Beyond Enlightenment, a Dialectic

Books rarely move at Internet speed. This one is no exception. In early 2001, while sifting sadly through the rubble of my carefully-crafted port­folio of tech stocks, I felt a visceral need to understand where I had gone wrong.

It took me to many different places. The information sector, the broader economy, and the world at large all refused to sit still. New data became available, new issues rose to the fore, old topics faded from cen­trality to obscurity. Open source flitted into view. The more I pondered it, the more I saw it as part of the same story. The P2P furor provided yet another part of the emerging whole. The various drafts of this book followed the ebbs and flows of current events, as America’s attention— and mine—turned from the digital economy to taxes, terror, war, and elections. And though I believe that the information economy plays a central, if sometimes subtle, role in all of these tales, I tried to focus the book on the information sector’s inner workings. The closing chapter began to plumb its relationship to broader societal concerns; this epi­logue continues that work.

By early 2005, the Internet investment bubble will feel like ancient history, a dim relic of a halcyon era. Little public interest remains in the specifics of either its meteoric rise or its tortured unwind. Its centrality to this book faded with each successive draft. Though it remains a crit­ical data source and a cautionary tale, it has lost much of its ability to engage.

As the dot-coms fade into memory, Microsoft manages to stay in the news—and not just because of its appeal pending in Europe challenging DG Comp. In fact, the biggest Microsoft story of summer 2004 was its decision to help consumers—at least those consumers fortunate enough to also be Microsoft shareholders. Microsoft announced plans to return $75 billion to its shareholders over a four-year period, the single largest corporate cash disbursement in history, and a notable strategic change for a company that has long prided itself on its ability to invest its cash surplus more wisely than could its investors. The Economist, typically something of a Microsoft critic, couldn’t help but be impressed, citing “many signs that the company is seeking to change its image—from evil predator... to upstanding corporate citizen.”² Perhaps. But behavior modification is tougher than an image upgrade, and we’ve given Microsoft no reason to change its behavior—an inexcusable failure of public policy. Even assuming that Microsoft now possesses the noblest of intentions, it has no rational reason to avoid leveraging its dominance into software markets adjacent to Windows, or to stop trying to block innovations incompatible with Windows.

As to Microsoft’s open-source bete noires, government adoption seems to be gaining speed. In June 2004, the city of Munich, Germany, announced plans to permanently migrate more than fourteen thousand desktops to a Linux platform, Sun’s OpenOffice, and the Mozilla browser—reportedly history’s largest migration from proprietary to open-source software.³ Various other municipal, provincial, and national governments are moving toward open source—though few announce­ments attract as much attention or as much intense lobbying as did Con­gressman Villanueva’s bill. Despite the attention, and perhaps because of the lobbying, that bill never became Peruvian law.⁴ Meanwhile, in March 2003, SCO (formerly Santa Cruz Operation) sued IBM for infringing property rights that it claimed lay buried within Linux, and threatened to broaden its suit to challenge individual Linux users. In something of an understatement, Fortune explained that Linux, “the free operating system—backed by IBM, HP, and others—is breaking Microsoft’s monopoly. But a lawsuit by SCO, which claims to own parts of the code, could wreck the party.”⁵ Indeed it could. If SCO can prove its claim, it may be able to shut down Linux development, at least for a while, and scare off many individual and institutional users contemplating open­source adoption, likely for a good while longer. And yet, even as the fate of the open-source business model hangs in the balance of the SCO suit, its promise as a general development model is spreading; some think that it might even revolutionize medical research.⁶

This growing curiosity about open-source development stems from the new opportunities in product development, production, and distribution that the new economics of information creates.

In one industry already in midrevolution, central scrutinizer Carey Sherman builds upon Hillary Rosen’s fine work. He’s sued numerous kids driven to crime by digital music, at times even extracting their meager life savings as compensation for their illicit downloads.⁷ Meanwhile, the DMCA wends its way through the economy, granting content owners access to confidential information about accused file-swappers and holding increasing numbers of technologists liable for illicit circumven­tion. The summer of 2004, though, saw some surprisingly positive devel­opments. The Ninth Circuit found some serious limitations on vicarious liability for technologists who enable infringement.⁸ The Federal Circuit announced that DMCA liability could exist only if there was a reason­able relationship between the circumvention and a right that the copy­right laws protect, and then applied that rule to save your garage door from the information sector’s insatiable appetite.⁹ The Sixth Circuit followed suit, and announced that that you can probably use your printer with impunity—but sent the matter back for a trial, just to be sure.¹⁰ So go ahead. Drive home, use your garage, run upstairs, and print the online promotional materials for this book, all with a clean con­science. You can still feel morally superior to kids downloading music. But don’t get too smug. After all, the jury’s still out on your toner cartridge.

The jury is also still out on the DMCA. Most previous critiques of the law have focused on its ability to stifle expression, creativity, and the dis­tribution of works unprotected by copyright—all important topics for debate.¹¹ Such criticisms, limited as they are to concepts like cultural expression, free speech, privacy rights, and civil liberties, typically play better within the temple walls than on the more utilitarian streets of Main and Wall.

When Congress restricts public uses of innovative new technologies to help businesses lock in obsolete business models, it risks distorting the entire economy. Such distortions rarely appear overnight; they often gestate for decades. Between the 1950s and the 1980s, we “decided” that rather than devising the best ways to motivate innovation in the new, functional, textual product called software, we would extend existing bodies of law to cover it—albeit uncomfortably—and granted software developers an unprecedented combination of patent, copyright, and trade-secret protection. Only in the 1990s did we come to appreciate how a dominant software developer could abuse these property rights to distort software markets. We were left trying to fix this fundamental mistake in our assignment of property rights using the blunt, slow, tools of antitrust—and then looking elsewhere for other second-best, after-the- fact patches. We should have been able to do better then, and we should be able to do better now. Though the DMCA's most pernicious effects on the economy are likely still larval, we can already see some signs of infestation. This six-year-old law has retarded P2P, and consequently the demand draw for broadband rollout; the United States now lags much of the developed world in broadband access. The court’s recent preser­vation of your right to open your garage using a competing-brand clicker notwithstanding, numerous manufacturers of consumer products would undoubtedly like to use the DMCA to leverage themselves into after­market monopolists. Future courts will evaluate their claims on a case- by-case basis. Some are likely to succeed—leading to DMCA distortions rippling throughout the broad economy.

If we remain unwilling to reconsider the fundamental nature of IP rights as we transition to a fully information-based economy, we are likely to see growing conflicts between the legal rights that we grant to IP owners and consumers’ basic right to use the products that they buy.

The challenge, as always, lies in getting public policy right. Though Microsoft and the record companies may have damaged our economic and technological interests, they are not villains. These companies are doing exactly what they are supposed to do. They’re using the legal rights that we gave them to maximize shareholder value. If we don’t like the way that our corporate citizens are behaving, we must rethink their motivation. As long as we make it possible for them to lock in their con­sumers and to leverage their areas of dominance outward, they will do so—at least until we tell them that they have hit the boundaries of antitrust law. Anything else would be irrational, delinquent, and irre­sponsible to their shareholders.

Stated simply, if we can’t get public policy right, we can’t fairly blame our largest corporations for following the policies we have rather than those that we espouse. And we have delegated the task of setting public policy to Congress. Congress must remember that though laws and regu­lations can alter the economic calculi driving the information sector, technological developments will always dominate those calculi. Sensible regulation can change only behavior at the margin. Laws designed to combat technology will have to become increasingly draconian as the tech­nology improves. Sound policies must therefore recognize that digital technologies change the economics of development and distribution. Good laws and regulations that serve public policy will promote innova­tive and efficient business models. Bad laws and regulations will lock in existing, and increasingly obsolete, business models. It’s hardly too late for us to get it right—though the longer we follow the wrong path, the harder corrective action will become. That simple message encapsulates the enlightenment that I sought when I first embarked upon my quest.

But one quest leads to another. Though the information sector’s key internal stories unfolded more or less as I expected while Digital Phoenix worked its way from idea to manuscript to book, I failed to anticipate the speed with which our young information sector would begin to trans­form our broader economic, political, and social environments. In my quest to comprehend the bubble, I came to see that the global transition to the information age will be fully as profound as was the transition to the industrial age—and that transitional battles will arrive at Internet speed, giving us nary a chance to catch our collective breaths. The public’s sudden recognition that our industrial-age approaches to edu­cation, training, and reemployment were becoming obsolete is a case in point; I had anticipated the issue, but not the speed with which it would become front-page news. Understanding the relationships among the information sector, its general lessons, and the broader events that have unfolded since the bubble collapsed sets the stage for the next quest.

As any good economic determinist might say, the means of produc­tion will determine the organization of society. We’ve already seen how technology creates new opportunities, commercial laws promote some opportunities and deter others, and economics motivates new business models. That’s when the transition leaps beyond the economic realm, because the remainder of our social structures will adapt to the eco­nomics. The sorts and locations of jobs available will dictate whether we work for large or small concerns, whether we live in rural, suburban, or urban communities, what we choose to study, and which skills will prove most lucrative. We will form new associations, affiliations, and alliances, rethink long-accepted “truths,” and revise every element of every social organization. Leaders of traditional organizations undergoing rapid change and possible dissolution will react with the same hostility that we’ve come to expect from disintermediated middlemen. The transitional battle of the information age will play itself out in every corner of our lives. Information technology will eliminate transaction costs and empower individuals. Savvy innovators will develop new techniques to improve life by working with the new technologies. And threatened incumbents, sensing the imminent loss of their stranglehold on the chan­nels of information flow—the ultimate source of their power—will fight to retard progress.

When I started writing this book in 2001, most people recognized that we were heading into a full-blown global information economy. In the economic sphere, individual empowerment leads to capitalism. The book’s key prescription for the information economy is a legal environ­ment that spreads opportunities broadly while policing rational cheat­ing. My policy proposals—from those detailed for antitrust and IP to those outlined for broader societal concerns—all stem from a funda­mental belief that an environment in which all people are truly free to make informed choices among a wide array of options will enhance social welfare, make us all rich as consumers, and maximize our prospects for a glorious future. Tough enforcement of the antitrust laws in the software realm will make it harder for monopolists to leverage their way from markets whose dominance they earned into those that are still competitive. Severing distribution rights from compensation will keep innovators motivated to craft new digital products without retard­ing new distribution technologies. And tailoring protective rights on digital products to reward innovators quickly inside a narrow window of exclusivity will lead to the rapid, efficient, dissemination of high quality products into the marketplace. Meanwhile, a reformed education system that trains citizens at all stages of life in information-age skills, and that then matches them with jobs requiring those skills, will create a true “opportunity economy.” The elimination of international trade barriers will open those opportunities across the globe, thereby maxi­mizing innovative fervor and the consequent likely return on our infra­structure investment. The information economy spreads information and opportunities while enabling competition among innovative ideas. Poli­cies formulated in this vein will make us all rich as consumers. All of this was foreseeable in mid-2001.

As I conclude this book in early 2005, it has become increasingly clear that we also may be heading toward a full-blown global-information polity—in ways that may not have been evident three or four years ago. In the political sphere, individual empowerment leads to constitutional liberal democracy. The legal environment appropriate for this informa­tion polity will spread opportunities broadly while policing rational cheating. An environment in which all people are truly free to make informed political choices will maximize our prospects for accountable (if not enlightened) leadership—that’s liberal democracy. Rules prevent­ing incumbent majorities from cheating their way into permanent dom­inance will preserve that liberal democracy—that’s constitutionalism. The politics of the information age will help us grow the network of empowered individuals that we call the “free world,” and we will all benefit from that growth.

At least, almost all of us will benefit.

And therein, as always, lies the problem. Because much as disinter­mediated businesses will fight to restrain empowered individual con­sumers, disintermediated authoritarians will fight to restrain empowered individual citizens. But unlike discontented competitors whose attempts to divert technology to extend their dominance nevertheless acknowl­edge prevailing social norms, threatened authoritarians rarely exhibit either morality or decency. And make no mistake about it, we do threaten them. We threaten to empower “their” people with information and choice. We boldly assert that all people possess inherent rights and dignity and freedom of choice. In large parts of the world, these asser­tions remain subversive. The authoritarians who long have controlled information and choice will lose their dominance as our liberal ethos spreads. The growth of our free-world network necessarily imperils the very existence of their controlled networks. And they know it. They will stop at nothing to retain their members.

Though such authoritarian incumbents are entrenched from Zim­babwe to Burma and from North Korea to Belarus, they remain centered in the Middle East. For decades, we in the free world have allowed total­itarians and terrorists to claim all Arabs and Muslims as “their own.” For decades, we have watched silently as Saddam, the Assads, Arafat, the House of Saud, the Iranian Ayatollahs, and their ilk stripped “their” people of individual rights, freedom of choice, and basic human dignity. For decades, we have cynically accepted the intolerable, regarding even such atrocities as Syria’s occupation of Lebanon, serial genocide in the Sudan, the widespread refusal to resettle Arab refugees, the systematic oppression of Christians, Jews, Kurds, and women, and even legalized slavery, as matters internal to “their people.” We have endorsed these incumbents’ refusal to empower “their” people—tacitly at some times, overtly at others—often perversely thanking them for curbing the extremism of “the street.”

That decades-long approach cannot persist in the information age. Though constitutional liberal democracy is well suited to a networked world, it is not the only societal model capable of harnessing network effects; the loosely-linked terror network also avails itself of information­age advances. People already suffering from a lack of empowerment and individual dignity are easy prey for information-age terror networks. Terror leaders will wean some away from incumbent totalitarians, kill those that they can’t convert, and generally make it difficult for us to recruit “their people” into our free-world network. Our past—and in many cases ongoing—support of incumbent authoritarians similarly committed to preventing the empowerment of “their people” leaves us with little credibility to counter the terror networks’ membership drives. “Those people” whom we long ago abandoned to totalitarian kinsmen now have become both the front-line victims and the hapless cannon fodder of the information age’s networked terrorists.

Totalitarians and terrorists differ only in their methods, never in their goals. Both seek to maximize their monopolies of “the truth” by limit­ing human dignity, access to information, and freedom of choice. Total­itarians consolidate absolute control over small networks before leveraging their way outward; terrorists define and control network spec­ifications, open their membership to all who adopt those specs, and attempt to crush incompatible ideas as they arise. In other words, much as totalitarians perverted industrial-age technology to control society,¹⁴ so terrorists pervert information-age advances to control behavior. But both seek the same goal—an elimination of all choices other than their own monopolized “truth.” In the past, we have trusted selected totali­tarians to restrain terrorists—a morally reprehensible strategy that nev­ertheless did seem to work. The superior suitability of the terrorist model to an age of networks and information, however, suggests that such deals with the devil are unlikely to work much longer. And we are up against a formidable network with straightforward specs: a contempt for liber­alism, a total devaluation of human life, a commitment to anti-Semitic, anti-Christian, and anti-American verbiage, and a devotional belief in the superiority of an aberrant strand of Islam. The Islamofascist terror network has become so popular that even former Marxist-Lenninist notables have adopted its specs as the best way to continue their antilib­eral, anti-Western jihad. And it threatens incumbent totalitarians throughout the Arab and Islamic worlds.

But the terrorists’ ability to harness the lessons of network theory will do more than threaten totalitarians. It will bring them into inevitable and constant conflict with our liberal free-world network, and our own recent advances in the Islamic world. Whereas it at least was possible to coexist with totalitarians who limited their atrocities to “their own people,” our free-world network simply cannot coexist for long with a terror network. The “market” will tip toward one or the other; the loser will crumble into insignificance. And the terror network cannot truly crumble until we convert “their people” to members of “our” network. One way or another, the information age will empower all individuals to make at least some choices. Those for whom the only viable alterna­tives are totalitarians and terrorists will choose to follow one or the other—increasingly the terrorists, for no reason other than the superior suitability of their model to a networked world. If we want to promote a third choice, we must create new opportunities. We must defeat both totalitarians and terrorists to enable “their people” to join the free-world network. And we need to pierce the venomous opprobrium of the incum­bents to make liberalism relevant and attractive to “their people.” Those tasks promise to be difficult, but they are entirely necessary. A global information polity that does not move toward constitutional liberal democracy will necessarily devolve into either anarchic terror or totali­tarian control.

Though it receives little press, we actually entered the information age with a promising start. In the 1990s, we did try to change the rules. With peace and prosperity seemingly breaking out everywhere, we attempted (with varying degrees of success) to empower individual Arabs and Muslims, from Kuwaitis and Palestinians to Bosnians, Kosovars, Somalis, Kurds, and Indonesians. The United States took the lead in offering them full membership in our free-world network. Shimon Peres, then Israel’s Foreign Minister, spoke hopefully of a New Middle East, “a regional community of nations, with a common market and elected centralized bodies, modeled on the European Community.”¹⁵ But Peres’s vision threatened to disintermediate too many incumbents—and like most visions of the 90s, paid insufficient heed to the nascent terror network, growing silently alongside our own. His nation fell into a trap that paralleled that of the dot-coms—though with much bloodier results. Israel had dared to dream that economic development and the new opportunities that it creates would lead its neighbors to want peace. The promise of progress seduced Israel, a key contributor to the information economy, as it did much of the free world. But what we see as promise, others see as threat. The terrorists and totalitarians who currently control information and choice throughout the Muslim Middle East spurned our numerous overtures to empower “their” people, first in Jerusalem in September 2000, a year later in New York and Washington, and around the globe in the three years since. These incumbents understood that they could never maintain their monopolies of “truth” and power in a peace­ful world rich in individual opportunities. And true to their nature, these incumbents elevated their own interests above those of “their people.” “Their people,” uncertain whether we stand for stable incumbents, for true empowerment, or for narrow, self-serving interests, understandably seethe in rage at both those of us who had invited them to join the free world and those who declined our invitation in their names.

The battle for the global information polity surely will be the bloodi­est of our transition to the information age. And though we may need guns and tanks and bombs to clear out the incumbent detritus prevent­ing true information-age empowerment, we cannot win this battle with military might alone. To win, we must convert newly empowered people into full members of our free-world network—and we can do that only if we remember that their rights, needs, and interests remain important to us.¹⁶ After all, they are prospective members of our network, and we will become safer, richer, and stronger when they join.

The information economy is both our best weapon and our most vul­nerable target. Terror is a tactic that increases transaction costs; safety and security measures are necessary grit in an economy that we would prefer to lubricate. And the masters of the terror networks begin with a significant advantage; it is simply easier to destroy than it is to build. But network magic remains on our side—if we use it wisely. The more suc­cessfully we grow the information economy, the more we will be able to share with our new members, and the more appealing full membership in the free-world network will become. A robust information sector is the key to many battles of the transition. Not only will it improve our lives directly, it also will increase our resources for spreading opportu­nities broadly. A robust information economy will let us grow the free world and destroy the competing unfree networks. That is, a robust information economy will enable these marvels if the threatened incum­bents don’t kill us and destroy our handiwork first. And therein lies the key to understanding the transitional political war of the information age: We seek to build and to empower; they seek to destroy and to control.

The digital economy that dominated the 1990s and the currently dom­inant tales of terror and war are not the same story—and this book did justice only to the former. But they are interconnected. They both grow from the ways in which information empowers individuals and drives disintermediated incumbents to fight that empowerment. It is hardly coincidental that the information age’s first great story involved its poten­tial to enrich us all through empowerment and growth, while its second great story involves its potential to impoverish us all through restraint and destruction. Our next great imperative is to devise a strategy that will help us return the first story to dominance while quashing the second story’s challenge. We must terminate both terrorist movements and total­itarian states to facilitate robust economic growth. Robust economic growth, in turn, will facilitate our victory over totalitarians and terror­ists. The emergence of a global information polity, respectful of human dignity and individual rights, and grounded in constitutional democratic liberalism, rests in no small part upon the health of the information economy. These two stories are thus the thesis and antithesis of our current global transition. They will reach synthesis only when we move the planet and all of its peoples into an information age of empowered individuals.

The patterns taking shape as we transition to an information economy will recur as each aspect of society transitions to the information age. Our primary challengers throughout this transition will be powerful incumbents poised to lose as the vast majority of us win. If we meet these challenges wisely, we can make the world a better place, where free, informed people will form opinions, exercise choices, bear responsibil­ity for poor choices, benefit from good choices, and learn how to make better choices.

Such being the reasons which make it imperative that human beings should be free to form opinions and to express their opinions without reserve; and such the baneful consequences to the intellectual, and through that to the moral nature of man, unless this liberty is either conceded or asserted in spite of prohibition... he who lets the world, or his own portion of it, choose his plan of life for him has no need of any other faculty than the ape-like one of imitation. He who chooses his plan for himself employs all his faculties. He must use observation to see, reasoning and judgment to foresee, activity to gather materials for deci­sion, discrimination to decide, and when he has decided, firmness and self-control to hold to his deliberate position.¹⁷

John Stuart Mill penned those words in the midst of Europe’s transi­tion to a fully industrial age. If we successfully adapt Mill’s thoughts to guide us through our current transition, the information economy will soar once more, rising like a digital phoenix from the ashes of the once- proud Internet bubble to make the information age the glorious era that it has the potential to become. If we fail, the outcome may be cata­strophic. The choice is ours. And the future of more than just the infor­mation sector does hang in the balance.