It’s my great pleasure this week to be participating in a 2-day symposium on “Competition in Online Search” that is being hosted by the Antitrust & Competition Policy Blog.  Daniel Sokol, Associate Professor of Law at the University of Florida Levin College of Law, was kind enough to invite me to join the fun. Professor Sokol is the editor of the Antitrust & Competition Policy Blog. Others participating in this symposium include: James Grimmelman (NY Law); Eugene Volokh (UCLA); Marvin Ammori (Stanford Law); Mark Jamison (Univ. of Florida); Eric Clemons (Wharton School); Dan Crane (Michigan Law); and both Marina Lao and Frank Pasquale (Seton Hall); and more.

My entry is now live. In it, I focus on how dynamically competitive and innovative the digital economy has been over the past 15 years and question to need for intervention at this time, especially of the “public utility” variety. I’ve re-posted my entry below, but make sure to head over to the Antitrust & Competition Policy Blog to read all the contributions to this excellent symposium.

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If you blink your eyes in the Information Age you can miss revolutions. Let’s take a quick walk back through our turbulent recent history:

• Just five years ago, MySpace dominated social networking and had The Guardian wondering, “Will MySpace Ever Lose Its Monopoly?” A short time later, MySpace lost its early lead and became a major liability for owner Rupert Murdoch. Murdoch paid $580 million for MySpace in 2005 only to sell it for $35 million in June 2011.
• Just six to eight years ago, the mobile landscape was ruled by Palm, BlackBerry, Nokia, and Motorola. Palm is now all but dead and BlackBerry is trying to stay afloat while Nokia and Motorola had to cut deals with Microsoft and Google respectively in order to survive.
• Just 10 years ago, AOL’s hegemony in online services was thought to be unassailable, especially after its merger with Time Warner. But the merger quickly went off the rails and AOL’s online “dominance” quickly evaporated. Losses grew to over $100 billion and the entire deal unraveled within just a few years as AOL’s old dial-up, walled-garden business model had been completely superseded by broadband and the new Web 2.0 world.
• Just 12 years ago, Yahoo! and AltaVista were the go-to companies for online search. No one turns to them first today when they go looking for information online.
• And just 15 years ago, Microsoft was on everyone’s mind. Today, the firm is struggling to remain part of cocktail party chatter when the topic of modern Tech Titans is discussed. For example, a recent Fast Company cover story on “The Great Tech War of 2012” only mentioned Microsoft in passing. The rise of search, social media, and cloud computing represented disruptive shifts that Microsoft wasn’t prepared for.

The graveyard of tech titans is littered with the names of many other once-mighty giants. Schumpeter’s “gales of creative destruction” have rarely blown harder through any sector of our modern economy. And so now we come to the question of Google’s dominance in the field of search. Should we be worried? Some say yes, and the rhetoric of public utilities and essential facilities is increasingly creeping into policy discussions about the Internet, including the search layer. A growing cabal of cyberlaw experts—Tim Wu, Dawn Nunziato, Frank Pasquale, among many others—argue that some sort of regulation is needed.

But the recent history I recounted above makes it clear that patience and humility are the more sensible policy prescriptions. Calls for regulation or public utility classification are particularly premature and problematic. As I argued in my recent white paper, “The Perils of Classifying Social Media Platforms as Public Utilities,” search and social media platforms do not resemble traditional public utilities and there are good reasons why policymakers should avoid a rush to regulate them as such.

First, there has not been any serious showing of monopoly power in the search or social media sectors in which Google operates. It’s also impossible to find any way in which consumer welfare is currently being harmed by Google. All their products are free and constantly evolving. New technologies and rivals continue to emerge. DuckDuckGo, for example, differentiates itself in search by stressing privacy above all else. Meanwhile, the contours of these markets are constantly evolving in a dynamic way, making market definition challenging. Is Facebook a search company? Signs are good that it soon could soon become a formidable one.

These market-definition considerations are especially important because of how long it takes to formulate regulations or impose antitrust remedies. In a market that changes this rapidly, taking several months or even years to complete rulemakings or litigate remedies will almost certainly mean that most rules will be completely out of date by the time they are implemented. And once implemented, there will be very little incentive to rework them as rapidly as the market contours change. Regulation could retard innovation in search and social media markets by denying firms the ability to evolve or innovate across pre-established, artificial market boundaries. Second, treating these digital services as regulated utilities would harm consumer welfare because public utility regulation has traditionally been the archenemy of innovation and competition. Public utility regulation has a long, lamentable history that has been well-documented by economists and political scientists. That’s why it is usually considered the last resort, not the first option. Moreover, the traditional goals of public utility regulation — universal service, price competition, and quality service — are already being achieved without intervention. And as Marvin Ammori and Luke Pelican outline in a new study, all the proposed antitrust remedies to deal with Google in particular also have serious downsides. Almost all the cures would be worse than whatever disease it is critics hope to solve with antitrust intervention.

Third, treating today’s leading search and social media providers as digital essential facilities threatens to convert “natural monopoly” or “essential facility” claims into self-fulfilling prophecies. The very act of imposing utility obligations on a particular platform or company tends to lock it in as the preferred or only choice in its sector. Public utility regulation also shelters a utility from competition once it is enshrined as such. Also, by forcing standardization or a common platform, regulation can erect de jure or de facto barriers to entry that restrict beneficial innovation and the disruption of market leaders.

Fourth, because social media are fundamentally tied up with the production and dissemination of speech and expression, First Amendment values are at stake, warranting heightened constitutional scrutiny of proposals for regulation. As Eugene Volokh noted in a recent white paper, social media providers should possess the editorial discretion to determine how their platforms are configured and what can appear on them.

Will Google meet the same fate as earlier Tech Titans? It’s impossible to know. But with the wrecking ball of creative digital destruction doing such a fine job of keeping competition and innovation thriving, we’d be smart to reject heavy-handed, top-down regulation of such a dynamic segment of our economy at this time.

Two weeks ago, I penned a column for Forbes about the astonishing rise and fall of BlackBerry (“Bye Bye BlackBerry. How Long Will Apple Last?”), which somehow became the most widely-read and retweeted thing I’ve ever written in my life. I argued that BlackBerry’s story — indeed, the story of the entire U.S. smartphone sector — is the living embodiment of Schumpeterian creative destruction. Joseph Schumpeter’s “perennial gales of creative destruction” are blowing harder than ever in today’s tech economy and laying waste to those who don’t innovate fast enough, I argued, and nowhere is that more true than in the smartphone sector. I noted how, just five years ago, “BlackBerry” was virtually synonymous with “smartphones” and was considered one of the tech titans that seemed destined to dominate for many years to come. But now the BlackBerry’s days appear numbered and its parent company Research In Motion Ltd. is struggling for its very survival.

But there’s another company that I ignored in that essay that was also perched atop the mobile handset hill for a long time: Nokia. Here’s the horrifying opening lines from a Wall Street Journal story today about the company (“Nokia Crisis Deepens, Shares Plunge“):

Nokia Corp., long the biggest name in the cellphone business, is scrambling to stay relevant in the smartphone age. On Wednesday the company warned things will get worse before they get better, saying that competitors are rapidly eating into its sales in emerging markets such as China and India. Nokia also said its newest phone in the U.S. had a software glitch that is preventing some users from connecting to the Internet, marring its attempt to fight into the world’s most important smartphone market. The company’s American depositary shares slid 16% to a 15-year low of $4.24 in New York. Its market capitalization now stands at $16 billion, down from $90 billion five years ago.

It gets worse from there. The article continues on to document Nokia’s gradual slide and notes that, “like BlackBerry maker Research In Motion Ltd., Nokia is trying to re-establish its relevance in a market dominated by Apple Inc.’s iPhone and Google-powered devices. Both Nokia and RIM are working on new devices they hope will make a splash, even as Apple and Android work on improvements of their own.”

To put into context how remarkable this rapid reversal of fortunes is, you need to try remember what life was like just five years ago:

• The iPhone and Android had not yet landed.
• Most of the best-selling phones of 2007 were made by Nokia and Motorola.
• Feature phones still dominated the market; smartphones were still a luxury (and a clunky luxury at that).
• There were no app stores and what “apps” did exist were mostly proprietary and device or carrier-specific.
• There was no 4G service.
• And regulatory advocates like Tim Wu and the New America Foundation were running around saying that the FCC needed to pursue massive regulation of the cellular industry for a variety of silly reasons.

In those now-seemingly Mobile Dark Ages, those competing for power included Nokia, Motorola, LG, Sony, BlackBerry, Palm, and Microsoft, among others. Some pundits thought the idea of entry by anyone else — especially Apple and Google — was simply silly. Here are some of the more entertaining predictions I unearthed when researching my Forbes piece two weeks ago:

• In December 2006, Palm CEO Ed Colligan summarily dismissed the idea that a traditional personal computing company could compete in the smartphone business. “We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said. “PC guys are not going to just figure this out. They’re not going to just walk in.”
• In January 2007, Microsoft CEO Steve Ballmer laughed off the prospect of an expensive smartphone without a keyboard having a chance in the marketplace as follows: “Five hundred dollars? Fully subsidized? With a plan? I said that’s the most expensive phone in the world and it doesn’t appeal to business customers because it doesn’t have a keyboard, which makes it not a very good e-mail machine.”
• In March 2007, computing industry pundit John C. Dvorak argued that “Apple should pull the plug on the iPhone” since “There is no likelihood that Apple can be successful in a business this competitive.” Dvorak believed the mobile handset business was already locked up by the era’s major players. “This is not an emerging business. In fact it’s gone so far that it’s in the process of consolidation with probably two players dominating everything, Nokia Corp. and Motorola Inc.”

Of course, we now know how this story turned out. Today, less than five years after these predictions were made, Nokia’s profits and market share have plummeted and a struggling Motorola was purchased by Google last summer. Meanwhile, Palm appears dead and Microsoft is struggling to win back all the market share it has lost to Apple and Google in this arena. Of course, Microsoft has partnered with Nokia to try to make a go of it together. Five years ago, the Antitrust Gods would have likely thrown down the hammer and stopped such a deal. Today, many analysts wonder if MS has made yet another strategic blunder by partnering with Nokia. Their new Lumia 900 is a very impressive device, but it’s already been plagued by design flaws. Moreover, as today’s Journal article notes, “It’s still far from clear whether Nokia’s effort will be enough to convince many customers that its smartphones are a good alternative to the iPhone and Android devices. Part of the reason: iPhone and Android offer a much greater array of ‘apps’ built by third-party developers.”

Meanwhile, wireless carriers (Sprint, T-Mobile, Verizon, AT&T, etc.) are suffering from whiplash as they wonder how Apple and Google flew right by them to become the focus of all the headlines and the darlings of Wall Street analysts. This is all part of the ongoing “Gravitational Shift” we are witnessing in the mobile ecosystem, as economist Tom Hazlett argues in a Barron’s oped this week. “The telecommunications industry’s center of gravity has shifted,” Hazlett noted. “The edge is squeezing the core.” Hazlett continues on:

Competition among the physical networks spins profits out to the virtual networks. Apple’s value (from iPhones and iPads) to the wireless industry was estimated in early February at $248 billion—about 92% of the enterprise value of the entire U.S. mobile-network sector. Apple owns not a single base station or wireless license; it builds no networks. And yet it has emerged, in four short years, as “dominant in the mobile market”—an unqualified assessment offered by Walter Isaacson in his superb Steve Jobs biography.

I cannot find a more dynamic, Schumpeterian market on Planet Earth than today’s mobile marketplace. Everything and everyone has been upended in just 5 years. Not even Schumpeter could have imagined creative destruction on this scale.

Nokia after the iPhone

On Friday, both Josh Wright and I spoke on a panel at the Michigan State University’s conference on “Governance of Social Media.” Our particular panel focused on emerging competition policy issues affecting social media and social networking sites. Also joining us on the panel were Nicolas Economides of NYU and Michael Altschul of the CTIA. The video of the panel can be found here and I have also embedded it down below. [My remarks begin around the 23-min mark of the video.]

At the event, I presented my forthcoming paper on “The Perils of Classifying Social Media Platforms as Public Utilities,” which is currently out for peer review. I outlined the rising calls for treating social media or social networking sites as public utilities, essential facilities, or natural monopolies. Next, I briefly discussed some basic law and economics of public utility / essential facilities regulation. Third, I detailed six specific problems with efforts to classify these services as such. Finally, I briefly discussed regulatory proposals set forth by Professors Jonathan Zittrain and Tim Wu to apply traditional antitrust or public utility remedies to social media or information platforms. Specifically, I address Zittrain’s call for “API neutrality” (which would apply net neutrality-like principles at the applications and device layer) and Wu’s call for a “Separations Principle” (which would forcibly segregate information providers into three buckets: creators, distributors, and hardware makers). Watch the video for more details and see this for more critiques of the Zittrain and Wu proposals.

According to a report today from SAI Business Insider, “The Federal Trade Commission is actively investigating Twitter and the way it deals with the companies building applications and services for its platform.”  Apparently the agency has reached out to some competing application / platform providers to ask questions about Twitter’s recent efforts to exert more control over the uses of its API by third parties. [The Wall Street Journal confirms the FTC’s interest in Twitter.]

It remains to be seen whether this leads to any serious regulatory action against Twitter by the FTC, but such a move wouldn’t necessarily be surprising considering the more activist tilt of the agency recently. It’s even less surprising considering that Columbia University law professor and prolific cyberlaw scholar Tim Wu was appointed as a senior advisor to the FTC earlier this year. When the announcement of Wu’s appointment was made, the Wall Street Journal kicked off an article with the warning, “Silicon Valley has a new fear factor.”  It seems the Journal may have been on to something!

It’s impossible to know how much of an influence Tim Wu is having on the agency, but as I have noted here before, Prof. Wu is man with a healthy appetite for regulatory activism. [See all my essays about Wu’s work here.] Moreover, he’s a man who has already determined that Twitter is a “monopolist” in his November 13, 2010 Wall Street Journal op-ed, “In the Grip of the New Monopolists.”

That essay prompted a fiery response from me [“Tim Wu Redefines Monopoly“] as well as a far more reasoned essay by antitrust gurus Geoff Manne and Josh Wright [“What’s An Internet Monopolist? A Reply to Professor Wu.”] Prof. Wu was kind enough to swing by the TLF and respond to my criticisms in an essay “On the Definition of Monopoly,” which he said served as a “corrective” to my earlier essay [even though I continue to believe that what I said fairly reflected the last four decades of economic wisdom on competition policy and that it is Wu who is well off the reservation with his expansionist views of antitrust enforcement].

Regardless of what one thinks about that exchange, if the FTC is moving forward with a case against Twitter, three practical questions need to be considered: (1) What’s the relevant market? (2) Where’s the harm? and (3) What’s the remedy?

I’ll briefly discuss each question below but should also mention that I already explored many of these issues in my essay,  “A Vision of (Regulatory) Things to Come for Twitter,” so I apologize in advance for the repetition.  I will then discuss all this in the context of Tim Wu’s latest law review article on “Agency Threats” and what he approvingly refers to as regulatory “threat regimes.”

On Market Definition

As I noted in my previous essays, it’s very much unclear how to define the contours of the market Twitter serves. After all, Twitter is only a few years old and it competes with many other forms of communication and information dissemination. For me, Twitter is a partial substitute for blogging, IMs, email, phone calls, RSS feeds, and even radio and television news. Yet, like most others, I continue to use all those other technologies and those technologies continue to pressure Twitter to innovate.

Whatever market it serves, however, Tim Wu is apparently willing to write off that market as already “in the grip” of Twitter. But does Wu really believe that nothing better will come along to compete against Twitter or even replace it entirely?  It reminds me of all the hand-wringing we heard about AOL a decade ago when people predicted its “walled gardens” would someday rule the Internet and IM.  And we all know how that turned out.

If you ask me, this episode again reflects the short-term, static snapshot thinking we all too often see at work in debates over media and technology policy. That is, many cyber-worrywarts are prone to taking snapshots of market activity and suggesting that temporary patterns are permanent disasters requiring immediate correction. Of course, a more dynamic view of progress and competition holds that “market failures” and “code failures” are ultimately better addressed by voluntary, spontaneous, bottom-up responses than by coercive, top-down approaches. [More on that conflict of visions in my book chapter on “The Case for Internet Optimism, Part 2 – Saving the Net From Its Supporters.”]

Regardless, I just don’t see how Wu or the FTC can claim Twitter has monopolized a market that is still so young that we can’t even define it.

On Harm

Even if one accepted Wu’s premise that Twitter was a monopolist, where is the harm? At least in theory, antitrust law is supposed to be about protecting consumer welfare, not competitors. If this whole thing is about UberMedia losing out in some bidding wars for alternative Twitter platforms, well, that’s just pathetic. UberMedia is free to develop or bid on alternative Twitter applications or work with others to develop entirely new services. It’s not like there’s a shortage of them out there.

If the theory is that consumers are being harmed by Twitter exerting more control over its API, I would just remind everyone that (a) we don’t pay a cent for the service that Twitter provides and (b) Twitter is still scrambling to find a way to monetize its service for the long-haul. There are also some legitimate security issues in play here that cut against the claim that what Twitter is doing is anti-consumer.

In sum, it is hard to understand where the harm lies in Twitter taking greater control of its API, and there’s certainly nothing stopping rival innovators from tying to offer a competing service.  140-character text messages aren’t exactly the stuff of traditional “information empires,” as Wu would call them.

On Remedies

Finally, we come to the thorny issue of remedies. I suppose the easiest remedy would be a prohibition on Twitter acquiring any third-party applications provider that currently relies on Twitter’s API. In other words, downstream vertical integration would be forbidden. But there’s about 40 years of antitrust literature explaining why such integration is generally pro-innovation and pro-consumer and shouldn’t be made illegal by antitrust law. Tim Wu may not buy that–and if you’ve read his recent book The Master Switch, you know he absolutely rejects it–but it is standard thinking in the field of industrial organization and antitrust economics today. Most of the economists at the FTC and DOJ could tell him as much.

Another alternative remedy might be Jonathan Zittrain’s “API neutrality” idea, proposed in his 2008 book, The Future of the Internet and How to Stop It. Zittrain suggested that API neutrality–essentially a variant of Net neutrality but for application protocols–might be needed to ensure fair access to certain services or platforms to guarantee that digital “generativity” was not imperiled. On pg. 181 of the book, Zittrain argued that:

“If there is a present worldwide threat to neutrality in the movement of bits, it comes not from restrictions on traditional Internet access that can be evaded using generative PCs, but from enhancements to traditional and emerging appliancized services that are not open to third-party tinkering.”

After engaging in some hand-wringing about “walled gardens” and “mediated experiences,” Zittrain went on to ask: “So when should we consider network neutrality-style mandates for appliancized systems?” He responds to his own question as follows:

“The answer lies in that subset of appliancized systems that seeks to gain the benefits of third-party contributions while reserving the right to exclude it later. … Those who offer open APIs on the Net in an attempt to harness the generative cycle ought to remain application-neutral after their efforts have succeeded, so all those who built on top of their interface can continue to do so on equal terms.” (p. 184)

This might be a fine generic principle, but Zittrain implies that this should be a legal standard to which online providers are held. At one point, he even alludes to the possibility of applying the common law principle of adverse possession more broadly in these contexts. He notes that adverse possession “dictates that people who openly occupy another’s private property without the owner’s explicit objection (or, for that matter, permission) can, after a lengthy period of time, come to legitimately acquire it.” But he doesn’t make it clear when it would be triggered as it pertains to digital platforms or APIs.

Nonetheless, one could imagine it would be one remedy antitrust officials might look to when considering what to do about Twitter exerting greater control over its API. Essentially, Twitter would become the equivalent of a public utility that all would have access to on regulated terms.

As I noted in the first of my many reviews of Zittrain’s book, there are many problems with the logic of API neutrality or the application of adverse possession in these contexts. Here’s my critique of the “API neutrality” notion (again, this is from 2008 so it now sounds a bit dated):

First, most developers who offer open APIs aren’t likely to close them later precisely because they don’t want to incur the wrath of “those who built on top of their interface.” But, second, for the sake of argument, let’s say they did want to abandoned previously open APIs and move to some sort of walled garden. So what? Isn’t that called marketplace experimentation? Are we really going to make that illegal? Finally, if they were so foolish as to engage in such games, it might be the best thing that ever happened to the market and consumers since it could encourage more entry and innovation as people seek out more open, pro-generative alternatives. Consider this example: Now that Apple has opened to door to third-party iPhone development a bit with the SDK, does that mean that under Jonathan’s proposed paradigm we should treat the iPhone as the equivalent of commoditized common carriage device? That seems incredibly misguided to me. If Steve Jobs opens the development door just a little bit only to slam it shut a short time later, he will pay dearly for that mistake in the marketplace. For God’s sake, just spend a few minutes over on the Howard Forums or the PPC Geeks forum if you want to get a taste for the insane amount of tinkering going on out there in the mobile world right now on other systems. If Apple tries to roll back the clock, Microsoft and others will be all too happy to take their business by offering a wealth of devices that allow you to tinker to your heart’s content. We should let such experiments continue and let the future of the Internet be determined by market choices, not regulatory choices such as forced API neutrality.

I think the same critique would apply to efforts to impose API neutrality on Twitter.  Regardless, would such a remedy be imposed through targeted regulatory action, an antitrust consent decree, or perhaps through what Tim Wu calls “agency threats”?

Wu’s “Threat Regime” Model of Internet Governance

Prof. Wu recently published a law review article on “Agency Threats” and what he approvingly refers to as “threat regimes.” The paper is a “defense of regulatory threats in particular contexts.”  Here’s a portion of the abstract:

The use of threats instead of law can be a useful choice — not simply a procedural end run. My argument is that the merits of any regulative modality cannot be determined without reference to the state of the industry being regulated. Threat regimes, I suggest, are important and are best justified when the industry is undergoing rapid change — under conditions of “high uncertainty.” Highly informal regimes are most useful, that is, when the agency faces a problem in an environment in which facts are highly unclear and evolving. Examples include periods surrounding a newly invented technology or business model, or a practice about which little is known.

I’m extremely troubled by this reasoning and can think of a couple of alternative labels for such behavior by government agencies: unaccountable, above-the-law, unconstitutional, anti-democratic, thuggery, regulatory blackmail, and so on.

But what’s even more troubling about Wu’s thinking about “threat regimes” is that he assumes this arbitrary mode of governing-by-intimidation makes even more sense in fast-moving high-tech industries. That seems counter-intuitive. If a given sector finds itself in a state of “high uncertainty” as Wu calls it, doesn’t that mean, by definition, it is dynamic and subject to forces that might bring about beneficial change? And shouldn’t we assume that those are the last sectors we would want regulators monkeying with since bureaucrats lack the requisite knowledge of how to best guide the evolution of complex information technologies?

Wu seems to believe that regulators possess a crystal ball and a set of magical dials that can guide the evolution of technology markets to a better equilibrium through the use of constant Sunstein-ian “nudges” (or perhaps shoves).  I think that’s poppycock.

Regardless, once we realize that this is the way Tim Wu thinks, an FTC investigation into Twitter’s current business practices starts to make a lot more sense. It’s about creating a “threat regime” that intimidates Twitter into to playing by the arbitrary rules of Washington bureaucrats instead of responding to marketplace demands and developments in a natural, evolutionary way. In fact, in his “threats” essay, Wu explicitly rejects that model:

The second option—“wait and see”—may sound attractive because it allows the industry to develop in what might be called a natural way. This approach, however, makes a great sacrifice: the public’s interest may be entirely unrepresented during the industry’s formative period. The risk is that the industry’s norms and business models will, effectively, be set without any public input. Waiting for the industry to settle down may result in undesirable practices that prove extremely hard to reverse or influence with rules issued later. To state the matter more colloquially, the industry may be “baked” by the time there is any real oversight or public input.

In essence, Wu desires a “mixed economy” model for high-tech sectors in which decision are guided at every juncture by the supposed wisdom of techno-cratic philosopher kings like himself. We must trust that he and his fellow regulators will guide us and our economy down an more enlightened path. And we must accept that some “threats” may be necessary to get the job done.

I find this mode of thinking disturbing in the extreme because of the rank hubris at the center of it. Regardless, Twitter appears to be well on its way to becoming a test case for Wu’s “threat” model of Internet governance.

Twitter could be in for a world of potential pain. Regulatory pain, that is. The company’s announcement on Friday that it would soon be cracking down on the uses of its API by third parties is raising eyebrows in cyberspace and, if recent regulatory history is any indicator, this high-tech innovator could soon face some heat from regulatory advocates and public policy makers. If this thing goes down as I describe it below, it will be one hell of a fight that once again features warring conceptions of “Internet freedom” butting heads over the question of whether Twitter should be forced to share its API with rivals via some sort of “open access” regulatory regime or “API neutrality,” in particular. I’ll explore that possibility in this essay. First, a bit of background.

Understanding Forced Access Regulation

In the field of communications law, the dominant public policy fight of the past 15 years has been the battle over “open access” and “neutrality” regulation. Generally speaking, open access regulations demand that a company share its property (networks, systems, devices, or code) with rivals on terms established by law. Neutrality regulation is a variant of open access regulation, which also requires that systems be used in ways specified by law, but usually without the physical sharing requirements. Both forms of regulation derive from traditional common carriage principles / regulatory regimes. Critics of such regulation, which would most definitely include me, decry the inefficiencies associated with such “forced access” regimes, as we prefer to label them. Forced access regulation also raises certain constitutional issues related to First and Fifth Amendment rights of speech and property.

The Telecommunications Act of 1996 got this ball rolling with its mandated access provisions for local phone service. To make a very long and tortured history much shorter, this was a battle over how far law should go to force local telephone companies to share their phone lines with rivals at regulated rates. (Check this old piece of mine for a flavor of how well that turned out.) The advocates of open access regulation eventually turned their attention to cable systems and tried (but failed) to apply similar sharing / access rules there. Following those fights, which involved many nasty court skirmishes, the Net neutrality wars broke out. Net neutrality is a type of forced access regime for broadband platforms. Although Net neutrality regulation would not necessarily require carriers to share networks with rivals, it would at least require that platform providers play by special access and interconnection rules set by federal regulators.

Forced access provisions have been used in other contexts. We might think of the provisions we saw at work in the Microsoft antitrust case as a form of forced access regulation. Some may also recall the interconnection provisions that governed AOL’s instant messaging service following its merger with Time Warner (discussed more below). There are other examples, but I think you get the point.

New Frontiers for Forced Access Regulation?

All this history is well known to all readers of this blog and followers of communications policy. The reason I repeat it here is because this fight is now spreading to new sectors, platforms, and technologies.

For example, “search neutrality” is one of those new frontiers of the forced access fight. Some academics and regulatory advocates are pushing for rules that would govern how search results are shown or for special requirements on search providers to eliminate supposed “search bias” or to ensure search “fairness” of various sorts. Make sure to read James Grimmelmann’s terrific treatment of the concept from his chapter in TechFreedom’s book, The Next Digital Decade, and then also listen to this podcast featuring Danny Sullivan dissecting the issue.

Some critics also want to treat search engines (and Google in particular) as “essential facilities.” In another essay from The Next Digital Decade, Geoff Manne has done a good job pointing out why that’s such a misguided idea.

Similarly, some folks (such as danah boyd) are already calling for Facebook to be regulated as a public utility or essential facility. I responded in my essay, “Facebook Isn’t a “Utility” & You Certainly Shouldn’t Want it to Be Regulated As Such,” in which I pointed out that Facebook isn’t exactly a “life-essential” service that is gouging customers, who have plenty of other choices in social networking services.

Adverse Possession & API Neutrality for Twitter?

An equally interesting battle is now set to unfold for Twitter following Friday’s announced changes. To get a flavor for what might lie ahead for the company, we might begin by taking a second look at what Harvard University’s Jonathan Zittrain proposed in his 2008 book, The Future of the Internet and How to Stop It. In that book, Zittrain suggested that “API neutrality” might be needed to ensure fair access to certain cyber-services or digital platforms to ensure “generativity” was not imperiled. On pg. 181 of the book, Zittrain argued that:

“If there is a present worldwide threat to neutrality in the movement of bits, it comes not from restrictions on traditional Internet access that can be evaded using generative PCs, but from enhancements to traditional and emerging appliancized services that are not open to third-party tinkering.”

After engaging in some hand-wringing about “walled gardens” and “mediated experiences,” Zittrain went on to ask: “So when should we consider network neutrality-style mandates for appliancized systems?” He responds to his own question as follows:

“The answer lies in that subset of appliancized systems that seeks to gain the benefits of third-party contributions while reserving the right to exclude it later. … Those who offer open APIs on the Net in an attempt to harness the generative cycle ought to remain application-neutral after their efforts have succeeded, so all those who built on top of their interface can continue to do so on equal terms.” (p. 184)

This might be a fine generic principle, but Zittrain implies that this should be a legal standard to which online providers are held. At one point, he even alludes to the possibility of applying the common law principle of adverse possession more broadly in these contexts. He notes that adverse possession “dictates that people who openly occupy another’s private property without the owner’s explicit objection (or, for that matter, permission) can, after a lengthy period of time, come to legitimately acquire it.” But he doesn’t make it clear when it would be triggered as it pertains to digital platforms or APIs.

As I noted in the first of my many reviews of his book, there are many problems with the logic of API neutrality or the application of adverse possession in these contexts. Here’s my critique of the “API neutrality” notion (again, this is from 2008):

First, most developers who offer open APIs aren’t likely to close them later precisely because they don’t want to incur the wrath of “those who built on top of their interface.” But, second, for the sake of argument, let’s say they did want to abandoned previously open APIs and move to some sort of walled garden. So what? Isn’t that called marketplace experimentation? Are we really going to make that illegal? Finally, if they were so foolish as to engage in such games, it might be the best thing that ever happened to the market and consumers since it could encourage more entry and innovation as people seek out more open, pro-generative alternatives. Consider this example: Now that Apple has opened to door to third-party iPhone development a bit with the SDK, does that mean that under Jonathan’s proposed paradigm we should treat the iPhone as the equivalent of commoditized common carriage device? That seems incredibly misguided to me. If Steve Jobs opens the development door just a little bit only to slam it shut a short time later, he will pay dearly for that mistake in the marketplace. For God’s sake, just spend a few minutes over on the Howard Forums or the PPC Geeks forum if you want to get a taste for the insane amount of tinkering going on out there in the mobile world right now on other systems. If Apple tries to roll back the clock, Microsoft and others will be all too happy to take their business by offering a wealth of devices that allow you to tinker to your heart’s content. We should let such experiments continue and let the future of the Internet be determined by market choices, not regulatory choices such as forced API neutrality.

I think the same critique would apply to efforts to impose API neutrality on Twitter. But before going into more detail, we need to first ask another question: Does Twitter possess “market power” such that their actions warrant antitrust or regulatory scrutiny at all?

But Isn’t Twitter a “Monopoly”?

Savvy readers will recall that influential Columbia Law School cyberlaw professor Tim Wu has already labeled Twitter a “monopoly,” although he has not yet bothered telling us what the relevant market is here. As I pointed out in an essay critiquing the way Prof. Wu flippantly assigns the label “monopoly” to just about any big tech provider, it’s very much unclear what to call the market Twitter serves. After all, the service is only a few years old and competes with many other forms of communication and information dissemination. For me, Twitter is a partial substitute for blogging, IMs, email, phone calls, and my RSS feed. Yet, like most others, I continue to use all those other technologies and those technologies continue to pressure Twitter to innovate.

Regardless, Prof. Wu is now in a position to put his ideas into action since he is currently serving a short tenure as special advisor to the Federal Trade Commission (FTC).  Might he act on his instincts, therefore, and advise the agency to take action against Twitter? It is unlikely that Prof Wu will be around the FTC long enough to help them bring any sort of formal action against Twitter, but he could help lay the groundwork for a creative interpretation of our nation’s antitrust laws such that Twitter somehow comes to be labeled a “monopoly” or what he refers to as an “information empire” in his new book The Master Switch. (See my last review of the book here.)

But I think he’d have a very hard time convincing the folks in the FTC’s Economics Bureau that Twitter is really worth worrying about or that it has anything approximating a “monopoly” in this emerging market, whatever that market is. But Wu has the ear of key people in government right now and could be lobbying for more expansive constructions of “information monopoly” since he made it very clear in his book that traditional antitrust analysis was not sufficient for information sectors. “[I]nformation industries… can never be properly understood as ‘normal’ industries,” Wu claimed, and even traditional forms of regulation, including antitrust, “are clearly inadequate for the regulation of information industries,” he says. (p. 303)

The Principle of the Matter

So here’s my take on the issue. Twitter is an amazing innovator. It created the space it now plays in and that market is still so new and unique that we don’t even have a name for it yet. In America, we should – and usually do – celebrate such entrepreneurialism. But sometimes certain Ivory Tower elites, regulatory-minded advocates, paternalistic policymakers, or even disgruntled competitors, claim that such innovators “owe” the rest of us something because they got rich or powerful thanks to that innovation. “Forced access” or “neutrality” mandates becomes a convenient regulatory prescription to achieve that end even though the motivating principle behind such regulation is, essentially, “what’s yours is mine.”

Indeed, from my perspective, the entire notion of forced access to the Twitter API could be dismissed by noting that, technically speaking, Twitter’s API is its private property and they should be free to do as they wish with it. That’s why I’m particularly concerned with Zittrain’s notion that we might consider applying adverse possession principles to any digital platform with enough users; at root, it’s a call to limit or even abolish property rights for digital platforms once they gain popularity or have a large number of users. As noted below, that has extremely dangerous ramifications for digital innovation but, more profoundly in my opinion, it is an unjust and unconstitutional taking of an innovator’s property. Of course, I understand that property rights aren’t exactly in vogue in America anymore and that this isn’t really a satisfying answer from the consumer’s perspective, so let’s continue on and consider a few other reasons why forced access regulation of Twitter via API neutrality would be a mistake.

First, we should not forget that Twitter has yet to find a way to turn its service into a serious revenue-generator. The most obvious reason for that is that Twitter (a) doesn’t charge anything for the service it provides and (b) doesn’t lock down its platform / API such that they might be able to earn a return on their investment by monetizing eyeballs via advertising on their own platform. That’s why Twitter’s announcement on Friday won’t come to a shock to anyone with a whiff of business sense in their heads. At some point, Twitter probably had to do something like this if they wanted to find a way to monetize and grow their business.

I can hear some out there screaming out “but it’s not fair!” as if there was cosmic sense of cyber-justice that has been betrayed because Twitter had the audacity to lock-down their platform. Of course, it is certainly true that some third-party app providers may suffer because of Twitter’s move here.  I’m not going to lie to you; if Twitter’s move to exert greater control over its API somehow destroys the beauty that is the TweetDeck desktop interface, I am going to be screaming mad myself! I do not think there has ever been a slicker, more user-friendly interface for any web service in Internet history than what TweetDeck offers consumers. For my money – which means nothing since TweetDeck is free! – TweetDeck is digital perfection defined. And, incidentally, I’d be happy to pay for it if they asked.

But despite my gushing love for it, let’s be clear about something: TweetDeck has no inherent right to exist. Indeed, TweetDeck owes its very existence to the fact that Twitter offered its API to the world on a completely free, unlicensed, unrestricted basis. The same holds true for all those other third-party platforms that depend upon the Twitter API. What Twitter giveth, Twitter can taketh away.

Stated differently, Twitter has thus far had a voluntary open access policy in place for the first few years of its existence but now wants to partially abandon that policy. This policy reversal will, no doubt, lead to claims that the company is acting like one of Wu’s proverbial “information empires” and that perhaps Zittrain’s API neutrality regime should be put in place as a remedy.  Indeed, Zittrain has already referred to it as a “bait-and-switch” and cited back to the provisions of his book that I outlined above. I believe that foreshadows what’s to come: more pressure from the Ivory Tower and then, potentially, from public policy makers that will first encourage and then push to force Twitter to grant access to its platform on terms set by others.  It’s a potential first step toward the forced commoditization of the Twitter API and the involuntary surrender of its property rights to some collective authority who will manage it as a “collective good,” “common carrier,” or “essential facility.”

But Consider This… (on API Neutrality and Disincentives)

Of course, the people at Twitter certain realize how important all those third-party apps and platforms have been to growing the Twitter information empire. Thus, an overly-zealous move to crush third parities by denying them the API or any incidental use of the Twitter name / branding could backfire in two ways: it could lead to a major consumer backlash which in turn spurs the development of alternative platforms and entirely new types of competing services.

Vertical integration might be one way to partially alleviate those problems. Twitter could start cutting deals with existing third-party platforms that rely upon its API such that they were brought under the Twitter corporate umbrella, where more standardization could occur. But Twitter doesn’t have the money to buy them all out. Moreover, Twitter doesn’t want to see dozens of interfaces under its corporate umbrella. For them, this is about “a consistent user experience.” In other words, they’d obviously prefer a more standardized platform / interface that simply got rid of some of those third-party apps and platforms altogether.

As a result, in the short term, I think we’ll likely end up with a market dominated by Twitter’s proprietary platform(s) but with a couple of other leading existing third-party providers being tolerated by the company so as not to rock the boat too much. And that’s not a bad thing. Here’s the key principle to keep in mind: If we apply API neutrality or adverse possession principles forcibly, it sends a horrible signal to entrepreneurs that basically says their platforms are theirs in name only and will be forcibly commoditized once they are popular enough. That’s a horrible disincentive to future innovation and investment. However, it means we must sometimes tolerate short term spells of “market power” when we allow entrepreneurs to realize the benefits of their past innovations and investments if we hope to get more of them in the future.

Avoiding Static Snapshots

But wait, you say, isn’t this all quite horrible for the consumers and competition? Isn’t this just Wu’s “information empire” fear manifesting itself such that antitrust or API neutrality really is required?

Here’s where those warring conceptions of “Internet freedom” come into play. As I’ve noted here many times before in my work on the “conflict of visions” about Internet freedom today, it is during what some might regard as a market’s darkest hour when some of the most exciting disruptive technologies and innovations develop. People don’t sit still; they respond to incentives, including short spells of apparently excessive private power.

By contrast, the “static snapshot” crowd gets so worked up about short term spells of “market power” – which usually don’t represent serious market power at all – that they call for the reordering of markets to suit their tastes.  Sadly, they sometimes do this under the banner of “Internet freedom,” claiming that we can “free” consumers from the supposed tyranny of the marketplace. In reality, that vision wraps markets in chains and ultimately leaves consumers worse off by stifling innovation and inviting in ham-handed regulatory edits and bureaucracies to plan this fast-paced sector of our economy.

“Splitting the Root”

And innovation is possible. Is it really that unthinkable that a Twitter competitor might come along? In a sense, TweetDeck shows the way forward.  TweetDeck has already bucked Twitter’s 140-character limit by offering “Deck.ly,” an exclusive service that allows TweetDeck users to type Twitter messages longer than 140 characters, but which will only be visible via TweetDeck platforms. What if TweetDeck took the next bold step and offered an entirely separate API in direct competition to Twitter? It would be the tweeting equivalent of “splitting the root,” to borrow a concept from the domain name space.

Some would decry the potential lack of interoperability at first. But I bet some sharp folks out there would quickly find work-arounds. Has everyone forgotten the hand-wringing that took place over instant message interoperability just a decade ago (and the resulting restrictions placed on the company following its merger with Time Warner)? Big bad AOL was going to eat everyone’s lunch in the IM space, don’t you remember? But all the hand-wringing about AOL’s looming monopolization of instant messaging seems particularly silly now since anyone can download a free chat client like Digsby or Adium to manage IM services from AOL, Yahoo!, Google, Facebook and just about anyone else, all within a single interface — essentially making it irrelevant which chat service your friends use.

Again, people respond to incentives, and sometimes it takes bone-headed moves by market leaders to really get people off their butts and motivate them to code work-arounds and superior solutions. Is it so hard to imagine that a similar response might follow Twitter’s move this week? After all, we are not talking about replicating a massive physical network of pipes or towers here. We are talking about pure code, for God’s sake! Competition to Twitter is more than possible and it’s likely to come from sources and platforms we cannot currently imagine (just as few of us could have imagined something like Twitter developing just five years ago).

Conclusion

So, Twitter’s move is not an end but rather a new beginning. Personally, I think it could spawn another amazing round of innovation in this space. Again, we must not forget that we are dealing with a space that is still so new that we do not know what to call it. For that reason alone, we should be skeptical of calls for a preemptive regulatory strike. We need to have a little faith in the entrepreneurial spirit and the dynamic nature of markets built upon code, which have the uncanny ability to morph and upend themselves seemingly every few years. In the short term, Twitter will continue to possess a dominant position in whatever we call this market that it serves. But the short term is just that; it’s not the end of the story.

Now excuse me while I get back to Tweeting!

Writing over at Forbes, Bret Swanson notes that the progression of information technology history isn’t going so well for those Net pessimists who, not so long ago, predicted that the sky was set to fall on consumers and that digital innovation was dying. Specifically, Swanson addresses the theories set forth by cyberlaw professors Lessig, Zittrain, and Wu (among others), whose theories about “perfect control,” the death of “generativity,” and the rise of the “master switch,” I have addressed here many time before.  [See this compendium of TLF essays discussing “Problems with the Lessig-Zittrain-Wu Thesis.”] Swanson summarizes what went wrong with their gloomy Chicken Little theories and their predictions of the coming cyber end-times:

As the cloud wars roar, the cyber lawyers simmer. This wasn’t how it was supposed to be. The technology law triad of Harvard’s Lawrence Lessig and Jonathan Zittrain and Columbia’s Tim Wu had a vision. They saw an arts and crafts commune of cyber-togetherness. Homemade Web pages with flashing sirens and tacky text were more authentic. “Generativity” was Zittrain’s watchword, a vague aesthetic whose only definition came from its opposition to the ominous “perfect control” imposed by corporations dictating “code” and throwing the “master switch.” In their straw world of “open” heros and “closed” monsters, AOL’s “walled garden” of the 1990s was the first sign of trouble. Microsoft was an obvious villain. The broadband service providers were  of course dangerous gatekeepers, the iPhone was too sleek and integrated, and now even Facebook threatens their ideal of uncurated chaos. These were just a few of the many companies that were supposed to kill the Internet. The triad’s perfect world would be mostly broke organic farmers and struggling artists. Instead, we got Apple’s beautifully beveled apps and Google’s intergalactic ubiquity. Worst of all, the Web started making money.

Swanson goes on to argue that, despite all the hang-wringing we’re heard from this triumvirate and their many, many disciples in the academic and regulatory activist world, things just keep getting more innovative, more generative, and yes, even more “open.”  As I noted in my book chapter on “The Case for Internet Optimism, Part 2 – Saving the Net From Its Supporters” as well as my recent Reason magazine essay on “The Rise of Cybercollectivism,” scholars like Lessig, Zittrain, and Wu:

seem trapped in what Virginia Postrel labeled the “stasis mentality” in her 1998 book The Future and Its Enemies. They want an engineered world that promises certain outcomes. They are prone to taking snapshots of market activity and suggesting that those temporary patterns are permanent disasters requiring immediate correction. (Recall Lessig’s fear of AOL, which once had 25 million subscribers who were willing to pay $20 a month to get a guided tour of the Internet, but which ignored the rise of search and social networks at its own peril. It didn’t help that the company’s disastrous merger with Time Warner ended with over $100 billion in shareholders losses and an eventual divorce.) The better approach is what Postrel termed dynamism: “a world of constant creation, discovery, and competition.” Dynamism places heavy stress on the heuristic and believes there is inherent value in an experimental, evolutionary process, no matter how messy it can be in practice.

Moreover, I think these scholars fail to appreciate a point I tried to make in my essay earlier this week on “Techno-Panic Cycles“:

many people overlook the importance of human adaptability and resiliency.  The amazing thing about humans is that we adapt so much better than other creatures. When it comes to technological change, resiliency is hard-wired into our genes.  … We learn how to use the new tools given to us and make them part of our lives and culture.

Just as that is true for social or speech-related technology developments, so too for economic developments. People don’t sit still — consumers, coders, new companies, etc. — they respond to marketplace developments and incentives. They seek out new ways of doing things.  They hack. They crack. They code. They are always looking to build or buy a better mousetrap. And when they find them, they don’t just settle for the state-of-the-art ; they expect everything to be reworked and re-launched constantly with revisions and improvements at every level. For example, the original Verizon Droid 1 that I got just 15 months ago now feels like an antique compared to the latest devices on the market. I am dying to upgrade to a new model, which will give me more processing power, more storage, more high-speed access, more apps, more of everything. I am so pampered by the pace of progress that expect and demand it!

No doubt, the ivory tower worrywarts will continue to grumble about how their techno-cratic philosopher king approach would supposedly make the world even more innovative and consumer-friendly, if only we adopted a healthy dose of top-down planning and centralized direction. But we need to ask ourselves whether their prescription for planning can really beat the track record that is unfolding on a daily basis right before our eyes.

The folks at Reason magazine were kind enough to invite me to submit a review of Tim Wu’s new book, The Master Switch: The Rise and Fall of Information Empires based on my 6-part series on the book that I posted here on the TLF late last year. (Parts 1, 2, 3, 4, 5, 6)  My new essay, which is entitled “The Rise of Cybercollectivism,” has now been posted on the Reason website.

I realize that title will give some readers heartburn, even those who are inclined to agree with me much the time.  After all, “collectivism” is a term that packs some rhetorical punch and leads to quick accusations of red-baiting. I addressed that concern in a Cato Unbound debate with Lawrence Lessig a couple of years ago after he strenuously objected to my use of that term to describe his worldview (and that of Tim Wu, Jonathan Zittrain, and their many colleagues and followers). As I noted then, however, the “collectivism” of which I speak is a more generic type, not the hard-edged Marxist brand of collectivism of modern times. For example, I do not believe that Professors Lessig, Zittrain, or Wu are out to socialize all the information means of production and send us all to digital gulags or anything silly like that. Rather, their “collectivism” is rooted in a more general desire to have–as Declan McCullagh eloquently stated in a critique of Lessig’s Code–rule by “technocratic philosopher kings.” Here’s a passage from my Reason review of Wu’s Master Switch in which I expand upon that notion:

What’s perhaps most troubling about The Master Switch is something it shares with Lessig’s book: a concerted effort to redefine “Internet freedom.” In the Lessig-Zittrain-Wu construction of Internet freedom, technocrats liberate us from the supposed tyranny of the marketplace and what Lessig calls “code failure.” High-tech entrepreneurs are cast as villains; their innovations are viewed as threats to our liberties. When challenged, Wu, Lessig, and Zittrain all vehemently reject the notion that their outlook is pessimistic. They occasionally insist that they are actually libertarians at heart. But a plain reading of Lessig, Zittrain, and Wu provides little cause for optimism. Unless someone or something—usually the state—intervenes, they warn, the Net and all things digital are doomed. “Not only can the government take these steps to reassert its power to regulate, but…it should,” argues Lessig. “Government should push the architecture of the Net to facilitate its regulation, or else it will suffer what can only be described as a loss of sovereignty.”

Wu’s book has a very concrete regulatory vision in this regard (even though, strangely, he insists it really isn’t regulation at all). As I noted in my essay last week following his appointment as a senior advisor to the Federal Trade Commission, Wu wants a so-called “Separations Principle” to govern our modern information economy. It would require that all information providers be segregated into three buckets–creators, distributors, and hardware makers–and then kept strictly compartmentalized. He proposes this in the name of keeping private power in check, which he regards as the primary threat to the information economy, not the government. This is very much in line with the thinking we see in Lessig and Zittrain’s work.  Here’s how I summarize this thinking in my Reason piece:

Wu and other progressives don’t always come right out and say it, but they often suggest that private power, however defined, is so persistently insidious that the only way to counteract it is by greatly amplifying state power. We see that yearning for a stronger state in Wu’s suggestion that “the disposition of firms and industries is, if anything, more critical than the actions of the state in controlling who gets heard” and in his audacious regulatory solutions, which would greatly enhance the government’s power over the information economy.

For these reasons, I believe the “cyber-collectivism” label is appropriate. They want to collectivize (or politicize) decisions that some of us believe are ultimately better addressed by voluntary, spontaneous, bottom-up, marketplace responses and evolving social norms.

At this point, some might ask: Do we need such labels at all? As a philosophy junkie, I think such labels and classifications play a useful didactic role. After all, something quite profound separates these different camps and leads to endless squabbles about nearly every aspect of technology policy. Consequently, my attempt to identify leading schools of thinking about Internet policy issues is not an effort to disparage but, rather, simply an exercise in philosophical classification to help us frame ongoing investigations of these issues in a more rational manner.

I am certainly open to other classification suggestions.”Cyber-progressive” might be one option that packs less of a perceived punch than “cyber-collectivist.” I’ve also used the term “cyber social Democrat” and “openness evangelicals” to describe this movement, although both labels have serious shortcomings.

As for myself, I have made no bones about my affiliation with what might be labeled the “cyber-libertarian” school of thought. Clearly, we’re a small band of brothers, and we are currently being utterly crushed in these intellectual debates by the cyber-progressives, who dominate almost all major university cyberlaw and Internet policy programs. Nonetheless, despite having so few adherents, I still think it is fair to identify cyber-libertarianism as a distinct school of thinking.

I think we’re also seeing the emergence of a clear school of thinking that we’ll eventually label “cyber-conservative,” as Jerry Brito alluded to in his post about “What Cablegate Tells Us about Cyber-Conservatism.” I think the defining characteristics for the cyber-conservative, as with conservatism more generally, can be boiled down to security, stability, moderation, and a healthy respect for tradition.  Conservatives occasionally place a high value on liberty in certain economic contexts, but when it conflicts too violently with those other principles, liberty typically gives way to planning. We see this in debates over many national security matters, some privacy discussions, and certain “faith and family” issues. Interestingly, however, conservative principles have never really taken hold in a unified or coherent way within the realm of technology policy, and it’s difficult to point to many scholars who would clearly fit under the “cyber-conservative” banner.  But I think that is changing today because of rising concerns about state secrets, cyber war, the ubiquity of content considered morally objectionable by many, fears about declining  “social order,” and so on. [See my comments on Rob Atkinson’s Who’s Who in Internet Politics for more discussion about cyber-conservatism.]

Do you have better labels for these philosophical schools of thinking about Internet policy matters? If so, I’m all ears.

Additional Reading:

• Cyber-Libertarianism: The Case for Real Internet Freedom
• The Case for Internet Optimism, Part 2 – Saving the Net From Its Supporters
• Thoughts on Wu, Part 5: What Ultimately Separates the Cyber-Libertarian & Cyber-Collectivist
• Cato Unbound debate with Lessig, Part 1: Code, Pessimism, and the Illusion of “Perfect Control” & Part 2: “Our Conflict of Visions.”

As Adam notes, Columbia lawprof and holder of the dubious distinction of having originated the term and concept of Net Neutrality, Tim Wu, is headed to the FTC as a senior advisor.

Curiously, his guest stint runs for only about four and a half months.  As the WSJ reports:

Mr. Wu, 38, will start his new position on Feb. 14 in the FTC’s Office of Policy Planning, and will help the agency to develop policies that affect the Internet and the market for mobile communications and services. The FTC said Mr. Wu will work in the unit until July 31. Mr. Wu, who is taking a leave from Columbia, said that to work after that date he would have to request a further leave from the university.

Mr. Wu’s claim that the source of the date constraint is Columbia doesn’t pass the smell test.  Now, it is possible that what he says is  literally true–and therefore intentionally misleading.  Perhaps he asked only for leave through the end of July and would indeed have to request further leave if he wanted it.  But the implication that Columbia would have trouble granting further leave–especially during the summer!–and thus the short tenure seems very fishy to me.

So what else could be going on, while we’re reading inscrutable tea leaves?  Well, for one thing, it could be that Wu has already signed on for some not-yet-public role at Columbia that he prefers not to imperil.  Maybe associate dean or something like that.

But I have another, completely unsupported speculation.  I think the author of The Master Switch (commented on by Josh and me here) and one of the most capable (as far as that goes) proponents of Internet regulation in the land is being brought in to the FTC to help the agency gin up a case against Google.

I think with Google-ITA seemingly approaching its denouement, the FTC knows or believes that Google is either planning to abandon the merger or else enter into an (insufficiently-restrictive for the FTC) settlement with the DOJ.  In either case, not a full-blown investigation and intervention into Google’s business.  So the FTC is preparing its own Section 5 (and Section 2, but who needs that piker when you have the real deal in Section 5?) (for previous TOTM takes on Section 5, see, e.g., here and here) case and has brought in Wu to help.  Given the switching back and forth between the DOJ and FTC in reviewing Google mergers, it could very well be (I haven’t kept close tabs on Google’s proposed acquisitions) that there’s even already another merger review in waiting at the FTC on which the agency is planning to build its case.

But the phase of the case requiring Wu’s full attention–the conceptual early phase–should be completed by the end of July, so no need to detain him further.

More concretely, I would point out that it says a lot about the agency’s mindset that it is bringing in the likes of Wu to help it with its ongoing forays into the regulation of Internet businesses.  By comparison, I would just point out that Chairman Majoras’ FTC brought in our own Josh Wright as the agency’s first Scholar in Residence.  Sends a very different signal, don’t you think?

Congrats are due to Tim Wu, who’s just been appointed as a senior advisor to the Federal Trade Commission (FTC). Tim is a brilliant and gracious guy; easily one of the most agreeable people I’ve ever had the pleasure of interacting with in my 20 years in covering technology policy. He’s a logical choice for such a position in a Democratic administration since he has been one of the leading lights on the Left on cyberlaw issues over the past decade.

That being said, Tim’s ideas on tech policy trouble me deeply. I’ll ignore the fact that he gave birth to the term “net neutrality” and that he chaired the radical regulatory activist group, Free Press. Instead, I just want to remind folks of one very troubling recommendation for the information sector that he articulated in his new book, The Master Switch: The Rise and Fall of Information Empires. While his book was preoccupied with corporate power and the ability of media and communications companies to posses a supposed “master switch” over speech or culture, I’m more worried about the “regulatory switch” that Tim has said the government should toss.

Tim has suggested that a so-called “Separations Principle” govern our modern information economy. “A Separations Principle would mean the creation of a salutary distance between each of the major functions or layers in the information economy,” he says. “It would mean that those who develop information, those who control the network infrastructure on which it travels, and those who control the tools or venues of access must be kept apart from one another.”  Tim calls this a “constitutional approach” because he models it on the separations of power found in the U.S. Constitution.

I critiqued this concept in Part 6 of my ridiculously long multi-part review of his new book, and I discuss it further in a new Reason magazine article, which is due out shortly. As I note in my Reason essay, Tim’s blueprint for “reforming” technology policy represents an audacious industrial policy for the Internet and America’s information sectors. In concrete regulatory terms—and despite Tim’s insistence to the contrary, his approach most assuredly would require regulation—the Separations Principle would segregate information providers into three buckets: creators, distributors, and hardware makers. Presumably these would  become three of the new “titles” (or regulatory sections) of a forthcoming Information Economy Separations Act.

While conceptually neat, these classifications don’t conform to our highly dynamic digital economy, whose parameters can change wildly within the scope of just a few years. For example, Google cut its teeth in the search and online advertising markets, but it now markets phones and computers. Verizon, once just a crusty wireline telephone company, now sells pay TV services and a variety of wireless devices. AOL reinvented itself as media company after its brief reign as the king of dial-up Internet access. Would firms that already possess integrated operations and investments (for instance, Microsoft or Apple) be forced to divest control of them to comply with the Separations Principle? If so, wouldn’t that hinder technological development?

In his book, Tim shrugs off such concerns. “The Separations Principle accepts in advance that some of the benefits of concentration and unified action will be sacrificed,” he writes, “even in ways that may seem painful or costly.” Such a flippant attitude ignores not only the potential benefits of certain forms of integration but also the fact that his proposed information apartheid would upend the American economy as we know it (for instance, by forcing the breakup of  dozens of leading technology companies as well as countless media and entertainment providers). He also ignores the litigation nightmare that would ensue once the government started forcing divestitures.

More shockingly,Tim never explains how the bureaucratic machinations and regulatory capture he decries throughout his book would be held in check under his proposed regime. He breezily writes that “the government [should] also keep its distance and not intervene in the market to favor any technology, network monopoly, or integration of the major functions of an information industry,” but does not explain how this will be accomplished. Does he believe we can build a better breed of bureaucrat if we just try harder? (I suppose he does now that he’s been appointed as one!!)

Equally astonishing is Tim’s assertion that “a Separations regime would take much of the guesswork and impressionism…out of the oversight of information industries.” To the extent that his Separations Principle eliminates “guesswork” and creates more regulatory certainty, it would do so only by creating rigid artificial barriers to market entry and innovation across the information economy. That’s the kind of “certainty” we can live without!

I can only hope that Prof. Wu leaves this particular idea back in the ivory tower as he makes his transition to policy advisor at the FTC.  America’s high-tech sector cannot survive the sort of regulatory wrecking ball approach to public policy that Tim has recommended.

[Note: This post is updated regularly as I discover relevant old or new material.]

“Regulatory capture” occurs when special interests co-opt policymakers or political bodies — regulatory agencies, in particular — to further their own ends.  Capture theory is closely related to the “rent-seeking” and “political failure” theories developed by the public choice school of economics.  Another term for regulatory capture is “client politics,” which according to James Q. Wilson, “occurs when most or all of the benefits of a program go to some single, reasonably small interest (and industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers).”  (James Q. Wilson, Bureaucracy, 1989, at 76).

While capture theory cannot explain all regulatory policies or developments, it does provide an explanation for the actions of political actors with dismaying regularity.  Because regulatory capture theory conflicts mightily with romanticized notions of “independent” regulatory agencies or “scientific” bureaucracy, it often evokes a visceral reaction and a fair bit of denialism.  (See, for example, the reaction of New Republic’s Jonathan Chait to Will Wilkinson’s recent Economist column about the prevalence of corporatism in our modern political system.)  Yet, countless studies have shown that regulatory capture has been at work in various arenas: transportation and telecommunications; energy and environmental policy; farming and financial services; and many others.

I thought it might be useful to build a compendium of quotes from various economists and political scientists who have studied the regulatory process throughout history and identified regulatory capture or client politics as a major problem.  I would greatly appreciate having others suggest additional quotes and studies to add to this list since I plan to update it frequently and eventually work all of this into a future paper or book. [ Note: I have updated this compendium over a dozen times since the original post, so please check back for updates.]

The following list is chronological and begins, surprisingly, with the thoughts of progressive hero Woodrow Wilson…

Woodrow Wilson, The New Freedom: A Call For the Emancipation of the Generous Energies of a People (1913) at 201-202:

“If the government is to tell big business men how to run their business, then don’t you see that big business men have to get closer to the government even than they are now? Don’t you see that they must capture the government, in order not to be restrained too much by it? Must capture the government? They have already captured it. Are you going to invite those inside to stay? They don’t have to get there. They are there.”

A. C. Pigou, Economics of Welfare, (1920), Ch. 20, Para. #4

“It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any public authority will attain, or will even whole-heartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure and to personal corruption by private interest. A loud-voiced part of their constituents, if organised for votes, may easily outweigh the whole.”

Anthony Downs, “An Economic Theory of Political Action in a Democracy,” 65 Journal of Political Economy 2 (1957), 135-150, at 136:

“…even if social welfare could be defined, and methods of maximizing it could be agreed upon, what reason is there to believe that the men who run the government would be motivated to maximize it? To state that “they should do so does not mean that they will.”

Ronald Coase, “The Federal Communications Commission” 2 Journal of Law and Economics (1959), 1-40, at 37. In commenting on the fact that many lawmakers bemoaned “the extent to which pressure is brought to bear on the [FCC] by politicians and businessmen,” Coase said “that this should be happening is hardly surprising.”  He continued on:

“When rights, worth millions of dollars, are awarded to one businessman and denied to others, it is no wonder if some applicants become overanxious and attempt to use whatever influence they have (political and otherwise), particularly as they can never be sure what pressure the other applicants may be exerting.”

Milton Friedman, Capitalism & Freedom (1962) at 140:

“the pressure on the legislature to license an occupation rarely comes from the members of the public . . . On the contrary, the pressure invariably comes from the occupation itself.”

Harold Demsetz, “Why Regulate Utilities?,” 11(1) Journal of Law and Economics (Apr., 1968), at 61.

“…in utility industries, regulation has often been sought because of the inconvenience of competition.”

Richard Posner, “Natural Monopoly and Its Regulation,” 21(3) Stanford Law Review 548 (Feb., 1969):

“Because regulatory commissions are of necessity intimately involved in the affairs of a particular industry, the regulators and their staffs are exposed to strong interest group pressures.  Their susceptibility to pressures that may distort economically sound judgments is enhanced by the tradition of regarding regulatory commissions as ‘arms of the legislature,’ where interest-group pressures naturally play a vitally important role.”

George Stigler, “The Theory of Economic Regulation,” 2(1) Bell Journal of Economics and Management Science, (1971), 3-21 at 3:

“…as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits.”

George Stigler, “Can Regulatory Agencies Protect the Consumer?” in The Citizen and the State: Essays on Regulation (1975), at 183:

“Regulation and competition are rhetorical friends and deadly enemies: over the doorway of every regulatory agency save two should be carved: ‘Competition Not Admitted.’ The Federal Trade Commission’s doorway should announce , “Competition Admitted in Rear,” and that of the Antitrust Division, ‘Monopoly Only by Appointment.’”

Theodore J. Lowi, The End of Liberalism: The Second Republic of the United States (2nd Ed., 1969, 1979) at 280:

“a considerable proportion of federal regulation, regardless of its own claim to consumer protection, has the systematic effect of constituting and maintaining a sector of the economy or the society. These are the policies of receivership by regulation.”

Alfred Kahn, The Economics of Regulation: Principles and Institutions (1971):

“When a commission is responsible for the performance of an industry, it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls rather than on the unplanned and unplannable forces of competition.” (p. 12) “Responsible for the continued provision and improvement of service, [the regulatory commission] comes increasingly and understandably to identify the interest of the public with that of the existing companies on whom it must rely to deliver goods.” (p. 46)

Mark Green and Ralph Nader, “Economic Regulation vs. Competition: Uncle Sam the Monopoly Man,” Yale Law Journal 82, no. 5 (April 1973), 876

“a kind of regular personnel interchange between agency and industry blurs what should be a sharp line between regulator and regulatee, and can compromise independent regulatory judgment. In short, the regulated industries are often in clear control of the regulatory process.”

Richard B. McKenzie and Gordon Tullock, Modern Political Economy: An Introduction to Economics (1978) at 220:

“although regulation is begun with the good intentions of those who promote and pass the laws, somewhere along the line regulators may become pawns of the regulated firms.”

Milton and Rose Friedman, Free to Choose (1980) at 193:

“Every act of intervention establishes positions of power.  How that power will be used and for what purposes depends far more on the people who are in the best position to get control of that power and what their purposes are than on the aims and objectives of the initial sponsors of the intervention.”

Barry M. Mitnick, The Political Economy of Regulation: Creating, Designing, and Removing Regulatory Forms (New York: Columbia University Press, 1980), at 38:

“Much relatively recent research has argued that regulation was often sought by industries for their own protection, rather than being imposed in some ‘public interest.’ Although the distinction is not always made clear in this recent literature, we may add that regulation which is not directly sought at the outset is generally ‘captured’ later on so it behaves with consistency to the industry’s major interests, or at least has been observed to behave in this manner.”

Barry Weingast, “Regulation, Reregulation and Deregulation: The Foundation of Agency-Clientele Relationships,”44 Law and Contemporary Problems, (1981) pp. 147-77, at 151:

“Often, agencies are the vehicle for this endeavor. Agency heads and commission members, anxious to further their careers and goals (including large budgets) as well as completing their own of power and prestige pet projects and policy initiatives, depend upon service to interest their success groups and key committee members for their success.”

George Gilder, Wealth & Poverty (New York: Bantam Books, 1981), pp. 283:

“One reason for government resistance to change is that the process of creative destruction can attack not only an existing industry, but also the regulatory apparatus that subsists on it; and it is much more difficult to retrench a bureaucracy than it is to bankrupt a company. A regulatory apparatus is a parasite that can grow larger than its host industry and become in turn a host itself, with the industry reduced to parasitism, dependent on the subsidies and protections of the very government body that initially sapped its strength.”

Bruce Yandle,”Bootleggers and Baptists — The Education of a Regulatory Economist,” Regulation, Vol. 3, No. 3, (May/June 1983) p. 13:

“what do industry and labor want from the regulators? They want protection from competition, from technological change, and from losses that threaten profits and jobs. A carefully constructed regulation can accomplish all kinds of anticompetitive goals of this sort, while giving the citizenry the impression that the only goal is to serve the public interest.”

Thomas K. McCraw, Prophets of Regulation, (Cambridge, MA: Harvard University Press, 1984), p. 263 [recounting the history of the Civil Aeronautics Board up until the time of Alfred Kahn ascendency to chairman and its eventual deregulation and abolition.]

“Clearly, in passing the Civil Aeronautics Act [of 1938], Congress intended to bring stability to airlines. What is not clear is whether the legislature intended to cartelize the industry. Yet this did happen. During the forty years between passage of the act of 1938 and the appointment of [Alfred] Kahn to the CAB chairmanship, the overall effect of board policies tended to freeze the industry more or less in its configuration of 1938. One policy, for example, forbade price competition. Instead the CAB ordinarily required that all carriers flying a certain route charge the same rates for the same class of customer. […] A second policy had to do with the CAB’s stance toward the entry of new companies into the business. Charged by Congress with the duty of ascertaining whether or not ‘the public interest, convenience, and necessity’ mandated that new carriers should receive a certificate to operate, the board often ruled simply that no applicant met these tests. In fact, over the entire history of the CAB, no new trunkline carrier had been permitted to join the sixteen that existed in 1938. And those sixteen, later reduced to ten by a series of mergers, still dominated the industry in the 1970s. All these companies… developed into large companies under the protective wing of the CAB. None wanted deregulation.”

Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (1987) p. 8:

“The government’s regulatory agencies have created or sustained private monopoly power more often than they have precluded or reduced it.  This result was exactly what  many interested parties desired from government regulation, though they would have been impolitic to have said so in public.”

Jeffrey M. Berry, The Interest Group Society (1989) p. 151:

“The ties between interest groups and [regulatory] agencies can become too close. A persistent criticism by political scientists is that agencies that regulate businesses are overly sympathetic to the industries they are responsible for regulating.  Critics charge that regulators often come from the businesses they regulate and thus naturally see things from an industry point of view.  Even if regulators weren’t previously involved in the industry, they have been seen as eager to please powerful clientele groups rather than have them complain to the White House or to the agency’s overseeing committees in Congress.”

Jonathan Emord, “The Electronic Press and the Industry Capture Movement,” Chapter 11 from: Freedom Technology and the First Amendment (1991), p. 146 (discussing the early history of radio licensing):

“The minutes of the First National Radio Conference in 1922 reveal that even at this early date, industry leader clamored for government limits on the number of licenses issued; they sought protection against entry by new licenses. For its part, the government desired control over the industry’s structure and programming content. Certain members of Congress, joined by [Secretary of Commerce Herbert] Hoover, agreed with broadcast industry leaders that the system of broadcasting in the United States would be brought within the federal government’s control. The classic rent/content control quid pro quo soon developed: in exchange for regulatory controls on industry structure and programming content, industry leaders would be granted restrictions on market entry that they wanted. These restrictions would ensure monopoly rents for licensees and would provide the government with assurance that the broadcast industry would not oppose regulatory controls.”

David Schoenbrod, Power Without Responsibility: How Congress Abuses the People Through Delegation (New Haven, CT: Yale University Press, 1993), p. 13:

“Agency heads are usually not apolitical and, indeed, concentrated interests often prevail more easily in an agency than they can in Congress. Effective participation in agency lawmaking usually requires expensive legal representation as well as close connections to members of Congress who will pressure the agency on one’s behalf. The agency itself is often closely linked with the industry it regulates. Not only large corporations, but also labor unions, cause-based groups, and other cohesive minority interests sometimes can use delegation to triumph over the interests of the larger part of the general public, which lacks the organization, finances, and know-how to participate as effectively in the administrative process.”

Douglass North, “Economic Performance through Time,” 84 American Economic Review 3, (1994), 359-363, at p. 360:

“Institutions are not necessarily or even usually created to be socially efficient; rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to create new rules.”

P.A. McNutt, The Economics of Public Choice (1996), p. 105-6:

“The more successful the interest group becomes the greater the probability that it will be in a position to impact on the policy making process of successive governments. … Aspiring monopolists will retain lobbyists to assure a favourable outcome and devote resources to the acquisition of the monopoly right.  A government will more than likely grant monopoly privileges to various groups of politically influential people.  Cartels and anti-competitive behaviour will be maintained and politicians will react to the demands of the more vociferous and well organised interest groups.”

Andrew Odlyzko, “Privacy, Economics, and Price Discrimination on the Internet,” July 27, 2003, p. 12:

“It is now widely accepted that the passage of the Interstate Commerce Act of 1887 was not a pure triumph of the populist movement and its allies in the anti-railroad camp. The railway industry largely decided that regulation was in its best interests and acquiesced in and even encouraged government involvement. This is often portrayed as the insidious capture of the regulators by the industry they regulate. There is certainly much evidence to support this view.”

Lawrence Lessig,”Reboot the FCC,” Newsweek, December 23, 2008

“Economic growth requires innovation. Trouble is, Washington is practically designed to resist it. Built into the DNA of the most important agencies created to protect innovation, is an almost irresistible urge to protect the most powerful instead. The FCC is a perfect example. … With so much in its reach, the FCC has become the target of enormous campaigns for influence. Its commissioners are meant to be “expert” and “independent,” but they’ve never really been expert, and are now openly embracing the political role they play. Commissioners issue press releases touting their own personal policies. And lobbyists spend years getting close to members of this junior varsity Congress.”

Thomas Frank, “Obama and Regulatory Capture,” Wall Street Journal, June 24, 2009:

“There are powerful institutions that don’t like being regulated. Regulation sometimes cuts into their profits and interferes with their business. So they have used the political process to sabotage, redirect, defund, undo or hijack the regulatory state since the regulatory state was first invented. The first federal regulatory agency, the Interstate Commerce Commission, was set up to regulate railroad freight rates in the 1880s. Soon thereafter, Richard Olney, a prominent railroad lawyer, came to Washington to serve as Grover Cleveland’s attorney general. Olney’s former boss asked him if he would help kill off the hated ICC. Olney’s reply, handed down at the very dawn of Big Government, should be regarded as an urtext of the regulatory state: ‘The Commission… is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, at the same time that that supervision is almost entirely nominal. Further, the older such a commission gets to be, the more inclined it will be found to take the business and railroad view of things. … The part of wisdom is not to destroy the Commission, but to utilize it.'”

Tim Wu, The Master Switch: The Rise and Fall of Information Empires (2010), p. 308:

“Again and again in the histories I have recounted, the state has shown itself an inferior arbiter of what is good for the information industries. The federal government’s role in radio and television from the 1920s through the 1960s, for instance, was nothing short of a disgrace…. Government’s tendency to protect large market players amounts to an illegitimate complicity … [particularly its] sense of obligation to protect big industries irrespective of their having become uncompetitive.”

David J. Farber & Gerald R. Faulhaber, “Net Neutrality: No One Will Be Satisfied, Everyone Will Complain,” The Atlantic, December 21, 2010:

“When the FCC asserts regulatory jurisdiction over an area of telecommunications, the dynamic of the industry changes. No longer are customer needs and desires at the forefront of firms’ competitive strategies; rather firms take their competitive battles to the FCC, hoping for a favorable ruling that will translate into a marketplace advantage. Customer needs take second place; regulatory “rent-seeking” becomes the rule of the day, and a previously innovative and vibrant industry becomes a creature of government rule-making.”

Holman Jenkins, “Let’s Restart the Green Revolution,” Wall Street Journal, February 2, 2011, (regarding how misguided agricultural & environmental policies are hurting consumers):

“When some hear the word ‘regulation,’ they imagine government rushing to the defense of consumers. In the real world, government serves up regulation to those who ask for it, which usually means organized interests seeking to block a competitive threat. This insight, by the way, originated with the left, with historians who went back and reconstructed how railroads in the U.S. concocted federal regulation to protect themselves from price competition. We should also notice that an astonishingly large part of the world has experienced an astonishing degree of stagnation for an astonishingly long time for exactly such reasons.”

Bruce Schneier, Liars & Outliers: Enabling the Trust that Society Needs to Thrive (New York: John Wiley & Sons, Inc., 2012), p. 204.

“There’s one competing interest that’s unique to enforcing institutions, and that’s the interest of the group the institution is supposed to watch over. If a government agency exists only because of the industry, then it is in its self-preservation interest to keep that industry flourishing. And unless there’s some other career path, pretty much everyone with the expertise necessary to become a regulator will be either a former or future employee of the industry with the obvious implicit and explicit conflicts. As a result, there is a tendency for institutions delegated with regulating a particular industry to start advocating the commercial and special interests of that industry. This is known as regulatory capture, and there are many examples both in the U.S. and in other countries.”

Bruce Owen, “Communication Policy Reform, Interest Groups, and Legislative Capture” (Stanford, CA: Stanford Institute for Economic Policy Research, January 19, 2012), SIEPR Discussion Paper No. 11-006, p. 2. Owen argues that it is the legislative branch, not the regulatory agencies themselves, where regulatory capture takes root:

“It is rather legislative oversight and budget committees and their chairs that are (willingly) captured by special interests in the first instance. One could equally say that legislators capture the special interests, seeking campaign funding The behavior of regulatory agencies simply reflect the preferences of their congressional masters. Regulators generally seek to please their committees, not to defy them.”

Mark Zachary Taylor, The Politics of Innovation: Why Some Countries Are Better Than Others at Science and Technology (Oxford University Press, 2016), p. 213:

“political resistance to technological change can obstruct or warp otherwise ‘good’ S&T [science and technology] policy. Time and again, the losing interest groups created by scientific progress or technological change have been able to convince politicians to block, slow, or alter government support for scientific and technological progress. They support taxes, regulations, subsidies, procurement policies, spending, and so forth that obstruct progress in new S&T, and favor the status quo S&T. The losers and their political representatives have interfered with markets, public institutions and policies, and even the scientific debate itself–whatever they can to protect their interests.”

Additional readings:

• RegBlog – “A Resource List on Regulatory Capture and Reform” (2016)
• Frédéric Boehm, “Regulatory Capture Revisited – Lessons from Economics of Corruption” (2007)
• Ernesto Dal Bo, “Regulatory Capture: A Review,” Oxford Review of Economic Policy (2006)
• William W. Bratton & Joseph A. McCahery, “Regulatory Competition, Regulatory Capture, and Corporate Self-Regulation,” North Carolina Law Review 73 (1995), 1861.
• Slavisa Tasic, “Are Regulators Rational?” Instituto Bruno Leoni (October 2010)
• Michael E. Levine and Jennifer L. Forrence, “Regulatory Capture, Public Interest, and the Public Agenda: Toward a Synthesis” 6 Journal of Law, Economics, and Organization (1990), 167-198.
• William A. Jordan, “Producer Protection, Prior Market Structure and the Effects of Government Regulation,” Journal of Law and Economics 15, no. 1, (April 1972), 151-176.
• David Martimort, “The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs,” Review of Economic Studies 66, no. 4 (October 1999), 929-947,
• J.J. Lafont & Jean Tirole, “The Politics of Government Decision-Making: A Theory of Regulatory Capture” 106 Quarterly Journal of Economics 4 (Nov. 1991) 1089-1127.
• Fred S. McChesney, “Rent Extraction and Rent Creation in the Economic Theory of Regulation,” Journal of Legal Studies 16 (1987) 101-118.
• Horace M. Gray, “The Passing  of the Public Utility Concept,” Journal of Land & Public Utility Economics 16, no. 1 (February 1940), 8-20.
• Jeffrey T. Macher, John W. Mayo, and Mirjam Schiffer, “The Influence of Firms on Government,” The B.E. Journal of Economic Analysis & Policy, 11, no. 1 (2011).
• Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 (1963)
• Lawrence G. Baxter, “Understanding Regulatory Capture: An Academic Perspective from the United States, in Stefano Pagliari, ed., The Making of Good Financial Regulation (2012), p. 31-39.
• an essay of mine from Jan. 2015 highlighting a particularly vivid example of capture at the FAA
• Ambrose Bierce’s satirical Devil’s Dictionary definitions of… Politics: “A strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage.” Legislator: “A person who goes to the capital of his country to increase his own; one who makes laws and money.”
• Finally, down below I’ve embedded a funny Tom Toles cartoon about regulatory capture that appeared in the Washington Post on January 20, 2011:

Wow, what a year for cyberlaw and information technology policy books!  Both in terms of number of titles and the gravity of the books released, 2010 was one of the biggest years of the past decade (perhaps matched only by 2006 or 2008 in terms of significance).  So, here’s my annual list of the Most Important Info-Tech Policy Books of 2010.

First, however, as is the case each year [see my 2008 & 2009 lists], I need to repeat a few disclaimers.  First, what qualifies as an “important” info-tech policy book is highly subjective, but I would define it as a title that many people — especially scholars in the field — are currently discussing and that we will likely be referencing for many years to come.  But I “weight” books in the sense that narrowly-focused titles lose a few points. For example, books that deal mostly with privacy issues, copyright law, or antitrust policy do not exactly qualify as the same sort of “info-tech policy book” as other titles that offer a broader exploration of policy issues / concerns. For that reason, “big picture” info-tech policy books tend to rank higher on my lists.

The second caveat: Merely because a book appears on my list it does not necessarily mean I agree with everything in it. In fact, as was the case in previous years, I found much with which to disagree in my picks for the most important books of 2010 and I find that the cyber-libertarianism I subscribe to has very few fans out there.

With those caveats in mind, here are my choices for the Most Important Info-Tech Policy Books of 2010.

(1) Tim Wu – The Master Switch: The Rise and Fall of Information Empires

In The Master Switch, Tim Wu claims that information industries are prone to “cycles” that generally advance from “open” to “closed” and he correctly notes that regulatory capture and bureaucratic mismanagement are major culprits. “Again and again in the histories I have recounted,” he says, “the state has shown itself an inferior arbiter of what is good for the information industries. The federal government’s role in radio and television from the 1920s through the 1960s, for instance, was nothing short of a disgrace… Government’s tendency to protect large market players amounts to an illegitimate complicity … [particularly its] sense of obligation to protect big industries irrespective of their having become uncompetitive.”

Wu is correct. Strangely, however, he never seems to draw any lesson from that “disgrace” and “complicity.” Indeed, sometimes within a line or two of raising such concerns in his book, Wu seems to dismiss those findings entirely and proposes giving the government far more power to play games within the information sector. If Wu believes what he said about the dangers of regulatory capture and bureaucratic bungling, why is he so eager to empower the State to do even more meddling in information technology sectors?

When it comes to solutions, Wu fails to conduct any serious cost-benefit analysis of the trade-offs associated with an aggrandizement of State power in the name of countering the supposed evils of private power. The solutions Wu offers are typically presented as cost-free options. Yet, Prof. Wu’s primary solution, a so-called “Separation Principle,” would have a devastating impact on high-technology innovation and competitiveness. Claiming that information industries are too important to be governed by traditional laws and regulations, Wu advocates a sweeping industrial policy that would separate information industries into three buckets — content, distribution, and devices — and keep them segregated by force of law. Integration and cross-sector arrangements would essentially become illegal in this system of information apartheid.

Mysteriously, Wu is adamant about this not being a regulatory solution, instead preferring to call it a “constitutional” approach. But such semantic sophistry can’t disguise the fact that his regime would be an ambitious industrial policy for America’s information economy. Entire companies and sectors would need to be undone, and all future technological innovation would need to be subjected to regulatory classification proceedings to determine in which bucket they belong.  Ironically, therefore, Wu’s proposed approach would greatly empower the same regulators that he claimed drove previous industries into the ground! They would have even more sway over the future of technological innovation, media policy decisions, and free speech issues. Again, Wu never address the potential downsides or costs of his proposed approach even though we know that, when it comes to regulation, there is no free lunch. Something has to give.

In sum, I believe Wu’s hyper-pessimistic worldview and extreme recommendations are unwarranted and I made my reservations known in a 6-part series of essays about his book.  [See Parts 1, 2, 3, 4, 5, 6.]  Nonetheless, The Master Switch is a profoundly important book that we’ll be debating for many years to come.

Listen to Jerry Brito’s “Surprisingly Free” podcast discussion with Tim Wu here.

(#2) Kevin Kelly – What Technology Wants

Kevin Kelly has written a terrifically interesting book that is actually two books in one. The bookends (Parts 1 and 4) are pretty out there. In those portions of the book, Kelly aims to prove that “the technium” – “the greater, global, massively interconnected system of technology vibrating around us” — is a “force” or even a living “organism” that has a “vital spirit” and which “has its own wants” and “a noticeable measure of autonomy.” “The technium is whispering to itself,” he says. At times, Kelly sounds like he’s longing for humanity’s assimilation into the machine or The Matrix. “We can think of technology as our extended body,” he says. He speaks repeatedly of human-machine “symbiosis.” “We are now symbiotic with technology” and, apparently, that symbiotic bonding can get pretty intense as “humans are the reproductive organs of technology.” Sounds a little kinky, but what the hell does that even mean? I think those are the weaker sections of the book. He sounds like one of those enviro-extremists who proselytizes about Gaia theories of Earth as a spirit or deity.

But Kelly redeems himself with eight absolutely stunning chapters in the middle two sections of the book. Gone is most of the Gaia-like talk of the technium as a living organism. Kelly instead focuses on explaining to us in plain terms the progression of technology in our lives and how we’ve come to cope with it. He notes, for example, that “Over the centuries, societies have declared many technologies to be dangerous, economically upsetting, immoral, unwise, or simply too unknown for our good. The remedy to this perceived evil is usually a form of prohibition. The offending innovation may be taxed severely or legislated to narrow purposes or restricted to the outskirts or banned altogether.”

But banning technology never works, he argues, largely because humans adapt and embrace new tools and developments. “[H]istory shows that it is very hard for a society as a whole to say no to technology for very long.” “Prohibitions are in effect postponements” and “wholesale prohibitions simply do not work to eliminate a technology that is considered subversive or morally wrong. Technologies can be postponed but not stopped.”  Importantly, Kelly doesn’t turn a blind eye to the downsides of technology. In fact, he is refreshingly candid about the trade-offs we face. He argues that, “If we examine technologies honestly, each one as its faults as well as its virtues. There are no technologies without vices and none that are neutral. The consequences of a technology expand with its disruptive nature. Powerful technologies will be powerful in both directions – for good and bad. There is no powerfully constructive technology that is not also powerfully destructive in another direction, just as there is no great idea that cannot be greatly perverted for great harm… This should be the first law of technological expectation: The greater the promise of a new technology, the greater its potential for harm as well.”

Quite right. But then Kelly then goes on to masterfully discuss the dangers of applying the “precautionary principle” to technological advancement. Kelly correctly argues, is that because “every good produces harm somewhere… by the strict logic of an absolute Precautionary Principle no technologies would be permitted.” (p. 247-8) Under such a regime, progress becomes impossible because trade-offs are considered unacceptable. This doesn’t mean humans shouldn’t try to foresee problems associated with new technologies or address them preemptively. But that can be done without resisting new technologies or technological change altogether. “The proper response to a lousy technology is not to stop technology or to produce no technology,” Kelly argues. “It is to develop a better, more convivial technology.”

In sum, I loved the middle sections of What Technology Wants, but I could have done without the silly “technology-as-organism” theories found in the opening and closing chapters. Overall, however, Kevin Kelly has written a book that demands our attention. We will be talking about What Technology Wants for many, many years to come.

See my complete review of the book here, and make sure to listen to Kelly’s interesting podcast discussion with Jerry Brito here.

(#3) Jaron Lanier – You Are Not a Gadget: A Manifesto

Lanier’s You Are Not a Gadget is an intriguing but highly pessimistic look at the impact of the Internet and digital technology on our lives, culture, and economy. Like other Net skeptics, Lanier worries about the loss of individuality, the rise of “mob” behavior, the dangers of free culture, and the rise of a new sharecropper economy in which a small handful of capitalists are supposedly getting rich off the backs of free labor. As a respected Internet visionary, a gifted computer scientist, an expert on virtual reality, and a master wordsmith, the concerns Lanier articulates here deserve to be taken seriously — even if one ultimately does not share his lugubrious worldview. And I don’t.

He rightly castigates extreme varieties of quixotic techno-utopianism, which he labels “cybernetic totalism,” or the belief by some extreme digital age optimists that a “hive mind” or “noosphere” is coming about. It’s a vision of the Net as an organism powered by the wisdom of crowds. Lanier thinks such thinking is all bunk and, worse yet, that it has dangerous ramifications for humanity and individuality. He also asks us to think twice before taking too big of a gulp of the “free culture” kool-aid and extreme varieties of cyber-collectivism, which I wholeheartedly agree with.

But his critique is too sweeping and he refuses at times to acknowledge the many legitimate innovations associated with open source software or Web 2.0 technologies. He also gets so caught up in his critique of the free culture movement that he unfairly indicts the entire digital generation and wrongly claims most modern culture is moribund and little more than “a petty mashup of preweb culture.” Sorry, but I just don’t buy that. And it’s entirely subjective, anyway.

I also found Lanier’s “lords of the cloud” critique of social networking and advertising unpersuasive. Lanier seems to believe that Google, Facebook, MySpace, Twitter, and other Web 2.0 sites are all just part of the hive mind indoctrination scheme. Or, at a minimum, they are turning our brains into Jello, he claims, and destroying our individuality. But here Lanier is guilty of a form of hyper-nostolgia about those mythical “good ‘ol days” when all was supposedly much better. The Web 1.0 world was any better than today’s cyberspace; it had its own share of problems. And today’s leading cloud companies aren’t exploiting us or manipulating our minds by offering us great platforms or free services. Indeed, they are offering us wonderful new avenues for self-expression and interaction with others.

Lanier doesn’t seem willing to leave room for a middle ground position that rejects extreme techno-utopianism and the most extreme elements of the free culture mindset, but which also acknowledges there is much good to be found in modern digital culture and online life. Despite that, his book is easily one of the most important information technology policy books of recent years.

My lengthy review of Lanier’s book is can be found here.

(#4) Nicholas Carr – The Shallows: What the Internet is Doing to Our Brains

Rich with historical anecdotes and replete with scientific surveys and evidence, The Shallows is a book that demands your respect whether you are comfortable giving it or not. And many people won’t be. After all, Carr is a bit of a skunk at the cyber-garden party. I mean, how dare he suggest that all is not wine and roses with our glorious new world of instantaneous connectivity, abundant information flows, and cheap (often free) media content! Obviously, most of us want to believe that all adds up to a more well-rounded worldview and greater wisdom about the world around us. Carr is skeptical of those claims and The Shallows is his latest effort to poke a hole in the cyber-utopian claims that sometimes pervade discussions about Internet. Although, ultimately, he doesn’t quite convinced me that “The Web is a technology of forgetfulness,” he has made a powerful case that its effects may not be as salubrious as many of us have assumed.

But the ultimate question is: Do the costs really outweigh the benefits? Is it the case that these technologies “turn numb the most intimate, the most human, of our natural capacities — those for reason, perception, memory, emotion”? I think that goes a bit too far. Importantly, Carr doesn’t really ever answer the crucial question: Were we really better off in the decades prior to the rise of the Net? Did we really read more and engage in the more contemplative deep-reading and thinking he Carr fears we are losing because of the Net? Count me among those who think that — whatever most of us are doing in front our our computers most nights, and no matter how distracting it is — it has to be better than much of the junk we wasted our spare time on in the past!

It would have also been nice to have seen Carr offer up some personal suggestions for how we each might better manage cognitive overload, which can be a real problem. In a brief “digression” chapter entitled “On the Writing of This Book,” Carr does mention some of the steps he took personally to make sure he could complete The Shallows without being driven to distraction by the Web and digital technologies. But he doesn’t dwell on that much, which is a shame. A bit of a self-help can go a long way toward alleviating the worst forms of cognitive overload, although it will continue to be a struggle for many of us.

Despite the reservations I raised in my review of the book, Nick Carr’s The Shallows is beautifully written and will be required reading in this field for many years to come.   And make sure to check out this “Surprisingly Free” podcast conversation that Jerry Brito had with Carr back in June.

(#5) Clay Shirky – Cognitive Surplus: Creativity and Generosity in a Connected Age

If you are an avid reader of everything Clay Skirky pens, then the chapters you’ll find in his new book, Cognitive Surplus: Creativity and Generosity in the a Connected Age, will seem quite familiar.  We’ve seen or heard most of the material in Cognitive Surplus many times before and I think we got the point: The Internet and digital technology has freed up an enormous amount of time for more productive / worthwhile endeavors that was previously squandered — most by too much coach potato television consumption. He spells out his thesis a bit more eloquently on pg. 63:

The harnessing of our cognitive surplus allows people to behave in increasingly generous, public, and social ways, relative to their old status as consumers and couch potatoes. The raw material of this change is the free time available to us, time we can commit to projects that range from the amusing to the culturally transformative. […] Flexible, cheap, and inclusive media now offers us opportunities to do all sorts of things we once didn’t do. In the world of “the media,” we were like children, sitting quietly at the edge of a circle and consuming whatever the grown-ups in the center of the circle produced. That has given way to a world in which most forms of communication, public and private, are available to everyone in some form. (p. 63)

Shirky spends 200+ pages here trying to bolster that claim in various ways. But, again, I’m not sure he needed to. The notion that the Net has made us and our culture better off seems fairly uncontroversial to most of us. But Shirky also overplays his hand at times and tries to read a bit too much into the significance of the rising cognitive surplus.  It’s less likely to reshape politics or civic spirit, for example, as much as he seems to suggest.

My longer review of Cognitive Surplus can be found here and you’ll want to listen to Jerry Brito’s very interesting “Surprisingly Free” podcast discussion with him here.

(#6) Barbara van Schewick – Internet Architecture and Innovation

Barbara van Schewick’s book is an extended — and I do mean extended — love letter to the “end-to-end” principle and Net neutrality.  Weighing in at almost 600 pages, van Schewick goes on much longer than she needed to make her core argument: The structure of the current Internet is sacrosanct and must be preserved. Deviations from end-to-end or “neutrality,” however defined, are to be discouraged or disallowed. “[D]ifferent ways of structuring the Internet result in very different environments for its development,” she argues.  “If left to themselves, network providers will continue to change  the internal structure of the Internet in ways that are good for them, but not necessarily for the rest of us,” she says. (p. 377)

Of course, we’ve heard all these arguments made ad nauseam in the Net neutrality wars, but to her credit, van Schewick makes them far more eloquently in this book than they have ever been made before.  She does a particularly good job of walking the reader through the guts of the Internet’s current architecture.  The layman will find the book quite challenging in light of its highly technical nature, however.  But her grasp of the subject is impressive.

Unfortunately, van Schewick doesn’t spend much time addressing the downsides associated with expanding regulation of the Internet.  There’s no acknowledgment of the danger of regulatory capture, regulatory creep, or bureaucratic meddling with highly complex systems.  She seems to assume regulators will be immune to such tendencies and, more surprisingly, have a crystal ball with which they can view the wisdom of current regulatory actions. She argues, for example, that in some cases “regulators will need to shape the technology before it is deployed.” (p. 388)  This suggests a return to the sort of anticipatory, “Mother, May I” regulatory regime America began turning away from following the passage of the Telecommunications Act of 1996.  Do we really want the FCC micro-managing every important innovation and business decision in these fast-moving, complex markets?   Experimentation with different digital architectures would essentially become verboten under van Schewick’s paradigm.

When it comes imposing “an engineering design principle” from above, van Schewick claims that “the broad version [of the end-to-end principle] provides much more flexibility for the evolution of the network’s core than is often assumed.” (p. 389)  Yet, she never spells out what she means by that and how much flexibility she would allow in terms of core innovation before having regulators intervene.  For those of us who favor a more dynamic, experimental, and evolutionary approach to markets and technical engineering determinations, van Schewick’s approach looks like one that would freeze current high-tech markets and networks in stone.   Her occasional lip-service to the trade-offs involved in this process are appreciated but, ultimately, unbelievable since she always comes down in favor of maximizing opportunities or innovation at the edge of networks relative to the core. Innovation at the core of networks is every bit as important as innovation at the edge, however. We don’t want stagnation at the core of networks or else the applications that ride on them will suffer.

(#7) Milton Mueller — Networks and States: The Global Politics of Internet Governance

Milton Mueller’s Networks and States isn’t the most important information technology policy book of the year, but it was easily my favorite.   Mueller’s book continues his exploration of the forces shaping Internet policy across the globe. What Mueller is doing in his work in this book and elsewhere is becoming the early chronicler of the unfolding Internet governance scene. He meticulously reports on, and then deconstructs, ongoing governance developments along the cyber-frontier. He is, in effect, a sort of de Tocqueville for cyberspace; an outsider looking in and asking questions about what makes this new world tick. Fifty years from now, when historians look back on the opening era of Internet governance squabbles, Milton Mueller’s work will be among the first things they consult.

Mueller’s goal in Networks and States is two-fold and has both an empirical and normative element. First, he aims to extend his exploration of the actors and forces affecting Internet governance debates and then develop a framework and taxonomy to better map and understand these forces and actors. He does a wonderful job on that front, even though many Net governance issues can be incredibly boring. Mueller finds a way to make them far more interesting, especially by helping to familiarize the reader with the personalities and organizations that increasingly dominate these debates and the issues and principles that drive their actions or activism.

Mueller’s second goal in Networks and States is to breathe new life into the old cyber-libertarian philosophy that was more prevalent during the Net’s founding era but has lost favor today. Mueller says his “normative stance is rooted in the Internet’s early promise of unfettered and borderless global communication, and its largely accidental and temporary escape from traditional institutional mechanisms of control.” Mueller makes a convincing case for giving cyber-libertarianism, or what he calls “denationalized liberalism,” another chance; a chance that it really never had. “At its core,” Mueller continues, “denationalized liberalism favors a universal right to receive and impart information regardless of frontiers, and sees freedom to communicate and exchange information as fundamental and primary elements of human choice and political and social activity.” Moreover, “this ideology holds a presumption in favor of networked, associative relations over hierarchical relations as a mode of transnational governance,” he argues. “Governance should emerge primarily as a byproduct of many unilateral and bilateral decisions by its members to exchange or negotiate with other members (or refuse to do so).” Finally, he says, “a denationalized liberalism strives to make Internet users and suppliers an autonomous, global polity.” In essence, it’s about free will, freedom of action, and freedom of association. It’s essentially classical liberalism for the Information Age. Mueller admits that “such an ideology needs to answer tough questions about when hierarchical exercises of power are justified and through which instruments they are exercised.” But he continues on to make the case for “question[ing] the scope of national sovereignty over communications.” “The governance of the Internet needs to explicitly recognize and embrace the principle that there are limits to national sovereignty over the flow of information,” he says.

Mueller has made a beautiful case for cyber-libertarianism and he has given the movement its marching orders: “In short, we need to find ways to translate classical liberal rights and freedom into a governance framework suitable for the global Internet. There can be no cyberliberty without a political movement to define, defend, and institutionalize individual rights and freedoms on a transnational scale.”   Even if you aren’t compelled to join the cause, however, I highly recommend you pick up Mueller’s Network and States, anyway. It’s a terrific survey of the current state of Internet governance and an important work of political science since it offers us a useful spectrum of Net governance viewpoints.

My longer review of Networks and States is here and here’s Jerry Brito’s podcast discussion with Mueller about his book.

(#8) Ronald J. Deibert, John G. Palfrey, Rafal Rohozinski, and Jonathan Zittrain (eds.) – Access Controlled: The Shaping of Power, Rights, and Rule in Cyberspace

Smartly organized and edited, Access Controlled is essential reading for anyone interested in studying the methods governments are using globally to stifle online expression and dissent. There is simply no other resource out there like this; it should be required reading in every cyberlaw or information policy program.

The book, which is a project of the OpenNet Initiative (ONI), is divided into two parts. Part 1 of the book includes six chapters on “Theory and Analysis.” They are terrifically informative essays. The beefy second part of the book provides a whopping 480 pages of detailed regional and country-by-country overviews of the global state of online speech controls and discuss the long-term ramifications of increasing government meddling with online networks.

The book also offers a useful taxonomy to illustrate the three general types of speech and information controls that states are deploying today. Throughout the book, various authors document the increasing movement away from “first generation controls,” which are epitomized by “Great Firewall of China”-like filtering methods, and toward second- and third-generation controls, which are more refined and difficult to monitor.

The individual authors seem to adopt a somewhat gloomy outlook toward the long-term prospects for “technologies of freedom” relative to “technologies of control.” But I think it’s vital to put things in some historical context in this regard. It’s important to recall that, as a communications medium, the Net is still quite young. So, is the Net really more susceptible to State control and manipulation than previous communications technologies and platforms? I’m not so sure, although it’s hard to find a metric to compare them in an analytically rigorous fashion. It’s certainly true that the State has access to more data about its citizens than in the past, but it’s also true that we have more information about the State than ever before, too! And, again, we also have access to more of those technologies of freedom than ever before to at least try to fight back. Compare, for example, the plight of a dissident in a Cold War-era Eastern Bloc communist state to a dissident in China or Iran today. Which one had a better chance of getting their words (or audio and video) out to the local or global community?  And what do the recent Wikileaks episodes teach us in this regard?

Despite those small quibbles, Access Controlled is an indispensable resource that belongs on the bookshelf of anyone who covers information technology policy and wants to better understand global Internet regulation.  Very highly recommended.  My complete review of the book is here.

(#9) Richard A. Clarke and Robert K. Knake – Cyber War: The Next Threat to National Security and What to Do About It

Clarke and Knake’s book is important if for no other reason than, as they note, “there are few books on cyber war.” Thus, their treatment of the issue will likely remain the most relevant text in the field for some time to come. They define cyber war as “actions by a nation-state to penetrate another nation’s computers or networks for the purposes of causing damage or disruption” and they argue that such actions are on the rise. And they also claim that the U.S. has the most to lose if and when a major cyber war breaks out, since we are now so utterly dependent upon digital technologies and networks.

At their best, Clarke and Knake walk the reader through the mechanics of cyber war, who some of the key players and countries are who could engage in it, and identify what the costs of such of war would entail. Other times, however, the book suffers from a somewhat hysterical tone, as the authors are out here not just to describe cyber war, but to also issue a clarion call for regulatory action to combat it. A bigger problem with the book is the complete lack of reference material, footnotes, or even an index. If you’re going to go around sounding like a couple of cyber-Jeremiahs, you really should include some reference material to back up your gloomy assertions of impending doom.

The authors go after ISPs and many other companies for supposedly not caring about cyber-security. In reality, those companies have powerful incentives to make sure their networks are relatively safe and secure to avoid costly attacks and retain customers who demand their online information and activities be trouble-free. And most ISPs take steps not just to guard against malware and other types of cyber attacks, but they also offer customers free (or cheap) security software as part of a growing suite of gratis services (anti-virus, parental controls, e-mail, etc).

Clarke and Knake would like to see government impose a fairly sweeping set of new rules on ISPs to better secure their networks against potential attacks. In true deputize-the-middleman fashion, they want ISPs to engage in a great deal more network monitoring (using deep-packet inspection techniques) under threat of legal sanction if things go wrong. They admit there are corresponding costs and privacy concerns, but largely dismiss them and essentially ask us to just get over those concerns in the name of a safer and more secure cyberspace. They do, however, say they would be willing to have a “Privacy and Civil Liberties Board” appointed “to ensure that neither the ISPs nor the government was illegal spying on us.” I doubt that will soothe the fears of those who (like me) are fundamentally suspicious of government snooping.

Overall, Clarke and Knake have written a book that is worth reading, but suffers from hyperbolic rhetoric and a serious lack of documentation. Readers should also seek out other perspectives on cyber-security issues, which take a more reasoned approach to the issue.   Read my longer review of Cyber War here.

(#10) Adrian Johns – Piracy: The Intellectual Property Wars from Gutenberg to Gates

I can’t remember the last time I read a book that qualified as a “magisterial treatment” of an issue (I suppose it would be Elizabeth Eisenstein’s The Printing Press as an Agent of Change), but Johns’ book on piracy certainly qualifies as one.  As the subtitle makes clear, it’s a sweeping 400+ year history of the intellectual property wars.

This mammoth tome was a real struggle to finish since Johns leaves no stone unturned in his exhaustive overview of the history of intellectual property and piracy.  I read it over the course of 6 months because it felt like I was running a marathon to get through each chapter. I needed a big break between each one.  So, pick it up and get ready to pace yourself for the long slog through this important book.  And don’t jump ahead!   Some of the most interesting stories are from the early battles about the very concept of copyright and intellectual property.  I particularly enjoyed the chapter on the early American experience, which began with widespread piracy of English works as a method of undermining the tyranny of the Crown. (Reminded me of how we still screw Cuba by denying trademarks in their cigars just to stick it to Castro).

Johns offers a fairly objective narrative throughout the first 500 pages, but toward the end his own views start to emerge:

“[Enforcement] issues, it seems, have dogged intellectual property policing throughout its history, because of he nature of the enterprise.  They continue to do so today in new forms and media.  Large-scale, intensive, and internationally coordinated antipirate enforcement is sometimes justifies–the effort against counterfeit medicines is a relatively clear example–but in other cases the public good is not so evident.” (p. 507-508)

He goes on to suggest that IP may need to be rethought given new realities. “Intellectual property being a relatively recent concept, it ought to be possible to conceive of an alternative to it that suited the twenty-first century rather than the nineteenth,” he argues.  (p. 515)  Yet, the only alternatives he suggest — prizes, subsidies, compulsory licenses — are decidedly nineteenth century in nature.  That leaves him with few other options other than to suggest that the entire concept of IP should potentially be rethought, or that it may perhaps be fading anyhow in light of recent development in the information age, anyway.  IP defenders, however, should not let that discourage them from reading this book. It’s an insightful, interesting, one-of-a-kind history of this contentious subject.

(Listen to Jerry Brito’s “Surprising Free” podcast discussion with Adrian Johns here.)

Honorable Mentions:

* Rob Frieden – Winning the Silicon Sweepstakes: Can the United States Compete in Global Telecommunications?

Frieden’s book argues America has lost its edge in the global telecommunications and broadband race and that government must intervene to set us back on the right course.  What’s the proper course?  He suggest it’s the forced access infrastructural-sharing regime for communications and broadband networks that existed for several years following the passage of the Telecommunications Act of 1996.  (UNE-P, TELRIC, line-sharing, etc) That regime was largely abandoned, however, after it became evident to most market analysts and economists that, despite the best of intentions, infrastructure-sharing did little to promote investment and innovation.

Frieden suggests all that legal and economic thinking was flawed and that we should go ‘back to the future’ with telecom / broadband policy.  I’m not buying it for one minute, but if you’re looking for a blueprint for resurrecting yesterday’s regulatory regime, this book is it.

Here’s a conversation Jerry Brito had with Rob Frieden on his podcast back in March.

* Daniel Lathrop and Laurel Ruma (eds.) – Open Government: Collaboration, Transparency, and Participation in Practice

Open Government is a terrific collection of 34 essays covering the full gamut of transparency and “Government 2.0″ issues.  The collection was published by O’Reilly Media and Tim O’Reilly himself has one of the best chapters in the book on “Government as a Platform.” “The magic of open data is that the same openness that enables transparency also enables innovation, as developers build applications that reuse government data in unexpected ways.” (p. 25) This explains why in their chapter on “Enabling Innovation for Civic Engagement,” David G. Robinson, Harlan Yu, and Edward W. Felten, of the Center for Information Technology Policy at Princeton University, speak of “a new baseline assumption about the public response to government data: when government puts data online, someone, somewhere will do something valuable and innovative with it.” (p.84) “By publishing its data in a form that is free, open, and reusable,” they continue, “government will empower citizens to dream up and implement their own innovative ideas of how to best connect with their governments.” (p. 89)  The book also includes a terrific chapters by my TLF colleagues Jim Harper and Jerry Brito.  This is an indispensable resource for your bookshelf. Pick it up.

* William Powers – Hamlet’s BlackBerry: A Practical Philosophy for Building a Good Life in the Digital Age

Powers is a gifted storyteller and his walk though the history of philosophy and technology makes this slender volume an enjoyable, quick read. He begins by reminding us that “whenever new devices have emerged, they’ve presented the kinds of challenges we face today — busyness, information overload, that sense of life being out of control. These challenges were as real two millennia ago as they are today, and throughout history, people have been grappling with them and looking for creative ways to manage life in the crowd.”

His key insight is that is that humans can adapt new technology, but it takes time, patience, humility, and a little effort. “The key is to strike a balance,” he says, between “the call of the crowd” and the “need for time and space apart” from it. The problem we face today is that all the pressure is on us to be what he calls “Digital Maximalists.” That is, many of us are increasingly out to maximize the time spent in front of various digital “screens” whether we have made the determination that is really in our best interest or not. It has just gradually happened, Powers argues, because “The goal is no longer to be ‘in touch’ but to erase the possibility of ever being out of touch.”

Even though Powers clearly leans more toward the techno-pessimist camp, what I like best about his book is that he generally avoids a preachy tone and excessive hand-wringing. He isn’t one of those pessimists who adopts a holy-than-thou, the-rest-of-you-just-don’t-get-it attitude. In fact, there’s a great deal of self-deprecating humor in the book as Powers explains how he is struggling with the same issues the rest of us are and trying to figure out how to strike the right balance in his own life. Importantly, he notes that each of us will strike that balance differently. “[E]veryone has to work that out for himself. We’re all different, and there’s no one-size-fits-all way to balance the outward life and the inward one.” That is a crucial insight. There’s nothing worse than a techno-skeptic who tells us they have discovered the one true path to enlightenment or happiness — especially when it entails giving up new technologies that can have so many beneficial upsides. Indeed, Powers argues that “It’s never a good idea to buy into the dark fears of the techno-Cassandras, who generally turn out to be wrong. Human beings are skillful at figuring out the best uses of new tools. However, it can take awhile.”

Indeed, the struggle with information clutter will continue. Assimilating new communications and entertainment technologies into our lives has always been challenging, but, thanks to excellent advice like that offer by William Powers in Hamlet’s BlackBerry, I am optimistic that we humans can do so sensibly and be happier — and wiser — for it in the long-run.

Here’s my complete review of Hamlet’s Blackberry and make sure to listen to Jerry Brito’s discussion with Powers here.

• Robert W. McChesney & John Nichols – The Death and Life of American Journalism

If my list was of the most important media policy books of the year, McChesney and Nichols’ book would be a shoo-in for the top spot. It’s easily the most significant text on media policy in the past few years.  It’s also the most horrifying.  In their world of “post-corporate” newsrooms, the State serves as the primary benefactor of the Fourth Estate.  Billions would flow from bureaucracies to media entities and individual journalists in the name of sustaining a “free press.” And this new media welfare state is funded by steep taxes on our mobile phones, broadband connections, and digital gadgets. McChesney and Nichols model their $35 billion annual “public works” program for the press after the Works Progress Administration of the New Deal era. Their media WPA would include a “News AmeriCorps” for out-of-work journalists, a “Citizenship News Voucher” to funnel taxpayer support to struggling media entities, a significant expansion of postal subsidies, a massive new subsidy for journalism schools, corporate welfare for newspapers sufficient to pay 50 percent of the salaries of all “journalistic employees,” and more. It’s a veritable industrial policy for the press that resembles a Soviet-style five-year plan.

Who pays the bill and how much will the takeover cost? McChesney and Nichols take a remarkably cavalier attitude about it: “The money must be spent and we will worry about where it comes from later.” Such “we’re-all-dead-in-the-long-run” reasoning seems to be the dominant philosophy in Washington policy circles these days. But the estimated $35 billion annual price tag for a “public works” program for the press should give us pause. Moreover, like every other corporate-welfare program (think agriculture subsidies), a journalistic welfare state would no doubt grow in scope and cost over time.

McChesney and Nichols suggest several potential funding sources for the program, many of which would end up burdening commercial media providers in order to subsidize their noncommercial/public media competitors. They advocate a four-part tax plan that would include: a 5 percent tax on new purchases of consumer electronics, which they estimate would bring in $4 billion a year; a 3 percent tax on monthly ISP & mobile-service bills (estimated at $6 billion a year); a 2 percent sales tax on advertising (estimated at $5 to $6 billion a year); and a 7 percent tax on broadcasters’ spectrum licenses (estimated to sap another $3-6 billion a year from an already reeling industry). In other words, they would tax every device and network in your house to transfer money to the federal government to set up a journalistic welfare state.

What McChesney and Nichols essentially advocate is a radical form of media redistributionism — with struggling private entities and others forced to the fund public or non-commercial media outlets they desire. That is, what they seek is not so much a bailout for the familiar private media that has served America so well for two centuries, but rather a massive wealth transfer from one class of media to another, with the stipulation — which they repeat numerous times in the book — that state-subsidized entities are to forgo private advertising revenues, copyright protection, and any affiliation with corporate parents. These restrictions are an essential part of their push for a “post-corporate,” government-controlled press. Indeed, it would virtually make such a press a self-fulfilling prophecy, since copyright laws and advertising have been core ingredients of a successful private media system in the U.S. They’re also why we haven’t had to resort to massive public subsidies for media, as many other nations have.

The Death and Life of American Journalism is a troubling book, but I will give it this: For those of us who still care about our fundamental First Amendment freedoms and a truly free and independent press, McChesney & Nichols’ book clearly draws the battle lines for the future of media and provides a fresh reminder about what it is we’re fighting for.

My longer review of this troubling book can be found here.

Couple of others…

• Nick Bilton –  I Live in the Future & Here’s How It Works. I didn’t have a chance to formally review Bilton’s interesting book, but make sure to listen to Bilton’s appearance on the “Surprisingly Free” podcast here.
• Lee Bollinger – Uninhibited, Robust, and Wide-open: A Free Press for a New Century I had a very hard time taking this book seriously since Bollinger proposes the creation of a massive U.S. propaganda machine.  Bollinger doesn’t just want our government to help out a bit at the margins like it currently does; he wants the State to get under the covers, cuddle tight and become intimate lovers with the Press.  And then he wants the Big Press to project itself more, especially overseas, to compete with other State-owned or subsidized media enterprises.  It’s almost as disturbing as the McChesney and Nichols book referenced above.  Read my short review of Bollinger’s book here.

Let me know what I’ve missed and tell me what you think is the most important info-tech book of 2010!

Former TLF blogger Tim Lee returns with this guest post. Find him most of the time at the Bottom-Up blog.

Thanks to Jim Harper for inviting me to return to TLF to offer some thoughts on the recent Adam Thierer–Tim Wu smackdown. I’ve recently finished finished reading The Master Switch, and I didn’t have have my friend Adam’s viscerally negative reactions.

To be clear, on the policy questions raised by The Master Switch, Adam and I are largely on the same page. Wu exaggerates the extent to which traditional media has become more “closed” since 1980, he is too pessimistic about the future of the Internet, and the policy agenda he sketches in his final chapter is likely to do more harm than good. I plan to say more about these issues in future writings; for now I’d like to comment on the shape of the discussion that’s taken place so far here at TLF, and to point out what I think Adam is missing about The Master Switch.

Here’s the thing: my copy of the book is 319 pages long. Adam’s critique focuses almost entirely on the final third of the book, (pages 205-319) in which Wu tells the history of the last 30 years and makes some tentative policy suggestions. If Wu had published pages 205-319 as a stand-alone monograph, I would have been cheering along with Adam’s response to it.

But what about the first 200-some pages of the book? A reader of Adam’s epic 6-part critique is mostly left in the dark about their contents. And that’s a shame, because in my view those pages not only contain the best part of the book, but they’re also the most libertarian-friendly parts.

Those pages tell the history of the American communications industries—telephone, cinema, radio, television, and cable—between 1876 and 1980. Adam only discusses this history in one of his six posts. There, he characterizes Wu as blaming market forces for the monopolization of the telephone industry. That’s not how I read the chapter in question. Although Wu certainly suggests that market forces tended toward consolidation (which seems obviously correct), he also makes it clear that the government played an active role in the process, through the patent system, the Kingsbury Commitment, turning a blind eye to industrial sabotage, and later through explicit pro-monopoly regulation. Adam’s only specific quibble with Wu’s history is his failure to mention the nationalization of the telephone network during World War I. Maybe that’s an important oversight, but I’m not sure it would have changed Wu’s story very much. Certainly I think characterizing this section of the book as an anti-free-market screed is unfair.

The Master Switch takes an even more explicitly libertarian tone in its discussion of broadcasting. Wu makes it plain that everything about the radio (and later television) industries post-1927 was the result of heavy-handed government regulation. He tells how federal regulations robbed the inventor of FM radio of the opportunity to commercialize his invention, and how the FCC delayed the introduction of television by more than a decade to give RCA (then the dominant radio firm) time to perfect its own television technology.

It’s easy to imagine chapters 5, 9, and 10 being published by Cato or the Mercatus Center. Consider, for example, this passage describing the FCC’s decision to delay the introduction of television (p. 144):

Consider for a moment the oddness of this phenomenon in the putatively free-market economy. The government was deciding, in effect, when a product that posed no hazard to the public health would be “ready” for sale. Consider, too, how incongruous this was in a society under the First Amendment: a medium with great potential to further the exercise of free speech was being stalled until such time as the government could agree it had attained an acceptable technical standard. Rather than letting the market decide what a technology in its present state was worth, a federal agency—not even a democratically elected body—was to forbid its sale outright.

Whatever else you might say about this passage, it’s certainly not blaming anything on market forces!

One of Wu’s central points is that during the 20th century, the communications policy world was divided along different ideological lines. On one hand were the champions of monopoly and central planning—Wu chooses legendary AT&T president Theodore Vail as its intellectual father. On the other hand were champions of choice and competition. It’s worth emphasizing that Adam and Wu are on the same side of this ideological battle. In 1930, 1950, or 1970, all of us would have been teaming up to oppose monopolistic regulations.

We would have regarded AT&T, RCA, and other state-sponsored monopolists as our common enemy. If we’d submitted amicus briefs in the Carterfone or MCI proceedings, we would have made largely the same arguments. Of course, we wouldn’t have agreed perfectly on our long-term policy agenda, but we would have regarded that as a relatively minor area of disagreement compared to the pressing problem of repealing blatantly monopolistic government policies and bringing some degree of competition to communications markets. And for most of the 20th century we would have been the underdogs. In 1950, the monopolists were not only utterly dominant in Washington, D.C., but their ideology still had a great deal of cachet with the intellectual class.

Vail’s corporatist ideology has fallen so far out of favor that today it’s hard to find anyone who’s willing to defend it forthrightly. The remnants of the once-great monopolists have been forced to adopt the rhetoric of the free market and pretend to care about choice and competition. And it’s only in this new intellectual environment that Adam can plausibly portray Wu a “cyber-collectivist” at the opposite end of the ideological spectrum from me and Adam. The Master Switch reminds us that much less separates Adam from Wu than separates either of them from Theodore Vail and David Sarnoff.

Adam began his first post by stating that he “disagrees vehemently with Wu’s general worldview and recommendations, and even much of his retelling of the history of information sectors and policy.” This is kind of silly. In fact, Adam and Wu (and I) want largely the same things out of information technology markets: we want competitive industries with low barriers to entry in which many firms compete to bring consumers the best products and services. We all reject the prevailing orthodoxy of the 20th century, which said that the government should be in the business of picking technological winners and losers. Where we disagree is over means: we classical liberals believe that the rules of property, contract, and maybe a bit of antitrust enforcement are sufficient to yield competitive markets, whereas left-liberals fear that too little regulation will lead to excessive industry concentration. That’s an important argument to have, and I think the facts are mostly on the libertarians’ side. But we shouldn’t lose sight of the extent to which we’re on the same side, fighting against the ancient threat of government-sponsored monopoly.

My friend Kerry Howley coined the term “state-worship” to describe libertarians who insist on making the government the villain of every story. For most of history, the state has, indeed, been the primary enemy of human freedom. Liberals like Wu are too sanguine about the dangers of concentrating too much power in Washington, D.C. But to say the state is an important threat to freedom is not to say that it’s the only threat worth worrying about. Wu tells the story of Western Union’s efforts to use its telegraph monopoly to sway the election of 1876 to Republican Rutherford B. Hayes. That effort would be sinister whether or not Western Union’s monopoly was the product of government interference with the free market. Similarly, the Hays code (Hollywood’s mid-century censorship regime) was an impediment to freedom of expression whether or not the regime was implicitly backed by the power of the state. Libertarians are more reluctant to call in the power of the state to combat these wrongs, but that doesn’t mean we shouldn’t be concerned with them.

By casting every argument in terms of a Manichean struggle between “cyber-libertarians” and “cyber-collectivists,” Adam misses a lot of the value of The Master Switch. Many of the stories Wu tells are too complicated to fit comfortably at either end of the free-market-vs-regulation spectrum. For example, until I read The Master Switch, I didn’t realize how important, and harmful, patents were to the early development of communications markets. Should these stories make libertarians more skeptical of patent law? I’d be interested to hear Adam take, but he was too busy railing against Wu’s alleged cyber-collectivism to discuss the topic.

OK, so I’ve spent a week harassing Tim Wu and hammering away at the thesis, conclusions, and recommendations found in his new book, The Master Switch: The Rise and Fall of Information Empires. After pouring out about 17,000 words across six essays [1, 2, 3, 4, 5, 6] over the past week, I want to thank Tim for not seeking a restraining order against me for being his cyber-stalker during this period!  Moreover, he has responded to several of my rants here with stoic dignity.  I appreciate that, too.  I would have been screaming mad if someone attacked one of my books this relentlessly!

Anyway, in the spirit of fair play, I want to offer Professor Wu the opportunity to respond more formally here on the Tech Liberation Front.  We need to do more of that here, and I feel bad that I didn’t make available to Jonathan Zittrain a similar opportunity when I was stalking him after the release of The Future of the Internet and How to Stop It. (see 1, 2, 3, 4, 5, 6, 7, 8 + video!)  I am happy, however, that Jerry Brito posted here today this podcast he did with Prof. Wu so that we could hear him in his own words.

Anyway, I’ve just sent a note to Tim extending an invitation to formally respond even if he chooses to just compile some of the other comments he’s already made here, or to post something more substantive (even excerpts from the book).  If he decides to take us up on the offer, I’ll post it his comments here.   In the meantime, I want to encourage people to buy Tim’s book and judge it for themselves.   Despite my deep disagreements with The Master Switch, it’s absolutely one of the most important information technology policy books of the past decade and it belongs on your bookshelf if you care about these issues.   And I look forward to many more friendly fights with Tim in the future!

I’m going to close out my series of essays about Tim Wu’s new book, The Master Switch: The Rise and Fall of Information Empires, by discussing his proposed solutions.  In the first five essays in the series, [1, 2, 3, 4, 5] I’ve critiqued Wu’s look at information history as well as his use of terms like “market failure,” “laissez-faire” and “open” vs. “closed.”  I argued there’s a great deal of over-simplification, even outright distortion, in his use of those terms throughout the book.

Anyway, let’s run through the basics of the book once more before getting to Wu’s proposed solutions.  By my reading of The Master Switch, Wu’s argument essentially goes something like this:

• Information industries go through cycles. After a period of “openness” and competition, they tend to drift toward “closed,” corporate-controlled, anti-consumer models and outcomes.
• The resulting “monopolists” then block much innovation, competition, and free speech.
• Consequently, “the purely economic laissez-faire approach… is no longer feasible.”
• Moreover, information industries are more important than all others (“information industries… can never be properly understood as ‘normal’ industries”) and even traditional forms of regulation, including antitrust, “are clearly inadequate for the regulation of information industries.” (p. 303).
• Thus, special rules should apply to information-related sectors of our economy.

Again, I’ve challenged some of these assertions in my previous essays, specifically, Wu’s incomplete history of cycles and the fact that he greatly underplays the role of governments in “locking-in” sub-optimal market structures or, worse yet, creating those structures through misguided public policies or regulatory capture.  Wu discusses some of those factors in his book, but he tends to regard them as secondary to the inquiry, whereas I believe they are crucial to understanding how most “closed” or anti-competitive scenarios develop or endure. Instead, Wu simplistically suggests that “the purely economic laissez-faire approach… is no longer feasible,” even though no such state of affairs has ever existed within communications or media industries. They have been subjected to varying levels of indirect influence or direct control almost since their inception.

Regardless, what does Tim Wu want done about the problems he has (mis-)diagnosed?

What Wu Wants: A “Constitutional” Approach to Private Regulation

Broadly speaking, Wu wants to counter what he regards as “the danger of private power,” “the Lockean sanctification of private property,” and the fact that “American economic life [has] been built mostly on freewheeling capitalism.” (p. 300)  More specifically, he wants to end the “cycle” he describes of markets moving from supposedly open to closed.

To do so, he proposes what he calls a “constitutional” approach to private marketplace regulation.  In reality, it would be a massive, unprecedented, and highly destructive information sector industrial policy that would substitute the Rule of Man for the Rule of Law.  But let’s hear how Wu describes it:

What I propose is not a regulatory approach but rather a constitutional approach to the information economy. By that I mean a regime whose goal is to constrain and divide all power that derives from the control of information. Specifically, what we need is something I would call a Separations Principle for the information economy. A Separations Principle would mean the creation of a salutary distance between each of the major functions or layers in the information economy. It would mean that those who develop information, those who control the network infrastructure on which it travels, and those who control the tools or venues of access must be kept apart from one another. At the same time, Separations Principle stipulates one other necessity: that the government also keep its distance and not intervene in the market to favor any technology, network monopoly, or integration of the major functions of an information industry.”  (p. 302, emphasis in original)

Wu calls this a “constitutional approach” because he models it on the separations of power found in the U.S. Constitution, such as the separation of church and State, as well as the separation of powers between branches of government.  Wu makes a few additional assertions:

• “[T]he Separations Principle accepts in advance that some of the benefits of concentration and unified action will be sacrificed, even in ways that may seem painful or costly.” (p. 305)
• But Wu believes that pain or cost is worth it because of the “corrupting effect of vertically integrated power.” (p. 305)
• “You cannot serve two masters, and the objectives of creating information are often at odds with those of disseminating it,” he says. (p. 305)
• Specifically, he claims the Separations Principle would better protect free speech and entrepreneurial freedom. On the former: “It is a recognition that the disposition of firms and industries is, if anything, more critical than the actions of the state in controlling who gets heard.” On the latter: “The Separations Principle protects entrepreneurial freedom by preventing stagnation and repression of business innovation, especially with the help of the state.” (p. 306)

There’s a lot to unpack here including Wu’s stunning claim that his Separations Principle doesn’t represent a regulatory regime, as well as his rather incredible belief that government meddling and machinations could be kept in check under this regime.

First, however, Wu deserves credit for coming clean about just how radical his proposal is.

Constitutional Limits on Governments vs. Private Actors

Wu admits that “It would be quite radical today even to contemplate imposing on the economy the kind of safeguards that the Constitution places on the political system.” (p. 301)  A few pages later he notes that “The Separations Principle… requires a certain breadth and ambition in its application.” (p. 308)

I’m glad Wu was willing to at least acknowledge the radicalness of his proposal.  But, as he is prone to do throughout the book, he raises an important potential objection only to quickly walk away from it.  In this case, however, it’s completely understandable why Wu wouldn’t want to continue this inquiry: His proposal really is “quite radical” since it is completely at odds with America’s constitutional heritage of individual liberty and limited government.

Let’s go back to Civics 101.  We require that governments live under certain constraints and the Rule of Law because we recognize that governments possess the unique ability to fine, punish, and imprison citizens.  Moreover, escape from government’s tentacles is difficult, if not impossible. A constitutional system is required, therefore, to limit government’s role over our lives and the economy.

By contrast, we do not impose similar constraints on individuals — or on individuals when they work collaboratively in organizations or corporations — primarily because we believe there should be a presumption of liberty in most human affairs.  Freedom is the default position.  We value freedom because it allows humans to exercise their free will and live a life of their own choosing — and that includes the freedom to pursue happiness by making money in a business venture.  Our nation’s founders saw the wisdom in this even before we had a grand historical clash between communism and capitalist systems.  From that experience, however, we now have undisputed proof that social and economic freedoms are closely linked, and that when humans are free, they prosper.  The other reason we default to freedom for private individuals and organizations is because the possibility of “escape” exists from undesirable social or economic situations.

Wu doesn’t bother slowing down to appreciate these distinctions. He gives occasional lip service to the dangers of excessive government power:

Again and again in the histories I have recounted, the state has shown itself an inferior arbiter of what is good for the information industries. The federal government’s role in radio and television from the 1920s through the 1960s, for instance, was nothing short of a disgrace…. Government’s tendency to protect large market players amounts to an illegitimate complicity … [particularly its] sense of obligation to protect big industries irrespective of their having become uncompetitive. (p. 308)

Quite right. Yet, as I pointed out in this earlier essay, there’s seemingly never any serious lesson to be drawn from that conclusion.  Wu just marches right along in his narrative and ignores that “disgrace” and its relationship to “the cycle.”

The crucial point here is that Wu doesn’t fully appreciate the qualitative difference between State power and corporate power.  Instead — consistent with many “media access” theorists who came before him — he largely equates those forms of power or even makes private power out to be the more significant threat to personal liberties and freedom of speech.  Again, we hear statements like “the disposition of firms and industries is, if anything, more critical than the actions of the state in controlling who gets heard.”

The problem with this is that (a) history shows it’s simply not true and (b) the corrective remedies such a theory counsels would require a massive enhancement of State power to counter the supposed threats of private power, which (c) would create an even bigger threat to human liberty since only the State can fine, imprison, and truly foreclose speech.

So, I’ll stick with traditional “constitutionalism,” thank you very much!  Tim Wu’s “constitutionalism,” by contrast, is the Rule of Man, not the Rule of Law.  Specifically, it would be the rule of a handful of unelected men (and women) down at the Federal Communications Commission, the Federal Trade Commission, or whatever other regulatory bureaucracies Wu would empower under this approach.   And, as we’ll see next, that approach is truly audacious in its scope.

Practical Considerations: An Unprecedented Information Control Regime

OK, let’s forget about all that philosophical and legalistic mumbo-jumbo.  After all, most people these days don’t really give a hoot about constitutional limitations or the first principles associated with our nation’s founding. Let us instead explore the Bold New World of information regulation that Wu wants imposed on the high-tech economy and consider its complexity and costs.  Wu is a bit short on details about how policymakers should go about constructing a “Separations” regime, or how it will work in practice, but he does suggest that Net neutrality regulation and expanded antitrust oversight are at least two of the core elements. But he says that will not be enough.

Despite the fact that Wu admits the FCC “has on occasion let itself become the enemy of the good, effectively a tool of repression,” Wu seems to suggest the agency will continue to have “day-to-day authority over the information industries.” (p. 309) Of course, the FCC’s role is currently limited mostly to older sectors of the information economy, but Wu seems to suggest that role should be expanded considerably.  Yet, FCC oversight isn’t enough either, Wu says.  He argues that “what is needed is not only an FCC institutionally committed to a Separations Principle but also a structural arrangement to guard against such deviations, including congressional oversight as well as attention and corrections from other branches of government.”

Here the “breadth and ambition in its application” associated with Wu’s Separations Principal becomes more apparent. We are talking about layers upon layers of regulation. More importantly, the key attribute of Wu’s Separations Principle is that it is preemptive and prophylactic in character.  He explicitly rejects the idea that marketplace experimentation should be allowed and that ex post administrative proceedings or antitrust enforcement will be good enough. “[T]here is the problem of taking an after-the-fact approach to a commodity so vital to our basic liberties,” he argues. (p. 204) Thus, Wu’s approach represent a return to the sort of anticipatory, “Mother, May I” regulatory regime America was supposed to be turning away from following the passage of the Telecommunications Act of 1996.

What’s most bizarre about Wu’s call for such a preemptive “Separations” approach is his insistence that it is not a regulatory approach.  It’s hard to know whether this is an astonishing bit of hubris or just plain naiveté.  I hate to suggest it, but I think Wu is perfectly aware of just how regulatory his system would be in practice; he just doesn’t want to admit it.  After all, for there to be “separations” of various segments of the information sector, someone would need to determine who and what belongs in which bucket.  Wu suggests we’ll need at least three buckets. To repeat, he says his Separations Principle “would mean that those who develop information, those who control the network infrastructure on which it travels, and those who control the tools or venues of access must be kept apart from one another.”  Let’s put some labels on these buckets:

• Bucket #1: Information Creators
• Bucket #2: Information Distributors
• Bucket #3: Information Hardware Makers

These would essentially become three of the new “titles” (or regulatory sections) of a forthcoming “Information Economy Separations Act.” (I’m assuming Wu understands it would take an act of Congress to implement this sweeping regime, although he never makes that clear.  Or perhaps he would just prefer the FCC “reclassify” the entire information economy by regulatory fiat? Who knows.  Again, he never really sweats the details on this important point.)

Regardless, the problem with these conceptually neat classifications is that don’t conform to our fast-paced, highly dynamic Information Age economy.  There is a fluidity of innovation and market activity that Wu utterly fails to appreciate.  I suppose it’d be easy to throw a couple of players into these buckets and tell them to stay put.  We could tell T-Mobile, for example, that they could be a wireless information distributor and absolutely nothing else; we could tell Discovery Networks, they could be a content creator and absolutely nothing else; and we could tell Intel, you can be a chip maker and absolutely nothing else.

But not every existing information sector actor or technology is so neatly compartmentalized. Moreover, Wu’s framework also begs the question: Would firms that currently have integrated operations and investments in multiple fields be forced to divest control of various operations to come in line with Wu’s Separations Principle?   Here are a few scenarios to consider (and with each example, ask yourself the question: What’s the harm here to would justify the sort of “separations” regime Wu proposes?):

• Cox Enterprises has a wide variety of content and distribution properties including: broadband services, cable TV channels and distribution systems, newspapers, radio stations, advertising and direct mail divisions, and AutoTrader.com.  How many pieces does the firm need to be split into to comply with Wu’s new “Separations” regime?
• Should an ISP be allowed to develop or offer (or directly integrate into their service) free anti-virus software and parental control technologies since that’s not part of the underlying distribution service? Nearly every major ISP does so already today.
• Even though the experiment was ultimately a failure, should Google have been allowed to break out of the search market and give the handheld device business a shot with the Nexus One?  Likewise, should Google be allowed to continue its experiment with local fiber or wi-fi networks even though it is so clearly outside their traditional line of business?  Finally, should the FCC have disallowed Google’s bid in the 700 MHz spectrum auction back in 2008 since it would have meant the firm was formally entering the information distribution business?
• Which bucket is Microsoft in as a traditional OS and software provider?  Regardless, was it a mistake to allow them to jump into the video game console marketplace with the Xbox many years ago?   Should MS have been forbidden from creating the Zune since it too was a digital device outside of Microsoft’s core field?  Should MS be allowed to have a content division that develops games or other content for its operating systems even though they might be considered two separate information markets?
• Sony produces movie and video game content but also develops hardware (video game consoles, televisions, music players, phones, etc.) on which that content can be played. Should that be illegal? Would they have to divest some of these divisions once Wu’s system went into effect?
• Apple is the ultimate example of an information hardware manufacturer that has not only diversified its hardware offerings from PCs to iPods, iPhones and iPads, but also become a (if not the) leading information distributor for digital music, movies, television shows, podcasts, books and audiobooks through iTunes.  The company’s Apps store also makes it a key distributor of software.  What bucket is it in?
• Should Amazon be allowed to be both the biggest online marketplace as well as the manufacturer of a device (the Kindle) that offers access to that store?

I could go on and on, but here’s the crucial point: Creating firewalls between the buckets Wu proposes would be a nightmare and would entail incessant regulatory interventions to make sure the walls weren’t breached.  As suggested above, the very act of regulatory line-drawing would be mind-bogglingly complex.  More importantly, each new information sector innovation would suddenly be subjected to a regulatory classification proceeding.

Wu is essentially saying there are few integrative efficiencies or other economic benefits associated with cross-sector deals or cross-platform technological developments.  Again, he dismisses the notion with one line: “[T]he Separations Principle accepts in advance that some of the benefits of concentration and unified action will be sacrificed, even in ways that may seem painful or costly.” (p. 305)  Well, that’s nice… except that this regulatory system would upend the U.S. information economy as we know it!  His Separations Principle is an unprecedented regulatory wrecking ball that would do untold destruction to the American economy in the name of creating a system of information apartheid. Wu also completely ignores the litigation nightmare that would ensue once the government started forcing the divestiture of various lines of business.  After all, many companies would likely have valid “takings” claims here under the Fifth Amendment.

But even if we could get beyond all that, we’d have to consider how this regime would work going forward.  Let’s consider a hypothetical example.  Virtual reality is an emerging field of our information economy that promises to experience rapid growth in coming years.  A number of companies are currently developing content and devices that will help bring a veritable Star Trek holodeck experience to our living rooms sometime very soon.  The market is still in a great deal of flux and it remains unclear which technologies will prevail or which developers and device makers will prosper.  One thing we know for certain, however: it’s a hugely complex and expensive undertaking.  VR technologies aren’t like creating a YouTube video of your cat playing a piano. There are significant costs associated with developing VR content and devices. Distributing VR bits over networks will, no doubt, be quite complicated as well.  Now, imagine two scenarios (which, for all I know, may already be playing out in the marketplace today):

• Scenario 1: A partnership is announced between some cutting-edge VR companies that have different core competencies in this field.  One of the companies is developing holographic imaging devices to project immersive environments directly into your living room or workspace.  Another of the partners is developing games that would take advantage of those new holographic imaging innovations.  And a third partner in the deal is developing software that will help manage the real-time, high-bandwidth flow of VR bits across broadband lines.  Under Wu’s Separations Principle, would this deal be illegal?
• Scenario 2: All of the activities discussed above are being handled by a single, integrated firm.  Is that illegal under Wu’s Separations Principle?

Now, it would be easy to dismiss this scenario with a casual wave of the hand and a ‘we’ll-figure-it-out-later’ attitude.  But consider the fact that deals and developments like this are happening every single minute of the day our modern information economy.  One wonders how regulators would even be expected to keep track of it all.  And they would have to keep track of it all because, again, Wu’s Separations Principle is preemptive and prophylactic in character.  His regulatory regime is going to have to come to grips with that fact that innovation happens. Markets evolve. People want to experiment and do bold new things. They tinker. They develop. They pitch. They deal. And so on.  As that dynamic process unfolds every day across the high-tech economy, Wu’s Separations Principle will be put to the test and necessitate a regulatory proceeding of some sort to determine what is permitted and what is verboten.  Meanwhile, the very uncertainty associated with Wu’s regime would delay and discourage investment in the field and formation of the partnership/venture necessary to successfully bring VR to market

Astonishingly, however, Wu argues that “a Separations regime would take much of the guesswork and impressionism, and indeed the influence trafficking, out of the oversight of information industries.” (p. 307) That’s a doozy of a claim.  To the extent his Separations Principle eliminates “guesswork” and creates more regulatory certainty, it would only do so by creating rigid artificial barriers to market entry and innovation across the information economy.  That’s “certainty” that we can live without.

Conclusion

Over on Amazon.com, I was interested to see Tim Wu post a glowing review of Kevin Kelly’s important new book, What Technology Wants (which I will be reviewing here next).  Kelly’s book argues that we should think of technology, or what he calls “the Technium,” as a “force” or even a living “organism” that has a “vital spirit” and which “has its own wants” and “a noticeable measure of autonomy.”  I think Kelly goes a bit far, but to the extent one buys into the notion that technology is like an organism, Tim Wu’s Information Industrial Policy would kill that organism.  Or, it would at least severely stunt its continued growth and evolution.

Because his information industry policy is every bit as “radical” as he suggests and would require, as he also admits, “a certain breadth and ambition in its application,” it is essential we reject this innovation-killing regulatory regime.  The health of the high-tech economy, the global competitiveness of the U.S. technology sector, and the long-term welfare of consumers depends upon it.

I want to thank Tim Wu for continuing to engage in a discussion here about his book, The Master Switch, with his various comments to my ongoing rants.  After pouring out about 15,000 words over the past 4 days, I suspect I’m beginning to sound a bit like his cyber-stalker!  I feel a bit bad about this because I really do like Tim a lot and find him to be one of the all-around coolest and most laid-back guys in the Net policy business.  But, as I’ve noted in my ongoing series [see parts 1, 2, 3, & 4], we have profoundly different worldviews when it comes to information history and policy. And some of the recent comments he made to my 3^rd post deserve a serious response.

In one of those comments he asks, “The question, then, is how you get, essentially, limited, controlled government in regulatory affairs; how you duplicate, in some sense, the limits imposed on other dangerous gov’t functions like the army. I don’t think this is having things both ways; I think this is trying to learn from what has gone wrong in the past.”  In the other, he says: “The question I’m asking in the end of the book is whether we can do better; try to have rules against the worse forms abuse without a creeping regulation that turns into capture. I suspect you think that’s impossible, but I don’t.”

So, here’s my response (and I’m making it a new, dedicated post here instead of just a comment in an old thread because I feel we are getting to the heart of the difference between cyber-libertarians (like myself) and cyber-collectivists (or whatever Tim would call himself).

To be clear, I don’t think corporations are angels or that there is never a time when a market can’t be naturally subject to a great deal of control by one company or a handful of companies.  The difference between us comes down to two things primarily.

First, as I have already noted in a couple of these essays (especially this one), I believe regulatory capture, mismanagement, or other shenanigans have more to do with creating and / or maintaining “monopoly” or lasting / harmful “market power” than natural market forces.   By definition, a “purely economic laissez-faire approach” does not exist in markets characterized by regulatory capture and bureaucratic mismanagement.  And you won’t ever get less regulatory capture and bureaucratic mismanagement by increasing the scope of government control over a market.

Second, to the extent that any company or set of companies is able to achieve “market power” is a largely natural fashion (think IBM in 70s or Microsoft in late 90s), I believe that markets can and do act to evolve around those situations quite rapidly, even more rapidly when the market is built on code.

I spent time developing these points in detail in this two-part debate [1, 2] with Lawrence Lessig, which I hope Prof. Wu will take the time to read since I went to great pains to clearly delineate the differences that separate our worldviews.  Ultimately, as I said there in response to Prof. Lessig, what really separates the cyber-libertarian and cyber-collectivist schools of thinking comes down to a belief that “market failures” or “code failures” are ultimately better addressed by voluntary, spontaneous, bottom-up, marketplace responses than by coerced, top-down, governmental solutions. Moreover, the decisive advantage of the market-driven approach to correcting code failure comes down to the rapidity and nimbleness of those response(s).

Does that mean cyber-libertarians believe everything will be all wine and roses in a truly free marketplace?  Absolutely not.  There will be short term spells of what many of us would regard as excessive market power.  The difference between us comes down to the amount of faith we would place in government actors versus market forces / evolution to better solve that problem.  We cyber-libertarians would obviously have a lot more patience with markets and technological change, and would be willing to wait and see how things work out.  We believe, as I have noted in my previous responses to Wu, that it is during what some regard as a market’s darkest hour when some of the most exciting disruptive technologies and innovation are developing.   We are bullish on what I have called experimental, evolutionary dynamism.  People don’t sit still; they respond to incentives, including short-term spells of “market power.”

Is this blind faith in the market?  I suspect Prof. Wu and others would accuse us of that.  But I would argue it isn’t blind faith but informed fact.  It’s interesting, for example, that one of the “information empires” Wu doesn’t spend much time on in his book is IBM.  Back in the 60s and 70s, (as I have documented here before) IBM was the big, bad dog of the computing world, with significant “market power” in mainframes — the only computers that really counted at the time.  Big Blue’s market power was achieved in a fairly natural way, however.  Importantly, there isn’t much regulatory capture or interference I could point to that helped cause or maintain the power IBM had. So, it’s certainly a better case study than others Wu uses in his book, most of which were subject to early meddling by government that tipped the balance in unnatural directions.

Anyway, back in the 1960’s, some folks at the time feared IBM might “leverage” their significant market power into new fields. As a result, the Department of Justice opened an antitrust case against Big Blue in 1969 that would become a 13-year quagmire, with little to show for all the legal wrangling by the time the case was abandoned in 1982.  Here’s how CNet staff writer Rachel Konrad summarized the fiasco back in 2000:

In January 1969, the government began a sweeping antitrust investigation into IBM’s dominance and attempted to break it into smaller companies that would compete against one another. During the six most critical years of the trial, from 1975 to 1980, the parties called 974 witnesses and read 104,400 pages of transcripts, according to Emerson Pugh’s 1995 book “Building IBM: Shaping an Industry and Its Technology.” The 13-year investigation, which required IBM to retain 200 attorneys at one point, fizzled in the early ’80s as the computing landscape shifted from mainframes to personal computers. The government abandoned the tainted effort entirely in 1982, as clones of the IBM PC eroded Big Blue’s dominance. But the company, still fearful of the watchful eye of the Justice Department, took pains to avoid the appearance of a monopoly long after it relinquished its hold on the market. People who worked for IBM in the ’80s and early ’90s said the company routinely fell victim to “pricing death strategy”–a reluctance to lower prices below cost, even on products that weren’t selling–to avoid what the government would call predatory pricing. By the mid-’80s, the company was in bad shape. The antitrust troubles, combined with ill-timed product failures such as the Future System, pinched revenues. The company began a nearly decade-long financial slide. In retrospect, the antitrust case against IBM seemed laughable.

IBM had become the victim of a classic “disruptive technology” paradigm shift that few could have foreseen in 1969.  As Peter Pitsch noted in his 1996 PFF book The Innovation Age, “In 1981 the Department of Justice was still pressing their case against IBM while market forces were about to lay waste to the company.” Pitsch continued:

IBM certainly did not expect to see PCs erode the market share and profitability of its venerable mainframe computers, but the fall of the old “big iron” machines was rapid and spectacular. The revenue of IBM’s mainframe unit fell from roughly $9 billion in 1990 to an estimated $4.5 billion in 1994… [T]he parties destined to become players in the PC revolution were unknown when the PC was introduced, and the experts’ predictions of a much-ballyhooed computer face-off between IBM and AT&T never materialized. Innovative companies that did not exist at the beginning of the revolution rose rapidly. Few people had ever heard of a small company named Microsoft. Nor had they heard of Intel, Novell, Compaq, Dell, or Netscape.

Pitsch went on to summarize how IBM’s manufacturing capacity was slashed in the years that followed and also notes that, astonishingly, “in the space of five years after 1987, IBM lost two thirds of its market value — more than $70 billion.”  In sum, new marketplace innovation and competition handled the short-term market power concern that antitrust regulators had about Big Blue.  Pitsch goes on to explain what the antitrust regulators missed:

A dominant firm can lose its “King of the Hill” status in two ways. First, if it does not continually improve, it will lose market share and profits to low-cost imitators. For example, the ability of low-end PC manufacturers to make IBM clones fostered robust price competition in the PC market. Second, today’s market leaders must worry that some established and well-financed competitor or possibly an upstart produce a technical breakthrough that will displace them. This situation reflects [the] fact that gains from innovation are so powerful and beneficial to consumers that they outweigh the higher prices dominant firms can charge. Indeed, attempts to eliminate these high profits by regulating prices would almost certainly disserve consumers even if the regulations dampened the incentives for innovation only slightly.

What Pitsch is talking about here is dynamic competition, not the static competition. And what the history of IBM shows is the power of evolutionary dynamism in action.  Markets are a learning experience; a “discovery process” as Austrian economists have taught us. Those of us who believe in dynamic competition and evolutionary dynamism see markets in a constant state of flux and expect that sub-optimal market developments or configurations are exactly the spark that incentivizes new form of market entry, innovation, price competition, and so on. Experimentation and evolution happen if you let them happen.

Others, however – and I suspect this includes Prof. Wu – would argue that’s not good enough. They want action, and they want it now!  Every short-term hiccup deserves a policy response in the name of protecting “the public interest,” however they define it through regulation.  But what about the costs and trade-offs associated with early, preemptive, or prescriptive regulation?  What of the danger of regulation steering markets in unnatural or inefficient directions? The possibility of picking technological winners and losers, or technological lock-in?  The possibility of regulatory capture and the creation of a special interest, lobbying hell inside the Beltway?

Somehow these factors often go out the window for those who subscribe to the more static, snapshot-oriented view of markets and competition that is so prevalent in cyber-collectivist circles.  But the cyber-libertarian can’t let those go.  Those factors lie at the core of the problem, we would argue. Actions have consequences. Regulations have costs. And those costs typically outweigh the benefits of preemptive strikes by the State.

And that, at root, is what separates the cyber-libertarian and cyber-collectivist worldviews when it comes to concerns about “market power” and what to do about it.

[Jump to Part 6 in the series.]

After posting the first three installments of my ongoing look at Tim Wu’s important new book, The Master Switch: The Rise and Fall of Information Empires, [see parts 1, 2, & 3], I’ve heard back from some readers as well as Prof. Wu himself that I may be going a bit hard on him, or that I am under-appreciating some of his valid critiques.  In particular, Wu and others have claimed I’ve ignored or downplayed his admission that the problem of regulatory capture is a prime culprit of “the cycle” he addresses in his book.  So, let me address that point here today.

I have acknowledged that Prof. Wu’s book includes some occasional references to the problem of regulatory capture or bureaucratic bungling throughout the history of communications and media policy.  In a comment to my previous post, Wu itemizes a couple of those instances, most of which I’d already cited before. But here’s probably the best passage from the book on this point:

Again and again in the histories I have recounted, the state has shown itself an inferior arbiter of what is good for the information industries. The federal government’s role in radio and television from the 1920s through the 1960s, for instance, was nothing short of a disgrace…. Government’s tendency to protect large market players amounts to an illegitimate complicity … [particularly its] sense of obligation to protect big industries irrespective of their having become uncompetitive. (p. 308)

I agree.  And, as I also noted in my previous essay, I very much appreciated this footnote in chapter 3 of Wu’s book: “The technical term for such a system is ‘corporatism’: in its extreme manifestation it is called ‘fascism.”  Wu is absolutely right.  I applaud him for labeling this system what it really is.

But here’s what’s so damn peculiar about Wu and his book when it comes to the problem of regulatory capture and bureaucratic mismanagement: as soon as he raises it, he immediately walks away from it.  There’s seemingly never any serious lesson drawn from it. Indeed, sometimes within a line or two of raising such concerns, Wu seem to dismiss them entirely and propose giving the State far more power to play games within the information sector. If Wu really believed in what he said about the dangers of regulatory capture, he wouldn’t also be so eager to empower the State to do even more meddling in these sectors. Indeed, as we’ll see in the next installment of this series, Wu goes on in his book to propose a truly audacious regulatory regime for America’s information sectors. It is a breathtaking information industrial policy.

Thus, after reading Wu’s book, one is forced to conclude that he is asking us to accept this rather silly syllogism:

• Premise #1: Information industries are prone to “cycles” that generally advance from “open” to “closed” and from competition to monopoly.
• Premise #2: Regulatory capture and bureaucratic mismanagement are major culprits.
• Conclusion: Therefore, the solution to the problem is to empower the State to take more, or better, steps to correct for this “market failure.”

That logic just doesn’t add up.  But that’s exactly what Wu asks us to accept in The Master Switch.

Regrettably, therefore, one is forced to conclude that Wu either has a complete disregard for public choice theory, or, worse yet, he is the victim of the stunning naive belief that his new vision or his new team of benevolent-minded, technocratic philosopher kings can save the day and will be immune to the problems of corporatism, regulatory capture, and bureaucratic mismanagement. Excuse me, but I’ve heard that one before, and I’m still not buying it.

Moreover, if one understands that the history of information sectors is indeed littered with examples of regulatory capture and bureaucratic bungling, one cannot also then conclude, as Wu does in his book, that a “purely economic laissez-faire approach” to information industries must be rejected.  By definition, a “purely economic laissez-faire approach” does not exist in markets characterized by regulatory capture and bureaucratic mismanagement.  And you won’t ever get less regulatory capture and bureaucratic mismanagement by increasing the scope of government control over a market!

You can’t have it both ways, Professor Wu.

[Jump to Part 5 in the series.]

This is the third installment in a series of essays about Tim Wu’s new book, The Master Switch: The Rise and Fall of Information Empires.  As I noted in my first essay, Wu’s book promises to make waves in Internet policy circles, so I’m devoting some space here to debunking what I regard as some of the myths that drive his hyper-pessimistic worldview regarding the supposed death of openness.  In my second essay, I challenged Wu’s view of technological “cycles” and “market failure” and noted that he paints an overly simplistic portrait of both. In a similar vein, in this installment I will address Wu’s mistaken claim that purely free markets and “laissez-faire” have guided America’s communications and media sectors over the past century.

Wu’s narrative in The Master Switch is heavily dependent upon his retelling of the histories of several major sectors: telephony, film, broadcast radio, and cable television.  After surveying the history of those sectors throughout the past century, Wu concludes that “the purely economic laissez-faire approach… is no longer feasible” (p. 303) and that a fairly sweeping new regulatory regime – which I will address in a forthcoming post – is necessary to address the imperfections of the free market.

As any serious historian of the past century of information industries knows, however, we’ve never had anything remotely resembling a “purely economic laissez-faire approach” to communications, media or information policy in this country.  We’ve had a mixed system that allowed a certain degree of market activity accompanied by very heavy doses of “public interest” regulation.  Indeed, the story of 20 ^th century communications and media markets is one of artificial barriers to entry, government (mis-)allocation of key resources (like spectrum), price controls, rate-of-return regulations, speech controls and mandates, regulatory capture, and good ‘ol boy corporatism.

History Grade: Incomplete

Sadly, Wu ignores much of that history in The Master Switch or fails to properly diagnose the root causes of “market failure.”  Consequently, as a work of industrial history, his grade is: Incomplete.

Part of the problem here is that, far too often in the book, Wu dwells on intentions. Like so many other so-called progressive scholars who view most corporate leaders like the satanic spawn of Gordon Gecko or Mr. Burns from “The Simpsons,” Wu often wants to base his indictment of markets on a moralizing view of corporate bad intentions.  He gives us selective juicy bits of boardroom shenanigans and corporate scheming that would make for a good John Grisham novel.  If one’s indictment of free-market capitalism is based on the desires of corporate leaders, however, then it is hardly unsurprising they would conclude that it is a failure.  After all, Adam Smith taught us long ago that every businessman longs for a monopoly over trade in their field.

But intentions are largely meaningless in the larger scheme of things.  It’s the nature of the process and outcomes that give us our real gauge of the worth of a market-based approach. We need answers to questions like:

• Have markets given us more or less choice, competition, diversity, etc.?
• To the extent there was an excessive concentration of private “power” in a given sector, was it fleeting or lasting?
• If it was lasting, were markets to blame, or did government tip the balance in favor or certain actors our outcomes?  In other words, how “free” was this “free market”?
• Finally, did markets and new technologies evolve to solve whatever “problems” were ailing certain sectors? If not, what held back that progress?

Sadly, Wu often gives us little more than superficial answers to these questions because, again, he’s often too busy attempting to peer inside the minds of corporate leaders to discern what motivated their supposedly wicked ways. In the process, he leaves out plenty of pertinent facts. In particular, despite his insistence to the contrary, he significantly underestimates the importance of regulatory capture or unnatural resource allocation / mismanagement as the key causes of the technological “closings” he cites.  He also downplays or occasionally ignores the trade-offs at work associated with regulatory solutions to the supposed problems he cites.  Finally, he largely fails to appreciate the sweeping nature of technological change that has revolutionized so many of these markets for the better in recent years.

In my post yesterday, I noted how Wu ignored many of these variables when discussing the AOL case study.  Today, I’ll jump back 100 years in history and Wu’s treatment of the early development in America’s communications sector and the rise of the AT&T monopoly.  As we’ll see, he makes some crucial oversights and, ultimately, makes an unconvincing case against “the purely economic laissez-faire approach” since no such thing ever existed in this field or the others he surveys.

Wu’s Incomplete AT&T Case Study

Wu spends a great deal of time in The Master Switch focusing on the old AT&T / Bell System and its leader Theodore Vail as the paradigmatic example of “the Cycle” in action.  To reiterate, “the Cycle” refers to the closing and eventual monopolization of a sector after a period of openness and competition. That Vail and AT&T were hell-bent on monopolizing the American communications systems is beyond question.  What is in question, however, is to what degree any of this process was the result of Wu’s much-lamented “purely economic laissez-faire approach.”  The answer: Not much.

Sixteen years ago I penned a short history of how this sad tale unfolded and called it, “Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly.”   What an accurate reading of that history reveals is that this monopolization was anything but the product of “market forces.”  Instead, America’s early communications history – as was the case in so many other countries – was very much shaped by political forces.

During the early years of the past century, when competition among independents was still quite vibrant, AT&T’s extensive campaign for “One Policy, One System, Universal Service” was a thinly veiled front for complete control of the telephone system under one corporate roof.  But was that goal really achievable absent government assistance?  Most industry historians don’t think so.

In his 1994 book, Contrived Competition: Regulation and Deregulation in America, Richard H.K. Vietor of Harvard University noted “Vail chose at this time to put AT&T squarely behind government regulation, as the quid pro quo for avoiding competition. This was the only politically acceptable way for AT&T to monopolize telephony…  It seemed a necessary trade-off for the attainment of universal service.” (p. 167, 172, 185) And AT&T’s own 1917 Annual Report noted, “A combination of like activities under proper control and regulation, the service to the public would be better, more progressive, efficient, and economical than competitive systems.”

Industry historian Robert W. Garnet, author of The Telephone Enterprise: The Evolution of the Bell’s Horizontal Structure, 1876-1909, provides further support for Vietor’s finding that regulation was the crucial driver of monopolization:

Regulation played a crucial role in Vail’s plans. Astute enough to realize that the kind of system he proposed — universal integrated monopoly — would stand little chance of gaining public approval without some form of public control, he embraced state regulation. In doing so, he broke with the company’s long-standing opposition to what [AT&T] management had traditionally regarded as an unwarranted intrusion on its prerogatives. But after years of unfettered competition, during which the firm’s financial strengths had been sapped and its efforts to build an integrated system had been dangerously undermined, regulation became a much-preferred alternative. Thus, Vail obviously saw government regulation as the way to eliminate competitors: the one-way ticket, not only to universal service, but also to monopoly profits. (p. 130, emphasis added)

The Kingsbury Commitment as Classic Corporatism

With the courtship of state regulators and legislators grew more widespread and successful, the stage was then set for the complete monopolization of the industry by AT&T.  Two crucial decisions at the federal level sealed that result.  First came the “Kingsbury Commitment” of 1913. Named after AT&T Vice President Nathan C. Kingsbury, who helped negotiate its terms, the agreement outlined a plan whereby AT&T would sell off its $30 million in Western Union stock, agree not to acquire any other independent companies, and allow other competitors to interconnect with the Bell System.

At the time, the Kingsbury Commitment was thought to be pro-competitive. Yet, this was hardly an altruistic action on AT&T’s part. The agreement was not interpreted by regulators so as to restrict AT&T from acquiring any new telephone systems, but only to require that an equal number be sold to an independent buyer for each system AT&T purchased. Hence, the Kingsbury Commitment contained a built-in incentive for regional monopoly-swapping rather than continued competition. Gerald Brock, author of The Telecommunications Industry: The Dynamics of Market Structure found that, “This provision allowed Bell and the independents to exchange telephones in order to give each other geographical monopolies. So long as only one company served a given geographical area there was little reason to expect price competition to take place.” (1981, p. 156)

In their 1992 treatise on Federal Telecommunications Law, Kellogg, Thorne, and Huber summarized the result of the Kingsbury Commitment as follows:

The government solution, in short, was not the steamy, unsettling cohabitation that marks competition but rather a sort of competitive apartheid, characterized by segregation and quarantine. Markets were carefully carved up: one for the monopoly telegraph company; one for each of the established monopoly local telephone exchanges; one for the Bell’s monopoly long-distance operations. Bell might not own everything, but some monopolist or other would dominate each discrete market. The Kingsbury Commitment could be viewed as a solution only by a government bookkeeper, who counted several separate monopolies as an advance over a single monopoly, even absent any trace of competition among them. (1992, p. 16-17)

The lesson here is clear: the move toward market-carving and mandated interconnection, while appearing in the independents’ favor at first, actually allowed AT&T to gain greater control over the industry. Brock found that “interconnection reduced the Bell’s ability to drive the independents out of business but also eliminated the independents’ incentive to establish a competitive long-distance system.” That is a crucial point, and one that Wu overlooks in his book and that many regulatory activists ignore till this day: Although well-intentioned, interconnection mandates can disincentivize more direct forms of head-to-head competition and disruptive forms of technological innovation.

To his credit, Tim Wu does acknowledge how the Kingsbury Commitment ended up being a disaster in practice. “Superficially a victory for openness and competition, in time the Kingsbury Commitment would prove the insidious death knell of both,” he notes. (p. 56)  But Wu doesn’t dwell on the gravity of this fatal regulatory decision very long.  Instead, he quickly switches gears and suggests that the problem was that regulators just didn’t go far enough. He suggests a preemptive breakup might have been the better way to go and implies that monopolization was inevitable.

Of course, we can never know how differently things might have turned out if that course of action had been pursued. But the problem for Wu is that most of the examples he uses in his book depend on this ‘why-didn’t-the-government-see-it-coming-and-intervene-earlier’ sort of thinking, even though (a) we don’t know how much of a difference it would have made in practice, and (b) such interventions could have backfired and had profoundly deleterious unintended consequences, just as the Kingsbury Commitment did.  Such interventions would have just necessitated additional forms of prophylactic regulation to keep the market as atomistic as Wu preferred.  As the Austrian economist Ludwig von Mises taught us six decades ago:

All varieties of interference with the market phenomena not only fail to achieve the ends aimed at by their authors and supporters, but bring about a state of affairs which—from the point of view of their authors’ and advocates’ valuations—is less desirable than the previous state affairs which they were designed to alter. If one wants to correct their manifest unsuitableness and preposterousness by supplementing the first acts of intervention with more and more of such acts, one must go farther and farther until the market economy has been entirely destroyed and socialism has been substituted for it.  (Human Action, at 858, 3rd ed. 1963, 1949).

(In a moment, we’ll see how the market economy was entirely destroyed and socialism substituted for it in this field.)

Again to his credit, Wu is willing to admit that, “it should also be obvious to anyone – one need by no means to be a raving libertarian – that there are some substantial dangers implicit in aligning the immense power of the state with the greatest of information monopolists.” (p. 59) Well, I am a raving libertarian, so you can imagine how sympathetic I am to this argument!  More impressively, in a footnote to that line, Wu properly labels this system what it is. “The technical term for such a system is ‘corporatism’: in its extreme manifestation it is called ‘fascism,’” he notes. Quite right!  What the Kingsbury Commitment represented was the essence of corporatism or what used to be called fascism before the Nazis essentially made the term impossible to use as a descriptor in economic histories or political philosophy.

A final problem with Wu’s interpretation of the Kingsbury Commitment: He praises Vail and AT&T for at least agreeing to common carriage obligations as part of the deal. “[I]f we regard the Kingsbury Commitment as having sanctioned the most lucrative monopoly in history, it also made good on the essential goals of common carriage,” Wu says. (p. 59) Here he utterly fails to fully appreciate the linkage between common carriage obligations and the corporatist model of industrial organization.  The imposition of common carriage obligations on a particular company or sector is tantamount to a “Game Over” moment for truly free markets.  Once you make that plunge, you’ve essential raised the white flag and surrendered on the notion of facilities-based competition. It is the death knell for laissez-faire.  Yet, Wu never makes that connection clear.

World War I and Communications Nationalization

More surprising, however, is the fact that Wu completely ignores the second major federal intervention that sealed AT&T’s lock on the communications marketplace. It was World War I, the nation’s first major global crisis, that would provide the United States government with a convenient excuse to forcefully gain control over communications and forever change the structure of the telephone industry.  On August 1, 1918, in the midst of World War I, the federal government nationalized the entire telecommunications industry for national security reasons. If, as Wu correctly suggests, the Kingsbury Commitment represented a dose of “fascism,” then this was surely a bit of good ol’ fashion socialism!  How it escaped Wu’s attention is perplexing because its significance cannot be underestimated.

As I noted in my history of the rise of the Bell System monopoly, AT&T executives were initially quite nervous when it was announced that Postmaster General Albert S. Burleson, a long-time advocate of nationalizing the telegraph and telephone industries, would assume control of the telephone system. But, once the benefits of nationalization where made evident to Theodore Vail, his anxieties disappeared. Industry historian George P. Oslin notes when Vail expressed concern over the plan to Western Union President and close personal friend Newcom Carlton, Carlton reassured Vail that the plan was in his interest: “It’s your salvation. The government will be able to raise your rates and get you new money.” As Oslin argues, “That was what happened. Burleson appointed Vail, rated by Carlton as a genius, to manage the telephone, and Carlton to operate the telegraph.”

In his 1939 book AT&T: The Story of Industrial Conquest, Noobar R. Danielian concurred: “There is evidence that Vail appreciated the advantages of Federal control… he was not in much of a hurry in the early part of 1919 to have his System back from nominal government control.” (p. 248) This attitude should not be at all surprising since shortly after the industry was nationalized, AT&T’s proposed contract establishing the terms of government ownership and compensation was accepted by the postmaster general. Danielian summarizes the deal as follows:

The federal government…  agreed to pay to AT&T 4 1/2 percent of the gross operating revenues of the telephone companies as a service fee; to make provisions for depreciation and obsolescence at the high rate of 5.72 percent per plant; to make provision for the amortization of intangible capital; to disburse all interest and dividend requirements; and in addition, to keep the properties in as good a condition as before. Finally, AT&T was given the power to keep a constant watch on the government’s performance, to see that all went well with government operation, by providing that the books of the Postmaster General would be at all times open for inspection. One might well wonder where the real control was lodged. Needless to say, the contract was eminently satisfactory to the Bell System. (p. 252)

In addition, once the nationalized system was in place, AT&T wasted no time applying for immediate and sizable rate increases. High service connection charges were put into place for the first time. AT&T also began to realize it could use the backing of the federal government to coax state commissions into raising rates. Vail personally sent Postmaster General Burleson studies that displayed the need to raise rates. By January 21, 1919, just 5 1/2 months after nationalization, long-distance rates had increased by 20 percent. In addition to being much greater than returns earned during more competitive years, the rates established by the postmaster during the year of nationalization remained in force many years after privatization. Consequently, AT&T’s generous long distance returns continued to average near or above 20 percent during the 1920s.

By the time the industry was returned to private control on August 1, 1919, the regulatory route to competition elimination had paid off handsomely for Vail and AT&T.  Of the estimated $50 million in rate increases approved by the postmaster general during nationalization, approximately $42 million, or 84 percent went to AT&T.  Additionally, the government cut AT&T a $13 million dollar check at the end of the period to cover any losses they may have incurred, despite the fact that none were evident.

You cannot get a better deal than that!  The year of government nationalization was the final nail in the coffin of communications competition, and it was a nail struck with the hammer of Big Government. The lesson: There was absolutely nothing “natural” about this monopoly.   Congress basically blessed the entire farce in 1921 with the passage of the Graham Act, which Wu does cite in his history. As he notes, it “recognized AT&T’s monopoly and remov[ed] any remaining obstacles to integration.” (p. 59)   But, again, this is Wu implying that there had been something natural about that monopoly, which there most certainly wasn’t.

This sad tale of corporatism only grew worse in subsequent years with the initiation of extensive rate regulation and direct barriers to entry and innovation. Rate regulation guaranteed AT&T stable returns and ensured that regulators suddenly had a vested interest in keeping the company healthy and protected from competition so that it could achieve the industrial policy vision of “One Policy, One System, Universal Service.”  AT&T had so utterly captured legislators and regulators that its motto became the prime directive and modus operandi for all communications regulation over the next half century.

And this is a pattern – dare I call it “the real cycle” – that we have seen play out in many other sectors that Wu discusses in the book.  Yet, he doesn’t seem to fully appreciate just how profoundly public policy makers to have distorted markets in the quest to achieve various social policy goals.  In many regulated sectors, history shows that policymakers often ended up depending upon one firm, or a small handful of firms, to provide all industry output/service. Those favored actors, like AT&T and Vail, became partners with the State.  Consequently, competition was made more difficult, if not impossible, by force of law.  As the dean of regulatory economists Alfred E. Kahn noted in his seminal 1971 treatise The Economics of Regulation:

When a commission is responsible for the performance of an industry, it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls rather than on the unplanned and unplannable forces of competition. (p. 12)

Conclusion

In sum, Wu serves up an incomplete history of Theodore Vail and the rise of the Bell System by downplaying the role that governments played in spawning, and then sheltering, the resulting monopoly.  In the case of Vail and AT&T, we can definitively conclude that there was no such thing as a “purely economic laissez-faire approach” allowed after World War I.  It basically became a crime to compete against the company or even attempt to innovate around it.

Thus, the lesson we should take from this case study is not, as Wu suggests, that markets failed but that they were never allowed to function naturally. Interventions pursued in the name of protecting consumers and serving “the public interest” often backfire and become the death knell of competition and innovation. Consequently, they undermine consumer welfare — which should be regarded as the ultimate “public interest” — in the process.

A more cautious historian would have acknowledged that and then questioned whether expanded regulatory inventions would — then or now — improve matters, or instead simply lead to even more deleterious forms of regulatory capture and corporatism.

[Jump to Part 4 in the series.]

Tim Wu was kind enough to comment on my general overview and critique of his new book, The Master Switch: The Rise and Fall of Information Empires.  That essay will be the first of many I plan to pen about Wu’s important book.  I appreciate Prof. Wu being willing to engage me in a debate over some of these issues since I’m sure he has better things to do with his time. Some of the points he raised in his comment will be addressed in subsequent posts.

In this post, I want to respond briefly to his assertion that I was “missing the point of the book” which is “to describe the world we live in.” He says that his book, “suggests that we tend to go through open and closed cycles in the Information Industries, and that, roughly, both have their strengths and weaknesses, and both become popular at different times for various reasons.”  But he fears there are “greater risks in the closed periods.”

Contrary to what he suggests, I certainly understand that’s the point of his book, it’s just that I don’t fully agree with his analysis or conclusions. Let me be clear about a crucial point, however: I accept that almost every industry goes through “cycles” of some sort and that, typically, after a “Wild West” period of greater “openness” and more atomistic competition, some degree of “consolidation” or more “closed” (or proprietary) models often sets in.  (A somewhat different and far more descriptive interpretation of such cycles can be found in Deborah Spar’s 2001 book, Ruling the Waves: Cycles of Discovery, Chaos, and Wealth from Compass to the Internet. She outlines a more refined 4-part cycle of: Innovation, Commercialization, Creative Anarchy, and Rules.)

My primary beef with Prof. Wu is that, contrary to his assertion yesterday in commenting on my post, his book seems to regard the progression of “the Cycle” as mostly linear and one-directional: straight down toward a perfectly closed, corporate-controlled, anti-consumer Hell.  By my reading of his book – much like Lessig and Zittrain’s work – Wu is painting an overly pessimistic portrait of technologies being subjected to the “perfect control” of largely unfettered markets.

I believe history – especially recent history — teaches us something very different.  While information technology markets certainly go through cycles, they tend to oscillate between open and closed more fluidly than Wu suggests – and that dynamic is accelerating today.  Moreover, during periods which Wu regards as more “closed,” things aren’t always as closed as he suggests.  Or, more importantly, the “closed” models typically spawn more innovation than Wu and others bother acknowledging. It’s during what some regard as a market’s darkest hour when some of the most exciting forms of disruptive technologies and innovation are developing.  Finally, to the extent some markets are completely locked-down for a time, it’s more often than not due to public policies that facilitate that lockdown or the “closing” of systems.

I spent a great deal of time making these points in the second essay I submitted to the recent Concurring Opinions symposium about Jonathan Zittrain’s The Future of the Internet. In my essay, “On Defining Generativity, Openness, and Code Failure,” I argued that what separates our worldviews primarily comes down to the more static (or “stasis”) mindset that Lessig, Zittrain, and Wu adopt in their work.  They take static snapshots of markets at what seems to be their darkest hour and then suggest there’s little chance of escaping that Hell.

Of course, how one defines Hell is important. What Wu does in his book, following the lead set by Lessig and Zittrain, is to “define-down” market failure.  If you regard proprietary business models, property rights, or the success of a small handful of companies as the enemy of “openness” and innovation, then it’s easy to see why you might buy into the notion that market failure is ubiquitous and that “steps must be taken” to correct it.   If, on the other hand, you understand that markets are in a constant state of flux, and that those other variables listed above are not necessarily at odds with openness and innovation, then, like me, you’re more cautious about calling in the Code Cops to steer markets and outcomes in other directions.

But the really important point here is that markets evolve. Moreover, that evolution takes place at a much faster clip in the digital arena than it does in other markets. Innovators don’t sit still. People innovate around “failure.” Indeed, “market failure” is really just the glass-is-half-empty view of a golden opportunity for innovation. Markets evolve. New ideas, innovations, and companies are born.  And things generally change for the better—and do so rapidly.

Consider my two favorite case studies from recent times: the AOL-Time Warner merger and the supposed Microsoft monopoly.

The AOL Case Study

When Lessig penned Code a decade ago, it was AOL that was set to become the corporate enslaver of cyberspace. For a time, it was easy to see why Lessig and others might have been worried.  25 million subscribers were willing to pay $20 per month to get a guided tour of AOL’s walled garden version of the Internet.  Then AOL and Time Warner announced a historic mega-merger that had some predicting the rise of “new totalitarianisms” and corporate “Big Brother.”

But the deal quickly went off the rails. By April 2002, just two years after the deal was struck, AOL-Time Warner had already reported a staggering $54 billion loss. By January 2003, losses had grown to $99 billion. By September 2003, Time Warner decided to drop AOL from its name altogether and the deal continued to slowly unravel from there.  In a 2006 interview with the Wall Street Journal, Time Warner President Jeffrey Bewkes famously declared the death of “synergy” and went so far as to call synergy “bullsh*t”!  In early 2008, Time Warner decided to shed AOL’s dial-up service and then to spin off AOL entirely.  Looking back at the deal, Fortune magazine senior editor at large Allan Sloan called it the “turkey of the decade.” The formal divorce between the two firms took place in 2008. Further deconsolidation followed for Time Warner, which spun off its cable TV unit and various other properties.

(The hysteria about AOL’s looming monopolization of instant messaging—and with it, the rest of the web—seems particularly silly: Today, anyone can download a free chat client like Digsby or Adium to manage multiple IM services from AOL, Yahoo!, Google, Facebook and just about anyone else, all within a single interface, essentially making it irrelevant which chat service your friends use.)

In the larger scheme of things, AOL’s story has already become an afterthought in our chaotic cyber-history. But we shouldn’t let those old critics forget about their lugubrious lamentations.  To recap: the big, bad corporate villain of Lessig’s Code attempted to construct the largest walled garden ever, and partner with a titan of the media sector in doing so—and this dastardly plot failed miserably.

To Wu’s credit, he acknowledges that AOL-Time Warner was “a surprising wreck” and that “AOL was [a] dinosaur limping into the new age” before the mass Internet. (p. 262-3) [Of course, there’s no mention in the book of the dire prognostications some of his academic compatriots made a decade ago about AOL or its deal with Time Warner.]  Surprisingly, however, Wu suggests that what ultimately undermined the deal was Net neutrality! He argues that, in order for the merger to achieve the perfect Hell of a giant corporate walled garden, AOL Time Warner would have needed to “subdue Google, Yahoo! and their many cousins. In short, to be viable, the firm would have needed to overturn the net neutrality principles at the core of the Internet’s design.” (p. 267)

Now, isn’t that interesting since, quite obviously, there have been no Net neutrality laws on the books despite the fact that critics like Wu have been hollering for their supposed need!  In a similar vein, Wu recently told Forbes magazine “If there were no net neutrality, Skype would have already been suppressed.”  Again, there is no formal Net neutrality law in place today, so what Wu is essentially saying is that market norms, not regulatory edicts, ensured that new applications came online and that market power was checked.

Even more interesting is the fact that Wu continues on to essentially make the libertarian case against formal Net neutrality regulation when he argues:

The only entity that has so far really succeeded in such a mission [of overturning the net neutrality principles at the core of the Internet’s design] is the government of mainland China, as we saw in 2010, when it drove an exasperated Google out of its sovereign territory by demanding extensive control over what Google let users find.  Indeed, the feat requires such power and resources as belong uniquely to the state: access to the very choke points of a nation’s communications infrastructure, its Master Switch. AOL Time Warner, however vast, did not have police power—it could not imprison Google’s executives for failing to block Wikipedia or Disney content. (p. 267)

Exactly right; it really does come down to that profound difference between who has coercive police power (the State) and who does not (corporations).  It’s not just a difference of degree but a difference of kind.   So, welcome to libertarian movement, Tim Wu!  I plan on citing that block quote in every paper I write from now on regarding why we don’t need preemptive Net neutrality regulation!

The Microsoft Case Study

I want to also briefly mention the Microsoft case study since it is quite instructive in this regard.

It’s suddenly quite easy to forget just how much hand-wringing took place in the late 1990s and early 2000s over Microsoft’s dominance of the web browser market.  Dour predictions of perpetual Internet Explorer lock-in followed.  For a short time, there was some truth to this.  But, yet again, innovators weren’t just sitting still; exciting things were happening.  In particular, the seeds were being planted for the rise of Firefox and Chrome as robust challengers to IE’s dominance—not to mention mobile browsers.

Of course, it’s true that roughly half of all websurfers still use a version of IE today.  But IE’s share of the market is falling rapidly as viable, impressive alternatives now exist and innovation among these competitors is more vibrant than ever.  That’s all that counts. The world changed, and for the better, despite all the doomsday predictions we heard less than a decade ago about Microsoft’s potential dominance of cyberspace.  Moreover, all the innovation taking place at the browser layer today certainly undercuts the gloomy “death of the Net” or “death of openness” thesis set forth by Zittrain and Wu.

Indeed, as Tim O’Reilly argues, this case study illustrates the power of markets to evolve and “route around” market failure or excessively closed systems even during what appears to be a certain sector’s darkest hour:

Just as Microsoft appeared to have everything locked down in the PC industry, the open Internet restarted the game, away from what everyone thought was the main action. I guarantee that if anyone gets a lock on the mobile Internet, the same thing will happen. We’ll be surprised by the innovation that starts happening somewhere else, out on the free edges. And that free edge will eventually become the new center, because open is where innovation happens. […] it’s far too early to call the open web dead, just because some big media companies are excited about the app ecosystem. I predict that those same big media companies are going to get their clocks cleaned by small innovators, just as they did on the web.

Lessons Learned – Or Ignored?

From these case studies, one would hope that the Openness Evangelicals would have gained a newfound appreciation for the evolutionary and dynamic nature of markets and come to understand that, especially in markets built upon information and digital code, the pace and nature of change is unrelenting and utterly unpredictable.  Indeed, contra Lessig’s lament in Code that “Left to itself, cyberspace will become a perfect tool of control,” cyberspace has proven far more difficult to “control” or regulate than any of us ever imagined.  The volume and pace of technological innovation we have witnessed in information sectors over the past decade has been nothing short of stunning.

Critics like Zittrain and Wu, however, wants to keep beating the cyber-sourpuss drum.  So, the face of corporate evil has to change. Today, Steve Jobs has become the supposed apotheosis of all this closed-system evil instead of AOL.  Jobs serves as a prime villain in the books of Zittrain and Wu and in many of the essays they and other Openness Evangelicals pen. But their enemies list is growing longer.  Today, according to the narratives in Zittrain and Wu’s books, it’s not just one of two corporate titans we need to worry about, but just about every major player in the high-tech ecosystem—telcos, cable companies, wireless operators, entertainment providers, Facebook, and others.

Even Google — Silicon Valley’s supposed savior of Internet openness — is not spared their scorn.  “Google is the Internet’s switch,” Wu argues. “In fact, it’s the world’s most popular Internet switch, and as such, it might even be described as the current custodian of the Master Switch.” More ominously, he warns, “it is the switch that transformed mere communications into networking—that ultimately decides who reached what or whom.” (p. 280)

It seems, then, that the face of “closed” evil is constantly morphing.  But shouldn’t that tell us something about how dynamic these markets are?!  I look forward to reading the next edition of Tim’s book to see who the new villains are and whether he’s drawn any lessons from the constantly changing cast of characters.

Conclusion

In sum, history counsels patience and humility instead of Chicken Little-ism and incessant calls for preemptive regulation to serve some amorphous, politically-defined “public interest.”  More generally, history counsels what we might call “technological agnosticism.” In particular, we should avoid declaring “openness” – especially of the mandated variety — a sacrosanct principle and making everything else subservient to it without regard to cost or consumer desires.  As Wired’s Chris Anderson notes, “there are many Web triumphalists who still believe that there is only One True Way, and will fight to the death to preserve the open, searchable common platform that the Web represented for most of its first two decades (before Apple and Facebook, to name two, decided that there were Other Ways).”  The better position is one based on a general agnosticism regarding the nature of technological platforms and change.  In this view, the spontaneous evolution of markets has value in its own right, and continued experimentation with new models—be they “open” or “closed,” “generative” or “tethered”—should be permitted.

Importantly, one need not believe that the markets are “perfectly competitive” to accept that they are “competitive enough” compared to the alternatives—especially those re-shaped by the sort of regulation Wu and others advocate.  “Market failures” or “code failures” are ultimately better addressed by voluntary, spontaneous, bottom-up, marketplace responses than by coerced, top-down, governmental solutions.  Moreover, the decisive advantage of the market-driven, evolutionary approach lies in the rapidity and nimbleness of those responses compared to regulatory alternatives.

Thus, in closing, Tim Wu’s assertion yesterday that I was “missing the point of the book… [which is] to describe the world we live in,” is based on his belief that he has accurately described our world, its history, and the forces that move it.  As I’ve suggested here, there’s a very different way of looking at things.  In my opinion, Wu’s Master Switch is just too hung up on the static snapshot mindset and a bit too obsessed with the supposed One True Way of doing things.

[ Note: In the next installment, I will address Wu’s mistaken claim that purely free markets have guided America’s communications and media sectors over the past century and his assertion that “the purely economic laissez-faire approach… is no longer feasible.”]

Tim Wu’s new book, The Master Switch: The Rise and Fall of Information Empires, will be released next week and it promises to make quite a splash in cyberlaw circles.  It will almost certainly go down as one of the most important info-tech policy books of 2010 and will probably win the top slot in my next end-of-year list.

Of course, that doesn’t mean I agree with everything in it.  In fact, I disagree vehemently with Wu’s general worldview and recommendations, and even much of his retelling of the history of information sectors and policy.  Nonetheless, for reasons I will discuss in this first of many critiques, the book’s impact will be significant because Wu is a rock star in this academic arena as well as a committed activist in his role as chair of the radical regulatory activist group, Free Press. Through his work at Free Press as well as the New America Foundation, Professor Wu is attempting to craft a plan of action to reshape the Internet and cyberspace.

I stand in opposition to almost everything that Wu and those groups stand for, thus, I will be spending quite a bit of time addressing his perspectives and proposals here in coming months, just as I did when Jonathan Zittrain’s hugely important The Future of the Internet & How to Stop It was released two years ago (my first review is here and my latest critique is here).  In today’s essay, I’ll provide a general overview and foreshadow my critiques to come.  (Note: Tim was kind enough to have his publisher send me an advance uncorrected proof of the book a few months ago, so I’ll be using that version to construct these critiques. Please consult the final version for cited material and page numbers.)

The Master Switch & the Cyber-Collectivist Trilogy of Terror

As I noted in my essay on “Two Schools of Internet Pessimism,” what I find most lamentable about the state of cyberlaw and high-tech policy debates today is the foreboding sense of gloom and doom that haunts so many narratives.  To crack open most Net policy books these days is to step into a world of corporate conspiracies, nefarious industry schemers, closed systems, “kill switches,” squashed consumer rights, and so on.  Let’s face it, Chicken Little doesn’t need an agent; pessimism sells. The world loves a good tale of villainy and misery, and that’s exactly what Columbia Law School professor Tim Wu delivers in his new book, The Master Switch: The Rise and Fall of Information Empires.

Wu’s book is important if for no other reason than he is considered one of the intellectual godfathers of modern cyberlaw and The Master Switch is best understood as the final installment in an important trilogy that began with the publication of Lawrence Lessig’s seminal 1999 book, Code and Other Laws of Cyberspace and then was continued on in Jonathan Zittrain’s much-discussed 2008 book, The Future of the Internet & How to Stop It.

To better understand where Wu wants to take us in The Master Switch, we must first return to the central tenant of Lessig’s Code:  “Left to itself,” Lessig predicted, “cyberspace will become a perfect tool of control.” (pg 5-6)  Code quickly became a sort of cyber-collectivist Bible and today Lessig’s many disciples in academia and a wide variety of public policy regulatory advocacy organizations continue to preach this gloomy gospel of impending digital doom and “perfect control.”  Zittrain and Wu are Lessig’s most notable intellectual descendants; the Peter and Paul of the Church of Cyber-Doom that he founded.  And despite their insistence that they really aren’t all that pessimistic—or, more humorously, that they are actually libertarians in disguise—this crew persists with frightful tales and lugubrious warnings that unless someone or something—quite often, the State—intervenes to set us on a better course or protect those things that they regard as sacred.

Zittrain’s Future of the Internet, for example, brought Lessig’s Code up date by giving us a fresh set of villains.  Gone was Lessig’s old foil AOL and its worrisome walled gardens. Instead, the new face of evil became Apple, Facebook, and TiVo.  Zittrain worries about “sterile and tethered” digital “appliances” that foreclose digital generativity and the rise of “a handful of gated cloud communities whose proprietors control the availability of new code.”

Wu simply extends this narrative in The Master Switch when he ominously warns that there are “forces threatening the Internet as we know it” (p. 7) and then goes on to craft an enemies list that reads like a “Who’s Who” of high-tech corporate America. No one, it seems, can be trusted—at least not if that someone has a “.com” behind their name.  Wu hopes to convince us that history proves that concentrations of private power in information industries are inevitably follow a period of openness and competition.  He refers to this as “The Cycle.” Thus, he trots out the old collectivist saw that freedom is really slavery — slavery to The Man:

If the stories in this book tell us anything… it is that the free market can also lead to situations of reduced freedom. Markets are born free, yet no sooner are they born than some would-be emperor is forging chains.  Paradoxically, it sometimes happens that the only way to preserve freedom is through judicious controls on the exercise of private power.  If we believe in liberty, it must be freedom from both private and public coercion. (p. 310)

This is the heart of Wu’s critique in The Master Switch: The real threat is not Big Brother but Big Corporate Brother. It’s certainly not a new critique. Wu is simply steering the Lessig-ite, cyber-collectivism school of cyberlaw in line with traditional “progressive” perspectives and recommendations.  Indeed, although he and other so-called progressives don’t always come right out and say it, they often suggest that private power – however defined – is so insidious and threatening that greatly amplified State power to counter it becomes essential, even a good.

The cyber-collectivist movement that Lessig began with Code and Zittrain and Wu continue in their books, is fueled by that dour, depressing “the-Net-is-about-to-die” fear. Again and again their message comes down to this: “Enjoy the good old days of the open Internet while you can, because any minute now it will be crushed and closed-off by corporate marauders!”  This crowd want us to believe that the corporate big boys are — someday very soon — going to toss the proverbial “master switch,” suffocating Internet innovation and digital freedom, and making us all cyber-slaves within their commercialized walled gardens.

We might think of this fear as “The Great Closing,” or the notion that, unless radical interventions are pursued — usually of a regulatory nature – a veritable Digital Dark Age of Closed Systems will soon unfold, complete with myriad AOL-like walled gardens, “sterile and tethered devices,” corporate censorship, and consumer gouging. Again, it’s really just a restatement of the old Lessig vision of an unfettered cyberspace leading to “perfect (corporate) control.”  In other words, most information systems, networks and devices will be bottled up by corporate “gatekeepers” if markets aren’t steered in a better direction by wise philosopher-regulators.  And these “Openness Evangelicals,” as I will call them, believe they are the sagacious chosen few who will serve as the self-appointed janissary of the supposed dying order of openness.

My critique of this cyber-collectivist thinking and “Great Closing” thesis was more fully developed in these two essays [1, 2] and will be more robustly developed in a chapter for an upcoming book that will be published shortly.  Much of what I’ll have to say in response to Wu’s new book will be drawn from those essays as well as my two-part exchange [1, 2] with Lessig upon the 10^th anniversary of the publication of Code. Basically, I do not buy – not for one minute – the notion that “the Internet is dying” or that “openness” is evaporating.  The Internet has never been more vibrant or open.  Again, please read those previous essays for my completely response.  I’ll be teasing out some of those themes in future essays here.

More specifically, my response to Wu’s new book comes down to this:

1. Rarely is there any discussion of the nature of the respective forms of “power” or the coercive nature of State power, in particular.  The fact that the State has a monopoly on force in society and, thus, can penalize or even imprison, is either ignored or treated as irrelevant compared to the supposed “power” of private actors.
2. Rarely in their analysis — and never in Wu’s book — is there a serious cost-benefit analysis of the trade-off associated with an aggrandizement of State power in the name of countering the supposed evils of private power.  The solutions offered – to the extent they rise above amorphous calls to “do something” – are presented as cost-free options.
3. There isn’t enough focus on the dangers of “regulatory capture” or the massive inefficiencies associated with the sort of regulatory regimes that progressives and modern cyber-collectivists like Wu would substitute for market mechanisms.

In my next installment, I’ll take on Wu’s critique of the fictional “purely economic laissez-faire approach” he derides – an approach that has never existed in American communications or media markets.  In a forthcoming installment, I’ll also be challenging Tim to a Simon-Ehrlich wager on this front and ask him to put his money where his mouth is to see just how serious he is about his dour worldview and extreme technological pessimism!  So, stay tuned.

[Jump to Part 2 in the series.]

TLF readers will definitely want to check out the online symposium underway over at the Concurring Opinions blog debating the thesis set forth in Jonathan Zittrain’s important 2008 book, The Future of the Internet and How to Stop It. The symposium will feature a terrific cast of thinkers, including: Steven Bellovin, Ryan Calo, Laura DeNardis, James Grimmelmann, Orin Kerr, Lawrence Lessig, Harry Lewis,Daithí Mac Síthigh, Betsy Masiello, Salil Mehra, Quinn Norton, Alejandro Pisanty, Joel Reidenberg, Barbara van Schewick and me!  Regular contributors to the Concurring Opinions blog, such as Frank Pasquale, are also taking part.

Faithful readers will recall that I named Zittrain’s book the most important Internet policy book of 2008 and one of the most important books of the past decade.  It’s impact has already been enormous. But I’ve also been unrelenting in my criticism of the book and Zittrain’s dour forecast for the future of Internet “openness” and digital “generativity.” Down below I have reproduced my contribution to the Concurring Opinions symposium, but I encourage you to hop over there to check out all the essays that are pouring in on this topic.

In his opening essay in this symposium, Jonathan Zittrain ensures us that he is “not exactly a pessimist.” “I recognize, and celebrate,” he says, “the fact that the digital environment of 2010 is the coolest, most interesting, most option-filled it’s ever been.” Terrific! I am glad to hear that because the crux of my repeated critiques of his book, The Future of the Internet, over the past two years has been focused on its unrelenting – and largely unwarranted – pessimism about our possible cyber-futures. Alas, his essay on these pages still displays much of that underlying techno-pessimism and begs me to ask: Will the real Jonathan Zittrain please stand up?

Regardless of whether Zittrain is more optimistic now than when he penned his book two years ago, others are seemingly taking its pessimist message to heart. Indeed, “the Death of the Internet” is a hot meme in the Internet policy world these days. Much as a famous 1966 cover of Time magazine asked “Is God Dead?” Wired magazine, the magazine for the modern digerati, proclaimed in a recent cover story that “The Web is Dead.” And just this past week, The Economist magazine ran a cover story fretting about “The Web’s New Walls,” wondering “how the threats to the Internet’s openness can be averted.” Like Zittrain’s book, the primary fear expressed in both essays was that the wide-open Internet experience of the past decade is giving way to a new regime of corporate control and walled gardens.

Before addressing this concern in more detail, let’s consider the origins of Zittrain’s pessimism. Zittrain’s Future of the Internet, as well as Tim Wu’s soon-to-be-released The Master Switch: The Rise and Fall of Information Empires, might best be understood as the second and third installments in a trilogy that began with the publication of Lawrence Lessig’s seminal 1999 book, Code and Other Laws of Cyberspace.

Lessig’s book gave birth to cyberlaw and the study of Internet policy as we all know and discuss it today. More important, from my perspective, is that Code spawned a bona fide philosophical movement within those circles. Code was both a polemic against both cyber-libertarianism and Internet exceptionalism as well as a sort of call-to-arms for a new Net activist movement. The book gave this movement its central operating principle: Code and cyberspace can be bent to the will of the collective, and it often must be if we are to avoid any number of impending disasters brought on by nefarious-minded (or just plain incompetent) folks in corporate America.

It’s hard to know what to label this school of thinking, and Prof. Lessig has taken offense at my calling it “cyber-collectivism.” But the collectivism of which I speak is a more generic type, not the hard-edged Marxist brand of collectivism of modern times. Instead, it’s the belief that markets, property rights, and private decision-making about the future course of the Net must yield to supposedly more enlightened top-down actors and mechanisms. Their central rallying cry – to the extent it can be boiled down to a single term – is “openness!” “Openness” is almost always treated as The Good; anything that is “closed” (or proprietary) in nature is treated as The Bad.

My primary beef with these “Openness Evangelicals” is not that openness isn’t a fine generic principle around which to organize cyberspace. It’s that (a) I‘m more willing to allow evolutionary dynamism to run its course within digital markets, even if that means some “closed” devices and platforms remain (or even thrive); and, (b) the “openness” they advocate inevitably devolves into expanded government control of cyberspace.

My other problem with this movement, and Zittrain’s book in particular, comes down to that dour, depressing “the-Net-is-about-to-die” fear that seems to fuel this worldview. The message seems to be: “Enjoy the good old days of the open Internet while you can, because any minute now it will be crushed and closed-off by corporate marauders!” The Openness Evangelicals want us to believe that the corporate big boys are — someday very soon — going to toss the proverbial “master switch,” suffocating Internet innovation and digital freedom, and making us all cyber-slaves within their commercialized walled gardens.

We might think of this fear as “The Great Closing,” or the notion that, unless radical interventions are pursued – usually of a regulatory nature – a Digital Dark Age of Closed Systems will soon unfold, complete with myriad AOL-like walled gardens, “sterile and tethered devices,” corporate censorship, and consumer gouging. Again, it’s really just a restatement of the old Lessig view that “Left to itself, cyberspace will become a perfect tool of control.” In other words, most information systems, networks and devices will be bottled up by corporate “gatekeepers” if markets aren’t steered in a better direction by wise philosopher-regulators.

But there are serious problems with “The Great Closing” thesis as set forth in the work of Lessig, Zittrain, and Wu:

1)
There isn’t a clear definition of “open” vs. “closed” systems, and there never will be, and supposedly “closed” networks or “sterile” devices aren’t nearly as closed or sterile as critics claim. Zittrain praises the supposedly more “open” nature of PCs and praises the openness to innovation that Microsoft’s Windows operating system offers in particular, but others have blasted Windows for years as the Great Satan of closed code. Meanwhile, Zittrain makes Steve Jobs and Apple’s iPhone and iPad out to be “sterile,” closed appliances, but the company’s App Store has offered millions of innovators the opportunity to produce almost every conceivable type of mobile application the human mind could imagine. Moreover, those Apple devices don’t block completely “open” communications applications or interfaces, such as web browsers, email and SMS clients, or Twitter. And certainly no one is forced to spend hundreds of dollars on these Apple products. There are many alternatives. It’s never been easier to create or find information or applications on multiple platforms – not just via your PC as Zittrain seems to suggest.

2)
There are powerful counter-incentives that discourage companies from “closing” their systems in ways that would negatively impact consumer welfare. Social and economic influences help ensure the scales won’t be tipped completely in the closed direction. The Web is built on powerful feedback mechanisms and possesses an extraordinary level of transparency in terms of its operations. Moreover, the breaking news cycle for tech developments can be measured in milliseconds. Every boneheaded move is subjected to immediate and intense scrutiny by bloggers, tech press, pundits, gadget sites, etc. Never has the white-hot spotlight of public attention been so intense in terms of helping to shine light on corporate missteps. Reputation is perhaps the greatest asset possessed by any tech company, and they work hard to safeguard it.

3)
Most evidence suggests everything is getting increasingly “open” all the time regardless of what any corporation might want. Most corporate attempts to bottle up information or close-off their systems end badly. The walled gardens of the past failed miserably, for example. In critiquing Zittrain’s book, Ann Bartow has noted that “if Zittrain is correct that CompuServe and AOL exemplify the evils of tethering, it’s pretty clear the market punished those entities pretty harshly without Internet governance-style interventions.” Indeed, let’s not forget that AOL was the big, bad corporate boogeyman of Lessig’s Code and yet, just a decade later, it has been relegated to an also-ran. (Has everyone forgotten the hysteria over AOL-Time Warner merger? Or the fear that AOL would dominate the Instant Messaging world? Someone will need to remind AOL-TW shareholders, who lost hundreds of billions on the deal, what all the fuss was about.) There are few reasons to believe that modern efforts to impose “corporate control” or create walled gardens will end any differently.

4)
The critics greatly overstate the case regarding the supposed evils of closed systems, anyway. They fail to appreciate how there was a need/demand for some closed or “sterile” devices. Why shouldn’t people who want a simpler or more secure digital experience have such options? Zittrain seems to fear that the devices of the hoi polloi will drive out those favored by tinker-happy tech geeks (of which I count myself a proud member). But we need not fear such foreclosure for the reasons I discuss next.

5)
Innovation continues rapidly in both directions along the “open” vs. “closed” continuum. The presence of “closed” systems or devices on the market doesn’t mean innovation has been foreclosed among more “open” systems or platforms. In other words, a hybrid future is both desirable and possible. We can have the best of both worlds: a world full of some closed systems or even “tethered appliances,” but also plenty of generativity and openness. Think iPhone vs. Android vs. Windows Mobile vs. the many other mobile operating systems. Some are more closed, others are quite open. Zittrain says Android, which is open source, is “a sort of canary in the coal mine” but ignores the fact that it is growing at a frantic pace, now accounting for one-quarter of mobile web traffic just three years after its inception. Not only does he ignore that fact, but Zittrain then reverts to the “kill switch” boogeyman and warns us that any day now Google could change its mind, close the platform, and “kill an app, or the entire phone” remotely. But where’s the business sense in that? What’s the incentive for companies to pursue such a diabolical course of action? Is Google going to start making all those millions of apps on their own which independents developers produce today? It seems unlikely and unpopular, and can you imagine the lawsuits that would fly if they did try it! Meanwhile, how many times has Apple thrown the dreaded “kill switch” on apps? There are tens of millions of apps in the App Store and hundreds of billions of downloads. If Steve Jobs is supposed to be the great villain of independent innovation, he seems to be doing a pretty bad job at it! Again, today’s supposed “walled gardens” are less “walled” than ever before.

6) And oh, by the way… the old Internet that Zittrain and others like to wax nostalgic about was never quite as open and generative as they suggest. Let’s face it, the good ol’ days weren’t really so glorious. Seriously, were you online back in 1994? Did you enjoy Trumpet Winsock, noisy 14.4 baud modems, and narrowband dial-up? Did you like loading up multiple 5 ¼ floppy disks to get an OS running so that you could even use your machine? Yeah, me neither.

But here’s the other forgotten factor: Until the Net was commercialized during that period, it had been an extremely closed system. As Geert Lovink reminds us, “The first decades the Internet was a closed world, only accessible to (Western) academics and the U.S. military. In order to access the Internet one had to be an academic computer scientist or a physicist. Until the early nineties it was not possible for ordinary citizens, artists, business or activists, in the USA or elsewhere, to obtain an email address and make use of the rudimentary UNIX-based applications. [..] It was a network of networks — but still a closed one.” Moreover, it was only because Lessig and Zittrain’s much-dreaded AOL and CompuServe came along that many folks were even able to experience and enjoy this strange new place called cyber-space. “The fact that millions of Americans for the first time experienced the Internet through services like AOL (and continue to do so) is a reality that Zittrain simply overlooks,” notes Lovink. Could it be that those glorious “good ol’ days” Zittrain longs for were really due to the way closed “walled gardens” like AOL and CompuServe held our hands to some extent and gave many folks (not me!) a guided tour of cyberspace? Regardless, we need not revisit that ancient history. Again, those walled gardens came crumbling down.

7) Finally, there’s remarkably little said about possible solutions or an acknowledgment that alternative approaches can have costs or entail significant trade-offs. At the end of the day, when you peel away all the techno-talk and worry-wart hand-wringing, what Zittrain doesn’t seem to like is that some people are making choices that he doesn’t approve of. To be generous, perhaps it’s because he feels that they don’t fully understand the supposed dangers of the choices they are making. But what, exactly, is it that Zittrain wants done, and who or what should make it happen? Remarkably, he doesn’t offer many specifics in his book or in his essay. Should consumers be discouraged from purchasing iPads, video game consoles, or TiVos because they are “too closed”? Or should the creators of such gadgets be forced to “open them up,” even if it means that might discourage their development in the first place? Zittrain really never makes it clear, although he hints that once developers do open their previously closed systems a bit, they should not be allowed to close them back up. But wouldn’t that discourage the developer from opening things up more in the first place? Again, no answer from him.

Regardless, to reiterate and close, my contention here and elsewhere has been: (a) that things just aren’t as bad as Zittrain makes them out to be; (b) that the evolutionary “open vs. closed” process itself has value; and, (c) who is he to say those choices are irrational or that this spontaneous, experimental process should be interrupted? If some mere mortals choose more “closed” devices or platforms, then so what? It isn’t the end of the world. Again, those devices or platforms aren’t really as closed as he suggests – in fact, they are far more open in some ways than the earlier technologies and platforms he glorifies. In sum: We can have the best of both worlds — a world full of plenty of “tethered” appliances, but also plenty of generativity and openness. We need not make a choice between the two, and we certainly shouldn’t be demanding someone else make it for us.

One final point that didn’t really fit anywhere above.. Zittrain worries about “The famously ungovernable Internet suddenly becom[ing] much more governable, an outcome most libertarian types would be concerned about.” He’s referring to a concern addressed in more detail in his book (and Lessig’s Code) that the Net could become more “regulable” because of changes in code and architecture over time. To the extent this is a problem at all – and I have my doubts for the reasons noted above – this is a problem we should handle by putting more constraints on our government(s), not by imposing more regulations on code or coders. Consider privacy and data collection concerns. While, as a general principle, I think it wise for companies to minimize the amount of data they collect about consumers or websurfers, we need not, and ought not, force that by law, given the huge benefits of data collection and use for innovation and, yes, the openness if the Internet ecosystem! We should certainly hold companies to high standards when it comes to data security and breach (including by FTC enforcement). But, again, the way to deal with the “regulability” threat that Lessig and Zittrain raise is to tightly limit the powers of government to access private information through intermediaries in the first place.

The nice folks at the New York Times “Room for Debate” feature asked me and a group of bright lights to discuss the Verizon-Google agreement on network neutrality regulation, as it stood at various points in the day.

Read the comments of Tim Wu, Lawrence Lessig, David Gelernter, Ed Felten, Jonathan Zittrain, and myself. Much of my comment owes credit to Tim Lee’s excellent paper “The Durable Internet.”

We’re all over the place, folks . . .

Update: Late addition: Gigi Sohn.

Faithful readers know of my geeky love of tech policy books [here are my “best of” lists for 2008 & 2009], and the intriguing battle taking place today between Internet optimists and pessimists in particular.  One of the things that I noticed when I was putting together my compendium, “The Digital Decade’s Definitive Reading List: Internet & Info-Tech Policy Books of the 2000s,” is that there are up years and down years. For example, there weren’t a lot of big tech policy titles in 2000 or 2005. By contrast, 2001, 2006 and 2008 were monster years.  I suppose that’s the case with any genre, of course.

Anyway, I was beginning to think that 2010 was shaping up to be one of those slow years, with Jaron Lanier’s You Are Not a Gadget being the only major release so far this year. [See my review of it here.] But there are some very important titles on the way that are worth picking up. I’ve already pre-ordered most of these and am looking forward to reviewing them all soon:

• Ronald J. Deibert, John G. Palfrey, Rafal Rohozinski and Jonathan Zittrain (eds.) – Access Controlled: The Shaping of Power, Rights, and Rule in Cyberspace (now out)
• Nick Carr – The Shallows: What the Internet Is Doing to Our Brains (June)
• Clay Shirky – Cognitive Surplus: Creativity and Generosity in a Connected Age (June)
• Tim Wu – The Master Switch: The Rise and Fall of Information Empires (November)
• Siva Vaidhyanathan, The Googlization of Everything
• Evgeny Morozov — How Dictators Learned to Stop Worrying and Love the Web

Please let me know others that I may be missing. [Note: Most of the books I’ve been reading this year have more to do with the future of media, the press, journalism, etc. It’s been a big year for books like that. For example, McChesney & Nichols’ The Death and Life of American Journalism; Lee Bollinger’s Uninhibited, Robust, and Wide-Open: A Free Press for a New Century; and Bob Garfield’s The Chaos Scenario. But it’s not clear any of these books belong in the “info-tech policy” genre, although they all have something to say about the impact of the Internet and digital technology on the media and journalism. So, who knows, maybe I will add them to my end of year list.]

Google has just announced that it is ending web-only sales of its unsubsidized Nexus One smartphone. The company had hoped to created a very different kind of business model for mobile phone retailing, but it just didn’t work and so they are ending the experiment.

There are a couple of reasons that it probably didn’t work, but the one thing that just about everyone is pointing back to is the difficulty of acclimating Americans to the actual cost of an unsubsidized handset. Over at Ars Technica, Peter Bright points out:

A one-off payment of $529 is hard to stomach. In many countries, we’re not accustomed to paying so much for mobile phones, as normally their true cost is hidden—we pay less up front and commit to paying a monthly fee for 12-24 months. Only those brave souls who were willing to stump up for the early termination fee would get any idea of the true cost of their handset. In a world of subsidized handsets, then, the Nexus one felt very expensive. It’s true that SIM-only contracts are cheaper than with-handset ones, but the difference rarely feels significant enough to justify buying a full-price phone—much better to pay a little bit more each month and avoid the up-front cost. Even if you do the math and work out that the Google way is cheaper, there’s still the unpleasant prospect of spending so much at once.

And Kevin C. Tofel of GigaOm concludes:

it seems clear that the majority of U.S. consumers still aren’t ready to adopt the unsubsidized handset model that Europe and other areas use. People here gripe about their 2-year contracts, but aren’t willing to go contract free by paying full price for a new handset. I’m done griping, as evidenced by my own purchase of a Nexus One for $529 in January. I have the freedom to switch phones or carriers without an ETF, or Early Termination Fee, and I pay $20 a month less for my plan than a subsidized customer does for the same plan. Either I’m still in the minority or I was raised in Europe in a past life.

They’re right. We Americans are somewhat hooked on subsidized handsets, even if the math doesn’t make sense in the long-term. But is there anything wrong with this value preference? In my opinion, this is just another of the many value judgments that many people make — and which I do not necessarily share — but which are perfectly understandable.  We Americans are a pretty demanding lot, and when we want something, we usually want it right now–and at the cheapest up-front cost we can get. [That might be why we are hooked on credit cards–and debt!]

However, if you were to believe some of the ranting and regulatory pleadings of academics like Tim Wu and analysts at the New America Foundation and Public Knowledge, the lack of unsubsidized and unlocked phone options is the sign of massive market failure. They’ve called for all sorts of heavy-handed regulatory intervention into the wireless marketplace on these grounds and others, which all been subsequently shown to be pure bunk.

In the case of subsidized handsets, they essentially wanted mandatory unbundling of handsets and an end to exclusive contracts that gave us a nice phone at a dirt-cheap price up-front, so long as we took the 2-3 year service contract. Contracts like these exist in countless other markets, of course, but the regulatory advocates wanted us to believe that in the mobile marketplace this constituted an egregious harm that should be remedied by regulatory intervention.  But as Cord Blomquist pointed out here back in 2008, “forcing unbundling… means banning subsidized phones [which is] taking away consumer choice.”  Exactly right. Why shouldn’t we have the right to choose subsidized handsets even if they cost us a bit more in the long-run?

Regardless, Google’s experiment with the Nexus One certainly has something to teach us here, no? I mean, if Tim Wu, New America Foundation and Public Knowledge would have been right, people should have flocked to this model in droves. But they didn’t. It failed. And it can’t be because of the quality of the underlying product. Just about everyone agrees that the Nexus One is a best-in-class phone, or something close to it. And I doubt it’s because people needed to “kick the tires” and play with the phone first. Tons of people have ordered iPhones and Droids sight unseen.  Some have also suggested that Google’s customer support wasn’t up to snuff. I’d have no idea if that’s true, but that might be plausible reason for lack of uptake.

At the end of the day, however, it’s hard to avoid the sticker shock associated with an up-front payment of $529. That’s really difficult for some people to swallow — and it’s also why subsidized phones are likely here to stay.  And that’s certainly not cause for concern or regulatory intervention.

Tim Wu: Not Looking Happy about Being So Wrong

Three years ago this month, Columbia University Law School professor Tim Wu released a controversial white paper in conjunction with the New America Foundation entitled, “Wireless Net Neutrality: Cellular Carterfone and Consumer Choice in Mobile Broadband.” It contained a litany of accusations regarding supposed corporate shenanigans in the mobile marketplace, including: intentional crippling of features and functionality; refusal to allow 3rd party attachments or intentional curtailment of a market for 3rd party application developers; and various concerns about “discrimination” of one sort or another.

Here at the TLF, we responded quite forcefully. I think every one of us piled on this study in one way or another. (ex: Hance, Jerry, James, Tim Lee, me x 2, + a podcast).  I called his proposal “a declaration of surrender” since Prof. Wu was essential calling the game early and raising the white flag on mobile competition. Further, I argued he was essentially asking for “the forced commoditization of cellular networks” which “would necessitate at return to the rate-of-return regulatory methods of the past.”  Others were a bit more kind to him, but we were all pretty skeptical of his gloomy claims. However, each of us here also argued that the wireless market (especially the applications side of the market) was still developing and that we’d have to check back in a few years to see how well the hands-off approach worked out.

Well, thankfully, we now know for certain that Tim Wu’s was much too lugubrious in his outlook and far too quick to call for regulatory intervention to solve a non-crisis. On the occasion of the 3rd anniversary of the release of Prof. Wu’s paper, CTIA-The Wireless Association filed a short paper with the FCC taking stock of just how far the mobile marketplace has come in just three short years. The results are really quite remarkable, as CTIA’s letter notes:

Contrary to the professor’s view of how the ecosystem would evolve, in the absence of regulation, every element of the wireless ecosystem has expanded. Today, the fact that there are over six hundred devices in the U.S. offering hundreds of different capabilities for consumers, over 170,000 applications, more open networks with open developer initiatives and software development kits, the sale of phones through numerous online and retail outlets, multiple operating systems, and the launch of the newest and most innovative handsets first in the United States demonstrates that the mobile wireless ecosystem continues to evolve to serve customers, contrary to Professor Wu’s arguments.

The filing goes on to examine each of the complaints Prof. Wu had articulated and then discusses current marketplace realities. Here’s the summary:

• Professor Wu asserted that carriers had a “near lock” on the retailing of mobile devices that, presumably, would only be altered through regulatory intervention. Today, consumers can purchase handsets from carriers, directly from manufacturers, through brick-and-mortar retail chains, via Internet discounters, and through a healthy secondary market. For example, Best Buy, Target, Wal-Mart, TigerDirect.com, Amazon.com, LetsTalk.com, Apple, Nokia, Google, Motorola and many others all sell handsets directly to consumers. The recent Best Buy catalog alone lists over a hundred wireless devices for sale. • Professor Wu argued that the U.S. market had only “a small fraction of the phones available [elsewhere],” implying that carriers restricted the diversity of handsets. Today, the U.S. market has over 630 devices manufactured by 33 different companies, including the BlackBerry® Tour 9630, Samsung Omnia, HTC TouchPro, Motorola Droid, Apple  iPhone 3GS, Motorola Karma QA1, BlackBerry® Bold, Motorola Cliq, myTouch 3G, G1, BlackBerry® Pearl Flip, HTC Touch Pro2, Palm Pre, HTC Hero, Samsung Instinct S30, Cricket TXTM8, Motorola Evoke QA4, Samsung JetSet, Motorola Hint, Samsung Finesse, Samsung Messager, LG Tritan, Samsung TwoStep, and the LG Rhythm. Of note, almost every one of the phones listed above was first launched in the United States. • Professor Wu painted a picture of a “stalled” application market where developers were unable to create applications for mobile devices. Today, a vibrant “apps” market exists where over 170,000 applications are available for popular operating systems, and where developers as young as age 9 can navigate the approval process to become highly successful. At least seven different companies, none of whom are affiliated with wireless carriers, market the overwhelming majority of these applications. • Professor Wu criticized carriers’ control over handset design. Today, all major carriers, and most of the other carriers in the country, have extensive open network development platforms for devices and software. Intra-industry groups have developed the Open Handset Alliance (which has created the Android operating system), and several other operating systems have moved to an open platform. Additionally, as discussed above, numerous handset manufacturers are selling directly to consumers. • Professor Wu stated that the “oligopoly” in handset sales resulted in a market where consumer-friendly capabilities, such as Bluetooth, Wi-Fi, and picture distribution, were “crippled.” Today, all of these capabilities, and hundreds more that reflect a broad array of consumer desires, are available to U.S. consumers. With the wealth of options, consumers can make buying decisions based on a range of factors. This is exactly the market that consumers want, and regulators should encourage.

Now, I’m sure some folks will say, “hey, we can’t trust industry to report on this stuff,” but these are facts, folks. CTIA hasn’t made anything up here. If anything, I think they’ve actually gone too easy on Tim and underplayed just how revolutionary the changes we’ve seen over the last 3 years have been.

That’s especially the case on the operating system front.  This war among Apple, Google, Microsoft, RIM (Blackberry), Palm, Symbian, and others has actually forced me to ask if we have, “Too Much Platform Competition” in this arena. App developers must now craft their offerings for so many platforms that it has become a significant developmental hassle and expense. But hey, from a consumer perspective, this is great! And it shocking how vibrant that OS-level competition continues to be. (For more details, see Berin’s post on “The Fiercely Competitive Mobile OS & Device Markets.”)

And then there’s the applications market. As I have noted in my essays repeatedly hammering Jonathan Zittrain’s equally dismal view of the digital world, today’s market for 3rd party mobile applications would have been virtually unfathomable just a few years ago. Can you even remember 2005 when we had none of those apps at our disposal? Today, by contrast, Apple’s App Store alone has over 100,000 apps in 20 different categories (available in 77 countries) to choose from. Android and Windows Mobile apps are also exploding. Frankly, I get exhausted trying to filter through the thousands and thousands of apps in the Android marketplace I now have to choose from. Again, we had zip, zero, zilch, nadda, N-O-T-H-I-N-G to choose from just a few years ago.  Folks, that is called progress—insane, amazing, beautiful, miraculous progress!

The following GigaOm chart was intended to show average app prices but also includes total app figures for each of the five leading mobile operating systems:

So, will Tim Wu come out and admit that his pessimism was unwarranted? Somehow I doubt it. But allow me to offer him a way to save face: I remember debating Tim about these issues in New York a few years back and he told me that he really didn’t want to see the feds jump in and start aggressively regulating most high-tech markets. Instead, he just wanted to shake things up and put the fear of God in the hearts of private operators so they would change their ways for the better in an effort to avoid the sledgehammer of federal regulation. (Tim, if you are reading this and have forgetting that conversation, it was at that FOSI dinner in New York where we were also debating who was a bigger Dungeons & Dragons nerd back in our childhood. I think you at least had the better of me in that debate!)

So, to save face here, Tim should declare victory and go home.  He should tell the world he single-handled revolutionized the wireless world with his vociferous agitation for a comprehensive federal regulatory regime for mobile and that it has blessed us one of the great capitalist success stories of our time.

Thank you Professor Wu for making the world a better place!

By Berin Szoka & Adam Thierer

We learned from The Wall Street Journal yesterday that “Federal Communications Commission Chairman Julius Genachowski gets a little peeved when people suggests that he wants to regulate the Internet.” He told a group of Journal reporters and editors today that: “I don’t see any circumstances where we’d take steps to regulate the Internet itself,” and “I’ve been clear repeatedly that we’re not going to regulate the Internet.”

We’re thankful to hear Chairman Julius Genachowski to make that promise. We’ll certainly hold him to it. But you will pardon us if we remain skeptical (and, in advance, if you hear a constant stream of “I told you so” from us in the months and years to come). If the Chairman is “peeved” at the suggestion that the FCC might be angling to extend its reach to include the Internet and new media platforms and content, perhaps he should start taking a closer look at what his own agency is doing—and think about the precedents he’s setting for future Chairmen who might not share his professed commitment not to regulate the ‘net. Allow us to cite just a few examples:

Net Neutrality Notice of Proposed Rulemaking

We’re certainly aware of the argument that the FCC’s proposed net neutrality regime is not tantamount to Internet regulation—but we just don’t buy it. Not for one minute.

First, Chairman Genachowski seems to believe that “the Internet” is entirely distinct from the physical infrastructure that brings “cyberspace” to our homes, offices and mobile devices. The WSJ notes, “when pressed, [Genachowski] admitted he was referring to regulating Internet content rather than regulating Internet lines.” OK, so let’s just make sure we have this straight: The FCC is going to enshrine in law the principle that “gatekeepers” that control the “bottleneck” of broadband service can only be checked by having the government enforce “neutrality” principles in the same basic model of “common carrier” regulation that once applied to canals, railroads, the telegraph and telephone. But when it comes to accusations of “gatekeeper” power at the content/services/applications “layers” of the Internet, the FCC is just going to step back and let markets sort things out? Sorry, we’re just not buying it.

Chairman Genachowski may sincerely believe that a clear, bright line can be drawn between the “infrastructure layer” (which he’s certainly going to regulate) and what he likes to think of as “the Internet” (which he promises not to regulate). But as we warned last October, the day after the FCC launched this NPRM:

The promise made yesterday by the FCC—to only apply neutrality principles to the infrastructure layer of the Net—is hollow and will ultimately prove unenforceable. The reality is that regulation always spreads. The march of regulation can sometimes be glacial, but it is, sadly, almost inevitable: Regulatory regimes grow but almost never contract… The basic premise of neutrality regulation is already being proposed for other layers of the Internet….  whatever the FCC might say today, any large online intermediary with a popular platform potentially faces the threat of “network neutrality” mandates—because every platform is essentially a “network,” too. We’re not just talking about “search neutrality” (Google as well as Microsoft) but also about “device neutrality” (mobile handsets), “app neutrality” (Apple’s iTunes store, Facebook’s developers and Google’s Android mobile OS) and so on for social networking, email, instant messaging, online advertising, etc.

We explained how the intellectual foundations for this regulatory creep have already been laid by groups like Free Press and Public Knowledge and law professors like Columbia’s Tim Wu (father of “Net Neutrality”), Harvard’s Jonathan Zittrain (father of “API/device Neutrality”), and Seton Hall’s Frank Pasquale (father of “Search Neutrality”). Joining this intellectual vanguard of Internet regulation is George Washington law school professor Dawn Nunziato, whose new book, Virtual Freedom: Net Neutrality and Free Speech in the Internet Age, is a veritable manifesto for expansive neutrality regulation (especially of Google)—and how the First Amendment (“Congress shall make no law…”) should be twisted not just to allow such regulation of speech platforms, but to require it! Even Wu, whose work blazed a trail for these others, is pretty clear about the breadth of his original vision for “neutrality” regulation, as his popular Net Neutrality FAQ makes clear:

The promotion of network neutrality is no different than the challenge of promoting fair evolutionary competition in any privately owned environment, whether a telephone network, operating system, or even a retail store. Government regulation in such contexts invariably tries to help ensure that the short-term interests of the owner do not prevent the best products or applications becoming available to end-users.

Zittrain, Pasquale, and Nunziato don’t pull any punches either: They don’t shy away from flirting with nebulous neutrality definitions and wide-ranging government powers to regulate. So we don’t have to imagine what the “slippery slope” might look like: There are plenty of very smart and highly influential legal academics out there hard at work sketching out precisely where the path Chairman Genachowski has started us down will ultimately lead.

It’s no less clear why we’ll wind up marching down that path, no matter what the current FCC leadership intends.

1. The current net neutrality rulemaking sets a profoundly dangerous legal precedent of essentially unlimited claims of “ancillary jurisdiction”: As our friends at the Electronic Frontier Foundation (who have a soft spot for net neutrality in theory) put it, “If ‘ancillary jurisdiction’ is enough for net neutrality regulations (something we might like) today, it could just as easily be invoked tomorrow for any other Internet regulation that the FCC dreams up (including things we won’t like).” Our PFF colleague Barbara Esbin carefully dissected this issue for the Commission in her recent filing in this proceeding.
2. As explained above, the general regulatory principle of controlling “gatekeepers” doesn’t end with infrastructure.
3. As EFF notes, “Experience shows that the FCC is particularly vulnerable to regulatory capture.”
4. Now that FCC has opened the door to micro-managing online business practices in the name of “neutrality,” the companies that have made America the leader in the Digital Revolution are already turning on each other in a dangerous game of brinksmanship, escalating demands for regulation and playing right into the hands of those who want to bring the entire high-tech sector under the thumb of government—under an Orwellian conception of “Internet Freedom” that makes corporations the real “Big Brother,” and government, our savior.

This strategy of political escalation will thus quickly steamroll over whatever promises made today to narrowly cabin the principle of neutrality regulation—and end in “Mutually Assured Destruction.” That’s why we referred to the day the FCC started down this path back in September as “The Day Internet Freedom Died.”

If that title sounds melodramatic, take a step back and consider that, back in 1996, Congress decided to enshrine in law the principle that the Internet is different from traditional media: Apart from an ill-considered effort to censor online indecency and obscenity (which was quickly struck down by the Supreme Court as unconstitutional) and the enforcement of intellectual property and criminal laws, Congress decided to take a purely laissez-faire approach to the Internet.  As Barbara reminded the Commission in her net neutrality filing, “Section 230(b)(2) flatly declares that it is the policy of the United States ― to preserve the vibrant competitive free market that presently exits for the Internet and other interactive computer services, unfettered by Federal or State regulation.”

So Chairman Genachowski’s decision to revert to the common carrier model of the railroad era marks a fundamental break with the approach Congress decided we would take to the Internet. The DC Circuit will likely soon rule that the FCC has vastly overstepped its authority in trying to set Internet policy without any clear grant of authority from Congress to do so.

Wireless Innovation & Investment Notice of Inquiry

In fact, the same kind of thinking is already being extended by this FCC in a number of other arenas using a flurry of innocuous-seeming “Notices of Inquiry.” While these notices purport only to ask questions, they either:

1. Foreshadow where the Commission intends to go in proposing new regulations based on its nearly limitless conception of its own regulatory authority;
2. Are intended to pressure Congress to give the agency more statutory authority; or
3. Are intended to intimidate industry into “playing ball” so the FCC won’t actually have to stick its neck out by trying to write rules to regulate Internet activities that are clearly beyond its existing authority and might well be unconstitutional even if Congress ever did expand that authority.

Exhibit A is the language in the Commission’s August 2009 Wireless Innovation and Investment Notice of Inquiry, (paragraph 60, pg. 21) that suggests the FCC is angling to become the Federal Cloud Commission:

As other approaches, such as cloud computing, evolve, will established standards or de facto standards become more important to the applications development process? For example, can a dominant cloud computing position raise the same competitive issues that are now being discussed in the context of network neutrality? Will it be necessary to modify the existing balance between regulatory and market forces to promote further innovation in the development and deployment of new applications and services?

Good morning, Google!  Hello, Facebook! Is anyone out there in the cloud listening to the rumbling thunder of federal regulation? What began as academic theory in a law school ivory tower is coming soon to a regulatory agency near you! But wait… there’s more!

National Broadband Plan Public Notice #21 (Cloud Computing)

Last November, as part of the Commission’s ongoing effort to develop a National Broadband Plan, the FCC released a request for information “on data portability and its relationship to broadband.”  (NBP Public Notice #21) “The Commission seeks tailored comment on broadband and portability of data and their relation to cloud computing, transparency, identity, and privacy,” the notice says.  Here was the second item on the list of things the Commission said it was investigating (p. 2):

When considering the portability of data, we also consider the processes through which data are moved. In this context, we seek comment on how to identify and understand cloud computing as a model for technology provisioning…. What types of cloud computing exist (e.g., public, hybrid, and internal) and what are the legal and regulatory implications of their use? … To what extent are consumers protected by industry self-regulation (e.g., the Cloud Computing Manifesto), and to what extent might additional protections be needed? … What specific privacy concerns are there with user data and cloud computing? What precautions should government agencies take to prevent disclosure of personal information when providing data? Is the use of cloud computing a net positive to the environment? Are there specific studies that quantify the environmental impact of cloud computing?

We suppose some might claim there’s nothing wrong with the FCC looking into these issues, and that the agency’s interest in cloud computing is entirely benign. (Never mind the fact that the Federal Trade Commission already enforces the privacy policies of cloud computing providers and is looking hard at online privacy.)  Seeing all these open-ended questions about something so obviously beyond the scope of the FCC’s authority just makes the potential for—and perhaps even inevitability of—regulatory creep hard to miss.  Eventually, when a regulatory agency asks enough questions, especially the sort of questions highlighted above… well, to paraphrase Master Yoda:

Open-ended inquiries about new regulations are the path to the Dark side. Inquiries lead to agency oversight. Agency oversight leads to regulation. Regulation leads to suffering for innovators and consumers alike.

Again, we’re not just inventing bogeymen here. It’s quite clear that regulatory advocates want to take neutrality regulation into “the Cloud.” As Jason Lanier, author of the popular book You Are Not a Gadget summarizes one of his key themes:

While there is a lot of talk about networks and emergence from the top American technologists, in truth, most of them are hoping to thrive by controlling the network that everyone else is forced to pass through. Everyone wants to be a “Lord of a Computing Cloud.”

In Lanier’s dystopia of techno-feudalism, the Lords oppressing the poor digital “peasants” certainly aren’t just those running broadband service providers. It’s the Google, Facebooks, and Twitters of the world. It’s similar to the “sharecropper” concern raised by Nick Carr in his book The Big Switch. Complaints like those will only grow in the years to come, and few will buy—or even pause to remember—the distinction Chairman Genachowski seems to stand on now between infrastructure and “the Internet.”

National Broadband Plan Public Notice #29 (Privacy)

The “Recovery Act” passed in January 2009 tasked the FCC with formulating “a detailed strategy for achieving affordability of such service and maximum utilization of broadband infrastructure and service by the public.” The FCC seized this as an opportunity to solicit suggestions as to how regulate the use and collection of data by the private sector on the grounds that concerns about privacy might somehow be slowing broadband adoption.

Chairman Genachowski’s flurry of open-ended inquiries about new regulation are clearly intended to give a bully pulpit to regulatory advocates to demand that the FCC issue the very sort of Internet regulations the Chairman purports to abhor (or that Congress give the agency authority to do so). But most of these notices at least appear to be objective requests for comments written independently of the groups the Commission seems so eager to hear beg for Internet regulation. But in this case, the Commission dispensed with that tedious formality and just outsourced the writing of the inquiry itself to one of the outside groups clamoring the loudest for data regulation in the name of “privacy”: our friends at the Center for Democracy & Technology, with whom PFF has worked closely on many free speech issues in the past.

CDT is on to something when they write that “Consumers will not embrace broadband if they have a sense that everything they do online will be watched by government officials.” We’ll join with them in the fight to protect consumers’ privacy from the Real Big Brother—government!—but once again, as with net neutrality, advocates of regulation see government as the protector of our digital liberties (if only we can forever make sure noble civil-libertarians are in charge of the regulatory apparatus of the state!). So CDT has it exactly backwards when they say: “Consumer privacy concerns encompass not only what companies do with their data, but also the extent to which the government accesses it.” And instead of just suggesting that the FCC’s National Broadband Plan include a recommendation that Congress clean up the antiquated laws intended to limit government surveillance, CDT pushes for sweeping regulations that would affect the ability of most online services and sites to collect and use the data they need to improve their services, innovate, and maybe even try to make some money on advertising to support all the free content and services they give away.

Thus, instead of focusing on the clear harm from government, the FCC’s outsourced inquiry goes after online operators as “privacy proxies” for concerns about government action. At least Congress actually asked for the FCC’s recommendations in this case, unlike all the other inquiries the agency has launched sua sponte. But as Berin noted in his comments on this inquiry, the Recovery Act allowed the FCC to “recommend only those policies that it concludes will, on net, help achieve “affordability” and ‘maximum utilization’ of broadband.” That means the Commission would actually have to consider the many trade-offs inherent in the private sector use of data before recommending regulation: If the Internet ecosystem is impoverished by government intervention, however well-intentioned it may be, users will have that much less reason to adopt and “utilize broadband.” So the FCC would have a lot of cost-benefit analysis to do before it could actually make the kinds of regulatory recommendations CDT wants. And we suspect that, on the whole, that analysis wouldn’t turn out the way CDT thinks it would.

Child Safe Viewing Act Notice of Inquiry

In a somewhat similar vein, Congress last year asked the agency to examine how well parental control technologies work to allow parents to filter objectionable content online. So while the FCC may have had, for once, the authority to ask broad questions, it’s startling just how broad those questions were. The Commission obviously has no authority over video games or virtual worlds, online video distribution networks or video hosting sites, mobile web content, MP3 players or iPods, P2P networks, VCRs or DVD players, PVRs or TiVo, Internet filters, safe search tools, laptops, and so on. And yet, all these things (and much more) were mentioned in the Commission’s Child Safe Viewing Act Notice of Inquiry.

The proceeding raises the prospect of what Adam has called “convergence era content regulation” since it opens the doors to FCC meddling on a number of new fronts in the name of “protecting children.” Although the Commission’s final report to Congress stopped short of calling for an substantive expansion of the agency’s content regulatory regime, it teed up another proceeding, discussed next. (And if Congress hasn’t moved more quickly to grant the FCC new power in this area, it’s probably because they’re busy trying to figure out how to get around a line of First Amendment cases that consistently require government regulation to yield to “less restrictive” alternatives like parental control tools and education.)

Empowering Parents & Protecting Children Notice of Inquiry

This wide-ranging inquiry reads like the ultimate “fishing expedition” by a regulatory agency—fishing for new jurisdictional authority to regulate, that is!  The questions asked are too broad, far-flung and various to catalog here (we’ll have a big filing coming in the matter soon), but the Commission asks about extending to Internet media the model of the 1990 Children’s Television Act, which imposes “public interest” obligations on broadcasters and cable operators to offer “education” content while also strictly limiting how much advertising may be shown during children’s TV. The Commission also alludes, ominously, to the V-chip model for requiring universal ratings for television and hints that it would really like for “current laws [to] be updated to reflect this convergence and to keep pace with changes in technology” (¶ 41).

The Commission mentions only in passing at the very end of the Inquiry that it “has varying degrees of statutory authority with respect to different media. We ask commenters, in proposing any action, to discuss the source and extent of the Commission’s authority to take the action, or whether new legislation would be needed to authorize such action” (¶ 58). Translation: “Uh, yeah… so… we know we don’t have a statutory leg to stand on here, but we think it’d be really cool if we did, so let’s just all, you know, kinda brainstorm about what kind of regulation we could be imposing here and what kind of law we’d need get Congress to pass to make it all legal. Or if you have any creative ideas on how we could get away with just making up the jurisdiction thing on our own, that’d be even better!”

YouTube, you’re first on the list of targets for the kind of online video regulation the FCC is hinting at here—and none too subtly. But why stop there? The FCC’s laundry list of complaints aren’t limited just to video, but could apply to essentially all online media. But this is all in the name of “protecting the children,” and Chairman Genachowski doesn’t want to regulate the Internet, so we really don’t need to worry—right?

Future of Media Notice of Inquiry

Most recently, in late January, the Commission launched the ambitiously-named “Examination of the Future of Media and Information Needs of Communities in a Digital Age.” The FCC asks a number of good questions about how government could get out of the way of media struggling to reinvent themselves in the digital era by scrapping outdated regulations. The inquiry also tips its hat to the vital importance of advertising in supporting media. But it’s otherwise pretty bad news as a harbinger of a “Chill Wind” for the future of a free press in this country, as Ken Ferree, PFF’s former president and current board member noted.

In particular, the Commission comes right out with a “trial balloon” about imposing public interest obligations on online operators—the very thing it hinted at slightly more delicately in the “Empowering Parents” inquiry mentioned above:

Broadcasters have certain public interest obligations, including that they provide programming responsive to the needs and issues of their communities and comply with the Commission’s children’s programming requirements. Cable and satellite operators have their own responsibilities…  Should such obligations be applied to a broader range of media or technology companies, or be limited in scope?

OK, so we’re not going to “regulate” online content operators; we’re just going to impose “public interest” obligations on them to provide certain kinds of content preferred by politicians. Right… and if Google News or YouTube don’t do enough to “serve the public interest,” what then? Will the Federal Search Commission take away Google’s search license or cloud computing license?

Of course, we don’t mean to suggest that even the “Federal Cloud Commission” would ever be so unsubtle as to create a formal licensing system when they can probably achieve the same ends with far less obvious regulation. But how is this all going to work, exactly? Again, this is exactly the kind of hopelessly vague regulatory morass Congress had in mind when it declared that the federal government would avoid “fettering” the “vibrant competitive free market … for the Internet and other interactive computer services” with regulation.

The FCC goes on to revive the kinds of broad net neutrality ideas discussed above in asking:

How would policies related to “open Internet” or “universal broadband” or other FCC policies about communications infrastructure affect the likelihood that the Internet will meet the information needs of communities? Are there search engine practices that might positively or negatively affect web-based efforts to provide news or information?

In other words, “Tell us why and precisely how we should start regulating search engines in order to help ‘save  news.'” Google, here’s looking at you, kid! You want to keep your search license, dontcha? Well, just do what the nice men from Washington want and there won’t be any trouble.

Finally, the Commission opens the door to the noxious proposal for a “public option” for media, which Adam has lambasted. Here’s what the Commission says:

In general, what categories of journalism are most in jeopardy in the digital era? What categories are likely to flourish? While much is still to be determined as media companies test various business models and payment approaches in the coming years, based on what is known now, are there news and information needs that commercial market mechanisms alone are unlikely to serve adequately?

Don’t worry, it’s not as if government will exercise control over the media companies it funds if the media-socialist fantasies of the neo-Marxist Robert McChesney and his ironically-named “Free Press” group actually come true. Nope, government’s just here to help!

We’d all do well to remember that subsidies always come with strings attached—namely, regulation. That’s the Golden Rule: “He who has the gold, makes the rules!”

Conclusion

Chairman Genachowski, with all due respect, if you don’t like people suggesting that the FCC may be positioning itself to regulate the Internet and digital media platforms, then you might want to take a careful look at what your agency has been doing. You should think hard both about the precedents that will be set by “neutrality” regulation for online content and services, and also about the quasi-regulatory effect that your agency’s flurry of open-ended inquiries will have on the operators you claim not to want to regulate.

What will future Chairmen do with these precedents? What will emerge from every “Pandora’s Box” you’ve opened with each new sweeping inquiry? The answer, we fear, is an endless parade of new Internet regulations—and the death by a thousand cuts of real Internet freedom.

In response to my essay last night about this new Free Press campaign to layer price controls on the Internet by banning metered prices via Rep. Massa’s new bill (the “Broadband Internet Fairness Act“), George Ou and Richard Bennett reminded me of some of the contradictory statements that the (Un)Free Press crew have made on this issue.  Indeed, if you look back at what Free Press and their chairman have said about the matter over just the past 18 months, they seem to be whistling two very different tunes.

For example, George Ou reminded me of what Free Press had to say in its November 2007 filing in the FCC’s Comcast-Bit Torrent proceeding:

“More importantly, if Comcast is concerned that the collective set of users running P2P applications are affecting quality of service for other users on a cable loop… they could also charge by usage.” (p. 29) […] “Indeed, in many nations, network providers do meter, and bill their customers on the basis of amount used. So the transaction costs of doing so must not be prohibitively high. Indeed, a network provider can apparently meter cheaply because, in most networks, users’ traffic to and from the Internet passes through a single gateway, the network access server.” (p. 31)

And Richard Bennett reminded me of what Tim Wu, chairman of the Free Press, had to say about metering to the Washington Post just one year ago:

“I don’t quite see [metering] as an outrage, and in fact is probably the fairest system going — though of course the psychology of knowing that you’re paying for bandwidth may change behavior.”

So, what gives?  Will the real Free Press please stand up? Does the Free Press believe in pricing freedom or price controls for the Internet?

The Cato Unbound online debate about the 10th anniversary of Lawrence Lessig’s Code and Other Laws of Cyberspace continues today with my response to Declan McCullagh’s opening essay, “What Larry Didn’t Get,” as well as Jonathan Zittrain’s follow-up.

In my response, “Code, Pessimism, and the Illusion of ‘Perfect Control,'” I begin by arguing that:

The problem with peddling tales of a pending techno-apocalypse is that, at some point, you may have to account for your prophecies — or false prophecies as the case may be. Hence, the problem for Lawrence Lessig ten years after the publication of his seminal book, Code and Other Laws of Cyberspace.

I go on to argue that:

Lessig’s lugubrious predictions proved largely unwarranted. Code has not become the great regulator of markets or enslaver of man; it has been a liberator of both. Indeed, the story of the past digital decade has been the exact opposite of the one Lessig envisioned in Code.

After providing several examples of just how wrong Lessig’s predictions were, I then ask:

[W]hy have Lessig’s predictions proven so off the mark? Lessig failed to appreciate that markets are evolutionary and dynamic, and when those markets are built upon code, the pace and nature of change becomes unrelenting and utterly unpredictable. With the exception of some of the problems identified above, a largely unfettered cyberspace has left digital denizens better off in terms of the information they can access as well as the goods and services from which they can choose. Oh, and did I mention it’s all pretty much free-of-charge? Say what you want about our cyber-existence, but you can’t argue with the price!

I am forced to admit, however, that Lessig’s book has had enormous impact of the field of cyberlaw and digital technology policy:

This brings me to what I believe is the most important impact of Code: the philosophical movement it has spawned. As Declan noted in his opening essay, Code “offered a burgeoning protest movement [a] unifying theme and philosophy” in that it was both a polemic against cyber-libertarianism and a sort of call-to-arms for cyber-collectivism. It gave this movement its central operating principle: Code and cyberspace can be bent to the will of the collective, and it often must be if we are to avoid any number of impending disasters brought on by those nefarious (or just plain incompetent) folks in corporate America. Led by a gifted, prolific set of disciples such as Jonathan Zittrain and Tim Wu, as well as increasingly influential activist groups such as Public Knowledge and Free Press, Lessig’s cyber-collectivists continue to preach skepticism regarding markets and property rights, and a general openness to — and frequent embrace of — government solutions to digital-era dilemmas. […]  Prof. Lessig and his movement are winning the battle of ideas on the cyber-front today. We have Code to thank — or blame — for that.

Please head over to the Cato Unbound website to read the entire thing.  Prof. Lessig’s response is scheduled to be posted on Monday.

A new report from TeleGeography finds that bandwidth prices for backbone transit continue to decline rapidly across the globe. In San Francisco, for instance, the price per mbps of Gigabit Ethernet transit has dropped 38 % in the past 12 months. Developing countries are also enjoying substantial price cuts in 15 to 20% range.

But if the Internet’s core is controlled by an oligopolistic cartel—as Tim Wu argued in a recent New York Times essay—then why does bandwidth keep getting cheaper?

Perhaps it’s because the fourteen or so firms which offer backbone IP transit are competing fiercely to win over business from smaller carriers and enterprises. And as businesses of all sizes demand faster connectivity, more dark fiber is being lit, creating an expansion in network capacity. In DC, for instance, a price war has made high-speed commercial data services much more affordable, with one communications provider offering converged 10mbps full-duplex dedicated Ethernet over copper for less than the market price of four bonded T1 lines.

Why are some providers moving towards data transfer caps if bandwidth prices are dropping ? In part, it’s because backbone transit is not the only usage-variable expense that residential ISPs face. Last-mile bandwidth remains a highly contested resource in many neighborhoods, and the cost per megabit of bringing faster speeds to the doorstep far exceeds the cost of adding more wavelengths to a long-distance fiber optic line. As consumers demand greater speeds, providers are investing heavily in network upgrades—these costs are adding up, and there’s a strong case to be made that heavy users ought to shoulder a larger portion of the burden than light users.

Writing at Slate, Tim Wu tries to make Obama out to be the real Big Government candidate on media policy, who will deliver “if not a chicken in every pot, a fiber-optic cable in every home.” By contrast, Wu implies that McCain is just another pro-big business lackey who doesn’t understand “that the media and information industries are special—that like the transportation, energy, or financial industries, they are deeply entwined with the public interest.” Wu goes on to say:

Ultimately, most of the difference in Obama’s and McCain’s media policies boils down to questions about whether the media is special and a dispute over how much to trust the private sector. Camp McCain would tend to leave the private sector alone, with faith that it will deliver to most Americans what they want and deserve. The Obama camp would probably administer a more frequent kick in the pants, in the belief that good behavior just isn’t always natural.

First, as a factual matter, Wu is just wrong about McCain being some sort of a radical hands-off, pro-market liberalizer on media policy issues. Oh, if only that were true! But for those of us who have been in DC covering telecom and media policy for many years, it is widely understood there is no nailing down John McCain on any tech, telecom or media policy issue. He’s been all over the board. While he has sponsored or supported some deregulatory initiatives on the telecom front in the past, he’s also been a supporter of other regulatory causes. His battles with broadcasters and cable, for example, are well-known. Most recently, McCain has been leading the effort to impose a la carte mandates on cable and satellite operators. And if you’re all about Big Government credentials, then don’t forget McCain-Feingold, a law that made it a felony for corporations, nonprofit advocacy groups, and labor unions to run ads that criticize–or even name or show–members of Congress within 60 days of a federal election. And then there was the far more troubling McCain-Feingold II. Although it did not pass, McCain’s measure would have required broadcasters to run 12 hours of “candidate-centered and issue-centered programming” in the six weeks prior to primary and general elections—without giving broadcasters any control over those 12 hours (half of which would have had to run during prime time). The bill would have created a voucher system for the purchase of airtime for political advertisements, financed by an annual spectrum-use fee on all broadcast license holders. In sum, the legislation would have forced broadcast stations to pay a tax to the federal government that would in turn finance a pool of funds that politicians could turn around and spend to run ads on those very stations!

This sounds like the sort of Big Government Media Agenda that should make Tim Wu happy, but he doesn’t mention any of it in his essay.

But let me address the more fundamental, and quite mistaken, premise that underlies Wu’s essay — namely, that increased government activism in the media and broadband marketplace will somehow lead us to techno-nirvana. When Wu states that “the difference in Obama’s and McCain’s media policies boils down to questions about whether the media is special and a dispute over how much to trust the private sector,” he conveniently ignores the flip-side of that statement. That is, shouldn’t the real question here be: “How much do we trust the public sector”? Wu apparently assumes that “public interest” regulation will be all wine and roses. Enlightened, benevolent lawmakers and regulators who understand that media is “special” will concoct just the right mix of regulatory policies that will be pro-consumer, pro-democracy, and pro-free speech.

Sorry, but I’m not buying it. One would need to ignore 100 years worth of experience to believe such fanciful notions, and Wu seemingly does. Somehow, all will be different now. Regulators won’t be captured by special interests. Command-and-control regulation will suddenly become far more efficient and not deter innovation. And policymakers will resist the urge to censor speech.

Do you believe that story? If you’ve read your economic history, you’re probably just as skeptical as I am. It is revisionist history to say that the era of regulated monopoly and “public interest” media regulation was some sort of pro-consumer, pro-innovation, pro-free speech paradise. In reality, a “chicken in every pot” means a regulator on every cyber-corner. And I just don’t understand how someone as smart as Tim Wu thinks the entire process won’t once again come to be captured by the very interests he hopes to “kick in the pants.” They will be wearing the pants before it is over!

I invite Tim Wu and all his activist-minded friends on the Left to take another look at the definitive 2-volume Economics of Regulation by a more enlightened and experienced Democrat, Professor Alfred E. Kahn. In that masterwork, they will find the following words of wisdom (and caution):

When a commission is responsible for the performance of an industry, it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls rather than on the unplanned and unplannable forces of competition. […] Responsible for the continued provision and improvement of service, [the regulatory commission] comes increasingly and understandably to identify the interest of the public with that of the existing companies on whom it must rely to deliver goods.

So, if Tim Wu’s thesis is correct that the broadband marketplace is “a cartel,” should we be reading headlines in today’s Wall Street Journal and CNET News.com like this: “Price War Erupts For High-Speed Internet Service” and “Broadband Price War Brews“? From the WSJ story:

The battle between cable and phone companies to sign up new customers for high-speed Internet service is heating up, creating fresh opportunities for consumers to cut their bills. […] While the most generous offers are coming from the phone companies, some analysts expect cable companies will also become more aggressive in their own promotions as they compete to retain customers.

Geez, if that’s a cartel, give me more of them!