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.]

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.]

Over at MediaFreedom.org, a new site devoted to fighting the fanaticism of radical anti-media freedom groups like Free Press and other “media reformistas,” I’ve started rolling out a 5-part series of essays about “The Battle for Media Freedom.” In Part 1 of the series, I defined what real media freedom is all about, and in Part 2 I discussed the rising “cyber-collectivist” threat to media freedom.  In my latest installment, I offer an analytical framework that better explains the major differences between the antagonists in the battle over media freedom.

Understanding the Origins of Political Struggles

In his many enlightening books, Thomas Sowell, a great economist and an even better political scientist, often warns of the triumph of good intentions over good economics. It’s a theme that F.A. Hayek and Milton Friedman both developed extensively before him. But Sowell has taken this analysis to an entirely differently level in books like A Conflict of Visions: Ideological Origins of Political Struggles, and The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy . Sowell teaches us that no matter how noble one’s intentions might be, it does not mean that those ideas will translate into sound public policy. Nonetheless, since “the anointed” believe their own intentions are pure and their methods are sound, they see nothing wrong with substituting their will for the will of millions of individuals interacting spontaneously and voluntarily in the marketplace. The result is an expansion of the scope of public decision-making and a contraction of the scope of private, voluntary action. As a result, mandates replace markets, and freedom gives way central planning.

Sowell developed two useful paradigms to help us better understand “the origins of political struggles.” He refers to the “constrained” versus “unconstrained” vision and separates these two camps according to how they view the nature of man, society, economy, and politics:

The Unconstrained Nature of the Cyber-Collectivist Vision

Sowell’s taxonomy provides a useful frame of reference for today’s debate over communications and media policy. The unconstrained vision crowd here might best be labeled “cyber-collectivists.” This collectivism is not necessarily the hard-edged Marxist brand of collectivism of modern times. It is more the collectivism of Plato’s rule by “philosopher kings” as much as it is modern European “social democrat” collectivism. It generally rejects outright State ownership of the means of production, although there are some exceptions. (Free Press founder Robert McChesney, for example, would go much further than most other collectivists in having the State intervene and directly control or even own media and communications outlets and infrastructure).

Like their many “unconstrained” intellectual predecessors, what unifies the cyber-collectivists is the belief that the State should have a hand in guiding market outcomes toward a “fairer” end. The cyber-collectivists, for example, get indigestion over unequal patterns whether we are talking audience shares or technological diffusion. They are quick to allege “market failure” when some of their preferred media voices only capture miniscule audience shares (even when it’s just the result of consumer demand in action). And when some people or communities gain access to a network or new technology quicker than others, they are often quick to conclude some nefarious plot by greedy capitalists must be to blame.

Of course, in reality, this is just the way things in a free society have always worked. “Liberty upsets patterns” the late Harvard University philosopher Robert Nozick taught us in his 1974 masterpiece “Anarchy, State, and Utopia.” What Nozick meant was that there is a fundamental tension between liberty and egalitarianism such that when people are left to their own devices, some forms of inequality would be inevitable and persistent throughout society. Correspondingly, any attempt to force patterns, or outcomes, upon society requires a surrender of liberty.

All of this is equally true for media and communications policy. Just as there will never be perfect equality of outcomes in the provision of homes, cars, or incomes, there will never be perfect equality of tech gadgets or audience shares for media speakers / outlets.

Speech Redistributionism

The cyber-collectivists are not content with that, however. Just as they call for a redistribution of wealth to rectify the supposed injustice of unequal incomes, so too they call for “something to be done” to “balance” outcomes and ensure “fairer” outcomes. We might call this “media redistributionism” or even “speech redistributionism.”

Consider, for example, a proposal set forth by Cass Sunstein, the prolific University of Chicago law professor (and now Obama Administration official). In his 2001 book Republic.com, in which he suggests that government should consider requiring “electronic sidewalks” in cyberspace to encourage more balance on Internet websites. The state would impose the equivalent of “must carry” mandates on popular or partisan websites, forcing them to carry links to opposing viewpoints. In the name of “media access” or “fairness,” Sunstein and others are apparently willing to let the state impose tyrannical mandates on private website operators, forcing them to open their private property to use by others. Essentially it’s a Fairness Doctrine for the Internet Age.

Elsewhere Sunstein has argued in favor of greater “public interest” regulation to actually change public attitudes and tastes, claiming that there “is a large difference between the public interest and what interests the public.” [See: Television and the Public Interest, 88 California Law Review 499, 501 (2000).] He and many other cyber-collectivist scholars claim that they have a better idea of what interests the public. Essentially, the public doesn’t know what’s best for them, so someone else must tell them—and potentially even force supposedly better choices upon them. For example, Ellen P. Goodman of the Rutgers-Camden School of Law, and currently an adviser to the Federal Communications Commission, believes that, “a proactive media policy must not only correct a poorly functioning market, but also provide diversions around existing media markets and tastes. Proactive media policy can do this by changing consumer wants.”

The thought of having government “change consumer wants” is positively Orwellian and raises the obvious question: according to who’s tastes and values? The viewing and listening public has a broad array of interests and desires that cannot be easily gauged by congressional lawmakers, and certainly not by five unelected bureaucrats at the FCC. As media scholar Benjamin Compaine has correctly noted, “[i]n democracies, there is no universal ‘public interest.’ Rather there are numerous and changing ‘interested publics.’”

And, more practically, how should such goals be accomplished in an age of information abundance? The sheer scale and volume of media activity taking place across an unprecedented variety of communications platforms makes it difficult to imagine how a scarcity-era regulatory regime will be applied going forward. Are we going to have speech patrols standing on every cyber-corner policing the Net for “fairness” violations or determining what is and isn’t “in the public interest”?

Opportunity, Not Outcome, Is What Matters Most

Those of us who subscribe to a more “constrained vision” understand that what is really important is equality of media opportunity, not equality of media outcomes. A focus on the latter is both foolish and destructive. It is foolish because media equality is an impossibility absent extreme measures, which in turn explains why it is destructive. We would need totalitarian government controls on media outputs and consumption in order to achieve anything remotely close to “balance” or “equality” in terms of media results. What counts most is that people have a chance to be heard, not whether millions are listening or whether there is a perfect distribution of digital technology.

Again, that is not enough for the unconstrained visionaries who guide the cyber-collectivist movement. They want action and they want results and they want them now! And, they will always remind us, they have the best of intentions, so we should just trust them. The problem is, intentions + action = control. When they say “something to be done” that is usually code (excuse the pun) for heavy-handed government action to control the messy, un-patterned outcomes of a free marketplace.

And so we arrive at the critical difference between the cyber-freedom and the cyber-collectivist movements: Those of us who adhere to a more constrained view of nature, society and economy (i.e., the cyber-freedom movement) believe that liberty is the default position and that it generally trumps other values. Supposed “market failures” (or “code failures,” as the case may be) are ultimately better addressed by voluntary, spontaneous, bottom-up, marketplace responses than by the coerced, top-down, governmental solutions that the cyber-collectivists call for. Moreover, the decisive advantage of the market-driven approach to correcting code failure comes down to the rapidity and nimbleness of those response(s). Finally, and quite importantly, we in the cyber-freedom movement are not so quick to cry “market failure!” and call in the code cops. We understand that those messy, un-patterned market outcomes are the result of an evolutionary process or trial-and-error and that society and economy benefit from the resulting learning process.

Sure, there may be times when governments may need to intervene at the margins, but we would counsel against abrupt and incessant interventions to correct every supposed “market failure” or “unfair” outcome. After all, those interventions will simply beget more and more interventions to correct the inevitable failures of, or dissatisfaction with, previous interventions. There is simply no sugar-coating the reality that, no matter how well-intentioned, more and more media control is the inevitable prescription.

In my next installment in this series, I will detail the cyber-collectivist blueprint for radical media redistributionism by outlining this movement’s goals and its proposed methods of control.