Microsoft – Technology Liberation Front https://techliberation.com Keeping politicians' hands off the Net & everything else related to technology Thu, 03 Apr 2025 23:20:10 +0000 en-US hourly 1 6772528 New Report: Do We Need Global Government to Address AI Risk? https://techliberation.com/2023/06/16/new-report-do-we-need-global-government-to-address-ai-risk/ https://techliberation.com/2023/06/16/new-report-do-we-need-global-government-to-address-ai-risk/#comments Fri, 16 Jun 2023 13:27:15 +0000 https://techliberation.com/?p=77138

Can we advance AI safety without new international regulatory bureaucracies, licensing schemes or global surveillance systems? I explore that question in my latest R Street Institute study, “Existential Risks & Global Governance Issues around AI & Robotics.” (31 pgs)  My report rejects extremist thinking about AI arms control & stresses how the “realpolitik” of international AI governance is such that things cannot and must not be solved through silver-bullet gimmicks and grandiose global government regulatory regimes.

The report uses Nick Bostrom’s “vulnerable world hypothesis” as a launching point and discusses how his five specific control mechanisms for addressing AI risks have started having real-world influence with extreme regulatory proposals now being floated. My report also does a deep dive into the debate about a proposed global ban on “killer robots” and looks at how past treaties and arms control efforts might apply, or what we can learn from them about what won’t work.

I argue that proposals to impose global controls on AI through a worldwide regulatory authority are both unwise and unlikely to work. Calls for bans or “pauses” on AI developments are largely futile because many nations will not agree to them. As with nuclear and chemical weapons, treaties, accords, sanctions and other multilateral agreements can help address some threats of malicious uses of AI or robotics. But trade-offs are inevitable, and addressing one type of existential risk sometimes can give rise to other risks.

A culture of AI safety by design is critical. But there is an equally compelling interest in ensuring algorithmic innovations are developed and made widely available to society. The most effective solution to technological problems usually lies in more innovation, not less. Many other multistakeholder and multilateral efforts can help AI safety. Final third of my study is devoted to a discussion of that. Continuous communication, coordination, and cooperation—among countries, developers, professional bodies and other stakeholders—will be essential.

My new report on concludes with a plea to reject fatalism and fanaticism when discussing global AI risks. It’s worth recalling what Bertrand Russell said in 1951 about how only global government could save humanity. He predicted, “[t]he end of human life, perhaps of all life on our planet,” before the end of the century unless the world unified under “a single government, possessing a monopoly of all the major weapons of war.” He was very wrong, of course, and thank God he did not get his wish because an effort to unite the world under one global government would have entailed different existential risks that he never bothered seriously considering. We need to reject extremist global government solutions as the basis for controlling technological risk.

Three quick notes.

First, this new report is the third in a trilogy of major R Street Institute s tudies on bottom-up, polycentric AI governance. If you only read one, make it this: “Flexible, Pro-Innovation Governance Strategies for Artificial Intelligence.” 

Second, I wrapped up this latest report a few months ago, before the Microsoft and OpenAI floated new comprehensive AI regulatory controls. So, for an important follow-up to this report, please read: “Microsoft’s New AI Regulatory Framework & the Coming Battle over Computational Control.”

Finally, if you’d like to hear me discuss many of the findings from these new reports and essays at greater length, check out my recent appearance on TechFreedom’s “Tech Policy Podcast,” with Corbin K. Barthold. We do a deep dive on all these AI governance trends and regulatory proposals.

As always, all my writing on AI, ML and robotics can be found here and my most recent things are found below.

Additional Reading :

]]> https://techliberation.com/2023/06/16/new-report-do-we-need-global-government-to-address-ai-risk/feed/ 4 77138 Running List of My Research on AI, ML & Robotics Policy https://techliberation.com/2022/07/29/running-list-of-my-research-on-ai-ml-robotics-policy/ https://techliberation.com/2022/07/29/running-list-of-my-research-on-ai-ml-robotics-policy/#respond Fri, 29 Jul 2022 12:51:54 +0000 https://techliberation.com/?p=77020

[last updated 4/3/2025 – Check my Medium page for latest posts]

This a running list of all the essays and reports I’ve already rolled out on the governance of artificial intelligence (AI), machine learning (ML), and robotics. Why have I decided to spend so much time on this issue? Because this will become the most important technological revolution of our lifetimes. Every segment of the economy will be touched in some fashion by AI, ML, robotics, and the power of computational science. It should be equally clear that public policy will be radically transformed along the way.

Eventually, all policy will involve AI policy and computational considerations. As AI “eats the world,” it eats the world of public policy along with it. The stakes here are profound for individuals, economies, and nations. As a result, AI policy will be the most important technology policy fight of the next decade, and perhaps next quarter century. Those who are passionate about the freedom to innovate need to prepare to meet the challenge as proposals to regulate AI proliferate.

There are many socio-technical concerns surrounding algorithmic systems that deserve serious consideration and appropriate governance steps to ensure that these systems are beneficial to society. However, there is an equally compelling public interest in ensuring that AI innovations are developed and made widely available to help improve human well-being across many dimensions. And that’s the case that I’ll be dedicating my life to making in coming years.

Here’s the list of what I’ve done so far. I will continue to update this as new material is released:

2025

2024

2023

2022

2021 (and earlier)

]]> https://techliberation.com/2022/07/29/running-list-of-my-research-on-ai-ml-robotics-policy/feed/ 0 77020 Podcast: Remember FAANG? https://techliberation.com/2022/05/10/podcast-remember-faang/ https://techliberation.com/2022/05/10/podcast-remember-faang/#comments Tue, 10 May 2022 15:47:16 +0000 https://techliberation.com/?p=76986

Corbin Barthold invited me on Tech Freedom’s “Tech Policy Podcast” to discuss the history of antitrust and competition policy over the past half century. We covered a huge range of cases and controversies, including: the DOJ’s mega cases against IBM & AT&T, Blockbuster and Hollywood Video’s derailed merger, the Sirius-XM deal, the hysteria over the AOL-Time Warner merger, the evolution of competition in mobile markets, and how we finally ended that dreaded old MySpace monopoly!

What does the future hold for Google, Facebook, Amazon, and Netflix? Do antitrust regulators at the DOJ or FTC have enough to mount a case against these firms? Which case is most likely to have legs?

Corbin and I also talked about the of progress more generally and the troubling rise of more and more Luddite thinking on both the left and right. I encourage you to give it a listen:

]]> https://techliberation.com/2022/05/10/podcast-remember-faang/feed/ 5 76986 50 Years of Video Games & Moral Panics https://techliberation.com/2019/07/18/50-years-of-video-games-moral-panics/ https://techliberation.com/2019/07/18/50-years-of-video-games-moral-panics/#comments Thu, 18 Jul 2019 18:42:45 +0000 https://techliberation.com/?p=76526

This essay originally appeared on The Bridge under the title “Confessions of a Vidiot” on July 16, 2019.

I have a confession: I’m 50 years old and still completely in love with video games.

Image result for Time magazine video games coverI feel silly saying that, even though I really shouldn’t. Video games are now fully intertwined with the fabric of modern life and, by this point, there have been a couple of generations of adults who, like me, have played them actively over the past few decades. Somehow, despite the seemingly endless moral panics about video games, we came out alright. But that likely will not stop some critics from finding new things to panic over.

As a child of the 1970s, I straddled the divide between the old and new worlds of gaming. I was (and remain) obsessed with board and card games, which my family played avidly. But then Atari’s home version of “Pong” landed in 1976. The console had rudimentary graphics and controls, and just one game to play, but it was a revelation. After my uncle bought Pong for my cousins, our families and neighbors would gather round his tiny 20-inch television to watch two electronic paddles and a little dot move around the screen.

Every kid in the world immediately began lobbying their parents for a Pong game of their own, but then a year later something even more magical hit the market: Atari’s 2600 gaming platform. It was followed by Mattel’s “Intellivision” and Coleco’s “ColecoVision.” The platform wars had begun, and home video games had gone mainstream.

My grandmother, who lived with us at the time, started calling my brother and me “vidiots,” which was short for “video game idiots.” My grandmother raised me and was an absolute treasure to my existence, but when it came to video games (as well as rock music), the generational tensions between us were omnipresent. She was constantly haranguing my brother and me about how we were never going to amount to much in life if we didn’t get away from those damn video games!

I used to ask her why she never gave us as much grief about playing board or card games. She thought those were mostly fine. There was just something about the electronic or more interactive nature of video games that set her and the older generation off.

And, of course, there was the violence. There is no doubt that video games contained violent themes and images that were new to the gaming experience. In the analog gaming era, violent action was left mostly to the imagination. With electronic games, it was right there for us to see in all its (very bloody) glory.

As depictions of violence in video games became more intense, parental anxiety boiled over into political activism. By the early 1990s, complaints by parent groups and politicians escalated and congressional hearings commenced. This was the Nintendo and Sega era, when games like “Mortal Kombat” and “Night Trap” were capturing attention for their violent themes.

By this time, I had moved to Washington, DC and taken a job with a think tank. I was a young researcher covering media and telecommunications policy issues, so I had both a personal and professional interest in covering video game hearings. What ensued was a media spectacle in which an endless parade of politicians and self-anointed “parent advocates” expressed their concerns about various games and the supposed lost generation of kids playing them.

The first major congressional hearing on video game violence that I attended in 1993 included then-Sen. Joe Lieberman and other lawmakers speaking with disgust and furrowed brows as they watched clips from those games. But most of us twenty-somethings in the hearing room were rolling our eyes through the entire spectacle. I distinctly remember hearing a Capitol Hill staffer that I was sitting next to whisper, “This is the greatest ad for getting a Sega Genesis ever!” Following the hearing, several friends and I went to my house and played Mortal Kombat together just for kicks.

As the decade went on and gamers began enjoying a third generation of consoles that included Playstation and XBox, the moral panic surrounding violent video gamesrapidly intensified. This was the era of “Doom,” “Resident Evil” and then “Grand Theft Auto.” The whole world went mad.Image result for Time magazine video games cover

Critics were writing books with titles like Stop Teaching Our Kids to Kill and referring to video games as “murder simulators.” Every TV news outlet was running some sort of hair-raising report about how America’s youth were doomed for a life of depravity due to video games. By 2006, Sen. Lieberman and then-Sen. Hillary Clinton were floating the “Family Entertainment Protection Act” to create a federal enforcement regime for video games ratings and sales. Court battles ensued over the constitutionality of restrictions on video game sales.

During this push for video game censorship, I wrote many essays, papers, and even contributed to court filings in which I poured over the evidence—or rather the lack thereof—for what we might think of as the “monkey see-monkey do” theory of human behavior. Put simply, there has never been any conclusive scientific evidence correlating video game exposure and real-world acts of violence. If this theory held any water, at some point it should have shown up in crime statistics either here or abroad. But it hasn’t.

In fact, over the past two decades, the US population has grown from 270 million in 1998 to 325 million today, and video games have grown in popularity over that same period. At the same time, according to FBI data, overall violent crime has fallen by almost 19 percent, and for adolescents ages 12 to 20, every class of crime plummeted over the same period.

To be sure, video games—violent or otherwise—can give rise to some problems worth worrying about. Addiction is a real concern, and not just for juveniles. Again, I’m an old man, but I still play far too many games on my phone when I could be doing other things. That’s not technically addiction, but it sure feels like it sometimes. When our kids, or even some adults, go overboard with game time, they need strategies to find a better balance. That has always been a legitimate issue deserving attention.

But the people and politicians who engaged in panics and proselytizing about the supposed evils of video games went much too far. What they failed to realize—as almost all cultural critics have mistakenly done throughout history—is that humans are more sensible and resilient than they assume. We can muddle through and find a reasonable balance.

Indeed, a great many first and second generation gamers are now raising kids and actively gaming with them. My teenage son and I play multiple games together and are part of many different leagues and teams. On our phones, we play “Boom Beach” and other games together, often with groups of other father and son gamers. At home, we love to play “Star Wars: Battlefront” and we are absolutely infatuated with the alien bug-killing “Earth Defense Force” games.

A few years back, my son and I got so good at the game “Toy Soldiers: Cold War” that we were briefly ranked in the top 15 globally. We also play a lot of board games together. I now include him in monthly poker nights at my house, where he has become quite the card shark, regularly depriving many of my adult friends of their money.

My strategy with my son and gaming activity has been simple: stay involved, be open-minded, and set reasonable limits. Oh sure, there are games he plays that I find silly and worthless. But I try to talk to him about all of them and get a better understanding of what they are about. And I encourage him—not always successfully—to get off the couch and go outside to get plenty of outdoor playtime in, too.

While heavy-handed regulatory efforts have been beaten back, we can expect moral panics to continue as video games become even more interactive and immersive. We aging gamers should be willing to hear out concerns about those new gaming themes and capabilities and consider reasonable responses.

If we have learned anything from the first half century of video game history, it is that over-reaction is never the right response. Whether you are a parent or a politician, try to be patient and willing to talk to kids in an open and understanding fashion about things you might not appreciate at first.

Now please excuse me while my son and I get back to killing some alien bugs and saving the Earth once more!

Additional Reading :

]]> https://techliberation.com/2019/07/18/50-years-of-video-games-moral-panics/feed/ 1 76526 The Pacing Problem and the Future of Technology Regulation https://techliberation.com/2018/08/10/the-pacing-problem-and-the-future-of-technology-regulation/ https://techliberation.com/2018/08/10/the-pacing-problem-and-the-future-of-technology-regulation/#respond Fri, 10 Aug 2018 12:48:10 +0000 https://techliberation.com/?p=76342

[first published at The Bridge on August 9, 2018]

What happens when technological innovation outpaces the ability of laws and regulations to keep up?

This phenomenon is known as “the pacing problem,” and it has profound ramifications for the governance of emerging technologies. Indeed, the pacing problem is becoming the great equalizer in debates over technological governance because it forces governments to rethink their approach to the regulation of many sectors and technologies.

The Innovation Cornucopia

Had Rip Van Winkle woken up his famous nap today, he’d be shocked by all the changes around him. At-home genetics tests, personal drones, driverless cars, lab-grown meats, and 3D-printed prosthetic limbs are just some of the amazing innovations that would boggle his mind. New devices and services are flying at us so rapidly that we sometimes forget that most did not even exist a short time ago. At this point, it feels like our smartphones have been in our lives forever, but even just a decade ago, very few of us had one. Likewise, plenty of people now regularly enjoy the benefits of the sharing economy, but ten years ago, Uber, Lyft, and Airbnb did not even exist. Most of the social networking platforms or online video and audio streaming services that we use today had not even been created 15 years ago. Back then, Netflix’s DVD mail subscription service seemed downright revolutionary.

With every innovation comes more questions about how the law should keep pace, or whether it even can. “There has always been a pacing problem,” observes Yale University bioethicist Wendell Wallach, author of  A Dangerous Master: How to Keep Technology from Slipping beyond Our Control. But what Wallach and many other scholars worry about today is that the pace of change has been kicked into overdrive, making it more difficult than ever for traditional legal schemes and regulatory mechanisms to stay relevant. Larry Downes refers to this as “The Law of Disruption.” In his 2009 book on this “law,” Downes showed how “technology changes exponentially, but social, economic, and legal systems change incrementally” and that this law was becoming “a simple but unavoidable principle of modern life.”

Moore’s Law Quickens the Pace

There are three primary reasons the pacing problem is such a force in our modern world. The root cause lies in the power of “combinatorial innovation,” which is driven by “Moore’s Law.”  The Information Revolution spawned a stunning array of new technological capabilities that build on top of one another in a symbiotic fashion. Think about the shared foundational elements of most modern inventions: microchips, sensors, digital code, big data, cloud computing, remote data storage, wireless networking and geolocation capabilities, machine-learning, cryptography, and more. Each of these underlying capabilities is becoming faster, cheaper, smaller, more powerful, and easier to find and use. Innovators are combining them as part of their ongoing search for new and better ways of doing things.

Moore’s Law powers these developments. Moore’s Law is the principle named after Intel co-founder Gordon E. Moore, who first observed in 1965 that “computing would dramatically increase in power, and decrease in relative cost, at an exponential pace” in coming years. Indeed, it has continued to do so for the past half century for many information technologies. A recent Technology Policy Institute white paper noted that “data transit prices fell from about $1200 per Mbps in 1998 to $0.02 per Mbps in 2017.”

These forces are now revolutionizing other sectors as “software eats the world” and innovators utilize these new technologies to address nearly every conceivable need and want. In the field of genetics, the biological equivalent of Moore’s Law is known as the “Carlson curve.” The past two decades have seen the cost of sequencing a human genome fall from over $100 million to under $1,000, a rate nearly three times faster than Moore’s Law.

What the Public Wants, the Public Gets

The second reason the pacing problem is accelerating is that the public wants it to! It is true that many people say they are uneasy with many emerging technologies. When new gadgets and services first gain attention, a “technopanic” attitude often ensues. That is unsurprising because, as others have noted, “fear has gone hand in hand with technological advancements throughout history.”

But societal attitudes toward technological change often shift rapidly. They do so even faster today as citizens quickly assimilate new tools into their daily lives and then expect that even more and better tools will be delivered tomorrow. As more people begin to realize how new technologies improve our lives in meaningful ways, it becomes extremely hard for policymakers to take those innovations away or even tell us not to expect better ones. This relationship between technological change and societal expectations acts as an extraordinarily powerful check on the ability of regulators to “roll back the clock” on innovative activities.

Broken Government Exacerbates the Problem

Finally, the pacing problem is becoming more acute because “demosclerosis” and “kludgeocracy” have taken hold within American government. Jonathan Rauch coined the term demosclerosis in his 1999 book Government’s End: Why Washington Stopped Working to describe “government’s progressive loss of the ability to adapt.” “[A]s layer is dropped upon layer,” he argued, “the accumulated mass becomes gradually less rational and less flexible.”

Instead of cleaning up old legalistic messes and adapting to the times, government solutions are more often clumsily cobbled together to patch past problems and create temporary solutions. Steven Teles refers to this as kludgeocracy. “The complexity and incoherence of our government often make it difficult for us to understand just what that government is doing,” Teles says. Kludgeocracy creates serious costs for individual citizens, governments themselves, and to our democratic systems more generally, he argues. Taken together, demosclerosis and kludgeocracy breed highly dysfunctional governments and make it even easier for the pacing problem to speed ahead.

Can Policymakers Adapt?

Regulators are not oblivious to the challenges posed by the pacing problem. “I have said more than once that innovation moves at the speed of imagination and that government has traditionally moved at, well, the speed of government,” remarked Michael Heurta, head of the Federal Aviation Administration, in a 2016 speech regarding drones. Shortly after Huerta made those comments, the Department of Transportation released a report on the regulation of driverless car technology which noted that “The speed with which [driverless cars] are advancing, combined with the complexity and novelty of these innovations, threatens to outpace the Agency’s conventional regulatory processes and capabilities.”

Food and Drug Administration (FDA) regulators have increasingly referenced the pacing problem when discussing the challenge of keeping up with new medical innovations.  The New York Times recently asked Dr. Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research, how the agency planned to deal with hundreds of “rogue” stem cell treatment clinics. “There are hundreds and hundreds of these clinics,” he said. “We simply don’t have the bandwidth to go after all of them at once.”

The pacing problem has even crept into antitrust enforcement. The US Department of Justice (DOJ) sought to break up Microsoft in the late 1990s, but as the legal proceedings dragged on through the early 2000’s, the market moved and made the DOJ’s case moot. Google Chrome and Mozilla Firefox emerged as legitimate competitors to Microsoft’s Internet Explorer without regulatory remedy. In the end, Microsoft reached a settlement with the DOJ that fell far short of the government’s original ambitions to bust up the firm, all because the market moved at a pace much faster than the regulator’s pace. More recent antitrust action in the US and EU also suffer from the pacing problem. Multi-year antitrust investigations reach conclusions that don’t reflect market trends in the intervening years and offer remedies that may be “too little, too late,” especially in the information technology sector.

Is the Pacing Problem Really the Pacing Benefit?

What should policymakers do in light of these new challenges? The extremes will not work. Lawmakers or regulators cannot simply double-down on the lethargic and unwieldy technocratic regulatory schemes of the past. Command-and-control tactics are not going to be effective in an age when technology evolves in a quicksilver fashion. In a world where “innovation arbitrage” is easier than ever, repressive crackdowns on new tech will often backfire. Evasive entrepreneurs will often move to those jurisdictions where their innovative acts are treated more hospitably. That, too, exacerbates the pacing problem.

From the perspective of many innovation advocates, this will make it seem like the pacing problem is more like the pacing  benefit. Generally speaking, that intuition is sound. Innovation is the fundamental driver of human betterment. We need more “moonshots”—“radical but feasible solutions to important problems”—to ensure that current and future generations enjoy more choices, greater mobility, increased wealth, better health, and longer lifespans. We don’t want archaic regulatory schemes and regimes holding that back.

Constructive Solutions

But policymakers will not abandon oversight of emerging technologies altogether, nor should we want them to. The potential harms associated with some new technologies could be significant enough that a certain degree of regulatory oversight will be required. But the pacing problem means the old, inflexible, top-down approaches will need to be discarded and that the administrative state itself must become more entrepreneurial.

In a forthcoming law review article entitled, “Soft Law for Hard Problems: The Governance of Emerging Technologies in an Uncertain Future,” Jennifer Skees, Ryan Hagemann, and I discuss how “soft law” mechanisms—multi-stakeholder processes, industry best practices and standards, workshops, agency guidance, and more—can help fill the governance gap as the pacing problem accelerates. Many agencies are already tapping soft law tools to help guide the development of new technologies such as driverless cars, drones, the Internet of Things, mobile medical applications, artificial intelligence, and others. In fact, we argue that soft law has already become the dominant form of technological governance for emerging tech in the US.

Critics might decry soft law as either being too lax (and open to private abuse) or too informal (and open to government abuse), but the pacing problem makes both arguments increasingly irrelevant. We need a new governance vision for the technological age. Our new governance systems must be more flexible and adaptive than the heavy-handed regulatory regimes that preceded them.

___________________

Related Reading

]]> https://techliberation.com/2018/08/10/the-pacing-problem-and-the-future-of-technology-regulation/feed/ 0 76342 Wendell Wallach on the Challenge of Engineering Better Technology Ethics https://techliberation.com/2016/04/20/wendell-wallach-on-the-challenge-of-engineering-better-technology-ethics/ https://techliberation.com/2016/04/20/wendell-wallach-on-the-challenge-of-engineering-better-technology-ethics/#respond Wed, 20 Apr 2016 19:08:57 +0000 https://techliberation.com/?p=76026

DM cover
On May 3rd, I’m excited to be participating in a discussion with Yale University bioethicist Wendell Wallach at the Microsoft Innovation & Policy Center in Washington, DC. (RSVP here.) Wallach and I will be discussing issues we write about in our new books, both of which focus on possible governance models for emerging technologies and the question of how much preemptive control society should exercise over new innovations.

Wallach’s latest book is entitled, A Dangerous Master: How to Keep Technology from Slipping beyond Our Control. And, as I’ve noted here recently, the greatly expanded second edition of my latest book, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom, has just been released.

Of all the books of technological criticism or skepticism that I’ve read in recent years—and I have read stacks of them!— A Dangerous Master is by far the most thoughtful and interesting. I have grown accustomed to major works of technological criticism being caustic, angry affairs. Most of them are just dripping with dystopian dread and a sense of utter exasperation and outright disgust at the pace of modern technological change.

Although he is certainly concerned about a wide variety of modern technologies—drones, robotics, nanotech, and more—Wallach isn’t a purveyor of the politics of panic. There are some moments in the book when he resorts to some hyperbolic rhetoric, such as when he frets about an impending “techstorm” and the potential, as the book’s title suggests, for technology to become a “dangerous master” of humanity. For the most part, however, his approach is deeper and more dispassionate than what is found in the leading tracts of other modern techno-critics.

Many Questions, Few Clear Answers

Wallach does a particularly good job framing the major questions about emerging technologies and their effect on society. “Navigating the future of technological possibilities is a hazardous venture,” he observes. “It begins with learning to ask the right questions—questions that reveal the pitfalls of inaction, and more importantly, the passageways available for plotting a course to a safe harbor.” (p. 7) Wallach then embarks on a 260+ page inquiry that bombards the reader with an astonishing litany of questions about the wisdom of various forms of technological innovation—both large and small. While I wasn’t about to start an exact count, I would say that the number of questions Wallach poses in the book runs well into the hundreds. In fact, many paragraphs of the book are nothing but an endless string of questions.

Thus, if there is a primary weakness with A Dangerous Master, it’s that Wallach spends so much time formulating such a long list of smart and nuanced questions that some readers may come away disappointed when they do not find equally satisfying answers. On the other hand, the lack of clear answers is also completely understandable because, as Wallach notes, there really are no simple answers to most of these questions.

Just Slow Down!

Moving on to substance, let me make clear where Wallach and I generally see eye-to-eye and where we part ways.

Generally speaking, we agree about the need to come up with better “soft governance” systems for emerging technologies, which might include multistakeholder process, developer codes of conduct, sectoral self-regulation, sensible liability rules, and so on. (More on those strategies in a moment.)

But while we both believe it is wise to consider how we might “bake-in” better ethics and norms into the process of technological development, Wallach seems much more inclined than me to expect that we will be able to pre-ordain (or potentially require?) all this happens before much of this experimentation and innovation actually moves forward. Wallach opens by asking:

Determining when to bow to the judgment of experts and whether to intervene in the deployment of a new technology is certainly not easy. How can government leaders or informed citizens effectively discern which fields of research are truly promising and which pose serious risks? Do we have the intelligence and means to mitigate the serious risks that can be anticipated? How should we prepare for unanticipated risks? (p. 6)

Again, many good questions here! But this really gets to the primary difference between Wallach’s preferred approach and my own: I tend to believe that many of these things can only be worked out through ongoing trial and error, the constant reformulation of the various norms that govern the process of innovation, and the development of sensible ex post solutions to some of the most difficult problems posed by turbulent technological change.

By contrast, Wallach’s generally attitude toward technological evolution is probably best summarized by the phrases: “Slow down!” and, “Let’s have a conversation about it first!” As he puts it in his own words: “Slowing down the accelerating adoption of technology should be done as a responsible means to ensure basic human safety and to support broadly shared values.” (p. 13)

But I tend to believe that it’s not always possible to preemptively determine which innovations to slow down, or even how to determine what those “shared values” are that will help us make this determination. More importantly, I worry that there are very serious potential risks and unintended consequences associated with slowing down many forms of technological innovation, which could improve human welfare in important ways. There can be no prosperity, after all, without a certain degree of risk-taking and disruption.

Getting Out Ahead of the Pacing Problem

WW
It’s not that Wallach is completely hostile to new forms of technological innovation or blind to the many ways those innovations might improve our lives. To the contrary, he does a nice job throughout the book highlighting the many benefits associated with various new technologies, or he is at least willing to acknowledge that there can be many downsides associated with efforts aimed at limiting research and experimentation with new technological capabilities.

Yet, what concerns Wallach most is the much-discussed issue from the field of the philosophy of technology, the so-called “pacing problem.” Wallach concisely defines the pacing problem as “the gap between the introduction of a new technology and the establishment of laws, regulations, and oversight mechanisms for shaping its safe development.” (p. 251) “There has always been a pacing problem,” he notes, but he is concerned that technological innovation—especially highly disruptive and potentially uncontrollable forms of innovation—is now accelerating at an absolutely unprecedented pace.

(Just as an aside for all the philosophy nerds out there…  Such a rigid belief in the “pacing problem” represents a techno-deterministic viewpoint that is, ironically, sometimes shared by technological skeptics like Wallach as well as technological optimists like Larry Downes and even many in the middle of this debate, like Vivek Wadhwa. See, for example, The Laws of Disruption by Downes and “Laws and Ethics Can’t Keep Pace with Technology” by Wadhwa. Although these scholars approach technology ethics and politics quite differently, they all seem to believe that the pace of modern technological change is so relentless as to almost be an unstoppable force of nature. I guess the moral of the story is that, to some extent, we’re all technological determinists now!)

Despite his repeated assertions that modern technologies are accelerating at such a potentially uncontrollable pace, Wallach nonetheless hopes we can achieve some semblance of control over emerging technologies before they reach a critical “inflection point.” In the study of history and science, an inflection point generally represents a moment when a situation and trend suddenly changes in a significant way and things begin moving rapidly in a new direction. These inflections points can sometimes develop quite abruptly, ushering in major changes by creating new social, economic, or political paradigms. As it relates to technology in particular, inflection points can refer to the moment with a particular technology achieves critical mass in terms of adoption or, more generally, to the time when that technology begins to profoundly transform the way individuals and institutions act.

Another related concept that Wallach discusses is the so-called “Collingridge dilemma,” which refers to the notion that it is difficult to put the genie back in the bottle once a given technology has reached a critical mass of public adoption or acceptance. The concept is named after David Collingridge, who wrote about this in his 1980 book, The Social Control of Technology. “The social consequences of a technology cannot be predicated early in the life of the technology,” Collingridge argued. “By the time undesirable consequences are discovered, however, the technology is often so much part of the whole economics and social fabric that its control is extremely difficult.”

On “Having a Discussion” & Coming Up with “a Broad Plan”

These related concepts of inflection points and the Collingridge dilemma constitute the operational baseline of Wallach’s worldview. “In weighing speedy development against long-term risks, speedy development wins,” he worries. “This is particularly true when the risks are uncertain and the perceived benefits great.” (p. 85)

Consequently, throughout his book, Wallach pleads with us to take what I will call Technological Time Outs. He says we need to pause at times so that we can have “a full public discussion” (p. 13) and make sure there is a “broad plan in place to manage our deployment of new technologies” (p. 19) to make sure that innovation happens only at “a humanly manageable pace” (p. 261) “to fortify the safety of people affected by unpredictable disruptions.” (p. 262) Wallach’s call for Technological Time Outs is rooted in his belief that “the accelerating pace [of modern technological innovation] undermines the quality of each of our lives.” (p. 263)

That is Wallach’s weakest assertion in the book and he doesn’t really offer much evidence to prove that the velocity of modern technological is hurting us rather than helping us, as many of us believe. Rather, he treats it as a widely accepted truism that necessitates some sort of collective effort to slow things down if the proverbial genie is about to exit the bottle, or to make sure those genies don’t get out of their bottles without a lot of preemptive planning regarding how they are to be released into the world. In the following passage on pg. 72, Wallach very succinctly summarizes his approach recommended throughout A Dangerous Master:

this book will champion the need for more upstream governance: more control over the way that potentially harmful technologies are developed or introduced into the larger society. Upstream management is certainly better than introducing regulations downstream, after a technology is deeply entrenched or something major has already gone wrong. Yet, even when we can access risks, there remain difficulties in recognizing when or determining how much control should be introduced. When does being precautionary make sense, and when is precaution an over-reaction to the risks? (p. 72)

Those who have read my Permissionless Innovation book will recall that I open by framing innovation policy debates in almost exactly the same way as Wallach suggests in that last line above. I argue in the first lines of my book that:

The central fault line in innovation policy debates today can be thought of as ‘the permission question.’  The permission question asks: Must the creators of new technologies seek the blessing of public officials before they develop and deploy their innovations? How that question is answered depends on the disposition one adopts toward new inventions and risk-taking, more generally.  Two conflicting attitudes are evident. One disposition is known as the ‘precautionary principle.’ Generally speaking, it refers to the belief that new innovations should be curtailed or disallowed until their developers can prove that they will not cause any harm to individuals, groups, specific entities, cultural norms, or various existing laws, norms, or traditions. The other vision can be labeled ‘permissionless innovation.’ It refers to the notion that experimentation with new technologies and business models should generally be permitted by default. Unless a compelling case can be made that a new invention will bring serious harm to society, innovation should be allowed to continue unabated and problems, if any develop, can be addressed later.

So, by contrasting these passages, you can see what I am setting up here is a clash of visions between what appears to be Wallach’s precautionary principle-based approach versus my own permissionless innovation-focused worldview.

How Much Formal Precaution?

But that would be a tad bit too simplistic because just a few paragraphs after Wallach makes the statement just above about “upstream management” being superior to ex post solutions formulated “after a technology is deeply entrenched,” Wallach begins slowly backing away from an overly-rigid approach to precautionary principle-based governance of technological processes and systems.

He admits, for example, that “precautionary measures in the form of regulations and governmental oversight can slow the development of research whose overall society impact will be beneficial,” (p. 26) and that can “be costly” and “slow innovation.” For countries, Wallach admits, this can have real consequences because “Countries with more stringent precautionary policies are at a competitive disadvantage to being the first to introduce a new tool or process.” (p. 74)

So, he’s willing to admit that what we might call a hard precautionary principle usually won’t be sensible or effective in practice, but he is far more open to soft precaution. But this is where real problems begin to develop with Wallach’s approach, and it presents us with a chance to turn the tables on him a bit and begin posing some serious questions about his vision for governing technology.

Much of what follows below are my miscellaneous ramblings about the current state of the intellectual dialogue about tech ethics and technological control efforts. I have discussed these issues at greater length in my new book as well as a series of essays here in past years, most notably: “On the Line between Technology Ethics vs. Technology Policy; “What Does It Mean to “Have a Conversation” about a New Technology?”; and, “Making Sure the “Trolley Problem” Doesn’t Derail Life-Saving Innovation.”

As I’ve argued in those and other essays, my biggest problem with modern technological criticism is that specifics are in scandalously short supply in this field! Indeed, I often find the lack of details in this arena to be utterly exasperating. Most modern technological criticism follows a simple formula:

TECHNOLOGY –>> POTENTIAL PROBLEMS –>> DO SOMETHING!

But almost all the details come in the discussion about the nature of the technology in question and the apparent many problems associated with it. Far, far less thought goes into the “DO SOMETHING!” part of the critics’ work. One reason for that is probably self-evident: There are no easy solutions. Wallach admits as much at many junctures throughout the book. But that doesn’t excuse the need for the critics to give us a more concrete blueprint for identifying and then potentially rectifying the supposed problems.

Of course, the other reason that many critics are short of specifics is because what they really mean when they quip how much we need to “have a conversation” about a new disruptive technology is that we need to have a conversation about stopping that technology.

Where Shall We Draw the Line between Hard and Soft Law?

But this is what I found most peculiar about Wallach’s book: He never really gives us a good standard by which to determine when we should look to hard governance (traditional top-down regulation) versus soft governance (more informal, bottom-up and non-regulatory approaches).

On one hand, he very much wants society to exercise greatly restraint and precaution when it comes to many of the technologies he and others worry about today. Again, he’s particularly concerned about the potential runaway development and use of drones, genetic editing, nanotech, robotics, and artificial intelligence. For at least one class of robotics—autonomous military robots—Wallach does call for immediate policy action in the form of an Executive Order to ban “killer” autonomous systems. (Incidentally, there’s also a major effort underway called the “Campaign to Stop Killer Robots” that aims to make such a ban part of international law through a multinational treaty.)

But Wallach also acknowledges the many trade-offs associated with efforts to preemptively controls on robotics and other technology. Perhaps for that reason, Wallach doesn’t develop a clear test for when the Precautionary Principle should be applied to new forms of innovation.

Clearly there are times when it is appropriate, although I believe it is only in an extremely narrow subset of cases. In the 2 nd Edition of my Permissionless Innovation book, I tried to offer a rough framework for when formal precautionary regulation (i.e., highly-restrictive policy defaults are necessary, such as operational restrictions, licensing requirements, research limitations, or even formal bans) might be necessary. I do not want to interrupt the flow of this review of Wallach’s book too much, so I have decided to just cut-and-paste that portion of Chapter 3 of my book (“When Does Precaution Make Sense?”) down below as an appendix to this essay.

The key takeaway of that passage from my book is that all of us who study innovation policy and the philosophy of technology—Wallach, myself, the whole darn movement—have done a remarkably poor job being specific about precisely when formal policy precaution is warranted. What is the test? All too often, we get lazy and apply what we might call an “I-Know-It-When-I-See-It” standard. Consider the possession of bazookas, tanks, and uranium. Almost all of us would agree that citizens should not be allowed to possess or use such things. Why? Well, it seems obvious, right? They just shouldn’t! But what is the exact standard we use to make that determination.

In coming years, I plan on spending a lot more time articulating a better test by which Precautionary Principle-based policies could be reasonably applied. Those who know me may be taken aback by what I just said. After all, I’ve spend many years explaining why Precautionary Principle-based thinking threatens human prosperity and should be rejected in the vast majority of cases. But that doesn’t excuse the lack of a serious and detailed exploration of the exact standard by which we determine when we should impose some limits on technological innovation.

Generally speaking, while I strongly believe that “permissionless innovation” should remain the policy default for most technologies, there certainly exists some scenarios where the threat of harm associated with a new innovation might be highly probable, tangible, immediate, irreversible, and catastrophic in nature. If so, that could qualify it for at least a light version of the Precautionary Principle. In a future paper or book chapter I’m just now starting to research, I hope to fuller develop those qualifiers and formulate a more robust test around them.

I would have very much liked to see Wallach articulate and defend a test of his own for when formal precaution would make sense. And, by extension, when should we default to soft precaution, or soft law and informal governance mechanisms for emerging technologies.

We turn to that issue next.

Toward Soft Governance & the Engineering of Better Technological Ethics

Even though Wallach doesn’t provide us with a test for determining when precaution makes sense or when we should instead default to soft governance, he does a much better job explaining the various models of soft law or informal governance that might help us deal with the potential negative ramifications of highly disruptive forms of technological change.

What Wallach proposes, in essence, is that we bake a dose of precautionary directly into the innovation process through a wide variety of informal governance/oversight mechanisms. “By embedding shared values in the very design of new tools and techniques, engineers improve the prospect of a positive outcome,” he claims. “The upstream embedding of shared values during the design process can ease the need for major course adjustments when it’s often too late.” (p. 261)

Wallach’s favored instrument of soft governance is what he refers to as “Governance Coordinating Committees” (GCCs). These Committees would coordinate “the separate initiatives by the various government agencies, advocacy groups, and representatives of industry” who would serve as “issue managers for the comprehensive oversight of each field of research.” (p. 250) He elaborates and details the function of GCCs as follows:

These committees, led by accomplished elders who have already achieved wide respect, are meant to work together with all the interested stakeholders to monitor technological development and formulate solutions to perceived problems. Rather than overlap with or function as a regulatory body, the committee would work together with existing institutions. (p. 250-51)

Wallach discussed the GCC idea in much greater detail in a 2013 book chapter he penned with Gary E. Marchant for a collected volume of essays on Innovative Governance Models for Emerging Technologies. (I highly recommend you pick up that book if you can afford it! Many terrific essays in that book on these issues.) In their chapter, Marchant and Wallach specify some of the soft law mechanisms we might use to instill a bit of precaution preemptively. These mechanisms include: “codes of conduct, statements of principles, partnership programs, voluntary programs and standards, certification programs and private industry initiatives.”

If done properly, GCCs could provide exactly the sort of wise counsel and smart recommendations that Wallach desires. In my book and many law review articles on various disruptive technologies, I have endorsed many of the ideas and strategies Wallach identifies. I’ve also stressed the importance of many other mechanisms, such as education and empowerment-based strategies that could help the public learn to cope with new innovations or use them appropriately. In addition, I’ve highlighted the many flexible, adaptive ex post remedies that can help when things go wrong. Those mechanisms include common law remedies such as product defects law, various torts, contract law, property law, and even class action lawsuits. Finally, I have written extensively about the very active role played by the Federal Trade Commission (FTC) and other consumer protection agencies, which have broad discretion to police “unfair and deceptive practices” by innovators.

Moreover, we already have a quasi-GCC model developing today with the so-called “multistakeholder governance” model that is often used in both informal and formal ways to handle many emerging technology policy issues.  The Department of Commerce (the National Telecommunications and Information Administration in particular) and the FTC have already developed many industry codes of conduct and best practices for technologies such as biometrics, big data, the Internet of Things, online advertising, and much more. Those agencies and others (such as the FDA and FAA) are continuing to investigate other codes or guidelines for things like advanced medical devices and drones, respectively. Meanwhile, I’ve heard other policymakers and academics float the idea of “digital ombudsmen,” “data ethicists,” and “private IRBs” (institutional review boards) as other potential soft law solutions that technology companies might consider. Perhaps going forward, many tech firms will have Chief Ethical Officers just as many of them today have Chief Privacy Officers or Chief Security Officers.

In other words, there’s already a lot of “soft law” activities going on in this space. And I haven’t even begun an inventory of the many other bodies or groups that already exist in each sector today that has set forth their own industry self-regulatory codes, but they exist in almost every field that Wallach worries about.

So, I’m not sure how much his GCC idea will add to this existing mix, but I would not be opposed to them playing the sort of coordinating “issue manager” role he describes. But I still have many questions about GCC’s, including:

  • How many of them are needed and how we will know which one is the definitive GCC for each sector or technology?
  • If they are overly formal in character and dominated by the most vociferous opponents of any particular technology, a real danger exists that a GCC could end up granting a small cabal a “heckler’s veto” over particular forms of innovation.
  • Alternatively, the possibility of “regulatory capture” could be a problem for some GCCs if incumbent companies come to dominate their membership.
  • Even if everything went fairly smoothly and the GCCs produced balanced reports and recommendations, future developers might wonder if and why they are to be bound by older guidelines.
  • And if those future developers choose not to play by the same set of guidelines, what’s the penalty for non-compliance?
  • And how are such guidelines enforced in a world where what I’ve called “global innovation arbitrage” is an increasing reality?

Challenging Questions for Both Hard and Soft Law

To summarize, whether we are speaking of “hard” or “soft” law approaches to technological governance, I am just not nearly as optimistic as Wallach seems to be that we will be able to find consensus on these three things:

(1) what constitutes “harm” in many of these circumstances;

(2) which “shared values” should prevail when “society” debates the shaping of ethics or guiding norms for emerging technologies but has highly contradictory opinions about those values (consider online privacy as a good example, where many people enjoy hyper-sharing while other demand hyper-privacy); and,

(3) that we can create a legitimate “governing body” (or bodies) that will be responsible for formulating these guidelines in a fair way without completely derailing the benefits of innovation in new fields and also remaining relevant for very long.

Nonetheless, as he and others have suggested, the benefit of adopting a soft law/informal governance approach to these issues is that it at least seeks to address these questions in more flexible and adaptive fashion. As I noted in my book, traditional regulatory systems “tend to be overly rigid, bureaucratic, inflexible, and slow to adapt to new realities. They focus on preemptive remedies that aim to predict the future, and future hypothetical problems that may not ever come about. Worse yet, administrative regulation generally preempts or prohibits the beneficial experiments that yield new and better ways of doing things.” ( Permissionless Innovation, p. 120)

So, despite the questions I have raised here, I welcome the more flexible soft law approach that Wallach sets forth in his book. I think it represents a far more constructive way forward when compared to the opposite “top-down” or “command-and-control” regulatory systems of the past. But I very much want to make sure that even these new and more flexible soft law approaches leave plenty of breathing room for ongoing trial-and-error experimentation with new technologies and systems.

Conclusion

In closing, I want to reiterate that not only did I appreciate the excellent questions raised by Wendell Wallach in A Dangerous Master, but I take them very seriously. When I sat down to revise and expand my Permissionless Innovation book last year, I decided to include this warning from Wallach in my revised preface: “The promoters of new technologies need to speak directly to the disquiet over the trajectory of emerging fields of research. They should not ignore, avoid, or superficially dampen criticism to protect scientific research.” (p. 28–9)

As I noted, in response to Wallach: “I take this charge seriously, as should others who herald the benefits of permissionless innovation as the optimal default for technology policy. We must be willing to take on the hard questions raised by critics and then also offer constructive strategies for dealing with a world of turbulent technological change.”

Serious questions deserve serious answers. Of course, sometimes those posing those questions fail to provide many answers of their own! Perhaps it is because they believe the questions answer themselves. Other times, it’s because they are willing to admit that easy answers to these questions typically prove quite elusive. In Wallach’s case, I believe it’s more the latter.

To wrap up, I’ll just reiterated that both Wallach and I share a common desire to find solutions to the hard questions about technological innovation. But the crucial question that probably separates his worldview and my own is this: Whether we are talking about hard or soft governance, how much faith should we place in preemptive planning vs. ongoing trial and error experimentation to solve technological challenges? Wallach is more inclined to believe we can divine these things with the sagacious foresight of “accomplished elders” and technocratic “issue managers,” who will help us slow things down until we figure out how to properly ease a new technology into society (if at all). But I believe that the only way we will find many of the answers we are searching for is by allowing still more experimentation with the very technologies that he and others seek to control the development of. We humans are outstanding problem-solvers and have the uncanny ability among all mammals to adapt to changing circumstances. We roll with the punches, learn from them, and become more resilient in the process. As I noted in my 2014 essay, “Muddling Through: How We Learn to Cope with Technological Change”:

we modern pragmatic optimists must continuously point to the unappreciated but unambiguous benefits of technological innovation and dynamic change. But we should also continue to remind the skeptics of the amazing adaptability of the human species in the face of adversity. [. . .] Humans have consistently responded to technological change in creative, and sometimes completely unexpected ways. There’s no reason to think we can’t get through modern technological disruptions using similar coping and adaptation strategies.

Will the technologies that Wallach fears bring about a “techstorm” that overwhelms our culture, our economy, and even our very humanity? It’s certainly possible, and we should continue to seriously discuss the issues that he and other skeptics raise about our expanding technological capabilities and the potential for many of them to do great harm. Because some of them truly could.

But it is equally plausible—in fact, some of us would say, highly probable—that instead of overwhelming us, we learn how to bend these new technological capabilities to our will and make them work for our collective benefit. Instead of technology becoming “a dangerous master,” we will instead make it our helpful servant, just as we have so many times before.

APPENDIX: When Does Precaution Make Sense?

[excerpt from chapter 3 of Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom. Footnotes omitted. See book for all references.]

But aren’t there times when a certain degree of precautionary policymaking makes good sense? Indeed, there are, and it is important to not dismiss every argument in favor of precautionary principle–based policymaking, even though it should not be the default policy rule in debates over technological innovation.

The challenge of determining when precautionary policies make sense comes down to weighing the (often limited) evidence about any given technology and its impact and then deciding whether the potential downsides of unrestricted use are so potentially catastrophic that trial-and-error experimentation simply cannot be allowed to continue. There certainly are some circumstances when such a precautionary rule might make sense. Governments restrict the possession of uranium and bazookas, to name just two obvious examples.

Generally speaking, permissionless innovation should remain the norm in the vast majority of cases, but there will be some scenarios where the threat of tangible, immediate, irreversible, catastrophic harm associated with new innovations could require at least a light version of the precautionary principle to be applied.  In these cases, we might be better suited to think about when an “anti-catastrophe principle” is needed, which narrows the scope of the precautionary principle and focuses it more appropriately on the most unambiguously worst-case scenarios that meet those criteria.

Precaution might make sense when harm is … Precaution generally doesn’t make sense for asserted harms that are …
Highly probable Highly improbable
Tangible (physical) Intangible (psychic)
Immediate Distant / unclear timeline
Irreversible Reversible / changeable
Catastrophic Mundane / trivial

 

But most cases don’t fall into this category. Instead, we generally allow innovators and consumers to freely experiment with technologies, and even engage in risky behaviors, unless a compelling case can be made that precautionary regulation is absolutely necessary.  How is the determination made regarding when precaution makes sense? This is where the role of benefit-cost analysis (BCA) and regulatory impact analysis is essential to getting policy right.  BCA represents an effort to formally identify the tradeoffs associated with regulatory proposals and, to the maximum extent feasible, quantify those benefits and costs.  BCA generally cautions against preemptive, precautionary regulation unless all other options have been exhausted—thus allowing trial-and-error experimentation and “learning by doing” to continue. (The mechanics of BCA are discussed in more detail in section VII.)

This is not the end of the evaluation, however. Policymakers also need to consider the complexities associated with traditional regulatory remedies in a world where technological control is increasingly challenging and quite costly. It is not feasible to throw unlimited resources at every problem, because society’s resources are finite.  We must balance risk probabilities and carefully weigh the likelihood that any given intervention has a chance of creating positive change in a cost-effective fashion.  And it is also essential to take into account the potential unintended consequences and long-term costs of any given solution because, as Harvard law professor Cass Sunstein notes, “it makes no sense to take steps to avert catastrophe if those very steps would create catastrophic risks of their own.”  “The precautionary principle rests upon an illusion that actions have no consequences beyond their intended ends,” observes Frank B. Cross of the University of Texas. But “there is no such thing as a risk-free lunch. Efforts to eliminate any given risk will create some new risks,” he says.

Oftentimes, after working through all these considerations about whether to regulate new technologies or technological processes, the best solution will be to do nothing because, as noted throughout this book, we should never underestimate the amazing ingenuity and resiliency of humans to find creative solutions to the problems posed by technological change.  (Section V discusses the importance of individual and social adaptation and resiliency in greater detail.) Other times we might find that, while some solutions are needed to address the potential risks associated with new technologies, nonregulatory alternatives are also available and should be given a chance before top-down precautionary regulations are imposed. (Section VII considers those alternative solutions in more detail.)

Finally, it is again essential to reiterate that we are talking here about the dangers of precautionary thinking as a public policy prerogative—that is, precautionary regulations that are mandated and enforced by government officials. By contrast, precautionary steps may be far more wise when undertaken in a more decentralized manner by individuals, families, businesses, groups, and other organizations. In other words, as I have noted elsewhere in much longer articles on the topic, “there is a different choice architecture at work when risk is managed in a localized manner as opposed to a society-wide fashion,” and risk-mitigation strategies that might make a great deal of sense for individuals, households, or organizations, might not be nearly as effective if imposed on the entire population as a legal or regulatory directive.

Finally, at times, more morally significant issues may exist that demand an even more exhaustive exploration of the impact of technological change on humanity. Perhaps the most notable examples arise in the field of advance medical treatments and biotechnology. Genetic experimentation and human cloning, for example, raise profound questions about altering human nature or abilities as well as the relationship between generations.

The case for policy prudence in these matters is easier to make because we are quite literally talking about the future of what it means to be human.  Controversies have raged for decades over the question of when life begins and how it should end. But these debates will be greatly magnified and extended in coming years to include equally thorny philosophical questions.  Should parents be allowed to use advanced genetic technologies to select the specific attributes they desire in their children? Or should parents at least be able to take advantage of genetic screening and genome modification technologies that ensure their children won’t suffer from specific diseases or ailments once born?

Outside the realm of technologically enhanced procreation, profound questions are already being raised about the sort of technological enhancements adults might make to their own bodies. How much of the human body can be replaced with robotic or bionic technologies before we cease to be human and become cyborgs?  As another example, “biohacking”—efforts by average citizens working together to enhance various human capabilities, typically by experimenting on their own bodies —could become more prevalent in coming years.  Collaborative forums, such as Biohack.Me, already exist where individuals can share information and collaborate on various projects of this sort.  Advocates of such amateur biohacking sometimes refer to themselves as “grinders,” which Ben Popper of the Verge defines as “homebrew biohackers [who are] obsessed with the idea of human enhancement [and] who are looking for new ways to put machines into their bodies.”

These technologies and capabilities will raise thorny ethical and legal issues as they advance. Ethically, they will raise questions of what it means to be human and the limits of what people should be allowed to do to their own bodies. In the field of law, they will challenge existing health and safety regulations imposed by the FDA and other government bodies.

Again, most innovation policy debates—including most of the technologies discussed throughout this book—do not involve such morally weighty questions. In the abstract, of course, philosophers might argue that every debate about technological innovation has an impact on the future of humanity and “what it means to be human.” But few have much of a direct influence on that question, and even fewer involve the sort of potentially immediate, irreversible, or catastrophic outcomes that should concern policymakers.

In most cases, therefore, we should let trial-and-error experimentation continue because “experimentation is part and parcel of innovation” and the key to social learning and economic prosperity.  If we froze all forms of technological innovation in place while we sorted through every possible outcome, no progress would ever occur. “Experimentation matters,” notes Harvard Business School professor Stefan H. Thomke, “because it fuels the discovery and creation of knowledge and thereby leads to the development and improvement of products, processes, systems, and organizations.”

Of course, ongoing experimentation with new technologies always entails certain risks and potential downsides, but the central argument of this book is that (a) the upsides of technological innovation almost always outweigh those downsides and that (b) humans have proven remarkably resilient in the face of uncertain, ever-changing futures.

In sum, when it comes to managing or coping with the risks associated with technological change, flexibility and patience is essential. One size most certainly does not fit all. And one-size-fits-all approaches to regulating technological risk are particularly misguided when the benefits associated with technological change are so profound. Indeed, “[t]echnology is widely considered the main source of economic progress”; therefore, nothing could be more important for raising long-term living standards than creating a policy environment conducive to ongoing technological change and the freedom to innovate.

]]> https://techliberation.com/2016/04/20/wendell-wallach-on-the-challenge-of-engineering-better-technology-ethics/feed/ 0 76026 Will Europe’s ‘Right to Be Forgotten’ Become an Unprecedented Global Censorship Regime? https://techliberation.com/2014/11/26/will-europes-right-to-be-forgotten-become-an-unprecedented-global-censorship-regime/ https://techliberation.com/2014/11/26/will-europes-right-to-be-forgotten-become-an-unprecedented-global-censorship-regime/#comments Wed, 26 Nov 2014 17:10:16 +0000 http://techliberation.com/?p=74995

Yesterday, the Article 29 Data Protection Working Party issued a press release providing more detailed guidance on how it would like to see Europe’s so-called “right to be forgotten” implemented and extended. The most important takeaway from the document was that, as Reuters reported, “European privacy regulators want Internet search engines such as Google and Microsoft’s Bing to scrub results globally.” Moreover, as The Register reported, the press release made it clear that “Europe’s data protection watchdogs say there’s no need for Google to notify webmasters when it de-lists a page under the so-called “right to be forgotten” ruling.” (Here’s excellent additional coverage from Bloomberg: “Google.com Said to Face EU Right-to-Be-Forgotten Rules“). These actions make it clear that European privacy regulators hope to expand the horizons of the right to be forgotten in a very significant way.

The folks over at Marketplace radio asked me to spend a few minutes with them today discussing the downsides of this proposal. Here’s the quick summary of what I told them:

  • European privacy regulators are basically calling for an unprecedented global censorship regime that would impose their speech preferences and controls on the entire planet.
  • Europe has no right to tell the rest of the world how to structure their policies governing online freedom of speech, yet they are trying to strong-arm major American tech companies like Google to do so indirectly.
  • This is a grave threat to freedom of speech, freedom of expression, and Internet openness.
  • This move sends a horrible signal to oppressive regimes worldwide. It could lead to a race to the bottom with governments in other countries attempting to export their own speech preferences to the rest of the global. You can kiss global Internet freedom goodbye if that happens.
  • Relatedly, if European policymakers persist in these efforts, it could lead to future trade wars, even among friendly countries. Layers of speech controls like this could become formidable non-tariff barriers to trade and limit the growth of cross-border electronic commerce in the process.
  • This certainly doesn’t help competition. Ironically, this news comes during the same week that we have learned some European policymakers want to break up Google on antitrust grounds. But the more that European regulators push Google to enforce global speech controls like this, the more market power those policymakers give the company! Google is one of the few companies that might be able to hire enough lawyers and engineers to comply with such a regulatory regime. Few other tech companies – and certainly no small startups – could ever hope to comply with this ruling. In essence, it’s a new regulatory barrier to entry that diminishes digital entrepreneurialism.
  • Correspondingly, it’s another innovation-killer for Europe. If Europeans wonder why they fell so far behind in terms of Internet innovation over the past decade, they might consider looking at the wisdom of overly-restrictive data controls and speech regulations like this.
  • Privacy is certainly an important value, and more could be done to protect it. But what European regulators are proposing here is completely over the top. It is like trying to kill a fly with an elephant gun. There are more sensible ways to encourage privacy protection.
  • Instead of trying to export their speech controls and bully global innovators, European policymakers should just consider creating their own, government-funded search engines and then force their own citizens to use them. Let them try to create their own anti-free speech fortress and see how their citizens feel about living inside it.

Stay tuned, more to come on this front. In the meantime, here’s another response worth reading from of David Meyer of GigaOm.

]]> https://techliberation.com/2014/11/26/will-europes-right-to-be-forgotten-become-an-unprecedented-global-censorship-regime/feed/ 1 74995 New Law Review Article on “A Framework for Benefit-Cost Analysis in Digital Privacy Debates” https://techliberation.com/2013/08/24/new-law-review-article-on-a-framework-for-benefit-cost-analysis-in-digital-privacy-debates/ https://techliberation.com/2013/08/24/new-law-review-article-on-a-framework-for-benefit-cost-analysis-in-digital-privacy-debates/#comments Sat, 24 Aug 2013 21:34:07 +0000 http://techliberation.com/?p=45452

GMLR coverI’m pleased to announce the release of my latest law review article, “A Framework for Benefit-Cost Analysis in Digital Privacy Debates.” It appears in the new edition of the George Mason University Law Review. (Vol. 20, No. 4, Summer 2013)

This is the second of two complimentary law review articles I am releasing this year dealing with privacy policy. The first, “The Pursuit of Privacy in a World Where Information Control is Failing,” was published in Vol. 36 of the Harvard Journal of Law & Public Policy this Spring. (FYI: Both articles focus on privacy claims made against private actors — namely, efforts to limit private data collection — and not on privacy rights against governments.)

My new article on benefit-cost analysis in privacy debates makes a seemingly contradictory argument: benefit-cost analysis (“BCA”) is extremely challenging in online child safety and digital privacy debates, yet it remains essential that analysts and policymakers attempt to conduct such reviews. While we will never be able to perfectly determine either the benefits or costs of online safety or privacy controls, the very act of conducting a regulatory impact analysis (“RIA”) will help us to better understand the trade-offs associated with various regulatory proposals.

However, precisely because those benefits and costs remain so remarkably subjective and contentious, I argue that we should look to employ less-restrictive solutions — education and awareness efforts, empowerment tools, alternative enforcement mechanisms, etc. — before resorting to potentially costly and cumbersome legal and regulatory regimes that could disrupt the digital economy and the efficient provision of services that consumers desire. This model has worked fairly effectively in the online safety context and can be applied to digital privacy concerns as well.

The article is organized as follows. Part I examines the use of BCA by federal agencies to assess the utility of government regulations. Part II considers how BCA can be applied to online privacy regulation and the challenges federal officials face when determining the potential benefits of regulation. Part III then elaborates on the cost considerations and other trade-offs that regulators face when evaluating the impact of privacy-related regulations. Part IV discusses alternative measures that can be taken by government regulators when attempting to address online safety and privacy concerns. This article concludes that policymakers must consider BCA when proposing new rules but also recognize the utility of alternative remedies such as education and awareness campaigns, to address consumer concerns about online safety and privacy.

I’ve embedded the full article down below in a Scribd reader, but you can also download it from my SSRN page and my Mercatus author page.

A Framework for Benefit-Cost Analysis in Digital Privacy Debates by Adam Thierer

]]> https://techliberation.com/2013/08/24/new-law-review-article-on-a-framework-for-benefit-cost-analysis-in-digital-privacy-debates/feed/ 1 45452 Adam Thierer on cronyism https://techliberation.com/2013/07/09/adam-thierer-on-cronyism/ https://techliberation.com/2013/07/09/adam-thierer-on-cronyism/#comments Tue, 09 Jul 2013 10:00:37 +0000 http://techliberation.com/?p=45126

Adam Thierer, Senior Research Fellow at the Mercatus Center discusses his recent working paper with coauthor Brent Skorup, A History of Cronyism and Capture in the Information Technology Sector. Thierer takes a look at how cronyism has manifested itself in technology and media markets — whether it be in the form of regulatory favoritism or tax privileges. Which tech companies are the worst offenders? What are the consequences for consumers? And, how does cronyism affect entrepreneurship over the long term?

Download

Related Links

]]> https://techliberation.com/2013/07/09/adam-thierer-on-cronyism/feed/ 5 45126 New Law Review Article: “The Pursuit of Privacy” https://techliberation.com/2013/03/18/new-law-review-article-the-pursuit-of-privacy/ https://techliberation.com/2013/03/18/new-law-review-article-the-pursuit-of-privacy/#respond Mon, 18 Mar 2013 14:36:03 +0000 http://techliberation.com/?p=44129

HJLPP coverI’m excited to announce the release of my latest law review article, “The Pursuit of Privacy in a World Where Information Control is Failing,” which appears in the next edition (vol. 36) of the Harvard Journal of Law & Public Policy. This is the first of two complimentary law review articles that I will be releasing this year dealing with privacy policy. The second, which will be published later this summer by the George Mason University Law Review, is entitled, “A Framework for Benefit-Cost Analysis in Digital Privacy Debates.” (FYI: Both articles focus on privacy claims made against private actors — namely, efforts to limit private data collection — and not on privacy rights against governments.)

The new Harvard Journal article is divided into three major sections. Part I focuses on some of normative challenges we face when discussing privacy and argues that there may never be a widely accepted, coherent legal standard for privacy rights or harms here in the United States. It also explores the tensions between expanded privacy regulation and online free speech. Part II turns to the many enforcement challenges that are often ignored when privacy policies are being proposed or formulated and argues that legislative and regulatory efforts aimed at protecting privacy must now be seen as an increasingly intractable information control problem. Most of the problems policymakers and average individuals face when it comes to controlling the flow of private information online are similar to the challenges they face when trying to control the free flow of digitalized bits in other information policy contexts, such as online safety, cybersecurity, and digital copyright.

If the effectiveness of law and regulation is limited by the normative considerations discussed in Part I and the practical enforcement complications discussed in Part II, what alternatives remain to assist privacy-sensitive individuals? I address that question in Part III of the paper and argue that the approach America has adopted to deal with concerns about objectionable online speech and child safety offers a path forward on the privacy front as well. A so-called “3-E” solution that combines consumer education, user empowerment, and selective enforcement of existing targeted laws and other legal standards (torts, anti-fraud laws, contract law, and so on), has helped society achieve a reasonable balance in terms of addressing online safety while also safeguarding other important values, especially freedom of expression.  That does not mean perfect online safety exists, not only because the term means very different things to different people, but because it would be impossible to achieve in the first instance as a result of information control complications. But the “3-E” approach has the advantage of enhancing online safety without sweeping regulations being imposed that could undermine the many benefits information networks and online services offer individuals and society.  This same framework can guide online privacy decisions—both at the individual household level and the public policy level.

I’ve embedded the full article down below in a Scribd reader, but you can also download it from my SSRN page and it should be available on the HJLPP website shortly. [Update 4/16: It is now live on the site.] In coming weeks, I hope to do some blogging that builds on the themes and arguments I develop in this article.

The Pursuit of Privacy in a World Where Information Control is Failing

]]> https://techliberation.com/2013/03/18/new-law-review-article-the-pursuit-of-privacy/feed/ 0 44129 What “Big Bang Disruption” Says About Technology Policy https://techliberation.com/2013/02/18/what-big-bang-disruption-says-about-technology-policy/ https://techliberation.com/2013/02/18/what-big-bang-disruption-says-about-technology-policy/#comments Mon, 18 Feb 2013 06:06:38 +0000 http://techliberation.com/?p=43737

In the upcoming issue of Harvard Business Review, my colleague Paul Nunes at Accenture’s Institute for High Performance and I are publishing the first of many articles from an on-going research project on what we are calling “Big Bang Disruption.”

The project is looking at the emerging ecosystem for innovation based on disruptive technologies.  It expands on work we have done separately and now together over the last fifteen years.

Our chief finding is that the nature of innovation has changed dramatically, calling into question much of the conventional wisdom on business strategy and competition, especially in information-intensive industries–which is to say, these days, every industry.

The drivers of this new ecosystem are ever-cheaper, faster, and smaller computing devices, cloud-based virtualization, crowdsourced financing, collaborative development and marketing, and the proliferation of mobile everything.  There will soon be more smartphones sold than there are people in the world.  And before long, each of over one trillion items in commerce will be added to the network.

The result is that new innovations now enter the market cheaper, better, and more customizable than products and services they challenge.  (For example, smartphone-based navigation apps versus standalone GPS devices.)  In the strategy literature, such innovation would be characterized as thoroughly “undiscplined.”  It shouldn’t succeed.  But it does.

So when the disruptor arrives and takes off with a bang, often after a series of low-cost, failed experiments, incumbents have no time for a competitive response.  The old rules for dealing with disruptive technologies, most famously from the work of Harvard’s Clayton Christensen, have become counter-productive.   If incumbents haven’t learned to read the new tea leaves ahead of time, it’s game over.

The HBR article doesn’t go into much depth on the policy implications of this new innovation model, but the book we are now writing will.  The answer should be obvious.

This radical new model for product and service introduction underscores the robustness of market behaviors that quickly and efficiently correct many transient examples of dominance, especially in high-tech markets.

As a general rule (though obviously not one without exceptions), the big bang phenomenon further weakens the case for regulatory intervention.  Market dominance is sustainable for ever-shorter periods of time, with little opportunity for incumbents to exploit it.

Quickly and efficiently, a predictable next wave of technology will likely put a quick and definitive end to any “information empires” that have formed from the last generation of technologies.

Or, at the very least, do so more quickly and more cost-effectively than alternative solutions from regulation.  The law, to paraphrase Mark Twain, will still be putting its shoes on while the big bang disruptor has spread halfway around the world.

Unfortunately, much of the contemporary literature on competition policy from legal academics is woefully ignorant of even the conventional wisdom on strategy, not to mention the engineering realities of disruptive technologies already in the market.  Looking at markets solely through the lens of legal theory is, truly, an academic exercise, one with increasingly limited real-world applications.

Indeed, we can think of many examples where legacy regulation actually makes it harder for the incumbents to adapt as quickly as necessary in order to survive the explosive arrival of a big bang disruptor.  But that is a story for another day.

Much more to come.

Related links:

  1. “Creating a ‘Politics of Abundance’ to Match Technology Innovation,” Forbes.com.
  2. “Why Best Buy is Going out of Business…Gradually,” Forbes.com.
  3. “What Makes an Idea a Meme?“, Forbes.com
  4. “The Five Most Disruptive Technologies at CES 2013,” Forbes.com
]]> https://techliberation.com/2013/02/18/what-big-bang-disruption-says-about-technology-policy/feed/ 3 43737 The War on Vertical Integration in the Digital Economy [slideshow] https://techliberation.com/2012/11/18/the-war-on-vertical-integration-in-the-digital-economy-slideshow/ https://techliberation.com/2012/11/18/the-war-on-vertical-integration-in-the-digital-economy-slideshow/#respond Sun, 18 Nov 2012 17:26:40 +0000 http://techliberation.com/?p=42817

Here’s a presentation I delivered on “The War on Vertical Integration in the Digital Economy” at the latest meeting of the Southern Economic Association this weekend. It outlines concerns about vertical integration in the tech economy and specifically addresses regulatory proposals set forth by Tim Wu (arguing for a “separations principle” for the tech economy) & Jonathan Zittrain (arguing for “API neutrality” for social media and digital platforms). This presentation is based on two papers published by the Mercatus Center at George Mason University: “Uncreative Destruction: The Misguided War on Vertical Integration in the Information Economy” (with Brent Skorup) & “The Perils of Classifying Social Media Platforms as Public Utilities.”

]]> https://techliberation.com/2012/11/18/the-war-on-vertical-integration-in-the-digital-economy-slideshow/feed/ 0 42817 New Paper on Wu’s “Separations Principle” & the War on Vertical Integration in the Tech Economy https://techliberation.com/2012/10/16/new-paper-on-wus-separations-principle-the-war-on-vertical-integration-in-the-tech-economy/ https://techliberation.com/2012/10/16/new-paper-on-wus-separations-principle-the-war-on-vertical-integration-in-the-tech-economy/#respond Tue, 16 Oct 2012 20:29:53 +0000 http://techliberation.com/?p=42606

[UPDATE 4/30/13: This article was subsequently published in Volume 65, Issues 2 of the Federal Communications Law Journal in April 2013. The links below now point to the final FCLJ version.]

The Mercatus Center at George Mason University has just released a new paper by Brent Skorup and me entitled, “Uncreative Destruction: The War on Vertical Integration in the Information Economy.”  Brent, who is the research director for the Information Economy Project at the George Mason University School of Law, and I have been working on this paper since the Spring and we are looking forward to getting it published in a law review shortly. The paper focuses on Tim Wu’s “separations principle” for the digital economy, something I’ve spent some time critiquing here in the past. Here’s the introduction from the 44-page paper that Brent and I just released:

Are information sectors sufficiently different from other sectors of the economy such that more stringent antitrust standards should be applied to them preemptively? Columbia Law School professor Tim Wu responds in the affirmative in his book The Master Switch: The Rise and Fall of Information Empires. Having successfully pushed net-neutrality regulation into the policy spotlight, Wu has turned his attention to what he regards as excessive market concentration and threats to free speech throughout the entire information economy.To support his call for increased antitrust intervention, Wu explains his view of competition in the information economy—a view that deviates substantially from current mainstream antitrust theory. First, Wu contends that “information monopolies” are pervasive in the information economy. Wu’s “monopolists” include Facebook, Apple, Google, and even Twitter. In The Master Switch and essays like “In the Grip of the New Monopolists,” Wu argues that these so-called monopolies are increasing their market power and require more aggressive oversight and regulation.Second, Wu argues that traditional antitrust analysis is not sufficient for information systems because they carry speech. He claims, “Information industries… can never be properly understood as ‘normal’ industries,”and traditional forms of regulation, including antitrust enforcement, “are clearly inadequate for the regulation of information industries.”Wu believes that because information industries “traffic in forms of individual expression” and are “fundamental to democracy,” they should be subject to greater regulatory treatment.Third, in contrast to current competition law’s focus on horizontal relationships, Wu desires a reinvigorated regulatory enforcement that addresses “the corrupting effects of vertically integrated power” in the information sectors.He is particularly concerned about private threats to free speech arising from such vertical integration.The solution, he says, is preventing vertical mergers in the information economy and the mandatory divestiture of vertically integrated companies. To implement this, Wu proposes a Separations Principle for the information economy, which would segregate information providers into three buckets, which we have labeled information creators, information distributors, and hardware makers.This article outlines Wu’s separations proposal, explains why his fears regarding vertical relationships should be rejected by regulatory and antitrust policymakers, and illustrates the legal and practical problems his Separations Principle poses. Wu justifies his Separations Principle by citing monopolies and market power in the information economy. He also advocates using U.S. antitrust authorities to enforce his Principle. We argue that the antitrust harms he fears are not present, and we highlight scholarship on the accepted benefits of vertically integrated firms. We show that Wu’s remedies are policy preferences wrapped in the language of competition law. In fact, the information economy is largely competitive and does not warrant interventionist regulatory enforcement. Since much of American economic vitality flows from the information economy and technology, policymakers should reject a radical antitrust remedy like Wu’s preemptive Separations Principle.

The paper can be downloaded from the Mercatus website, SSRN, or Scribd.

]]> https://techliberation.com/2012/10/16/new-paper-on-wus-separations-principle-the-war-on-vertical-integration-in-the-tech-economy/feed/ 0 42606 The Best Paper on Antitrust that You Will Read This Year https://techliberation.com/2012/09/06/the-best-paper-on-antitrust-that-you-will-read-this-year/ https://techliberation.com/2012/09/06/the-best-paper-on-antitrust-that-you-will-read-this-year/#comments Thu, 06 Sep 2012 14:41:14 +0000 http://techliberation.com/?p=42216

Ronald Cass, Dean Emeritus of Boston University School of Law, has penned the best paper on antitrust regulation that you will read this year, especially if you’re interested in the relationship between antitrust and  information technology sectors.  His paper is entitled, “Antitrust for High-Tech and Low: Regulation, Innovation, and Risk,” and it makes two straightforward points:

  1. Antitrust enforcement has characteristics and risks similar to other forms of regulation.
  2. Antitrust authorities need to exercise special care in making enforcement decisions respecting conduct of individual dominant firms in high-technology industries.

Here are some highlights from the paper that build on those two points.

Antitrust Is Economic Regulation & Carries Many of the Same Risks

As I noted in my 2009 review of Gary Reback’s antitrust screed “Free the Market,” there are few things that frustrate me more than the myth that antitrust is somehow not a form of economic regulation.  I hear this tired old argument trotted out time and time again, even by many conservatives. It’s utter bunk. Cass makes that abundantly clear in his paper.  “Application of antitrust laws by government officials… has the same risks and problems associated with other forms of regulation, including other “fair play” regulations,” notes Cass. “It requires considerable information on how particular firms and particular markets work, on the effect of particular business practices, and on the costs and benefits of intervening to stop a particular practice as opposed to allowing market forces to limit its effects,” he says (p. 6-7).

Cass isn’t the only one who has made this point.  As James Miller notes in this Federalist Society video (starting around the 18-minute mark), antitrust is not just a form of regulation but it often takes the form of a industrial policy scheme, complete with all its failings. Rick Rule agrees, noting how antitrust is a specialized form of regulation. Cass also appeared at that event and, starting around the 36-minute mark, makes his case for antitrust as just another form of regulation. If you want to watch the entire panel discussion, I’ve embedded the video down below.

Information Technology Markets are Highly Dynamic; Antitrust Can Hurt High-Tech Innovation

The more important takeaway from Cass’s excellent paper is that, precisely because antitrust regulation is haunted by many of the same problems as traditional economic regulatory controls, it is particularly ill-suited for fast-paced, rapidly-evolving information technology markets. “The problem arises in part because, while the concerns over network effects are dynamic, the principal tools for antitrust analysis – especially respecting definition of the relevant market – are static,” Cass observes. “These tools almost inevitably orient enforcers’ decisions toward excessive concern with one part of what, rightly understood, is a much larger competitive picture, even though the composition of the larger picture is difficult to predict. (p. 3) “Rather than demonstrating special caution in venturing into this set of cases, however, antitrust enforcers seem anxious to engage the leading high-technology firms while markets are evolving at a rapid pace,” he notes. (p. 2) Such intervention is particularly unwise, Cass argues, because:

These are markets where it is particularly difficult to maintain dominance, where sustained leadership over some time frame most likely indicates strong efficiencies (strong consumer value), and where innovations that are not yet recognized as significant can offer the strongest constraints on dominant firm behavior and the most important challenges to crafting a meaningful remedy that does more than disadvantage an individual contestant in a changing world. (p. 35)

The real danger of excessive antitrust is how it can force innovators to take their eye off the ball and spend more time trying to please policymakers than the general public. Cass notes:

If successful firms trying to stay on top in industries that can change rapidly and unpredictably often become targets for antitrust scrutiny, rational calculations of innovation costs (investments that help firms succeed) will necessarily include the (discounted) cost of contesting antitrust challenges as well as the costs of directly pursuing innovation. Antitrust inquiries can exact extraordinarily high costs from target firms, both in direct expenditures and in distraction from core business operations. That is true even for inquiries that do not result in suits, as enterprises facing the possibility of a long, expensive lawsuit (and, if the suit is lost, a potentially expensive and disruptive remedy) obviously will respond by trying both to persuade enforcement authorities that their conduct has been lawful and to avoid conduct that will increase the prospect of an action being filed. (p. 10)

Cass identifies IBM’s 13-year long antitrust ordeal as “the paradigmatic case for ill-conceived antitrust enforcement” where all these problems where on display. During the 13-year case, the government collected more than 750 million documents and required IBM to retain 200 attorneys at one point. (Read CNet staff writer Rachel Konrad’s summary of the fiasco from back in 2000). The DOJ finally abandoned the case in 1982 after it became clear how markets had evolved around whatever earlier “dominance” IBM had in mainframe markets. Namely, the desktop PC and software revolution had passed IBM (and clueless antitrust regulators) right by. “In the end,” notes Cass, “the case stands for the proposition that government officials, even with the benefit of extensive investigation and expertise, are unlikely to appreciate the most important sources of competition to enterprises that dominate a particular market and are especially prone to ill-advised interventions based on theoretical objections to market structure.” (p. 16) Worse yet, he notes, was the impact on IBM’s ability to innovate:

More significant than the draw on IBM’s funds were two other byproducts of the antitrust litigation: the distraction of its executives from planning and executing functions necessary to IBM’s long-term business interests, and the active discouragement of decisions that would have benefited the business but might have triggered further antitrust action. (p. 15)

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 noted that 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.” IBM has recovered and is a very different company today, of course. Yet, it seems clear that the DOJ’s antitrust industrial policy scheming decimated the firm’s chances of keeping pace with others digital technology leaders during the 80s and even 90s.

Cass notes that this same thing played out for Microsoft following its antitrust ordeal as the firm was forced to become extra cautious about how it innovated with regulators always staring over their shoulder. Yet, “it is plain that the real competitive threat to the company came from innovations that lay outside the market as government officials saw it,” Cass notes, since few were talking about search and social networking in the late 90s as a serious threat to Microsoft’s hegemony.

Lessons: Appreciate Dynamism and Be Careful about Market Definition

Cass leaves us with several lessons from the history he recounts. I’ll just cite a few passages here, but generally his lessons can be boiled down to: (1) before intervening, appreciate just how dynamic these information technology markets can be; and, relatedly, (2) be very careful about how you define markets for purposes of antitrust analysis. He notes, for example:

  • With this in mind, the overarching caution to antitrust enforcers that emerges from the cases reviewed above is against presuming that the obvious, common-sense boundaries around a market… appropriately set the field of vision for antitrust enforcement (much less the artificially circumscribed market definitions that enforcers will urge when a case has been initiated). The market boundaries that so often are taken for granted frequently fail to capture the most important sources of competition. That is true even in markets as “old-line” and seemingly simple as the auto market, but it is even more likely to be true in high-technology industries where, almost by definition, new innovations will revise established assumptions about how things are done. The market definition problem reflects more than the fact that officials so frequently cannot see changes coming that will dramatically alter competitive conditions in an industry. Almost no one, even those most intimately engaged in the industry itself, is apt to make good predictions about which technologies will succeed or what the ultimate scope of a new technology will be. (p. 28-9)
  • The more trenchant flaw in antitrust enforcement is not officials’ failure to identify specific market changes or specific companies that will dramatically rise or fall in value. Rather, the larger problem is that it is exceedingly difficult for government officials to discern the critical factors that explain what actually makes a particular firm dominant, the factors that affect the durability of dominance, or the kinds of change in the market (either on the demand side or the supply side) that could dramatically erode that dominance. (p. 28)
  • Despite the networks they have established, each of these businesses also is notable for the relative ease with which consumers can switch from one provider (or one technology) to another – allowing consumers to substitute one product or service for another or, in many cases, to add additional products or services from multiple providers at minimal or zero cost. (p. 31)

These lessons and themes have motivated all my thinking about how information technology policy should be formulated and the (very limited) role that antitrust regulation should play. Just about every other installment of my weekly Forbes column has dealt with such issues, including most notably these essays:

Anyway, please make sure to read the entire Cass paper. It’s a keeper. I know I will be citing it in virtually everything I write on the topic in coming months and years. In a follow-up post, I will offer a list of other important papers on antitrust and high-tech markets that you want to have on your reading list.

 

]]> https://techliberation.com/2012/09/06/the-best-paper-on-antitrust-that-you-will-read-this-year/feed/ 1 42216 What Google Fiber Says about Tech Policy: Fiber Rings Fit Deregulatory Hands https://techliberation.com/2012/08/07/what-google-fiber-says-about-tech-policy-fiber-rings-fit-deregulatory-hands/ https://techliberation.com/2012/08/07/what-google-fiber-says-about-tech-policy-fiber-rings-fit-deregulatory-hands/#comments Tue, 07 Aug 2012 20:45:16 +0000 http://techliberation.com/?p=41956

Google’s first lesson for building affordable, one Gbps fiber networks with private capital is crystal clear: If government wants private companies to build ultra high-speed networks, it should start by waiving regulations, fees, and bureaucracy.

Executive Summary

For three years now the Obama Administration and the Federal Communications Commission (FCC) have been pushing for national broadband connectivity as a way to strengthen our economy, spur innovation, and create new jobs across the country. They know that America requires more private investment to achieve their vision. But, despite their good intentions, their policies haven’t encouraged substantial private investment in communications infrastructure. That’s why the launch of Google Fiber is so critical to policymakers who are seeking to promote investment in next generation networks.

The Google Fiber deployment offers policymakers a rare opportunity to examine policies that successfully spurred new investment in America’s broadband infrastructure. Google’s intent was to “learn how to bring faster and better broadband access to more people.” Over the two years it planned, developed, and built its ultra high-speed fiber network, Google learned a number of valuable lessons for broadband deployment – lessons that policymakers can apply across America to meet our national broadband goals.

To my surprise, however, the policy response to the Google Fiber launch has been tepid. After reviewing Google’s deployment plans, I expected to hear the usual chorus of Rage Against the ISP from Public Knowledge, Free Press, and others from the left-of-center, so-called “public interest” community (PIC) who seek regulation of the Internet as a public utility. Instead, they responded to the launch with deafening silence.

Maybe they were stunned into silence. Google’s deployment is a  real-world rejection of the public interest community’s regulatory agenda more powerful than any hypothetical. Google is building fiber in Kansas City because its officials were willing to waive regulatory barriers to entry that have discouraged broadband deployments in other cities. Google’s first lesson for building affordable, one Gbps fiber networks with private capital is crystal clear: If government wants private companies to build ultra high-speed networks, it should start by waiving regulations, fees, and bureaucracy .

That’s the policy template that worked for the residents of Kansas City. It could work for the rest of America too, but only if all broadband providers receive the same treatment. When private companies compete on a level playing field, consumers always win. When government regulations mandate a particular business model or favor a particular competitor, bureaucracy is the only winner – everyone else loses.

Maybe the silence of PIC advocates indicates they’ve had a change of heart. Although PIC has violently opposed the efforts of other broadband providers to eliminate similar regulatory barriers in the past, perhaps the success of Google Fiber has persuaded them that deregulatory policies fairly applied to all competitors are essential to meeting our nation’s shared goal of national broadband connectivity.

Google’s deployment certainly indicates the PIC would benefit from a change in their approach to policy.  The Google Fiber business model contradicts virtually every element of the PIC’s current regulatory agenda .

  • PIC says restrictive regulations don’t discourage new investment. Google says it passed over proposals by cities in California due to restrictive regulations.
  • PIC says the government should limit the delivery of “specialized” IP-based video services by network operators. Google says specialized video services support fiber deployment.
  • PIC says that the provision of subsidized devices by network operators harms innovation and term contracts harm consumers. Google says bundling its own, vertically integrated computing devices with its fiber network services in exchange for a two-year contract commitment is part of the “Full Google Experience.”
  • PIC says the “open access” model is “easy” and viable even in competitive markets. Google says it abandoned its commitment to open access because it doesn’t think anyone else can deliver service as well as it can.
  • PIC says the “end-to-end” regulatory model, which severs all business relationships between “core” network infrastructure and “edge” elements of the network, promotes innovation and investment. Google says we should explore alternatives to the “end-to-end” model, including vertical integration among network operators and edge providers.

Every level of our government could benefit from a change in its policy approach as well. If we are serious about achieving affordable, ultra high-speed broadband connectivity for every American, we must question the traditional assumptions underlying our legacy regulatory approach.  Google Fiber demonstrates that the problem isn’t deregulation, a lack of competition, or an unwillingness to invest in American infrastructure. It’s the imposition of burdensome bureaucracy, unnecessary costs, and political favoritism at all levels of government . Eliminating these regulatory barriers would drive investment in America’s infrastructure, spur innovation, create jobs, and grow the economy while helping to meet President Obama’s goal of connecting every American to broadband. Google has shown the way. Is government willing to let other competitors in the marketplace follow the same path?

Introduction

The story begins two years ago, when Google announced its plans to build experimental, ultra high-speed broadband networks and operate them on an “open access” basis. Over 1,100 communities asked Google to build a network in their area, including several “desperate cities” willing to change their names and even swim with sharks. Google ultimately chose Kansas City as its broadband mecca.

So far, people in this prosperous city on the plains are embracing Google Fiber with enthusiasm. A little over a week after Google offered designated areas an opportunity to request service, 46 neighborhoods had qualified. Analysts estimate Google has already achieved approximately 4 percent market penetration. Google’s bet on an all-IP, fiber network appears poised for early success in Kansas City, which is something every tech geek should be pleased to see.

Like most new enterprises, it’s unclear whether Google Fiber will enjoy financial success in the long term. Many analysts are skeptical that Google’s business model can be replicated on a larger scale. Others believe it will deliver a “knock-out punch” to existing cable and telecom operators. Though I have my doubts, I’m content to let the market determine Google Fiber’s financial fate.

I’m more intrigued by the public policy implications of the Google Fiber business plan. Am I the only one who is baffled by the unusual response to Google’s announcement? After reviewing Google Fiber’s terms of service, I expected to hear the usual chorus of Rage Against the ISP from Public Knowledge, Free Press, and other PIC advocates who believe the Internet should be a public utility. I also expected the technology press would be critical of several elements of Google’s service. I was surprised on both counts.

Many in the tech press are offering gushing praise for Google’s new service. BGR says Google Fiber is a “ridiculously awesome value” for “lucky” Kansas City residents. CNET suggests that the Google Fiber business model offers the “rest of the broadband industry” a template for successful deployment of one Gbps networks: “Google is showing the cable companies and telecommunications providers how a broadband network should be built.”

The notion that other ISPs should mimic Google Fiber may explain why PIC advocates have been so deafeningly silent on the Kansas City deployment. The PIC narrative says that “the evil folks at cable companies and telecoms” are sabotaging fiber deployment in order to maintain their legacy businesses. Google doesn’t have a legacy network business, and its informal corporate motto is “don’t be evil.” So, according to the PIC narrative, Google’s business model shouldn’t look anything like those implemented by existing ISPs.

It turns out that Google’s business model validates a host of existing industry practices that PIC advocates seek to outlaw or regulate, and demonstrates that existing regulations are the biggest factor inhibiting the deployment of all-IP fiber networks by other service providers. Ironically, to the extent Google’s business model does differ significantly from those typical of other ISPs, it relies on an industry structure – vertical integration – PIC advocates vociferously oppose. As the following analysis of the “lessons learned” from Google Fiber demonstrates in detail, Google’s model contradicts virtually every element of the PIC regulatory agenda.

First Lesson Learned: Deregulation promotes private investment

The first lesson Google learned from its fiber project:  If government wants private companies to build ultra high-speed networks, it should start by waiving regulations, fees, and bureaucracy.

It’s no accident that Google chose to deploy its broadband network in a city subject to deregulatory statewide video franchising laws (in Kansas and Missouri). (Federal law prohibits the provision of video programming services without a “franchise”.)

Franchises were historically granted by local county or municipal governments who gave virtual monopolies to cable providers in exchange for “universal service” commitments (i.e., commitments to build the cable network to every neighborhood irrespective of cost or demand). Although federal law has prohibited monopoly video franchises since 1992, when potential new entrants asked permission to build competitive cable networks, local franchising authorities often stonewalled their applications or demanded unreasonable concessions. When new entrants challenged the legality of these tactics, PIC advocates derided the potential competitors for attempting to enter the market.

In 2006, the FCC adopted an order prohibiting local franchising authorities from unreasonably refusing to award competitive franchises for video service. The FCC found that many local franchising regulations were “unreasonable barriers to entry” in the video market and were “discourage[ing] investment in the fiber-based infrastructure necessary for the provision of advanced broadband services.” The unreasonable regulations included excessive build-out mandates, the inclusion of non-video revenue in franchise “fees” (including advertising fees), and demands unrelated to the provision of video service. The FCC has since reported that 20 states have enacted statewide video franchising laws to streamline the delivery of video service.

PIC advocates opposed this deregulatory decision when it was made and continue to oppose it. When the FCC announced its decision, Harold Feld, then Senior Vice President of the Media Access Project, said preempting local franchise regulation would “deprive the public of the best way to guarantee that cable providers and competitors meet the needs of their local communities.” When states began implementing the decision through statewide franchising laws, Sascha Meinrath, Director of the New America Foundation’s Open Technology Institute, attacked such legislation for providing build-out waivers even when developments are “inaccessible using reasonable technical solutions.” Despite evidence of significant competitive entry in the video market since the FCC preempted unreasonable local franchising regulations, many PIC advocates still believe deregulation has had no positive impact.

This brief history of video franchising isn’t merely academic. Absent deregulation of local franchising in Kansas City, Google Fiber’s business model wouldn’t have been possible. When Time Warner Cable became the principal video service provider in the Kansas City market decades ago, its franchise required that it build its network to virtually every neighborhood, including areas that pose geographic challenges and neighborhoods where residents are less likely to subscribe. A monopolist can fund (i.e., cross-subsidize) uneconomic construction by raising prices in other neighborhoods. In a competitive market, however, cross-subsidization mandates typically inhibit entry. For example, New York City delayed Verizon’s FiOS deployment for nearly a year while the city negotiated a requirement that Verizon build its network in all five boroughs of the city.

In Kansas City, Google doesn’t have a build-out requirement. It will offer service only to neighborhoods that demonstrate their potential to cover the costs of construction. Google divided Kansas City into a number of small neighborhoods and then cherry picked the areas where it would be willing to offer service. It then set preregistration goals for these neighborhoods based on their size, density, and ease of construction. Eligible neighborhoods have six weeks to meet their preregistration goals. If they don’t, Google won’t construct its network in that area. In neighborhoods that are more expensive to build,Google says it wants to make sure that enough residents want its service before committing capital to network construction. There is “no need to dispatch crews and rip up asphalt in pursuit of a handful of potential customers when Google can laser in on the most eager concentrations of subscribers.”

Although it wasn’t required to obtain a municipal franchise, Google received stunning regulatory concessions and incentives from local governments, including free access to virtually everything the city owns or controls: rights of way, central office space, power, interconnections with anchor institutions, marketing and direct mail, and office space for Google employees. City officials also expedited the permitting process and assigned staff specifically to help Google. One county even offered to allow Google to hang its wires on parts of utility poles – for free – that are usually off-limits to communications companies.

The key element for Google was that Kansas City officials promised to stay out of the way. When Google’s vice president of access services, Milo Medin, was asked why Google chose Kansas City for its fiber deployment, he said, “We wanted to find a location where we could build quickly and efficiently.” In his testimony before Congress last year, Medin emphasized that “regulations – at the federal, state, and local levels – can be central factors in company decisions on investment and innovation.” Based on his experience with Google Fiber, he concluded that government regulation “often results in unreasonable fees, anti-investment terms and conditions, and long and unpredictable build-out timeframes” that “increase the cost and slow the pace of broadband network investment and deployment.”

Second Lesson Learned: Specialized Video Services Support Fiber Deployment

The second lesson Google learned from its fiber project:  Specialized video services help support the costs of fiber deployment.

In its order preempting unreasonable local franchise regulations, the FCC found that broadband deployment and video entry are “inextricably linked,” because broadband providers require the revenue from video services to offset the costs of fiber deployment. The FCC affirmed this finding in its 2010 net neutrality order, which exempted “specialized services”, including Internet Protocol-based video offerings, from net neutrality regulations. The FCC recognized that specialized video services “may drive additional private investment in broadband networks and provide end users valued services” that support the open Internet.

The Google Fiber business model indicates the FCC was right – specialized video services do help support the costs of fiber deployment. When it initially announced its fiber project, Google did not intend to offer specialized video services at all. Little more than a year ago, Google remained focused only on Internet connectivity and still had no plans to provide video services; though it said it wanted to “hear from Kansas City residents what additional services they would find most valuable.” By the time it launched the project, Google had decided to center its highest subscription rate on a new, specialized video service (Google Fiber TV) that Google says is “designed for how you watch today and how you’ll watch tomorrow.” It appears that, after listening to Kansas City residents, Google learned that many consumers want their ISP to offer specialized video services.

PIC advocates generally oppose any form of specialized service based on IP, especially video services. Less than a week after Google launched its own, IP-based video service, Public Knowledge filed a petition at the FCC arguing that Comcast’s specialized Xfinity video service is discriminatory and illegal. Although the petition is based on conditions imposed on the Comcast/NBC-Universal merger, Public Knowledge says the service may violate the FCC’s net neutrality rules as well.

Third Lesson Learned: Equipment Subsidies Offer Benefits to Consumers

The third lesson Google learned from its fiber project:  Equipment subsidies coupled with term contracts offer benefits to consumers.

The Google Fiber business model also embraces the standard communications industry practice of offering consumers subsidized equipment in exchange for term contracts. Consumers who opt for “The Full Google Experience” will get four devices, including a set-top box, a network box, a storage box, and a new tablet for use as a “remote control”, subject to a two-year contract.

Bundling branded set-top boxes and other devices is standard practice in the video industry, but Google’s approach is new in at least one respect: The tablet is a Google Nexus 7 running Google’s Android OS, a powerful computing device that is capable of far more than controlling a television set. Google is also offering the option of buying a “Chromebook” laptop for as little as $299 – slightly less than the amount of the “construction fee” Google is waiving for premium customers. By bundling its own, vertically integrated computing devices with its premium service, Google can leverage its fiber network to gain market share from the makers of other devices, software, and operating systems, including Apple and Microsoft.

Though I think it’s a savvy move that could have a long-lasting impact on the communications marketplace, I’m surprised that the PIC has said nothing about this new wrinkle on device bundling. On March 30, 2012, Public Knowledge released a paper asserting that subsidized video devices harm innovation. The paper says innovation suffers because it’s easier to attach devices provided by the video service provider, and most consumers “just find it simpler to settle for whatever device their cable company offers.” It also contends that the subsidized device model is unusual, and notes “no one rents their computer from their ISP.” I suppose that’s still true. Google isn’t renting the Nexus 7 – it’s giving it away (and subsidizing the Chromebook by waiving the construction fee).

Fourth Lesson Learned: Open Access Isn’t Viable in Competitive Markets

The fourth lesson Google learned from its fiber project:  Open access isn’t a viable business model in competitive markets.

When Google originally announced its intention to build its fiber network and operate it on an “open access” basis, Susan Crawford said we would “learn how easy it is” to allow competitive access to fiber networks and how little such networks cost. What we actually learned from Google Fiber is that “open access” isn’t a viable business model in a competitive market. Once Google analyzed how fiber networks are financed, built, and operated, it abandoned its earlier commitment to open access and decided not to allow other ISPs on its network. According to Google Fiber project manager Kevin Lo, “We don’t think anybody else can deliver a gig the way we can.” Translation: Open access doesn’t make financial sense in a competitive environment.

It’s still possible that Google could open its network to other ISPs in the future, but I suspect that in short term, Google’s reversal will dampen, if not extinguish, the PIC dream of open access networks in competitive markets.

Fifth Lesson Learned: Vertical Integration Offers an Alternative to the End-to-End Principle

The fifth lesson Google learned from its fiber project:  Vertical integration among “edge” and “infrastructure” providers offers an alternative to the “end-to-end” principle.

The elements of Google Fiber’s business model discussed so far affirm existing industry practice (and free market regulatory theory). In one respect, however, the Google model differs significantly from industry practice. Google is offering free Internet service, albeit limited to 5 Mbps, for seven years to customers who pay the “construction fee.” That speed is just fast enough to support Google’s primary advertising business, including the delivery of video advertisements, but just slow enough to avoid cannibalizing Google Fiber’s premium Internet and video services.

Even so, some analysts predict Google will lose money on its free service. So why would Google offer it?  Because Google’s “core advertising business is so powerful, dominant and profitable that it can subsidize almost everything else the company does, using Free to get customers in new markets.” Chris Anderson, the author of “FREE: The Future of a Radical Price,” has asked whether that’s fair when Google’s competitors don’t have a similar golden goose. Google’s response: “If a company chooses to use its profits from one product to help provide another product to consumers at low cost, that’s generally a good thing” (in the absence of tying arrangements).

On its own, Google’s willingness to subsidize broadband access to promote its advertising services might be unremarkable. But, when combined with its provision of a “free” Nexus 7 table and a subsidized Chromebook, it suggests that Google is willing to explore alternatives to the pure end-to-end Internet religion (practiced by PIC advocates and tech evangelists) in favor of a vertically integrated approach. The end-to-end purist believes core network infrastructure should be economically severed from the “edge” of the network, i.e., that Internet access should be offered entirely separately from the services, devices, applications that use network infrastructure. Strict adherence to this principle would prohibit the subsidization of network architecture by profits derived from services (e.g., specialized video and advertising), devices, and applications. Google was thought to be an end-to-end purist, but, assuming that were once true, it appears the company’s views have shifted.

What if large Internet “edge” companies – Google, Apple, and Microsoft – were vertically integrated with the large infrastructure providers – Comcast, Verizon, and AT&T? If the government allowed that to happen, it’s possible that the enormous profits generated by the edge companies (Apple is one of the most valuable companies in the world) would be used to rapidly drive ultra high-speed network deployment rather than fill cash coffers in offshore banks. Google is sitting on $43 billion overseas. Apple has more than $81 billion and Microsoft has $54 billion. By comparison, Verizon currently has about $10 billion in cash, which is less than one quarter of Google’s overseas holdings.

The reality of the Internet economy is that the “edge” generates more revenue than the “core”. In 2011,Comcast produced $8.7 billion in revenue from the sale of high-speed Internet access service. Google produced $37.9 billion in revenue, 96 percent of which was derived from advertising services.

While Google and other edge companies are content to let massive profits sit overseas, America’s network owners are reinvesting their capital in America. AT&T and Verizon ranked first and second, respectively, among U.S.-based companies by their U.S. capital spending in 2011, with Comcast coming in eighth. Google and Apple were ranked 24th and 25th, respectively, with approximately $2 billion in U.S. capital spending each. In 2011, AT&T alone invested ten times that much capital ($20.1 billion) in America. If companies like Comcast, Verizon, and AT&T had access to edge company capital, it could create a new broadband boom.

I’m not sure the edge companies are interested in a vertical integration model, and I’m reasonably certain the current administration wouldn’t allow it. But, now that Google has dipped its toes in the water, it might be a discussion worth having.

]]> https://techliberation.com/2012/08/07/what-google-fiber-says-about-tech-policy-fiber-rings-fit-deregulatory-hands/feed/ 23 41956 Video: Competition & Innovation in the Digital Economy https://techliberation.com/2012/07/14/video-competition-innovation-in-the-digital-economy/ https://techliberation.com/2012/07/14/video-competition-innovation-in-the-digital-economy/#respond Sat, 14 Jul 2012 14:59:38 +0000 http://techliberation.com/?p=41689

Is competition really a problem in the tech industry? That was the question the folks over at WebProNews asked me to come on their show and discuss this week. I offer my thoughts in the following 15-minute clip. Also, down below I have embedded a few of my recent relevant essays on this topic, a few of which I mentioned during the show.

]]> https://techliberation.com/2012/07/14/video-competition-innovation-in-the-digital-economy/feed/ 0 41689 What is “Optimal Interoperability”? A Review of Palfrey & Gasser’s “Interop” https://techliberation.com/2012/06/11/what-is-%e2%80%9coptimal-interoperability%e2%80%9d-a-review-of-palfrey-gasser%e2%80%99s-%e2%80%9cinterop%e2%80%9d/ https://techliberation.com/2012/06/11/what-is-%e2%80%9coptimal-interoperability%e2%80%9d-a-review-of-palfrey-gasser%e2%80%99s-%e2%80%9cinterop%e2%80%9d/#comments Mon, 11 Jun 2012 17:36:47 +0000 http://techliberation.com/?p=41384

I’m pretty rough on all the Internet and info-tech policy books that I review. There are two reasons for that. First, the vast majority of tech policy books being written today should never have been books in the first place. Most of them would have worked just fine as long-form (magazine-length) essays. Too many authors stretch a promising thesis into a long-winded, highly repetitive narrative just to say they’ve written an entire book about a subject. Second, many info-tech policy books are poorly written or poorly argued. I’m not going to name names, but I am frequently unimpressed by the quality of many books being published today about digital technology and online policy issues.

The books of Harvard University cyberlaw scholars John Palfrey and Urs Gasser offer a welcome break from this mold. Their recent books, Born Digital: Understanding the First Generation of Digital Natives, and Interop: The Promise and Perils of Highly Interconnected Systems, are engaging and extremely well-written books that deserve to be books. There’s no wasted space or mindless filler. It’s all substantive and it’s all interesting. I encourage aspiring tech policy authors to examine their works for a model of how a book should be done.

In a 2008 review, I heaped praise on Born Digital and declared that this “fine early history of this generation serves as a starting point for any conversation about how to mentor the children of the Web.” I still recommend highly to others today. I’m going to be a bit more critical of their new book, Interop, but I assure you that it is a text you absolutely must have on your shelf if you follow digital policy debates. It’s a supremely balanced treatment of a complicated and sometimes quite contentious set of information policy issues.

In the end, however, I am concerned about the open-ended nature of the standard that Palfrey and Gasser develop to determine when government should intervene to manage or mandate interoperability between or among information systems. I’ll push back against their amorphous theory of “optimal interoperability” and offer an alternative framework that suggests patience, humility, and openness to ongoing marketplace experimentation as the primary public policy virtues that lawmakers should instead embrace.

Interop is Important, but Often Difficult & Filled with Trade-Offs

Palfrey and Gasser begin by noting that “there is no single, agreed-upon definition of interoperability” and that “there are even many views about what interop is and how it should be achieved” (p. 5). They set out to change that by developing “a normative theory identifying what we want out of all this interconnectivity” that the information age has brought us (p. 3).

Generally speaking, Palfrey and Gasser believe increased interoperability — especially among information networks and systems — is a good thing because it “provides consumers greater choice and autonomy” (p. 57), “is generally good for competition and innovation” (p. 90), and “can lead to systemic efficiencies” (p. 129).

But they wisely acknowledge that there are trade-offs, too, noting that “this growing level of interconnectedness comes at an increasingly high price” (p. 2). Whether we are talking about privacy, security, consumer choice, the state of competition, or anything else, Palfrey and Gasser argue that “the problems of too much interconnectivity present enormous challenges both for organizations and for society at large” (p. 2). Their chapter and privacy and security offers many examples, but one need only look around at their own digital existence to realize the truth of this paradox. The more interconnected our information systems become, and the more intertwined our social and economic lives become with those systems, the greater the possibility of spam, viruses, data breaches, and various types of privacy or reputational problems. Interoperability giveth and it taketh away.

When Does “the Public Interest” Demand Interoperability Regulation?

So, how do we know when increased interoperability is good for us or society? How do we strike a reasonable balance? And, most controversially, when should government intervene to tip the balance in one direction or another?

Palfrey and Gasser return to these questions repeatedly throughout the book but admit that their answers will be dissatisfying since “there is no single form or optimal amount of interoperability that will suit every circumstance” (p. 76). Thus, “most of the specifics of how to bring interop about [must] be determined on a case-by-case basis (p. 17). They elaborate:

That can feel unsatisfying. But it is an essential truth: the most interesting interop problems relate to society’s most complex and most fundamental systems. Their answers are never simple to come by, nor are they easy to implement. This characteristic of interop theory is a feature, not a bug. … The price to be paid for striving for a universal principle at the level of theory is that such a theory is full of nuances when it comes to application and practice (p. 17-18).

Fair enough. Yet, Palfrey and Gasser also make it clear they want government(s) to play an active role in ensuring optimal interoperability. They say they favor “blended approaches that draw upon the comparative advantages of the private and public sector” (p. 161), but they argue that government should feel free to tip or nudge interoperability determinations in superior directions. “If deployed with skill,” they argue, “the law can play a central role in ensuring that we get as close as possible to optimal levels of interoperability in complex systems” (p. 88).

That phrase — “optimal level of interoperability” — pops up repeatedly throughout the book. So, too, does the phrase “the public interest.” Palfrey and Gasser argue that governments must look out for “the public interest” and “optimal interoperability” since “market forces do not automatically lead to appropriate standards or to the adoption of the best available technology” (p. 167). Here they introduce two additional amorphous values that complicate the debate: “appropriate standards” and “best available technology.”

The fundamental problem this “public interest” approach to interoperability regulation is that it is no better than the “I-know-it-when-I-see-it” standard we sometimes at work in the realm of speech regulation. It’s an empty vessel, and if it is the lodestar by which policymakers make determinations about the optimal level of interoperability, then it leaves markets, innovators, and consumers subject to the arbitrary whims of what a handful of politicians or regulators think constitutes “optimal interoperability,” “appropriate standards,” and “best available technology.”

On the Limits of Knowledge

Palfrey and Gasser’s framework feels more than just “unsatisfying” in this regard; it feels downright insufficient. That’s because it is missing a major variable: the extent to which state actors are able to adequately define those terms or accurately forecast the future needs of markets or citizen-consumers.

Surprisingly, Palfrey and Gasser don’t really spend much time discussing the specific remedies the state might impose to achieve optimal interoperability. I would have liked to have seen them develop a matrix of interop options and then outline the strengths and weaknesses of each. But even absent a more detailed discussion of possible regulatory remedies, I would have settled for more concrete answers to the following questions: Why are we to assume that regulators possess the requisite knowledge needed to know when it makes sense to foreclose ongoing marketplace experimentation? And why should we trust that, by substituting their own will for that of countless other actors in the information technology marketplace, we will be left better off?

The closest Palfrey and Gasser get to defining a firm standard for when and why such state intervention is warranted comes on page 173 when they are discussing the need for the state to establish sound reasons for intervention. They argue:

The objective should not be interoperability per se but, rather, one or more public policy goal to which interoperability can lead. The goals that usually make sense are innovation and competition, but other objectives might include consumer choice, ease of use of a technology or system, diversity, and so forth (p. 173).

This is a bit better, but it still doesn’t fully grapple with the cost side of the cost-benefit calculus for intervention. Palfrey and Gasser are willing to at least acknowledge some of those problems when they remark that “the state is rarely in a position to call a winner among competing technologies” (p. 174). Moreover,

Lawmakers need to keep in view the limits of their own effectiveness when it comes to accomplishing optimal levels of interoperability. Case studies of government intervention, especially where complex information technologies are involved, show that states tend to be ill suited to determine on their own what specific technology will be the best option for the future (p. 175)

Quite right! Yet, that insight does not seem to influence their calls elsewhere in the book for regulatory activism. That’s a shame since the admonition about policymakers recognizing the “limits of their own effectiveness” should be able to help us devise some limiting principles regarding the state’s role.

Toward an Alternative Theory: Experimental, Evolutionary Interoperability

Allow me to offer a different theory of optimal interoperability that flows from these previous insights. It’s based on a more dynamic view of markets and the central importance of experimentation in the face of uncertainty. Let me just go ahead and articulate the core principles of what I will refer to as  “experimental, evolutionary interoperability theory.” Then I’ll explain it in more detail

  • Experimental, evolutionary interoperability : The theory that ongoing marketplace experimentation with technical standards, modes of information production and dissemination, and interoperable information systems, is almost always preferable to the artificial foreclosure of this dynamic process through state action. The former allows for better learning and coping mechanisms to develop while also incentivizing the spontaneous, natural evolution of the market and market responses. The latter (regulatory foreclosure of experimentation) limits that potential.

Palfrey and Gasser would label this a “laissez-faire” theory of interoperability and oppose it since they believe “a pure laissez-faire approach to interop rarely works out well” (p. 160). But they are wrong, at least to the extent they include the sweeping modifier “rarely” to describe this model’s effectiveness. In reality, the vast majority of interoperability that occurs into today’s information economy happens in a completely natural, evolutionary fashion without any significant state intervention whatsoever. In countless small and big ways alike, interconnection and interoperability happens every day throughout society. Yes, it is true that interoperability often happens against the backdrop of a legal system that allows court action to enforce certain rights or address perceived harms, but I would not classify that as a significant direct state intervention to tip or nudge interconnection decisions in one direction or another. And when interoperability doesn’t happen naturally, there are often good reasons it doesn’t and, even if there aren’t, non-interop spawns beneficial marketplace reactions and innovations.

Experimental, evolutionary interoperability theory flows out of Schumpeterian competition theory and the related field of evolutionary economics, but it is also heavily influenced by public choice theory (which stresses the limitations of romanticized theories of politics, planning, and “public interest” regulation). This alternative theory begins by accepting the simple fact that, as Austrian economist F.A. Hayek taught us, “progress by its very nature cannot be planned.” The wiser man, Hayek noted, “is very much aware that we do not know all the answers and that he is not sure that the answers he has are certainly the right ones or even that we can find all the answers.”

Ongoing experimentation with varying business models and modalities of social and economic production allows us to see what consumer choice and trial and error experimentation yields naturally over time. Ongoing experiments with flexible, voluntary interop standards and negotiations also allows us to determine which technological standards seem to benefit consumers in the short-term while also encouraging innovators to leap-frog existing standards and platforms when they become locked-in for too long or seem sub-optimal.

In the short-term, it is entirely possible that such voluntary, evolutionary interop experiments “fail” in various ways. That is often a good thing. Failures are how individuals and a society learn to cope with change and devise systems and solutions to accommodate technological change. As Samuel Beckett once counseled: “Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.” Progress depends upon an embrace of this uncertainty and acceptance of a world of constant upheaval if we are to learn how to cope, adapt, and move forward.

In this model, technological innovation often springs from the quest for the prize of market power.  Palfrey and Gasser generally reject this Schumpeterian vision of dynamic competition, but they at least do a nice job of describing it:

firms may have a stronger incentive to be innovative when low levels of interoperability promise higher or even monopoly profits. This sort of competition… creates incentives for firms to come up with entirely new generations of technologies or business methods that are proprietary (p. 121).

They reject this approach based on (1) the mistaken notion that the quest of the prize of market power ends in the attainment and preservation of that market power; and (2) the belief that policymakers possess the ability to set us on a better course through wise interventions.

In a moment, I’ll prove why that is misguided by examining a few real-world cases studies. For now, however, let’s return to Palfrey & Gasser’s central operating principle and contrast it with the vision I’ve articulated here. Recall that they argue “it is important to maintain and facilitate diversity in the marketplace. We simply want systems to work together when we want them to and to not work together when we do not.” Again, there is no standard here if one is suggesting this as the principle by which to determine when state intervention is desirable . But if one is looking at that aspirational statement as a description of the natural order of things — namely, that we do indeed “want systems to work together when we want them to and to not work together when we do not” — then that is a perfectly sound principle for understanding why state intervention should be disfavored in all but the most extreme circumstances. To reiterate: We should not allow the state to foreclose interoperability experiments because (a) those experiments have value in and of themselves, and (b) state action is likely to have myriad unintended consequences and unforeseen costs that are not easily remedied or reversed.

There are moments in the book when Palfrey and Gasser appear somewhat sympathetic to the sort of alternative “evolutionary interop” theory I have articulated here. For example, they note that:

The web is a great equalizer for technology firms. As consumers, we have come to expect that everything will work together without incident or interruption. We think it bizarre when something in the digitally networked world does not mesh with something else, perceiving whatever it is to be broken, in need of repair. This high degree of expectation is a powerful driver of interoperability. Market players are increasingly responding to this consumer demand and making these invisible links work for their customers without any government intervention” (p. 28) [italics added]

You won’t be surprised to hear that I agree wholeheartedly! Moreover, what it really proves is that ongoing marketplace experimentation and the evolution of norms and standards generally solve interoperability problems as they develop. That doesn’t mean markets are perfectly competitive or always produce perfect interoperability. But, again, why should we believe state intervention will do a better job? And isn’t it possible that intervention could negatively counter those natural instincts that Palfrey and Gasser describe about how consumers and market actors interact to make those “invisible links” work out as nicely as they do today?

Interop, Competition & Innovation: Some Cases Studies of Evolutionary Interoperability in Action

To better explain experimental, evolutionary interop theory and how it plays out in the real-world, let’s examine the complex relationship between interoperability, competition, and innovation in the information economy through the prism of three case studies: AOL and instant messaging, video game consoles, and smartphones.

AOL

America Online’s (AOL) case study is probably the most profound example of Schumpeterian creative destruction rapidly eroding the market power of a once “dominant” digital giant. Not long ago, AOL was cast as the great villain of online openness and interoperability. In fact, when Lawrence Lessig penned his acclaimed book Code in the late 1990s, AOL was supposedly set to become the corporate enslaver of cyberspace.

For a time, it was easy to see why Lessig and others were worried. Twenty five 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 media titan Time Warner announced a historic mega-merger that had some predicting the rise of “new totalitarianisms” and corporate “Big Brother.”

Fearing the worst, several conditions were placed on approval of the merger by both the Federal Trade Commission and the Federal Communication Commission. These included “open access” provisions that forced Time Warner to offer the competing ISP service from the second largest ISP at that time (Earthlink) before it made AOL’s service available across its largest cable divisions.  Another provision imposed by the FCC mandated interoperability of instant messaging systems based on the fear that AOL was poised to monopolize that emerging technology.

Palfrey and Gasser suggest this was a necessary and effective intervention. “The AOL IM case is another instance in which the role of government was key in establishing a more interoperable ecosystem” and they credit the FCC’s action with cutting AOL’s share of the IM (p. 68-9). That’s a huge stretch. The reality is that markets and technologies evolved around AOL’s walled garden and decimated whatever advantage the firm had in either the web portal business or instant messaging market.

First, despite all the hand-wringing and regulatory worry, AOL’s merger with Time Warner quickly went off the rails and AOL’s online “dominance” quickly evaporated. Looking back at the deal with TW, Fortune magazine senior editor Allan Sloan called it the “turkey of the decade” since it cost shareholders hundreds of billions. Second, AOL’s attempt to construct the largest walled garden ever also failed miserably as organic search and social networking flourished. Consumers showed they demanded more than the hand-held tour of cyberspace.

Finally, the hysteria about AOL’s threat to monopolize instant messaging and deny interoperability proved particularly unwarranted and also serves as a cautionary tale for those who argue regulation is needed to solve interoperability problems. At the time, well-heeled major competitors like Yahoo and Microsoft already had significant competing IM platforms, and others were rapidly developing. Interoperability among those systems was also spontaneously developing as consumers demanded greater flexibility among and within their communications systems. The development of Trillian, which allowed IM users to see all their various IM feeds at once, was an early precursor of what was to come. Today, anyone can download a free chat client like Digsby or Adium to manage multiple IM and email services from Yahoo!, Google, Facebook and just about anyone else, all within a single interface, essentially making it irrelevant which chat service friends use.

In a truly Schumpetrian sense, innovators came in and disrupted AOL’s plans to dominate instant messaging with innovative offerings that few critics or regulators would have believed possible just a decade ago. Progress happened, and nobody planned it from above. The FCC’s IM interoperability provision was quietly sunset less than three years after its inception since the evolution of technology and markets had rapidly eliminated the perceived problem. That mandate, as it turned out, wasn’t needed at all, and all it probably accomplished during its short life span was to hobble AOL’s ability to find a way to remain relevant in the increasingly competitive Web. 2.0 world.

Video game consoles

At first blush, the video game console wars might seem like the ideal case study for those who favor greater interoperability regulation. After all, in a static sense, why do we really need several competing video game platforms that prevent consumers from playing their games on more than one system? The lack of console interoperability also drives up development costs for game makers. Many of those developers would prefer to just code games for a single, universal gaming platform. Therefore, isn’t this the perfect excuse for state intervention to ensure “optimal interoperability”?

To the contrary, this is another example of why government should generally avoid intervening to try to achieve some sort of artificial optimal interoperability. This market has undergone continuous, turbulent change and witnessed remarkable pro-consumer innovation despite a lack of interoperability.

The video game console wars have raged since the late 1970s. The first generation of consoles was dominated Atari (2600), Mattel (Intellivision), and Coleco (ColecoVision). By the mid-1980s, the industry saw a new cast of characters displace the old players. Nintendo (NES), and Sega (Genesis) took the lead. Atari attempted a rebirth with its “Jaguar” console but failed miserably.

The demise of Atari’s 2600 console was particularly notable. When it debuted in 1977, the system revolutionized the home game market on its way to selling more than 30 million units.  For a few years, it utterly dominated the console market and the company “rushed out games, assuming that its customers would play whatever it released,” notes New York Times reporters Sam Grobart and Ian Austen. But demand rapidly dried up as other consoles and personal computers took the lead with more powerful, flexible platforms and games. In the end, “millions of unsold games and consoles were buried in a New Mexico landfill in 1983. Warner Communications, which bought Atari in 1976 for $28 million, sold it in 1984 for no cash.”

The next generation of machines was dominated by Nintendo and Sega. But by the turn of the century, more new faces appeared and disrupted the second generation of market leaders. Sony (PlayStation) and Microsoft (Xbox) introduced powerful new consoles that continue to evolve to this day. Both consoles have already cycled through three iterations, each increasingly powerful and more functional. Sega dropped out of the console business and refocused on game development. Nintendo managed to survive with its innovative “Wii” system, but has fallen from its perch as king of the console market. Many also forget Apple’s failed run at the console business with its “Pippin” system in the late 1990s. Steve Jobs killed off the console when he returned to once again lead Apple in 1997. Ironically, just a decade later, with the rise of the iPhone and the Apple App Store, the company would emerge as a major player in the gaming market as smartphone gaming exploded.

Of course, PC gaming existed across these generations and handheld gaming devices and now smartphones are also providing competition to traditional consoles. Arcade games also existed both then and now. Thus, the video game market has always been broader than just home gaming consoles.

Nonetheless, at no time during the turbulent history of this sector have major consoles interoperated. The result has been a constant effort by major console developers to leap-frog the competition with increasingly innovative and powerful consoles and peripherals. Would Microsoft have developed the Kinect motion-sensing device if Nintendo had not previously developed their game-changing Wii motion controllers? It’s impossible to know but it would seem that non-interoperability had something to do with that beneficial development. Microsoft needed a game-changing peripheral of its own to meet the Nintendo challenge since Nintendo was not about to share its innovations with the competition. Meanwhile, Sony has developed its own motion-based “Move” system to compete Microsoft and Nintendo.

This is a highly dynamic marketplace at work. Could policymakers have determined that 3 major non-interoperable home consoles would have produced so much innovation? Would they have judged that to be too much or too little competition?  Would they have been able to foresee or help bring about the disruptive competition from portable gaming devices or smartphones? What sort of interop regulation would have made that happen?

As Palfrey and Gasser suggest in their book, there really “is no single form or optimal amount of interoperability that will suit every circumstance.” The video game case study seems to prove that. Yet, their framework leaves the door open a bit wider for state meddling to determine “optimal interop.” I have little faith that state planners could have given us a more innovative video game marketplace through interop nudging. And I also worry that if the door had been open for regulators at the FCC or elsewhere to influence interoperability decisions, it might have also opened to the door to content regulation since many lawmakers have long had an appetite for video game censorship.

Smartphones

The mobile phone handset and operating system marketplace has undergone continuous change over the past 15 years and is still evolving rapidly. There are some interoperable elements, such as the ability to make connecting calls and send texts and IMs. But other parts of the smartphone ecosystem are not interoperable, such as underlying operating systems or apps and app stores.

In the midst of this mixed system of interoperable and non-interoperable elements, innovation and cut-throat competition have flourished.

When cellular telephone service first started taking off in the mid-1990s, handsets and mobile operating systems were essentially one in the same, and Nokia and Motorola dominated the sector with fairly rudimentary devices. The era of personal digital assistants (PDAs) dawned during this period, but mostly saw a series of overhyped devices, including Apple’s “Newton,” that failed to catch on. In the early 2000s, however, a host of new players and devices entered the market, many of which are still on the scene today, including LG, Sony, Samsung, Siemens, and HTC. Importantly, the sector began splitting into handsets versus operating systems (OS). Leading mobile OS makers have included: Microsoft, Palm, Symbian, BlackBerry (RIM), Apple, and Android (Google).

The sector continues to undergo rapid change and interoperability norms have evolved at the same time. Looking back, it’s hard to know whether increased interoperability would have helped or hurt the state of competition and innovation.

Consider Palm, Blackberry, and Microsoft which all limited interoperability with other systems in various ways. Palm smartphones were wildly popular for a brief time and brought many innovations to the marketplace, for example. Palm underwent many ownership and management changes, however, and rapidly faded from the scene.  After buying Palm in 2010, HP announced it would use its webOS platform in a variety of new products.  That effort failed, however, and HP instead announced it would transition webOS to an open source software development mode.

Similarly, RIM’s BlackBerry was thought to be the dominant smartphone device for a time, but it has recently been decimated. BlackBerry’s rollercoaster ride has left it “trying to avoid the hall of fallen giants” in the words of an early 2012 New York Times headline.  The company once commanded more than half of the American smartphone market but now has under 10 percent, and that number continues to fall.

Microsoft also had a huge lead in licensing its Windows Mobile OS to high-end smartphone handset makers until Apple and Android disrupted its business. It’s hard to believe now, but just a few years ago the idea of Apple or Google being serious contenders in the smartphone business was greeted with suspicion, even scorn by popular handset makers such as Nokia and Motorola. This serves as another classic example of those with a static snapshot mentality disregarding the potential for new entry and technological disruption. Just a few years later, Nokia’s profits and market share have plummeted and a struggling Motorola was purchased by Google. Meanwhile, again, Palm seems dead, BlackBerry is dying, and Microsoft is struggling to win back market share it has lost to Apple and Google in this arena.

It would seem logical to conclude that the ebbs and flows of interoperable and non-interoperable elements of the smartphone world have created a turbulent but vibrantly innovative sector. Has the lack of interoperable operating systems or apps and apps stores hurt smartphone consumers? It’s hard to see how. Mandating interoperability at either level could lead to an OS or app store monopoly, most likely for Apple if such a policy were pursued today.

While Apple has had great success and earned endless kudos for their slick, user-friendly innovations from consumers and tech wonks alike, some critics decry their proprietary business model and more “controlled” user experience. Apple tightly controls almost every level of production of its iPhone smartphone and iPad tablet. Interoperability with competing systems, standards, or technologies is limited in many ways. Is that bad? Some critics think so, suggesting that greater “openness” — presumably in the form of greater device or program interoperability — is needed. But so what? Consumers seem extremely happy with Apple devices. Moreover, well-heeled rivals like Google (Android) and Microsoft continue to innovate at a healthy clip and offer consumers a decidedly different user experience. As with video games consoles, non-interop has had some important dynamic effects and advantages for consumers. It’s hard to know what “optimal interoperability” would even look like in the modern smartphone marketplace and how it would be achieved, but it’s equally hard to believe that consumers would be significantly better off if regulators were trying to achieve it through top-down mandates on such a dynamic, fast-moving market.  [For more on this topic, see my 2011 book chapter, “The Case for Internet Optimism, Part 2 – Saving the Net From Its Supporters,” from the book, The Next Digital Decade.]

Case Study Summary & Analysis

These case studies suggest that defining “optimal interoperability” is a pipe dream. In some cases, consumers demanded a certain amount interoperability and they got it. But it seems equally obvious that they did not demand perfect interoperability in every case. Few consumers are tripping over their own feet in a mad rush to toss out their XBoxs or iPhones just because they are not perfectly interoperable. On the other hand, since the days of the old “walled garden” hell of AOL, CompuServe, Prodigy, and so on, it would seem that information technology markets are growing more “open” in other ways. You can’t completely lock-down a user’s online experience and expect to win their business over the long haul.

Palfrey and Gasser make that point quite nicely in the book:

Increasingly, though, businesses are seeing the merits of strategies based on openness. A growing number of businesses are pursuing models that incorporate interoperability as a core principle. More and more firms, especially in the information business, are shedding their proprietary approaches in favor of interoperability at multiple levels. The goal is not to be charitable to competitors or customers, of course, but to maximize returns over time by building an ecosystem with others that holds greater promise than the go-it-alone approach (p. 149).

Quite right, but let’s not pretend that any mass market information platforms or systems will ever be perfectly “open” or interoperable. There will always be some limitations on how such systems are used or shared. And that’s just fine once you embrace a more flexible theory of evolutionary interoperability.  Ongoing experiments will get us to a better place.

Conclusion: Let Interop Experiments Continue!

So, let me wrap up by restating my alternative theory of optimal interoperability as succinctly as possible: When in doubt, ongoing, bottom-up, dynamic experimentation will almost always yield better answers than arbitrary intervention and top-down planning. Again, that is not to say that all interoperability experiments will leave society better off in the short-term. Some interoperability experiments and resulting market norms or outcomes can create challenging dilemmas for individuals and institutions. There may be short-term spells of “market power,” for example, and some standards may get locked in longer than some of us think makes sense. If, however, we have faith in humans to solve problems with information and technology, then still more experimentation — not state intervention — is the answer. And that is especially true once you accept the fact that those seeking to intervene have very limited knowledge of all the relevant facts needed to even make wise decisions about the future course of technology markets or information systems.

Some will find my alternative theory of optimal interoperability no more satisfying than Palfrey and Gasser’s since they may find the experimental interop framework too inflexible when it comes to state action. Whereas the frustration with Palfrey and Gasser’s theory will likely flow from their failure to define a coherent standard for when intervention is warranted, my approach solves that problem by suggesting we should largely abandon the endeavor and instead let ongoing market experiments solve interop problems over time. For me, we would need to find ourselves in a veritable whole-world-is-about-to-go-to-hell sort of moment before I could go along with state intervention to tip the interop scales in one direction or another. And, generally speaking, this is exactly the sort of thing that antitrust laws are supposed to address after a clear showing of harm to consumer welfare. Stated differently, to the extent any state intervention to address interoperability can be justified, ex post antitrust remedies should almost always trump ex ante regulatory meddling.

This alternative vision of evolutionary, experimental interoperability will be rejected by those who believe the state has the ability to wisely intervene and nudge markets to achieve “optimal interoperability” through some sort of Goldilocks principle that can supposedly get it just right. For those of us who have doubts about the likelihood of such sagacious state action — especially for fast-paced information sectors — the benefits of ongoing marketplace experimentation far outweigh the costs of letting those experiments run their course.

Regardless, we should be thankful that John Palfrey and Urs Gasser have provided us with a book that so perfectly frames what should be a very interesting ongoing debate over these issues. I encourage everyone to pick up a copy of Interop so you can join us in this important discussion.

Additional Reading:

]]> https://techliberation.com/2012/06/11/what-is-%e2%80%9coptimal-interoperability%e2%80%9d-a-review-of-palfrey-gasser%e2%80%99s-%e2%80%9cinterop%e2%80%9d/feed/ 4 41384 Microsoft Pushes “Do-Not-Track” https://techliberation.com/2012/06/02/microsoft-pushes-do-not-track/ https://techliberation.com/2012/06/02/microsoft-pushes-do-not-track/#comments Sat, 02 Jun 2012 22:07:36 +0000 http://techliberation.com/?p=41355

The world does not owe targeted advertising networks a business model, so I am agnostic about Microsoft’s decision to ship Internet Explorer 10 with “Do-Not-Track” enabled by default. Ryan Singel has a good write-up on Threat Level that covers many dimensions of the issue.

Decisions like this are never driven by a single motivation, but I’m interested in the likelihood that Microsoft made this choice hoping to drive a dagger into Google’s business model. To the extent it did, it’s a nice illustration of how competition among companies can serve consumers’ privacy preferences. There is some demand for privacy, though less than most regulatory types believe. Microsoft saw an angle to get some pro-privacy PR, improve consumers’ privacy by a small margin, and hamstring a competitor. You go, girl. Er, Microsoft.

Now, consumers aren’t falling over themselves for protection from the benign practice of tracking for the purpose of delivering targeted ads. I suspect that counter-punches from ad networks and Google will send the Do Not Track header into the dustbin of privacy history right along with P3P. The idea of putting a signal into the header that says “please do not track” is clumsy, to put it charitably.

If you want to avoid tracking, you can do that already. Use Tracking Protection Lists.

]]> https://techliberation.com/2012/06/02/microsoft-pushes-do-not-track/feed/ 3 41355 Entry for Antitrust Policy Blog Symposium on “Competition in Online Search” https://techliberation.com/2012/05/21/entry-for-antitrust-policy-blog-symposium-on-competition-in-online-search/ https://techliberation.com/2012/05/21/entry-for-antitrust-policy-blog-symposium-on-competition-in-online-search/#comments Mon, 21 May 2012 18:54:29 +0000 http://techliberation.com/?p=41211

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.

_______________

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.

]]> https://techliberation.com/2012/05/21/entry-for-antitrust-policy-blog-symposium-on-competition-in-online-search/feed/ 1 41211 Antitrust & Innovation in the New Economy: The Problem with the Static Equilibrium Mindset https://techliberation.com/2012/04/16/antitrust-innovation-in-the-new-economy-the-problem-with-the-static-equilibrium-mindset/ https://techliberation.com/2012/04/16/antitrust-innovation-in-the-new-economy-the-problem-with-the-static-equilibrium-mindset/#respond Mon, 16 Apr 2012 16:03:16 +0000 http://techliberation.com/?p=40849

In this new Money Morning article, “The Antitrust Curse: What Apple Can Learn From Microsoft, IBM,”  David Zeiler wonders whether the antitrust lawsuit filed against Apple and several book publishers by the U.S. Department of Justice last week could open the door to a broader case against Apple or, at a minimum, simply become a major distraction to the firm and it’s ability to innovate going forward. He uses IBM and Microsoft as case studies in this regard and notes that, “the problem with being in the DOJ’s gunsight is that it distracts management, makes the company hesitant to innovate, and blemishes the company’s public image.  While antitrust woes may not have been entirely responsible for Microsoft and IBM ceding their dominant positions in tech, they were clearly a major factor,” he says. “And worse for Apple, the e-book case could be just the beginning.”

Quite right. I raised the same concern in my recent Forbes column,”Regulatory, Antitrust and Disruptive Risks Threaten Apple’s Empire,” which Zeiler was kind enough to quote in his essay. In that piece, I argued:

Even if Apple beats back [the eBooks] investigation, broader questions are being raised about the company’s power that could invite a much broader investigation. The danger for Apple is that antitrust becomes an omnipresent threat that must be factored into all ongoing business decisions. Antitrust is a particular danger to Apple because the firm is highly vertically integrated and that integration is the source of many of their innovations.  As earlier tech titans like IBM and Microsoft learned, when antitrust hangs like the Sword of Damocles, every decision about how to evolve and innovate becomes a calculated gamble.

Regarding the earlier impact that antitrust Sword of Damocles had on Microsoft, Zeiler unearthed this terrific 2005 quote from Mark Kroese, a general manager of information services at the Microsoft Network, who described the impact of the MS antitrust case on innovation at the firm as follows: “Working at Microsoft today vs. five years ago is different,” Kroese said. “If anyone thinks the antitrust case hasn’t slowed us down, you’re wrong. If I want to meet with a products manager for Windows, there needs to be three lawyers in the room. We have to be so careful, we err on the side of caution. We are on such a fine line of conduct.” Regarding how antitrust chilled IBM, Zeiler cites veteran tech journalist Steve Wildstrom of Tech.pinions who noted,  “Twelve years of litigation were an enormous distraction in a time of rapid technological and business change. IBM management became cautious and over-lawyered, constantly looking over its shoulder-a condition that persisted for years after the case ended. The antitrust case was almost certainly a major cause of the serious decline of IBM in the late 1980s and early 90s,” Wildstrom said.

Of course, it is impossible to scientifically determine to what degree antitrust harassment contributed to either IBM or Microsoft’s inability to innovate and adapt to the rapidly changing market conditions. And let’s be clear: both IBM and MS have found ways to rebound and innovate in other ways. But one wonders what was lost in the process as the threat of antitrust constantly loomed and potentially chilled innovative efforts that could have kept both firms on the cutting-edge.

It’s not just Apple that faces similar threats today. Google is obviously another company increasingly mentioned as an antitrust target. Commenting of the dangers of a potential case against Google, Bernstein Research senior analyst Carlos Kirjner argues that “even if regulatory proceedings come to naught, the process has the potential, in the most extreme circumstances, to consume so much of the company’s energy that it can lead to important strategic missteps: many believe that Microsoft missed the boat on the Internet, and IBM on the importance of the personal computer, in large part because their management teams were focused on defending against the DoJ’s antitrust efforts.”

The better approach to disciplining tech firms and markets is to rely less on intervention and more on Schumpeter’s “perennial gales of creative destruction,” which are blowing harder than ever in our modern high-tech economy. In markets built largely upon binary code and governed by Moore’s Law, the pace and nature of change has become hyper-Schumpeterian: unrelenting and utterly unpredictable. Innovative risk-takers are constantly shaking things up and displacing yesterday’s lumbering, lethargic giants. Just ask some of the players that have been largely left in the dust, including AOL, AltaVista, MySpace, Palm, and others. Of course, there’s my favorite recent case study: Research In Motion’s BlackBerry smartphone.  As I noted in my recent column, “Bye Bye BlackBerry. How Long Will Apple Last?” 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.

Too many tech industry pundits today ignore these dynamic realities and instead rely a myopic analytical approach to the information economy that is fundamentally static in character. Many static equilibrium scholars in both the legal and economic profession tend to adopt a snapshot view of markets and innovation. Such critics often express an overly nostalgic view of the technological past while adopting an excessively gloomy view of the present and the chances for future progress.

But, a la Schumpeter, modern tech markets are highly dynamic. There is no static end-state, “perfect competition,” or “market equilibrium” in today’s information technology marketplace. Change and innovation are chaotic, non-linear, and paradigm-shattering. Schumpeter said it best long ago when he noted how, “in capitalist reality as distinguished from its textbook picture, it is not [perfect] competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization… competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. This kind of competition is as much more effective than the other,” he argued, because the “ever-present threat” of dynamic, disruptive change “disciplines before it attacks.”

By contrast, the static equilibrium mindset is myopically fixated on short-term market share and price competition while ignoring “competition for innovation,” which is what matters most in the more dynamic Schumpeterian model. “Schumpeterian competition is primarily about active, risk-taking decision makers who seek to change their parameters,” note economists Jerry Ellig and Daniel Lin. “It is about continually destroying the old economic structure from within and replacing it with a new one.” Thus, while static or “perfect competition” models assume away innovation and are preoccupied with equilibrium, dynamic models revolve around disequilibrium and assume that the only constant is change. What is most important to economic progress, therefore, is the ongoing process of constant experimentation and spontaneous discovery that allows new business models and organizational structures to emerge in response to market signals.

The other danger of the static equilibrium mindset is that the same new innovators and innovations that obtain success and scale quite rapidly as a result of this process are sometimes thought to possess problematic market power. Accusations of “monopoly” quickly follow. As Nobel Laureate Ronald Coase noted, “if an economist finds something—a business practice of one sort or another—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of understandable practices tends to be very large, and the reliance on a monopoly explanation, frequent,” he argued.  Of course, non-economists are just as likely—perhaps more likely—to make that same error. This is why a short-term fixation on market share and market power is so problematic.

Moreover, as Schumpeter also taught us, it is essential that uneven entrepreneurial gains be tolerated so that innovation can occur and be continuously incentivized. Economies need innovators to take risks because progress is born from it. Penalizing the risk-takers by trying to “level the playing field” through rash regulation or antitrust interventions will simply sap the entrepreneurial spirit from the marketplace, limit technological innovation, and diminish the possibility of progress and prosperity over the long-haul.

If you’d like a better understanding of this dynamic conception of competition and an explanation of why the static equilibrium mindset — especially in the antitrust field — is so horribly misguided, then I strongly recommend you begin your investigation with the following readings:

Also make sure to check out these classic works from Austrian School economists:
  • Israel Kirzner, Discovery and the Capitalist Process (University of Chicago Press, 1985).
  • F.A. Hayek, “Competition as a Discovery Procedure,” in New Studies in Philosophy, Politics, Economics and the History of Ideas (Chicago, IL: University of Chicago Press, 1978).
  • Gerald P. O’Driscoll, Jr. & Mario J. Rizzo, “Competition and Discovery, in The Economics of Time and Ignorance (London: Routledge, 1985, 1996).
       
]]> https://techliberation.com/2012/04/16/antitrust-innovation-in-the-new-economy-the-problem-with-the-static-equilibrium-mindset/feed/ 0 40849 When an Idea Become a Meme, and Why https://techliberation.com/2012/02/21/when-an-idea-become-a-meme-and-why/ https://techliberation.com/2012/02/21/when-an-idea-become-a-meme-and-why/#comments Wed, 22 Feb 2012 02:28:06 +0000 http://techliberation.com/?p=40195

Ceci c’est un meme.

On Forbes today, I look at the phenomenon of memes in the legal and economic context, using my now notorious “Best Buy” post as an example. Along the way, I talk antitrust, copyright, trademark, network effects, Robert Metcalfe and Ronald Coase.

It’s now been a month and a half since I wrote that electronics retailer Best Buy was going out of business…gradually.  The post, a preview of an article and future book that I’ve been researching on-and-off for the last year, continues to have a life of its own.

Commentary about the post has appeared in online and offline publications, including The Financial Times, The Wall Street Journal, The New York Times, TechCrunch, Slashdot, MetaFilter, Reddit, The Huffington Post, The Motley Fool, and CNN. Some of these articles generated hundreds of user comments, in addition to those that appeared here at Forbes.

(I was also interviewed by a variety of news sources, including TechCrunch’s Andrew Keen.)

http://player.ooyala.com/player.js?embedCode=MwYXBlMzr31OJSkeNk7KuJIWbEHYHmXj&deepLinkEmbedCode=MwYXBlMzr31OJSkeNk7KuJIWbEHYHmXj&width=600&height=360

Today, the original post hit another milestone, passing 2.9 million page views.

Watching the article move through the Internet, I’ve gotten a first-hand lesson in how network effects can generate real value.

Network effects are an economic principle that suggests certain goods and services experience increasing returns to scale.  That means the more users a particular product or service has, the more valuable the product becomes and the more rapidly its overall value increases.  A barrel of oil, like many commodity goods, does not experience network effects – only one person can own it at a time, and once it’s been burned, it’s gone.

In sharp contrast, the value of networked goods increase in value as they are consumed.  Indeed, the more they are used, the faster the increase–generating a kind of momentum or gravitational pull.  As Robert Metcalfe, founder of 3Com and co-inventor of Ethernet explained it, the value of a network can be plotted as the square of the number of connected users or devices—a curve that approaches infinity until most everything that can be connected already is.  George Gilder called that formula “Metcalfe’s Law.”

Since information can be used simultaneously by everyone and never gets used up, nearly all information products can be the beneficiaries of network effects.  Standards are the obvious example.  TCP/IP, the basic protocol that governs interactions between computers connected to the Internet, started out humbly as an information exchange standard for government and research university users.  But in part because it was non-proprietary and therefore free for anyone to use without permission or licensing fees, it spread from public to private sector users, slowly at first but over time at accelerating rates.

Gradually, then suddenly, TCP/IP became, in effect, a least common denominator standard by which otherwise incompatible systems could share information.  As momentum grew, TCP/IP and related protocols overtook and replaced better-marketed and more robust standards, including IBM’s SNA and DEC’s DECnet.  These proprietary standards, artificially limited to the devices of a particular manufacturer, couldn’t spread as quickly or as smoothly as TCP/IP.

From computing applications, Internet standards spread even faster, taking over switched telephone networks (Voice over IP), television (over-the-top services such as YouTube and Hulu), radio (Pandora, Spotify)—you name it.

Today the TCP/IP family of protocols, still free-of-charge, is the de facto global standard for information exchange, the lynchpin of the Internet revolution.  The standards continue to improve, thanks to the largely-voluntary efforts of The Internet Society and its virtual engineering task forces.  They’re the best example I know of network effects in action, and they’ve created both a platform and a blueprint for other networked goods that make use of the standards.

Beyond standards, network effects are natural features of other information products including software.  Since the marginal cost of a copy is low (essentially free in the post-media days of Web-based distribution and cloud services), establishing market share can happen at relatively low cost.  Once a piece of software—Microsoft Windows, AOL instant messenger in the old days, Facebook and Twitter more recently—starts ramping up the curve, it gains considerable momentum, which may be all it takes to beat out a rival or displace an older leader.  At saturation, a software product becomes, in essence, the standard.

From a legal standpoint, unfortunately, market saturation begins to resemble an illegal monopoly, especially when viewed through the lens of industrial age ideas about markets and competition.  (That, of course, is the lens that even 21 st century regulators still use.)  But what legal academics, notably Columbia’s Tim Wu, misunderstand about this phenomenon is that such products have a relatively short life-cycle of dominating.  These “information empires,” as Wu calls them, are short-lived, but not, as Wu argues, because regulators cut them down.

Even without government intervention, information products are replaced at accelerating speeds by new disruptors relying on new (or greatly improved) technologies, themselves the beneficiaries of network effects.  The actual need for legal intervention is rare.  Panicked interference with the natural cycle, on the other hand, results in unintended consequences that damage emerging markets rather than correcting them.  Distracted by lingering antitrust battles at home and abroad, Microsoft lost momentum in the last decade.  No consumer benefited from that “remedy.”

For more, see “What Makes an Idea a Meme?” on Forbes.

 

]]> https://techliberation.com/2012/02/21/when-an-idea-become-a-meme-and-why/feed/ 1 40195 How Do-Not-Track is Like Inconceivable https://techliberation.com/2011/07/25/how-do-not-track-is-like-inconceivable/ https://techliberation.com/2011/07/25/how-do-not-track-is-like-inconceivable/#respond Mon, 25 Jul 2011 17:08:44 +0000 http://techliberation.com/?p=37906

]]> https://techliberation.com/2011/07/25/how-do-not-track-is-like-inconceivable/feed/ 0 37906 Vivek Wadhwa on High-Tech’s “Best Regulator” https://techliberation.com/2011/07/08/vivek-wadhwa-on-high-techs-best-regulator/ https://techliberation.com/2011/07/08/vivek-wadhwa-on-high-techs-best-regulator/#comments Fri, 08 Jul 2011 14:16:29 +0000 http://techliberation.com/?p=37710

Vivek Wadhwa, who is affiliated with Harvard Law School and is director of research at Duke University’s Center for Entrepreneurship, has a terrific column in today’s Washington Post warning of the dangers of government trying to micromanage high-tech innovation and the Digital Economy from above.

For reasons I have never been able to understand, the Washington Post uses different headlines for its online opeds versus its print edition. That’s a shame, because while I like the online title of Wadhwa’s essay, “Uncle Sam’s Choke-Hold on Innovation,” the title in the print edition is better: “Google, Twitter and the Best Regulator.” By “best regulator” Wadhwa means the marketplace, and this is a point we have hammered on here at the TLF relentlessly: Contrary to what some critics suggest, the best regulator of “market power” is the market itself because of the way it punishes firms that get lethargic, anti-innovative, or just plain cocky. Wadhwa notes:

The technology sector moves so quickly that when a company becomes obsessed with defending and abusing its dominant market position, countervailing forces cause it to get left behind. Consider: The FTC spent years investigating IBM and Microsoft’s anti-competitive practices, yet it wasn’t government that saved the day; their monopolies became irrelevant because both companies could not keep pace with rapid changes in technology — changes the rest of the industry embraced. The personal-computer revolution did IBM in; Microsoft’s Waterloo was the Internet. This — not punishment from Uncle Sam — is the real threat to Google and Twitter if they behave as IBM and Microsoft did in their heydays.

Quite right. I’ve discussed the Microsoft and IBM antitrust sagas many times here before. In particular, see my 2009 review of Gary Reback’s book on antitrust and high-tech and my recent essay on “Libertarianism & Antitrust: A Brief Comment.” I’ve also commented on the FTC’s look at Twitter and Google in my recent essays, “Twitter, the Monopolist? Is this Tim Wu’s “Threat Regime” In Action?” and “The Question of Remedies in a Google Antitrust Case.”

The crucial points I have tried to get across in these essays, as well as all my essays countering the modern cyber-progressives,” is that high-tech market power concerns 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 market or “code failure” comes down to the rapidity and nimbleness of those responses, especially in markets built upon bits instead of atoms.

That’s why Wadhwa’s insight — that “the technology sector moves so quickly that when a company becomes obsessed with defending and abusing its dominant market position, countervailing forces cause it to get left behind” — is so cogent. We’re not talking about markets like steel and corn here. Things move much, much more quickly when bits and code and are the foundations of what Tim Wu calls “information empires.” There’s no doubt that some companies will gain scale and even “power” quickly in our new Digital Economy, but they can also lose it in the blink of an eye.

The best modern example that I’ve documented here before is AOL. It’s easy to forget now, but just a short decade ago, academics and regulators were in a tizzy over Big Bad AOL. And why not? After all, 25 million subscribers were willing to pay $20 per month to get a guided tour of AOL’s walled garden version of the Internet.  And 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.

Meanwhile, AOL has lost its old dial-up business and walled garden empire and is still struggling to reinvent itself as an advertising company. It’s about the last company on anybody’s lips when we talk about tech titans today. What an epic tale of creative destruction! That all happened is less than 10 years! And yet, again, a decade ago, tech pundits and cyberlaw intellectuals like Larry Lessig were penning entire books about the ominous threat posed by the AOL walled garden model of Internet governance.

Lessig’s myopia was based on an inherent techno-pessimism I have discussed and critiqued in my Next Digital Decade book chapter, “The Case for Internet Optimism, Part 2 – Saving the Net From Its Supporters.” Countless Ivory Tower cyber-academics today adopt a static view of markets and market problems. This “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 techno-cratic elites 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 edicts and bureaucracies to plan this fast-paced sector of our economy. Importantly, that vision ignores the deadweight losses associated with expanding government red tape and bureaucracy as well as the very real danger of “regulatory capture” that exists anytime Washington decides to get cozy with a major sector of the economy.

As Wadhwa correctly concludes, “Government has no place in this technology jungle.” I wish other academics and tech pundits would heed that warning.

 

 

 

]]> https://techliberation.com/2011/07/08/vivek-wadhwa-on-high-techs-best-regulator/feed/ 7 37710 Unlocked Bootloaders, Increased Smartphone Openness & Zittrainian Generativity https://techliberation.com/2011/05/27/unlocked-bootloaders-increased-smartphone-openness-zittrainian-generativity/ https://techliberation.com/2011/05/27/unlocked-bootloaders-increased-smartphone-openness-zittrainian-generativity/#comments Fri, 27 May 2011 23:39:19 +0000 http://techliberation.com/?p=37033

In my work critiquing the Lessig-Zittrain-Wu school of thinking–which fears the decline and fall of online “openness” and digital  “generativity”–I have argued that, while there is no such thing as perfect “openness,” things are actually getting more open and generative all the time. All that really counts from my perspective is that we are witnessing healthy innovation across the generativity continuum.

Will some devices and platforms continue to be “closed”? Sure. Think Apple and cable set-top boxes. But (a) there’s a ton of innovation taking place on top of those supposedly “closed” platforms and (b) there are other options consumers can exercise if they don’t like those content /information delivery methods. [See this chapter from the Next Digital Decade book for my fuller critique.]

And, even if one adopts a rigid Zittrainian view of openness and generativity, each day seems to bring more good news. From that perspective it’s hard to find a better headline than this one: ” Smartphone Makers Bow to Demands for More Openness.” That’s from ArsTechnica today and it refers to the fact that smartphone giant HTC just announced it would no longer attempt to lock the bootloader on its smartphones, meaning geeks like me can root and hack their devices to their heart’s content. As the Ars story notes:

HTC has long been seen as a relatively modder-friendly phone manufacturer. Although many of their phones have had locked bootloaders, workarounds were easy enough for software developers to spot in order to gain superuser access to their phones. That changed recently, however, when modders discovered that two new Android phones—the HTC Sensation and Evo 3D—would come with software that prohibited bypassing locked bootloaders. “The system was locked but exploitable before,” Android enthusiast Irwin Proud told Wired.com in an interview. “Suddenly they required signature checks,” or digital verification of software that allows it to load. An Android activist, Proud has organized online campaigns to fight against locked-down phone releases. After hearing this, the modding community wasn’t happy. Users launched WakeUpHTC.com, a website which gave upset modders all of HTC’s contact info, encouraging them to bombard the company with requests for a change in its bootloader policy. On Thursday, the company relented.

Here’s specifically what HTC’s CEO Peter Chou had to say in a Facebook post:

“There has been overwhelmingly customer feedback that people want access to open bootloaders on HTC phones. I want you to know that we’ve listened. Today, I’m confirming we will no longer be locking the bootloaders on our devices. Thanks for your passion, support and patience.”

Now that’s what I call a Zittrainian success story! Markets and public pressure prevailed and led to more openness and generativity in the purest sense of the terms.

I suppose that some will still worry and retort that “well, the carriers might still try to lock down the devices.” That story might have been more believable five years ago but the new reality of the smartphone world today is that the OS and app makers now hold most of the cards. Carriers are practically giving away the store (literally!) as they rush to get the latest and greatest phones and operating systems from the likes of Apple, Google, Microsoft, HTC, Motorola, LG, and so on.  This is amazingly dynamic ecosystem with multiple layers of innovation and competition.

I don’t think there’s any way the generativity genie could be put back in the bottle at this point. Too many people want tinker-friendly devices and more “open” platforms.  Of course, it’s also true that some devices will remain somewhat more locked-down to ensure “stability” or simplicity for those users who desire it. But what’s wrong with that? Shouldn’t they have that choice? Again, it’s the innovation across the full range of devices and platforms that is so important and impressive in this case. That’s all we should really care about. Finally, if goes without saying that even the most heavily fortified security can be broken when determined people try hard enough.

I hope Zittrain, Wu, and Lessig appreciate this and that they and others acknowledge these beneficial developments so that we can avoid foolish calls to regulate this healthy information ecosystem. These guys should declare victory and pop the champagne. The vision they favor is prevailing.

]]> https://techliberation.com/2011/05/27/unlocked-bootloaders-increased-smartphone-openness-zittrainian-generativity/feed/ 136 37033 Kinsley on Cyber-Politics & “How Microsoft Learned the ABCs of D.C.” https://techliberation.com/2011/04/05/kinsley-on-cyber-politics-how-microsoft-learned-the-abcs-of-d-c/ https://techliberation.com/2011/04/05/kinsley-on-cyber-politics-how-microsoft-learned-the-abcs-of-d-c/#respond Tue, 05 Apr 2011 14:19:51 +0000 http://techliberation.com/?p=36135

Jack Shafer brought to my attention this terrific new Politico column by Michael Kinsley entitled, “How Microsoft Learned ABCs of D.C.”  In the editorial, Kinsley touches on some of the same themes I addressed in my recent piece here “On Facebook ‘Normalizing Relations’ with Washington” as well as in my Cato Institute essay from last year on”The Sad State of Cyber-Politics.”  Kinsley notes how Microsoft was originally bashed by many for not getting into the D.C. lobbying game early enough:

there even was a feeling that, in refusing to play the Washington game, Microsoft was being downright unpatriotic. Look, buddy, there is an American way of doing things, and that American way includes hiring lobbyists, paying lawyers vast sums by the hour, throwing lavish parties for politicians, aides, journalists and so on. So get with the program.
But after doing exactly that, Kinsley notes, the company got blasted for for being too aggressive in D.C.!
So that’s what Microsoft did. It moved its “government affairs” office out of distant Chevy Chase and into the downtown K Street corridor. It bulked up on lawyers and hired the best-connected lobbyists. Soon, Microsoft was coming under criticism for being heavy-handed in its attempts to buy influence.
“But the sad thing is that it seems to have worked. Microsoft is no longer Public Enemy No. 1,” Kinsley notes, and he continues on to reiterate a point I made in my last two essays: Google is the Great Satan now! 
Best of all, the finger of blame has moved on — to Google, which now gets the blame for everything. It is an evil monopoly that uses its monopoly power to extend that monopoly into new areas. It must be stopped before all of its competitors are wiped out. And so on. This is all very familiar to anyone who worked at Microsoft in the late 1990s and (it must be admitted) very enjoyable. Microsoft last week piled on, bringing charges against Google before the European Union (which had given Microsoft an especially hard time), accusing it of a variety of nefarious practices, including some the EU had formerly accused Microsoft of.
]]> https://techliberation.com/2011/04/05/kinsley-on-cyber-politics-how-microsoft-learned-the-abcs-of-d-c/feed/ 0 36135 Messing With Your Head: MSFT Costs World Economy $500 Billion https://techliberation.com/2011/03/31/messing-with-your-head-msft-costs-world-economy-500-billion/ https://techliberation.com/2011/03/31/messing-with-your-head-msft-costs-world-economy-500-billion/#comments Thu, 31 Mar 2011 20:29:38 +0000 http://techliberation.com/?p=36039

The English language is public domain (the language itself, not everything said with it). So it’s worthless, right? No dollars change hands when people use it. Perhaps it could be made worth something if someone were to own it. The owner could charge a license fee to people who use English, making substantial revenue on this suddenly valuable language.

Congress can take works in the public domain and make intellectual property of them according to the Tenth Circuit Court of Appeals in a case that approved Congress “restoring” public domain works to copyrighted status. (The case is Golan v. Holder, and the Supreme Court has granted certiorari.)

But would we really be better off if the English language were given a dollar value through the mechanism of ownership and licensing? No. What is now a costless positive-externality machine would turn into a profit-center for one lucky owner. The society would not be better off, just that owner. If we had to pay for a language, we would regard that as a cost.

In a similar vein, Mike Masnick at TechDirt indulges the somewhat tongue-in-cheek observation that Microsoft costs the world economy $500 billion by accumulating to itself that would have gone to other things. It’s a sort of Broken Window fallacy for intellectual property: the idea that creating ownership of intellectual goods creates value. What is not seen when intellectual property is withheld from the public domain is the unpaid uses that might have been made of it.

Now, Microsoft has reaped wonderful benefits from its intellectual creations because it has bestowed wonderful benefits on societies across the globe. But might it have provided all these benefits for slightly less reward, leaving more money with consumers for their preferred uses?

This is all a way of challenging the mental habit of assuming that dollars are equal to value. In the area of intellectual property (whether or not protected by federal statutes), things that have no effect on the economy (because they’re in the public domain) may have huge value. Things privately owned because of intellectual property law may have less value than they should, even though their owners collect lots of money.

]]> https://techliberation.com/2011/03/31/messing-with-your-head-msft-costs-world-economy-500-billion/feed/ 1 36039 The troubled history of the Global Network Initiative https://techliberation.com/2011/03/30/the-troubled-history-of-the-global-network-initiative/ https://techliberation.com/2011/03/30/the-troubled-history-of-the-global-network-initiative/#comments Wed, 30 Mar 2011 16:58:41 +0000 http://techliberation.com/?p=36031

I’ve posted a long article on Forbes.com this morning on the Global Network Initiative. A non-profit group aimed at improving human rights though the agency of information technology companies, GNI has never really gotten off the ground.

Since its formal launch in 2008, following two years of negotiations among tech companies, human rights groups and academics, not a single company has agreed to join beyond the original members–Google, Yahoo and Microsoft.

This despite considerable pressure from supporters of GNI, including Senator Richard Durbin (D-IL), Chair of the Senate Judiciary’s Subcommittee on Human Rights.  Indeed, in the wake of uprisings in Tunisia, Egypt, Libya and elsewhere and the seminal role played by social media and other IT, a full-court press has been launched against Facebook and Twitter in particular for failing to sign up.

The tone of the criticism hardly seems designed to encourage new members to join.  (In The Huffington Post, Amy Lee asks simply, “Why won’t Twitter and Facebook sign on for free speech on the Internet?”)

Why indeed.

The article reviews the troubled history of GNI and its complex, incomplete, and worrisome organizational structure, which gives considerable power to NGOs to shape the policies and practices of participating companies.  (That features is especially worrisome, as many of the NGOs are traditional human rights organizations with little or no experience dealing with IT.)

Participating companies, among other commitments, must submit to bi-annual “assessments” of their compliance with GNI principles, conducted by assessors certified by GNI’s board.

Details aside, there is a more fundamental question worth asking here.  Why are technology companies being asked to influence (one might say interfere with) public policy and local laws of other countries?   GNI requires not only that participants resist efforts by repressive governments to censor content or to force disclosure of private information of their citizens, but also that they actively lobby these governments, to “engage government officials to promote the rule of law and the reform of laws, policies and practices that infringe on freedom of expression and privacy.”

Freedom of expression and privacy are worthwhile goals, but isn’t it the job of a country’s own citizens to petition their governments for change?  And if those citizens are suppressed, isn’t it the job of the global community, operating through political and trade organizations such as the U.N. and the WTO, to lobby for change?  Why is foreign policy being outsourced to Facebook and Twitter?

Perhaps it’s because national governments won’t do it.  But the demur by tech companies to take on the job is hardly a reason for Sen. Durbin to criticize and threaten them.  If he’s looking for someone to blame for the poor human rights record of some governments, perhaps he should look a little closer to home.

]]> https://techliberation.com/2011/03/30/the-troubled-history-of-the-global-network-initiative/feed/ 7 36031 On Facebook “Normalizing Relations” with Washington https://techliberation.com/2011/03/29/on-facebook-normalizing-relations-with-washington/ https://techliberation.com/2011/03/29/on-facebook-normalizing-relations-with-washington/#comments Tue, 29 Mar 2011 05:15:56 +0000 http://techliberation.com/?p=36004

The New York Times reports that, “Facebook is hoping to do something better and faster than any other technology start-up-turned-Internet superpower. Befriend Washington. Facebook has layered its executive, legal, policy and communications ranks with high-powered politicos from both parties, beefing up its firepower for future battles in Washington and beyond.”  The article goes on to cite a variety of recent hires by Facebook, its new DC office, and its increased political giving.

This isn’t at all surprising and, in one sense, it’s almost impossible to argue with the logic of Facebook deciding to beef up its lobbying presence inside the Beltway. In fact, later in the Times story we hear the same two traditional arguments trotted out for why Facebook must do so: (1) Because everyone’s doing it! and (2) You don’t want be Microsoft, do you?   But I’m not so sure whether “normalizing relations” with Washington is such a good idea for Facebook or other major tech companies, and I’m certainly not persuaded by the logic of those two common refrains regarding why every tech company must rush to Washington.

In an essay I penned for the Cato Institute last November entitled “The Sad State of Cyber-Politics,” I reiterated arguments made a decade earlier by two brilliant men: Cypress Semiconductor CEO T. J. Rodgers and the late great Milton Friedman. Rodgers penned a prescient manifesto for Cato in 2000 with the provocative title: “Why Silicon Valley Should Not Normalize Relations with Washington, D.C.” in which he argued that, “The political scene in Washington is antithetical to the core values that drive our success in the international marketplace and risks converting entrepreneurs into statist businessmen.” A year earlier, Friedman penned another Cato essay called “The Business Community’s Suicidal Impulse” in which he lamented the persistent propensity of companies to persecute one’s competitors using regulation or the threat thereof. What both men stressed was that coming to Washington has a tendency to change a company’s focus and disposition, and not for the better — if you believe in real capitalism, that is, and not the abominable crony capitalism fostered by Washington.

But few in the high-tech world have listened to this logic, especially when the whole rest of the world was falling all over themselves to open a Washington, DC office first in an effort to cover their butts from regulatory encroachments and then later to figure out how the wield the hammer of Big Government to their corporate advantage. I documented numerous examples of the latter in my Cato essay.

I’m not saying that the folks at Facebook are going to be looking to screw over their competitors right away. In fact, I can’t currently think of any examples of how they might.  The company is still firmly in that “cover your butt” period that is common when a hot new digital innovator first comes to DC.  And I certainly can’t blame them for wanting to push back against many misguided forms of Internet regulation, such as free speech controls or heavy-handed privacy regulation.  But I fear there will come a day when they fall in line with many other high-tech companies and trade associations and seek to turn the regulatory state to their advantage.  Only time will tell. And I certainly hope I am wrong.

Regardless, as the folks at Facebook and other high-tech firms ponder their future inside the Beltway, let me ask them to return to the two premises for “normalizing relations” that I cited above and explain why they are not exactly true:

Premise #1: Everyone’s doing it!  Most are, but not all. How active are Apple and Sony to name just two companies without a major DC presence?  Most days of the week, Steve Jobs seems to be giving DC a big middle finger. I’m the last guy in the world you’ll ever hear giving Apple much credit since I hate their products, but Jobs is about the closest thing you’ll find to an Ayn Rand character in Silicon Valley these days.  He seems to do exactly what he wants to build innovative products for consumers and, in the process, ignore all his critics, especially those in Washington. Of course, not everybody can be Steve Jobs in this regard, but I can’t help but wonder: Why don’t more of them try? What if high-tech entrepreneurs just told Washington to buzz off?

Premise #2: You don’t want be Microsoft, do you? The Times article says, “legal analysts say Facebook is hoping to avoid mistakes made by predecessors like Microsoft. And they say the company is becoming politically savvy earlier in its life than Google, whose connections were firmly established once Eric E. Schmidt, the chief executive, advised the Obama presidential campaign and the administration.”

I’ve never really bought into this argument. I think it’s pretty far-fetched to claim, as so many people in this field do, that if Microsoft would have just had a small army of lobbyists here on the ground back in the early 1990s that none of their antitrust problems would have popped up. And regarding Google coming to Washington in the hope of winning friends, well, how’s that working out for them?!  As I noted in my Cato essay:

Everybody — and I do mean everybody — wants Google dead, right now. Google currently serves as the Great Satan in this drama — taking over the role Microsoft filled a decade ago — as just about everyone views it with a combination of envy and enmity.

Indeed, no one could be happier about Facebook coming to town at this moment than Google!  They get to hand the “Great Satan” baton off to Facebook and wish them the best!  Of course, Google’s problems with Washington aren’t done by a long-shot, but I’m quite sure they’re relieved to see Facebook getting grilled more at hearings and events around town these days.

Anyway, in all seriousness, I’ll say the same thing to the fine folks in the Facebook DC office — several of whom I know well — that I’ve said to countless other tech companies here in the Beltway through the years: Stay true to the same principles that made your company so great to begin with.  It wasn’t Washington that built Facebook, or Google, or Microsoft, or any other high-tech innovators; it was entrepreneurial capitalism that did.  Free minds and free markets made the high-tech sector what it is today, not handouts and special favors from Washington. Stick to real capitalism; avoid the crony variety.

]]> https://techliberation.com/2011/03/29/on-facebook-normalizing-relations-with-washington/feed/ 5 36004 App Store Wars: Apple, Amazon, Google, Microsoft & Dynamic Platform Competition https://techliberation.com/2011/03/23/app-store-wars-apple-amazon-google-microsoft-dynamic-platform-competition/ https://techliberation.com/2011/03/23/app-store-wars-apple-amazon-google-microsoft-dynamic-platform-competition/#comments Wed, 23 Mar 2011 16:01:02 +0000 http://techliberation.com/?p=35853

Venture capitalist Bill Gurley asked a good question in a Tweet late last night when he was “wondering if Apple’s 30% rake isn’t a foolish act of hubris. Why drive Amazon, Facebook, and others to different platforms?” As most of you know, Gurley is referring to Apple’s announcement in February that it would require a 30% cut of app developers’ revenues if they wanted a place in the Apple App Store.

Indeed, why would Apple be so foolish? Of course, some critics will cry “monopoly!” and claim that Apple’s “act of hubris” was simply a logical move by a platform monopolist to exploit its supposedly dominant position in the mobile OS / app store marketplace.  But what then are we to make of Amazon’s big announcement yesterday that it was jumping in the ring with its new app store for Android? And what are we to make of the fact that Google immediately responded to Apple’s 30% announcement by offering publishers a more reasonable 10%-of-the-cut deal?  And, as Gurley notes, you can’t forget about Facebook. Who knows what they have up their sleeve next.  They’ve denied any interest in marketing their own phone and, at least so far, have not announced any intention to offer a competing app store, but why would they need to? Their platform can integrate apps directly into it!  Oh, and don’t forget that there’s a little company called Microsoft out there still trying to stake its claim to a patch of land in the mobile OS landscape. Oh, and have you visited the HP-Palm development center lately?  Some very interesting things going on there that we shouldn’t ignore.

What these developments illustrate is a point that I have constantly reiterated here: Markets are extremely dynamic, and when markets are built upon code, the pace and nature of change becomes unrelenting and utterly unpredictable. It is often during what some claim is a given sector’s darkest hour that the most exciting things are happening within it. That very much seems to be the case in the mobile OS / app store world. Companies and coders are responding to incentives. With it’s 30% rake, Apple has made what many consider a massive strategic miscalculation with competitors, consumers, and critics alike. In other words, opportunity knocks for innovative alternatives.

But some critics — especially those in the academy— continue to suffer from a “static snapshot” mentality and tend to underplay this dynamic process of market discovery and entrepreneurialism. Far too often, such critics look only at the day’s seeming bad news (like Apple’s 30% announcement) and claim that the sky is falling. In their myopia (and seeming desire to have someone or something intervene to “make things right”) they often fail to follow up and investigate how markets respond to bone-headed moves.  It’s a point I’ve gone to great lengths to make in my battles with Professors Lessig, Zittrain, and Wu. Here’s how I put it in a debate with Lessig two years ago when I was contrasting the “cyber-libertarian” vs. “cyber-collectivst” modes of thinking about these issues:

Cyber-libertarians are not oblivious to the problems Lessig raises regarding “bad code,” or what might even be thought of as “code failures.” In fact, when I wake up each day and scan TechMeme and my RSS reader to peruse the digital news of the day, I am always struck by the countless mini-market failures I am witnessing. I think to myself, for example: “Wow, look at the bone-headed move Facebook just made on privacy! Ugh, look at the silliness Sony is up to with rootkits! Geez, does Google really want to do that?” And so on. There seems to be one such story in the news every day. But here’s the amazing thing: I usually wake up the next day, fire up my RSS reader again, and find a world almost literally transformed overnight. I see the power of public pressure, press scrutiny, social norms, and innovation by competitors combining to correct the “bad code” or “code failures” of the previous day. OK, so sometimes it takes longer that a day, a week, or a month. And occasionally legal sanctions must enter the picture if the companies or coders did something particularly egregious. But, more often than not, markets evolve and bad code eventually gives way to better code; short-term “market failures” give rise to a world of innovative alternatives. Thus, at risk of repeating myself, I must underscore the key principles that separate the cyber-libertarian and cyber-collectivist schools of thinking. It comes down to this: The cyber-libertarian believes that “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).

And that’s very much what we’re seeing play out in the mobile OS / app store ecosystem today: Apple’s “foolish act of hubris,” as Gurley calls it, is driving incredible innovation as critics, consumers, and competitors think about how alternative platforms can offer a better experience.  It’s certainly true that none of these competing platforms or app stores have Apple’s reach today. But who cares? The fact that they exist and that innovation continues at such a healthy clip is all that counts.

Cyber-capitalism works, when you let it.

]]> https://techliberation.com/2011/03/23/app-store-wars-apple-amazon-google-microsoft-dynamic-platform-competition/feed/ 1 35853 Did Antitrust Really Make a Difference in Major High-Tech Cases? https://techliberation.com/2011/01/10/did-antitrust-really-make-a-difference-in-major-high-tech-cases/ https://techliberation.com/2011/01/10/did-antitrust-really-make-a-difference-in-major-high-tech-cases/#comments Mon, 10 Jan 2011 19:46:49 +0000 http://techliberation.com/?p=34317

The Technology Policy Institute has released an interesting new study from Robert Crandall and Charles Jackson on “Antitrust in High-Tech Industries,” which takes a close look at the impact of antitrust law in the three most high-profile technology cases of the last half century: IBM, AT&T and Microsoft.  Crandall and Jackson conclude:

In each of our three cases, the ultimate source of major changes in the competitive landscape appears to have been innovation and new technology — technology that was apparently not unleashed by the antitrust litigation. In each case, the government did not and probably could not see how technology would develop over time. Therefore, it was difficult for the government to design remedies that would  accelerate competition when this competition developed from new technologies.

I enjoyed the paper and encourage others to read the entire thing.  It’s very much in line with what we’ve written here in the past on the antitrust and high-tech markets.  See, for example, my review of Gary Reback’s recent book on antitrust and high-tech markets.  As I noted there, the crucial, ‘conflict of visions‘ issue comes down to an appreciation for dynamic competition and technological evolution over the sort of static competition, fixed-pie mindset that so many antitrust defenders espouse.  Those of us who believe in dynamic competition 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, technological disruption, price competition, and so on.  But the static competition crowd looks at the same situation and imagines that the only hope is to wheel in the wrecking ball of antitrust regulation since they have little faith that things might change for the better. Moreover, they ignore the profound costs associated with such regulation and litigation.  Crandall and Jackson’s paper explains why patience is the better policy.

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