucks store brought free attention to each and every other Starbucks store. The independent coffee house couldn’t possibly compete. At the same time, by focusing on the whole experience of the coffee house, Starbucks was able to satisfy needs well beyond the scope of a product like Folgers.

And so it went. In every sector of the market, attention and marketshare went to the brand that could best “name and claim” some chunk of experience. If you couldn’t build a brand, you were doomed — and if you could build brand, you were a king maker.

Possibly the most important result of the second wave was an increased sensitivity to the whole quality of an experience. While the fabricated lifestyles of multi-national brands never really delivered on their promises — the promises themselves changed the game. Say what you like about Starbucks, but it was better than Folgers. Starbucks tasted better, it was made with more care and with a greater eye for beauty. It promised “fair trade” and a focus on environmental responsibility. As a result, it trained hundreds of millions of people to be ever slightly more “discerning”. The importance of this point can’t be over-stated.

There have always been differences in quality. But for the most part, the cultivation of a sensitivity for quality has been the exclusive domain of the elite. And, precisely because the elite can (broadly speaking) afford anything, differences in style and taste are one of their most powerful status symbols. Its how you can tell refined old money from crude new money. And, in the end, it creates a form of quality that is, at its root, incredibly ugly.

Starbucks and the other leading lights of the age of “lifestyle brands” brought discernment to the masses. These days, discernment no longer means elite. It simply means an embodied understanding that cheaper does not necessarily equal better. And this means that quality no longer means elitist. It means “better” in the biggest sense of the word.

Ultimately, the environment of the Second Wave brought to mass consciousness a higher sensitivity to the “whole experience”. We became more sensitive to quality and craftsmanship. And to “fair trade” and “organic” and “community”. And now we are yearning for the real thing.

The Third Wave: the Age of Agency

By the turn of the Millennium, this yearning could be realized, powered by three new drivers:

1. A combination of “just in time” manufacturing and distribution that enabled small and micro-batch producers to stand toe-to-toe with the mega-corporations. These days, with a couple thousand dollars of capital investment, a local roaster can be up and practicing their craft. And if they happen to get orders from across the country they can trivially ship even small volumes of product cost effectively.
2. A participatory media that allocates attention away from the companies with the most money and towards the (co)creators who are most in alignment with what people actually value. When you use your own social credibility to point people’s attention to something that you think is good, even with something as simple as a facebook like or a Yelp review, you are an active and powerful participant in the Third Wave economy.
3. A population of former “consumers” who are increasingly mindful of their power and responsibility. No longer content to simply “consume” they are taking it as a “civic responsibility” to cast their economic votes deliberately in order to create the kind of world that they want to live in. Whether its making the choice to buy single origin direct trade coffee, to shop at a local artisanal bakery or to eat at a cooperatively owned restaurant, or any other values-based choice, you are influencing the deep architectures of the economy in a deliberate direction.

These three drivers entirely reverse the logic of the past 150 years. Rather than biasing towards concentration, commodification and normalization, they tend to reinforce specificity, quality and richness.

Thus Third Wave Coffee. To a Folgers era mindset, it just doesn’t make sense that a coffee shop would spend time moving from fair trade to direct trade and even in many cases to “co-cultivation” of their coffee beans. Or of roasting their beans in-house. It makes even less sense that they would feature locally-produced, artisinal, organic food. Or be an intimate locus of community. But in the third-wave economy, it’s all rather obvious. Because each and every one of these elements is good. They are all parts of what someone who cares would do. It really is as simple as that.

The third wave works because the rules of the game have changed. Profoundly. So profoundly that the full consequences haven’t begun to sink in. When media and production are participatory and distributed, power flows to the individual in a way that we haven’t seen in a very long time. Perhaps ever.

And when people really feel their agency and use that power to support and participate in things that have heart, everything changes. Deep human stuff starts to pay off. For the first time in a long while, it starts to win. Authenticity rather than carefully cultivated artifice. Quality, Empathy, Responsibility, Caring. And all the vast machinery of the globalized 20th Century starts to work for us rather than against us.

Of course, these things take time and the cultivated cynicism of the age of “lifestyle brands” is still cresting. But for those with ears to hear, it is clear that a new game is afoot. Take a look at what people like John Robb are saying about “block chain companies” (aka “decentralized autonomous organizations”); or consider the accelerating growth of crowdfunding globally; or the growth of the number of people who actively use Yelp to make decisions about where to spend their money; or the still accelerating sales on Etsy; or the fact that Whole Foods has seven times as many Twitter followers as Walmart. The consequences of the third wave will bring as much change to our current world as the first and second waves brought to the agrarian world of the first half of the 19th Century.

Or just take a look at what is happening to the simple world of the local coffee shop. In La Jolla there is a great shop called “Bird Rock Coffee Roasters.” They are just a block away from a Starbucks. When I first visited them two years or so ago, there were about six people at Bird Rock and a crowd of about forty at Starbucks. The most recent time I visited, Bird Rock was alive. It was overflowing and crackling with energy. And Starbucks? Three sad folks sipping their Frappuccino® blended beverages and staring forlornly into their phones.