October 2006

Firm, Market, and Social Organization

by on October 16, 2006 · 14 comments

The central insight of Coase’s Penguin was that peer production is form of economic organization on par with the market (first explained by Adam Smith) and the firm (first explained by Ronald Coase). Benkler expands on this tripartite classification of organizational structures in The Wealth of Networks. He spends quite a lot of time pointing out that non-market, non-firm methods of social organization account for a substantial fraction of our economic lives. We carpool, have dinner parties, give directions to strangers, help each other move, etc. These activities generate goods and services (meals, rides to work, information) that could also have been obtained via the market, but for a variety of reasons we sometimes find that non-market organizational methods meet our needs better.

I think this is a point that libertarians tend to under-appreciate. In college, I dated a left-of-center girl who liked to shop at the local grocery co-op rather than a commercial grocery store. It was a topic of frequent argument. I’d point out the relative efficiencies of commercial grocery store organization, she’d stress fuzzier, more community-focused advantages: the sense of community, the superior treatment of workers, the closer connection between customers, employees, and management, etc.

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Norwegian ISP Discriminates, Backs Down after Customer Outcry

by on October 14, 2006

Via EFF, a Norwegian company, NextGenTel, apparently decided to limit the bandwidth of sites that didn’t pay NextGenTel extra for the privilege of offering high-speed content to their customers. After a consumer backlash, however, the ISP backed down:

It seems like the customers won this battle (link, to Norwegian article). Due to bad publicity and reactions from customers NextGenTel have removed the limit and NRK is now back on full speed in their network. What should I say? Thanks to the people contacting NextGenTel and to the blogs and media that understand how this was a serious violation to network neutrality.

A lot of pro-regulatory folks assume that “network neutrality is good” necessarily implies “network neutrality ought to be mandated by the government. But the latter doesn’t automatically follow from the former. Government regulation is a cumbersome process fraught with potentials for unintended consequences. If violations of network neutrality can be dealt with in the marketplace, that strikes me as a far better solution.

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Air America Files for Bankruptcy

by on October 14, 2006

The obvious reaction of libertarians and conservatives to news that the leftist Air America radio has filed for bankruptcy is to claim this means there’s no market for left-of-center political commentary. But that’s obviously not quite right: progressive blogs have plenty of readers, and left-wing books seem to sell about as well as right-wing books.

I think a more plausible explanation for Air America’s poor performance is poor timing. The network came onto the scene at roughly the same time as a number of other media sources that competed directly for the same yuppie demographic that Al Franken appeals to. Left-of-center blogs rose to prominence in 2003 and were a force in Democratic politics for the first time in 2004. By 2004, The Daily Show had become the source for television news and satire among 20- and 30-something professionals. And a lot of young people began relying on their iPods, rather than the radio, for in-car entertainment. In short, Air America was fighting for a bigger piece of a shrinking demographic.

It seems like this flaw was exacerbated by high overhead. The network lost “$8.6 million in 2004 and $19.6 million last year, and has lost $13.1 million so far in 2006.” It’s not clear to me why it costs tens of millions of dollars to produce half a dozen daily talk shows. If those figures are driven by distribution costs–the article mentions that the network owes money to the stations that carry its programming–that seems like a big part of the problem. Their blogging and podcasting competitors are able to reach arbitrarily large audiences for essentially zero cost. Spending a lot of money to break into an over-crowded market for punditry via expensive and declining distribution format seems like a recipe for disaster.

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More on Fashion Copyrights

by on October 14, 2006 · 8 comments

Our spam filter caught a comment from my post earlier this week about fashion copyrights. I think it’s worth reproducing verbatim:

There’s an interesting discussion of the issue over at AntitrustProf Blog.

If you buy the notion that it’s a good idea to protect boat hull designs, then why not extend protection to fashion? On the other hand, if we protect boat hull designs and dresses, why not patent storylines and plots, or extend copyright to protect a hairdo. Maybe Tyra Banks can gain IP protection for her figure (not just her persona, but her figure). In order to protect himself against infringement, Walter Payton should be able to secure the rights on his running moves, so no NFL rookies will be able to steal from him.

Getting back to reality, protection of industrial designs is not new. The Copyright Office prepared an interesting report about proposed protections for fashion design. They conclude with this:

As stated above, the Office does not yet have sufficient information to make any judgment whether fashion design legislation is desirable. Proponents of legislation have come forward with some anecdotal evidence of harm that fashion designers have suffered as a result of copying of their designs, but we have not yet seen sufficient evidence to be persuaded that there is a need for legislation. We look forward to the Subcommittee’s hearing, at which proponents of the legislation will have an opportunity to make their case and at which the voices of other affected parties can be heard.

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Smaller, Cheaper, Better Doesn’t Apply to Nukes

by on October 13, 2006 · 12 comments

It occurs to me that there’s a broader lesson from the suitcase nuke story I linked to earlier. One of the things the article emphasizes is that a nuclear weapon isn’t something you can just type a password into and expect it to explode. It’s a big, complex piece of machinery that requires several people with specialized skills to detonate.

In August, I linked to an article making a similar point about the alleged threat of “binary liquids.” There, too, the threat is theoretically possible, but the obstacles look insurmountable. I’ve read similar critiques of biological weapons: that to acquire, weaponize, and deploy Anthrax, smallpox, and other biological weapons is far more difficult than people realize.

I think that our intuitions about what it’s feasible for a small terrorist band to accomplish are warped by the pace of progress in certain civilian high-tech industries. There were cell phones of a sort in the 1940s, but they were enormous, extremely expensive, and required a lot of specialized training to use. There were computers in the 1940s, but they filled a whole room, cost millions of dollars, and did less than a lot of calculators do today. The reason that today’s cell phones and computers are so much better is that American firms have invested hundreds of billions of dollars developing ways to make these devices smaller, cheaper, and more user friendly.

Fortunately, there hasn’t been any analogous development for nuclear weapons. Sure, governments have spent a lot of money building more powerful nukes, but making nukes smaller, cheaper, or more user friendly hasn’t been on the feature list. So nuclear weapons are probably nearly as big, expensive, and complex as they were in the 1940s.

The same is largely true for chemical and biological weapons. It’s true that private companies have invested a lot of money on new chemical and biological technologies. But the process of producing chemical and biological compounds has remained the domain of large companies. There hasn’t been any reason to invest resources making these devices small or cheap enough for individuals or small groups to obtain or use. Hence, despite the rapid pace of progress in consumer dominated industries like electronics, effective chemical and biological weapons remain nearly as difficult for individuals to obtain as they were 50 years ago.

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Hazlett on Google and The Myth of An Open Net

by on October 13, 2006 · 14 comments

Great article this week in the Financial Times by Tom Hazlett of George Mason University. Keying off from the Google-YouTube deal, Hazlett–a former FCC chief economist–writes that the Internet has never been as “open” as net neutrality fans say, and that’s no bad thing:

…the capitalist engine that powers the internet demands something completely different, as Google’s acquisition of YouTube makes clear. That strategy is to integrate Google’s search and advertising sales with YouTube’s users, which could potentially impede access to one of the hottest technologies by other service providers…

The internet lurches forward in spasms of business model discovery, as when Google figured out how to auction off search-targeted advertising slots, leaving banner advertisements behind. Today, Google’s absorption of its little video cousin is part of this jockeying for positions of competitive superiority. The internet really is not open–if, as Google hopes, it is doing it right.

Google has been doing it flawlessly–forging exclusive bargains nonpareil. Mr Vise declares the watershed business event in the company’s history to have occurred on May 1 2002 when its search engine was licensed to AOL. “Web properties that connected more than 34m subscribers had a small search box on every page that said, ‘Search Powered by Google.'” To land this deal, Google extended to “AOL a very large financial guarantee”, including stock options. An ISP getting paid to feature a favoured search engine? What net neutrality would presumably end is what helped launch Google.

Worth reading.

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How Again is this a Good Use of My Tax Dollars?

by on October 13, 2006

This week, Technology Under Secretary Robert Cresanti presented the first-ever “Recognition of Excellence in Innovation” award to ODIN Technologies of Dulles, Virginia.

Why on earth a federal bureaucrat should run around giving awards to local firms is beyond me. Perhaps Technology Under Secretary Cresanti could have taken the day off. Or maybe just retired if no actual work is pressing for his time.

Let’s make the “Recognition of Excellence in Innovation” award a really special honor by discontinuing it. (Tell ODIN that nobody could ever reach the standard they’ve set.)

I mean, really. Mad as hell and not gonna take it any more. Happy Friday.

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The Apocryphal Suitcase Nuke

by on October 13, 2006 · 2 comments

Via Gene Healy, here’s a Wall Street Journal article that offers some perspective on the “suitcase nuke.” In a nutshell, it’s barely more than an urban legend. As Viktor Yesin, former chief of staff of Russia’s Strategic Missile Forces, explains:

Let’s start by noting that “nuclear suitcase” is a term coined by journalists. Journalistic parlance, if you wish. The matter concerns special compact nuclear devices of knapsack type. Igor Valynkin, commander of the 12th Main Directorate of the Defense Ministry responsible for nuclear ordnance storage, was absolutely honest when he was saying in an interview with Nezavisimaya Gazeta in 1997 that “there have never been any nuclear suitcases, grips, handbags or other carryalls.”

As for special compact nuclear devices, the Americans were the first to assemble them. They were called Special Atomic Demolition Munitions (SADM). As of 1964, the U.S. Army and Marine Corps had two models of SADM at their disposal–M-129 and M-159. Each SADM measured 87 x 65 x 67 centimeters [34 by 26 by 26 inches]. A container with the backpack weighed 70 kilograms [154 pounds]. There were about 300 SADMs in all. The foreign media reported that all these devices were dismantled and disposed of within the framework of the unilateral disarmament initiatives declared by the first President Bush in late 1991 and early 1992.

The Soviet Union initiated production of special compact nuclear devices in 1967. These munitions were called special mines. There were fewer models of them in the Soviet Union than in the United States. All of these munitions were to be dismantled before 2000 in accordance with the Russian and American commitments concerning reduction of tactical nuclear weapons dated 1991. [When the Soviet Union collapsed, Boris Yeltsin reiterated the commitment in January 1992.] Foreign Minister Igor Ivanov said at the conference on the Nuclear Weapons Nonproliferation Treaty in April 2000 that Russia had practically completed dismantling “nuclear mines.” It means that Russia kept the promise Yeltsin once made to the international community.

No one disputes that Osama bin Laden would desperately like to get his hands on a nuclear weapon. But as the article explains, there are three ways to get a nuclear weapon–buy it, steal it, or make it yourself. And luckily, each of these methods appears to be well out of Al Qaeda’s reach. Anti-proliferation efforts are important, of course, but the real nuclear threat comes from states, not terrorists.

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Faulhaber and Farber on Mesh Networks

by on October 13, 2006 · 4 comments

I’m reading through Yochai Benkler’s argument for a spectrum commons in The Wealth of Networks, and so far I’m not impressed. His footnotes pointed to this fantastic working paper by Gerald Faulhaber and David Farber that I think makes the case better than I could:

Establishing property rights in spectrum is often portrayed as eliminating the commons (Benkler (1997), Reed (2002), Ikeda (2002)); this is not the
case. Commons (and more generally sharing) can exist within an ownership regime; our recommended ownership regime with an easement for non-interfering uses establishes such a commons via the easement. Should it be necessary to have a commons for potentially interfering uses, the most obvious avenue is for the Federal government can purchase a block of spectrum (which it then owns) and open the band to general use under terms and conditions similar to Part 15 (for example). In fact, any state or local government can do the same thing, establishing a “park” in which users are completely free to use the spectrum without permission provided they follow the rules laid down by the owner of the “park.” This is perfectly analogous to public lands, such as National and State Parks, National and State Forests, and municipal parks. Further, private foundations could establish such “parks;” for example, there are many horticultural parks open to the public that are maintained by private foundations. Local neighborhood cooperatives could achieve the same end, possibly requiring a one-time or monthly fee for use. Similarly, private firms could establish such “parks,” charging a one-time or monthly fee for use. We would expect that manufacturers of mesh network devices, for example, may choose to “prime the pump” by establishing spectrum parks in various localities to increase their equipment sales.

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Alas, a Sleazy Decision

by on October 13, 2006 · 10 comments

Julian Sanchez points out a controversy among the readers of lefty blog Alas, A Blog. Apparently, the domain has been sold to a company that will add some additional pages to the domain that will have links to various porn sites, helping those porn sites increase their rank in Google searches. The commenters are outraged that a feminist blog would use his influence to help promote porn.

Brandon Berg points out that search engine optimization is a negative-sum game, so this strategy mostly just changes the relative rankings of different pornography sites without bringing porn sites in general more exposure. Which is probably true.

I personally don’t see anything wrong with pornography, so I can’t get worked up about that angle. But I think this deal is shady for another reason. Google operates by treating links from one site to another as a vote of confidence by the linker in the linkee. Google piggybacks on this web of trust to provide its users with highly relevant search results.

In a sense, a high PageRank is a position of trust. We would all condemn a professor who gave his best reference to the student who gave him the biggest check. I don’t see a principled difference here. Selling Google’s trust to the highest bidder not only harms Google but more importantly, it harms Google’s customers. If everyone behaved that way, it would lead to a world in which Google search rankings were driven more by money and less by the objective judgments of the online community.

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