PostCapitalism-_Paul-Mason_-_z-library.sk_-1lib.sk_-z-lib.sk_

In one paragraph Romer had summed up the revolutionary potential of the tiny gesture I just made to extract that quote out of a PDF and put it into this book: copy and paste. Once you can copy/paste a paragraph, you can do it with a music track, a movie, the design of a turbofan engine and the digital mockup of the factory that will make it.

Once you can copy and paste something, it can be reproduced for free. It has, in economics-speak, a ‘zero marginal cost’.

Info-capitalists have a solution to this: make it legally impossible to copy certain kinds of information. For example, while I’m allowed to quote Romer for free in this book, downloading the PDF of his famous 1990 paper cost me \$16.80 on the JSTOR academic website. If I tried to copy and paste the design of a turbofan engine I could end up in jail.

But intellectual property rights are notoriously messy: I can legally copy a CD that I own into my iTunes folder, but it’s illegal to rip a DVD. The laws of what you can and can’t copy are unclear. They are enforced socially as much as by law, and like the patents of the pre-digital era, they decay over time.

If you are trying to ‘own’ a piece of information – whether you’re a rock band or a turbofan manufacturer – your problem lies in the fact that it does not degrade with use, and that one person consuming it does not prevent another person consuming it. Economists call this ‘non-rivalry’. A simpler word for it would be ‘shareable’.

With purely physical goods, consumption by one person generally blocks their use by another: it’s my cigarette not yours, my hire car, my cappuccino, my half-hour of psychotherapy. Not yours. But with an mp3 track, the information is the commodity. It can technically exist in many physical forms, and at a scale so small that it allows me to carry around every piece of music I have ever bought in my life on a 2-inch flash drive, a.k.a. an iPod.

Once a commodity is ‘non-rival’, the only way you can defend your ownership of it is by what economists call ‘exclusion’. So you can either put a bug into the software that makes it impossible to copy – as with a DVD – or you can make copying illegal. But the fact remains, whatever you do to protect the information – bug it, encrypt it, arrest the pirate-DVD seller in the car park – the information itself remains copiable and shareable, and at negligible cost.

This has major implications for the way the market operates.

Mainstream economists assume that markets promote perfect competition and that imperfections – such as monopolies, patents, trade unions, pricefixing cartels – are always temporary. They also assume that people in the marketplace have perfect information. Romer showed that, once the economy is composed of shareable information goods, imperfect competition becomes the norm.

The equilibrium state of an info-tech economy is one where monopolies dominate and people have unequal access to the information they need to make rational buying decisions. Info-tech, in short, destroys the normal price mechanism, whereby competition drives prices down towards the cost of production. A track on iTunes costs next to zero to store on Apple’s server, and next to zero to transmit to my computer. Whatever it cost the record company to produce (in terms of artist fees and marketing costs) it costs me 99p simply because it’s unlawful to copy it for free.

The interplay between supply and demand does not come into the price of an iTunes track: the supply of the Beatles ‘Love Me Do’ on iTunes is infinite. And, unlike with that of physical records, the price doesn’t change as demand fluctuates either. Apple’s absolute legal right to charge 99p is what sets the price.

To run a multibillion dollar business based on information, Apple does not only rely on copyright law, it has built an entire walled garden of expensive technologies that work together – the Mac, iTunes, the iPod, the iCloud, the iPhone and the iPad – to make it easier for us to obey the law than break it. As a result iTunes dominates global digital music sales, with around 75 per cent of the market.¹⁴

With info-capitalism, a monopoly is not just some clever tactic to maximize profit. It is the only way an industry can run. The small number of companies that dominate each sector is striking. In traditional sectors you have usually four to six big players in every market: the big four

accountancy firms; four or five big supermarket groups; four big turbofan makers. But the signature brands of info-tech need total dominance: Google needs to be the only search company; Facebook has to be the only place you construct your online identity; Twitter where you post your thoughts; iTunes the go-to online music store. In two key markets – online search and mobile operating systems – there is a two-firm death match, with Google currently winning both of them.

Until we had shareable information goods, the basic law of economics was that everything is scarce. Supply and demand assumes scarcity. Now certain goods are not scarce, they are abundant – so supply and demand become irrelevant. The supply of an iTunes track is ultimately one file on a server in Cupertino, technically shareable by everyone. Only intellectual property law and a small piece of code in the iTunes track prevent everybody on earth from owning every piece of music ever made. Apple’s mission statement, properly expressed, is to prevent the abundance of music.

So Romer’s new theory was simultaneously bad news for mainstream economics and reassuring news for the emerging giants of info-capitalism. It tied together in a single explanation many of the anomalies conventional economics had struggled to explain. And it gave a tacit justification for the market position of tech monopolies. The journalist David Warsh summed up its impact:

The fundamental categories of economic analysis ceased to be, as they had been for two hundred years, land, labour and capital. This most elementary classification was supplanted by people, ideas and things … the familiar principle of scarcity had been augmented by the important principle of abundance.¹⁵

On the publication of Romer’s paper in 1990, then, did the world of economics start singing ‘Hallelujah’? It did not. Romer was greeted with hostility and indifference. Critics of mainstream economics, Joseph Stiglitz at their head, had been saying for years that its general assumptions – of perfect information and efficient markets – were wrong. Now Romer, working inside the mainstream and using its methods, had knocked down the mainstream’s defence against these critics. For Romer’s research had

shown that, once you move to an information economy, the market mechanism for setting prices will drive the marginal cost of certain goods, over time, towards zero – eroding profits in the process.

In short, information technology is corroding the normal operation of the price mechanism. This has revolutionary implications for everything, as the rest of this book explores.

If they’d understood capitalism as a finite system, Romer and his supporters might have explored the massive implications of this extraordinary statement – but they did not. They assumed the economy was, as in the textbooks, composed of price makers and price takers: rational individuals trying to pursue their self-interest through the market.

Those who did see the bigger picture were not to be found in the world of professional economics but among the tech visionaries. By the late 1990s they had begun to understand what Romer did not: that info-tech makes possible a non-market economy and creates a demographic prepared to pursue their self-interest through non-market actions.

THE RISE OF OPEN SOURCE

There is a chance you are reading this on a tablet: a Kindle, Nexus or iPad. They rarely crash and you would not even dream of programming them but they are computers nonetheless. The chip in an iPad Air has one billion transistors etched into a single piece of silicon – that’s equivalent to the processing power of 5,000 desktop computers thirty years ago.¹⁶

The base-layer of software needed for an iPad to work is the operating system: iOS. Because computing is today so easy, we barely comprehend the challenge that operating systems presented to the pioneers in the 1970s. In the early years of software, a struggle began over operating systems, which spiralled into a struggle over who should, or can, own information.

For the first thirty years, computers were big and rare, and computing took place in businesses and universities. When desktop PCs were invented in the mid-1970s, they were little more than an assembly of electronic boards and a screen. And corporations did not build them, hobbyists did.

The Altair 8800 was a breakthrough machine, sold via magazine ads to a subculture of geeky people who wanted to learn programming. You needed a programming language to make the computer do what you wanted, and two Seattle-based guys came up with one: Altair BASIC, distributed on a reel of paper with holes punched through it, price \$200. But soon they noticed that sales of the language were lagging behind sales of the computer. Users were copying and distributing the punched paper reels for free. In an angry ‘Open Letter’ the software’s author urged them to kick pirates out of computer club meetings and to pay up: ‘Most of you steal your software. [You believe] hardware must be paid for but software is something to share. Who cares if the people who worked on it get paid.’¹⁷

The author was Bill Gates, and he soon came up with a solution: to own the operating system as well as the programming language. Gates designed Windows, which became the standard operating system on PCs. Soon Windows built a near monopoly of the corporate desktop and Gates became a billionaire. His ‘Open Letter’ would go down as the second most important document in the history of digital economics.

Now here is an excerpt from what I think is the most important document:

If anything deserves a reward, it is social contribution. Creativity can be a social contribution, but only in so far as society is free to use the results. Extracting money from users of a program by restricting their use of it is destructive because the restrictions reduce the amount and the ways that the program can be used. This reduces the amount of wealth that humanity derives from the program. 18

That was Richard Stallman in The GNU Manifesto, which launched the free software movement in 1985. Stallman had been irked not just by Microsoft but by the attempt by makers of much more powerful business computers to ‘own’ a rival operating system called Unix. His plan was to write a free version of Unix, called GNU, distribute it for free, and invite enthusiasts to collaborate on improving it – with the proviso that nobody could own or make money out of it. These principles have become known as ‘Open Source’.

By 1991 GNU had incorporated Linux – a version of Unix for PCs developed by hundreds of programmers working collaboratively, for free, and licensed under the original legal contract that Stallman had designed.

Fast-forward to 2014 and maybe 10 per cent of all corporate computers are running Linux. The ten fastest supercomputers in the world all run Linux. More importantly, the standard tools for running a website – from the operating system to the web server to the database and the programming language – are Open Source.

Firefox, an Open Source browser, has currently around 24 per cent of the global browser market.¹⁹ A staggering 70 per cent of all smartphones run on Android, which is also technically Open Source.²⁰ This is in part due to an overt strategy by Samsung and Google to use Open Source software to undermine Apple’s monopoly and maintain their own market position, but it does not alter the fact that the dominant smartphone on the planet runs on software nobody can own.

The success of Open Source software is startling. It demonstrates that new forms of property ownership and management become not just possible but imperative in an information-rich economy. It shows there are things about information goods that even monopolies can’t monopolize.

According to standard economics a person like Richard Stallman should not exist: he is not following his self-interest but suppressing it in favour of a collective interest that is not just economic but moral.

According to market theory, it is those motivated by the pursuit of private property who should be the more efficient innovators. According to mainstream economics, large corporations such as Google should be doing what Bill Gates did: making a land-grab for everything and trying to destroy Open Source software. Now Google is a hard-assed capitalist firm, but in pursuit of its own interests it is forced to fight for some standards to be open and some software to be free. Google is not postcapitalist – but as long as it keeps Android Open Source it is being forced to act in a way that prefigures non-capitalist forms of ownership and exchange, even if, as the EU is investigating, they use this position to carve out dominance.

The birth of free software and the pursuit of collaborative software projects in the 1980s were just the opening shots of a war that is still raging, and whose battlefront is fluid. The Open Source movement also gave impetus to a movement for freedom of information, to Wikipedia, Wikileaks and a branch of the legal profession dedicated to writing contracts that could defend openness and shareability.

It was within this milieu, in the late 1990s, that the first systematic thinking took place about a question obvious to Drucker, but not to Romer: could an economy based on information networks create a new mode of production beyond capitalism?

SKATING TO THE EDGE OF CHAOS

There is a sound, now forgotten, that will remain hardwired into the memory of the generation born before 1980: a high-pitched whine, which fluctuates and then dissolves into a series of crackles, punctuated by two buzzy bass notes. It’s the sound of a dial-up modem logging on.

When I first heard it sometime in the 1980s, I was trying to get on to Compuserve. Compuserve was a private network, offering email, file transfers and a massive community of bulletin boards. It was a world of words only – in black and white. Even then it was brimming with anger, subversion and pornography.

In 1994 I left Compuserve and joined Easynet, one of the first internet service providers: same technology, different ballgame. Now, the manual proclaimed, I had access to ‘the whole road system, not just one service station’. It gave you access to the World Wide Web, a system for finding everything available on the linked-up computers of the world.

There was not much there. My workplace computer was linked only to the other computers in the building of the publishing company Reed Elsevier. When we tried to write our first web page the IT department refused to allow us to store it on ‘their’ server, which was for doing the payroll. There was no email on my workplace Mac and no web access. Computers were for processing data and were linked together for specific tasks only.

What a visionary, then, was the US journalist Kevin Kelly, to write this in 1997:

The grand irony of our times is that the era of computers is over. All the major consequences of stand-alone computers have already taken place. Computers have speeded up our lives a bit, and that’s it. In contrast, all the most promising technologies making their debut now are chiefly due to communication between computers that is, to connections rather than to computations.²¹

Kelly’s article in Wired triggered a moment of recognition for my generation. Everything up to now – the 5-inch floppy discs for the university mainframe, the green screens of the early Amstrads, the crackle and buzz of the modem – had been the prologue. Suddenly a network economy was taking shape. Kelly wrote: ‘I prefer the term network economy, because information isn’t enough to explain the discontinuities we see. We have been awash in a steadily increasing tide of information for the past century … but only recently has a total reconfiguration of information itself shifted the whole economy.’²²

Kelly himself was no advocate of postcapitalism. Indeed, his book New Rules for the New Economy was a breathless survival manual for old businesses as they tried to engage with the interconnected world. But his contribution was important. It was the moment we began to understand that the ‘intelligent machine’ was not the computer but the network, and that the network would speed up the rate of change and make it unpredictable. In a statement that defines our era, Kelly said: ‘We are now engaged in a grand scheme to augment, amplify, enhance, and extend the relationships and communications between all beings and all objects .’²³

The milestones between then and now are the launch of eBay (1997), which led to the dotcom boom. The first wifi-enabled laptop (a Mac) in 1999. The rollout of the broadband internet, which was always on and ten times faster than dial-up (2000). The expansion of 3G telecoms after 2001, which made the mobile internet possible. The launch of Wikipedia in 2001. The sudden arrival of cheap, standardized digital tools, which was dubbed Web 2.0, in 2004.

At this point, programs and data began to sit within the network rather than on individual computers; the archetypal activities became search, selfpublishing and interaction, including through multibillion dollar online games.

Now came the launch of social networks with MySpace (2003), Facebook (2004) and Twitter (2006); and the launch of the iPhone (2007), the first true smartphone. The iPad and the Kindle in the same year sparked the rapid rise of e-book publishing, whose value has grown from under \$1.5 billion in 2009 to \$15 billion worldwide (2015). Desktop PC sales were overtaken by notebook sales in 2008. Samsung’s first Android phone was launched in 2009.²⁴

Meanwhile, in high-end computing, the first computer to achieve one quadrillion calculations per second was an IBM, in 2008. By 2014, Tianhe-2 in China, running Linux, could do 33 quadrillion. In terms of data storage, 2002 was the year in which the volume of digital information in the world overtook the amount of analog information. Between 2006 and 2012 humanity’s annual information output grew tenfold.²⁵

It’s hard to tell exactly where you are in a tech revolution but my hunch is the simultaneous arrival of tablets, streaming video and music and the takeoff of social media between 2009 and 2014 will be seen as the key moment of synergy. The rollout of billions of machine-to-machine connections, known as the ‘Internet of Things’, in the next ten years will then populate the global information network with more intelligent devices than there are people on earth.

To live through all this was exhilarating enough. Even more exhilarating now is to watch a kid get their first smartphone and find it all – Bluetooth, GPS, 3G, wifi, streaming video, hi-res photography and heart-rate monitor – as if it had always been there.

The network economy emerged, and has become social. In 1997, just 2 per cent of the world’s population had internet access. Now it is 38 per cent, and in the developed world 75 per cent. Today there are ninety-six mobilephone subscriptions for every 100 people in the world, and 30 per cent of

the earth’s inhabitants have an active 3G (or better) mobile. The number of telephone landlines per person is actually falling.²⁶

In the space of a decade, the network has pervaded our lives. The average teenager with a smart device is living a more psychologically connected life than the geekiest computer nerd fifteen years ago.

When Romer and Drucker made their contributions in the early 1990s, the issue was still the impact of intelligent machines. Today we understand implicitly that the network is the machine. And as software and data have moved into the network, the debate about the economic impact of information technology has also begun to focus on the network.

In 1997, Kelly proclaimed the existence of an emerging new economic order with three main characteristics: ‘It is global. It favors intangible things – ideas, information, and relationships. And it is intensely interlinked. These three attributes produce a new type of marketplace and society.’²⁷

Kelly accepted as commonplace what Romer had seen as new seven years before: the tendency of information technology to make data and physical products cheaper, so that the marginal cost of producing them declines towards zero. But, he assured his readers, there was a counterweight to endless supply and falling prices, namely endless demand: ‘Technology and knowledge are driving up demand faster than it is driving down prices … The extent of human needs and desires is limited only by human imagination, which means, in practical terms, there is no limit.’²⁸

The solution, Kelly said, was to invent new goods and services faster than they could slide down the curve to worthlessness. Instead of trying to defend prices, you had to assume they would collapse over time, but build a business in the gap between one and zero. You had, he warned, to ‘skate to the edge of chaos’, to exploit the free knowledge customers donate when they interact with websites. By the late 1990s, the received wisdom among those who understood the problem was that capitalism would survive because innovation would counteract technology’s downward effect on pricing. But nowhere did Kelly explore what might happen if this failed.