Does Money Ruin Everything?

by on May 19, 2008 · 16 comments

Yglesias points to “Money Ruins Everything”, a paper by John Quiggin and Dan Hunter about the rise of peer production and its implications for public policy. It covers much the same ground as (and cites) Greg Lastowka and Dan Hunter’s excellent Cato Policy Analysis “Amateur-to-Amateur.” The basic point is that non-pecuniary motives have become more important in recent years, as illustrated by the success of projects like Wikipedia and Linux.

I’ll have more to say about the paper at Techdirt, but I wanted to note a couple of minor quibbles:

Criticism the first: On p. 235 the authors draw a distinction between free software (which has a sharp distinction between producers and consumers) and the blogosphere (in which producers and consumers are often one and the same). I don’t think this dichotomy works on either side of the ledger. On the one hand, free software has made the most progress in precisely those areas where software producers and consumers are the same people. A lot of Apache contributors, for example, work as commercial web developers and submit patches they’ve developed for their own use or the use of their clients. While certainly, there are a lot more users than developers for almost any software project, it’s quite common for the developers of a project to be drawn from the same pool as the users.

Conversely, the blogosphere shows exactly the same power law characteristics they attribute to the software market. Any successful blog has a lot more readers than contributors, and many blog readers are not themselves bloggers. Moreover, while bloggers hail from all kinds of professional backgrounds, the blogosphere is over-represented by journalists, professors, and other professional intellectuals. While the analogy isn’t a perfect one because a lot more people write English than C++, I think the underlying organizational principles are largely the same between blogs and free software projects.

Criticism the second: On p. 243, Quiggin and Hunter write “The investments encouraged by venture capitalists in the ‘dotcom’ era may have rewarded their promoters, but they produced little of lasting social value, at least by comparison with the vast sums that were invested.” I’m not sure what metric they have in mind here, but the companies that survived the bubble, such as Google, Yahoo, eBay, and Amazon, collectively have hundreds of billions of dollars of market share. Moreover, I think it’s safe to say that these companies have created vastly more wealth for their customers than is reflected on their balance sheets. For example, I use Google dozens of times a day—a service I’d probably be wiling to pay hundreds of dollars a year for—and I’ve never paid them a cent. That’s a massive consumer surplus that isn’t captured by Google shareholders.

Finally, remember that in many cases, the precise opposite of this formulation holds: dot-com firms benefited society but not their investors. A good example is Netscape, which would up being a bad investment but nevertheless produced the foundation of what became the Firefox browser. We should all wish investors would make more of such foolish investments.

Criticism the third: The paper suggests that the DMCA is no big deal because the barriers created by DRM simply encourage the production of more DRM-free amateur content. This strikes me as problematic for a couple of reasons. In the first place, it’s kind of an example of the broken window fallacy: the fact that unnecessary restrictions on commercial content might spur people to produce non-commercial content as an alternative doesn’t mean that society wouldn’t be better off if people were free to make use of the content they’ve already purchased in the manner they choose.

Second, I’ve never really thought that the primary problem with the DMCA was fair use of content in the traditional sense. People can and do break DRM and get the content they want. The really serious impact of the DMCA is the way it’s stunted the market for hardware and software to manipulate content. The fact that there still isn’t a thriving market for set-top video jukeboxes is a good example. The technology exists and they could be built cheaply enough to make them economically feasible. What’s holding it back is the DMCA, which gives the DVD-CCA exclusive power to decide who may participate in the market for devices that can read DVDs. It may be true that eventually, non-commercial content will reach a critical mass to support the creation of video jukebox devices, but without the DMCA on the books I think such devices would be available already.

I don’t think any of these nitpicks undermine Quiggin and Hunter’s fundamentally sound thesis. I do, however, think they have a tendency to overstate their case. Non-commercial modes of producing information are more important than they were 20 years ago, and we should adjust public policy to make sure they don’t unnecessarily hamper amateur-to-amateur creativity. But money doesn’t “ruin everything,” and it’s overstating things to suggest that commercial activity no longer matters for the production of information goods.

  • John Quiggin

    I agree with you as regards Google, but I regard it as being essentially post-bubble – its IPO was in 2004, but it did get some VC money before the bubble burst. We should have written more carefully on that point.

    As regards eBay, Yahoo and Amazon, I’m happy to defend the view that, taken together, these companies (along with the other dotcom survivors) don’t have an economic or social value comparable to the amounts that were dissipated in the bubble. In the case of Amazon, I doubt that there’s even a postive NPV for the money invested in that company.

    Netscape’s an interesting case, from the start with Mosaic, to the decision to distribute freely and back to Mozilla/Firefox. It doesn’t really fit any category neatly.

  • John Quiggin

    I agree with you as regards Google, but I regard it as being essentially post-bubble – its IPO was in 2004, but it did get some VC money before the bubble burst. We should have written more carefully on that point.

    As regards eBay, Yahoo and Amazon, I’m happy to defend the view that, taken together, these companies (along with the other dotcom survivors) don’t have an economic or social value comparable to the amounts that were dissipated in the bubble. In the case of Amazon, I doubt that there’s even a postive NPV for the money invested in that company.

    Netscape’s an interesting case, from the start with Mosaic, to the decision to distribute freely and back to Mozilla/Firefox. It doesn’t really fit any category neatly.

  • http://bennett.com/blog Richard Bennett

    Linux is not an amateur work, and I sincerely doubt that Apache was written by webmasters as the skill sets for making web sites and writing high-performance concurrent code are very different. Wikipedia is probably still an amateur product, but you can tell.

  • http://bennett.com/blog Richard Bennett

    Linux is not an amateur work, and I sincerely doubt that Apache was written by webmasters as the skill sets for making web sites and writing high-performance concurrent code are very different. Wikipedia is probably still an amateur product, but you can tell.

  • Timon

    An interesting example of money ruining everything: Google’s prime materials are the naive, uncompensated links of the entire web, and they spend a lot of resources filtering out the paid spam. Anil Dash has an interesting post about how links became worth money here.

    Also, Richard, Tim didn’t say that “webmasters” wrote Apache, he correctly said that it was “commercial web developers”. Webmasters wrote things like phpMyAdmin, Drupal, WordPress, phpBB, and you can tell by the number of ‘php’s in that list that these were not hardcore computer scientists.

  • Timon

    An interesting example of money ruining everything: Google’s prime materials are the naive, uncompensated links of the entire web, and they spend a lot of resources filtering out the paid spam. Anil Dash has an interesting post about how links became worth money here.

    Also, Richard, Tim didn’t say that “webmasters” wrote Apache, he correctly said that it was “commercial web developers”. Webmasters wrote things like phpMyAdmin, Drupal, WordPress, phpBB, and you can tell by the number of ‘php’s in that list that these were not hardcore computer scientists.

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