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[[John Stuart Mill, On Liberty]] |[[Table of Contents]] | [[2.  Some Basic Economics of Information Production and Innovation|Chapter 2: Summary]]<br>[[Talk:Chapter 2, section 3|Discuss The Effects of Exclusive Rights]]

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== Chapter 2 Some Basic Economics of Information Production and Innovation ==

=== Introduction ===

: [[Chapter 2]]

=== The Diversity of Strategies in our Current Information Production System ===

: [[Chapter 2, section 1]]

=== The Effects of Exclusive Rights ===

: [[Chapter 2, section 2]]

=== When Information Production Meets the Computer Network ===

Music in the nineteenth century was largely a relational good. It was something people did in the physical presence of each other: in the folk way through hearing, repeating, and improvising; in the middle-class way of buying sheet music and playing for guests or attending public performances; or in the upper-class way of hiring musicians. Capital was widely distributed among musicians in the form of instruments, or geographically dispersed in the hands of performance hall (and drawing room) owners. Market-based production depended on performance through presence. It provided opportunities for artists to live and perform locally, or to reach stardom in cultural centers, but without displacing the local performers. With the introduction of the phonograph, a new, more passive relationship to played music was made possible in reliance on the high-capital requirements of recording, copying, and distributing specific instantiations of recorded music - records. What developed was a concentrated, commercial industry, based on massive financial investments in advertising, or preference formation, aimed at getting ever-larger crowds to want those recordings that the recording executives had chosen. In other words, the music industry took on a more industrial model of production, and many of the local venues - from the living room to the local dance hall - came to be occupied by mechanical recordings rather than amateur and professional local performances. This model crowded out some, but not all, of the live-performance-based markets (for example, jazz clubs, piano bars, or weddings), and created new live-performance markets - the megastar concert tour. The music industry shifted from a reliance on Scholarly Lawyer and Joe Einstein models to reliance on Romantic Maximizer and Mickey models. As computers became more music-capable and digital networks became a ubiquitously available distribution medium, we saw the emergence of the present conflict over the regulation of cultural production - the law of copyright - between the twentieth-century, industrial model recording industry and the emerging amateur distribution systems coupled, at least according to its supporters, to a reemergence of decentralized, relation-based markets for professional performance artists.

This stylized story of the music industry typifies the mass media more generally. Since the introduction of the mechanical press and the telegraph, followed by the phonograph, film, the high-powered radio transmitter, and through to the cable plant or satellite, the capital costs of fixing information and cultural goods in a transmission medium - a high-circulation newspaper, a record or movie, a radio or television program - have been high and increasing. The high physical and financial capital costs involved in making a widely accessible information good and distributing it to the increasingly larger communities (brought together by better transportation systems and more interlinked economic and political systems) muted the relative role of nonmarket production, and emphasized the role of those firms that could muster the financial and physical capital necessary to communicate on a mass scale. Just as these large, industrial-age machine requirements increased the capital costs involved in information and cultural production, thereby triggering commercialization and concentration of much of this sector, so too ubiquitously available cheap processors have dramatically reduced the capital input costs required to fix information and cultural expressions and communicate them globally. By doing so, they have rendered feasible a radical reorganization of our information and cultural production system, away from heavy reliance on commercial, concentrated business models and toward greater reliance on nonproprietary appropriation strategies, in particular nonmarket strategies whose efficacy was dampened throughout the industrial period by the high capital costs of effective communication.

Information and cultural production have three primary categories of inputs. The first is existing information and culture. We already know that existing information is a nonrival good - that is, its real marginal cost at any given moment is zero. The second major cost is that of the mechanical means of sensing our environment, processing it, and communicating new information goods. This is the high cost that typified the industrial model, and which has drastically declined in computer networks. The third factor is human communicative capacity - the creativity, experience, and cultural awareness necessary to take from the universe of existing information and cultural resources and turn them into new insights, symbols, or representations meaningful to others with whom we converse. Given the zero cost of existing information and the declining cost of communication and processing, human capacity becomes the primary scarce resource in the networked information economy.

Human communicative capacity, however, is an input with radically different characteristics than those of, say, printing presses or satellites. It is held by each individual, and cannot be "transferred" from one person to another or aggregated like so many machines. It is something each of us innately has, though in divergent quanta and qualities. Individual human capacities, rather than the capacity to aggregate financial capital, become the economic core of our information and cultural production. Some of that human capacity is currently, and will continue to be, traded through markets in creative labor. However, its liberation from the constraints of physical capital leaves creative human beings much freer to engage in a wide range of information and cultural production practices than those they could afford to participate in when, in addition to creativity, experience, cultural awareness and time, one needed a few million dollars to engage in information production. From our friendships to our communities we live life and exchange ideas, insights, and expressions in many more diverse relations than those mediated by the market. In the physical economy, these relationships were largely relegated to spaces outside of our economic production system. The promise of the networked information economy is to bring this rich diversity of social life smack into the middle of our economy and our productive lives.

Let's do a little experiment. Imagine that you were performing a Web search with me. Imagine that we were using Google as our search engine, and that what we wanted to do was answer the questions of an inquisitive six-year-old about Viking ships. What would we get, sitting in front of our computers and plugging in a search request for "Viking Ships"? The first site is Canadian, and includes a collection of resources, essays, and worksheets. An enterprising elementary school teacher at the Gander Academy in Newfoundland seems to have put these together. He has essays on different questions, and links to sites hosted by a wide range of individuals and organizations, such as a Swedish museum, individual sites hosted on geocities, and even to a specific picture of a replica Viking ship, hosted on a commercial site dedicated to selling nautical replicas. In other words, it is a Joe Einstein site that points to other sites, which in turn use either Joe Einstein or Scholarly Lawyer strategies. This multiplicity of sources of information that show up on the very first site is then replicated as one continues to explore the remaining links. The second link is to a Norwegian site called "the Viking Network," a Web ring dedicated to preparing and hosting short essays on Vikings. It includes brief essays, maps, and external links, such as one to an article in <i>Scientific American</i>. "To become a member you must produce an Information Sheet on the Vikings in your local area and send it in electronic format to Viking Network. Your info-sheet will then be included in the Viking Network web." The third site is maintained by a Danish commercial photographer, and hosted in Copenhagen, in a portion dedicated to photographs of archeological finds and replicas of Danish Viking ships. A retired professor from the University of Pittsburgh runs the fourth. The fifth is somewhere between a hobby and a showcase for the services of an individual, independent Web publisher offering publishing-related services. The sixth and seventh are museums, in Norway and Virginia, respectively. The eighth is the Web site of a hobbyists' group dedicated to building Viking Ship replicas. The ninth includes classroom materials and teaching guides made freely available on the Internet by PBS, the American Public Broadcasting Service. Certainly, if you perform this search now, as you read this book, the rankings will change from those I saw when I ran it; but I venture that the mix, the range and diversity of producers, and the relative salience of nonmarket producers will not change significantly.

The difference that the digitally networked environment makes is its capacity to increase the efficacy, and therefore the importance, of many more, and more diverse, nonmarket producers falling within the general category of Joe Einstein. It makes nonmarket strategies - from individual hobbyists to formal, well-funded nonprofits - vastly more effective than they could be in the mass-media environment. The economics of this phenomenon are neither mysterious nor complex. Imagine the grade-school teacher who wishes to put together ten to twenty pages of materials on Viking ships for schoolchildren. Pre-Internet, he would need to go to one or more libraries and museums, find books with pictures, maps, and text, or take his own photographs (assuming he was permitted by the museums) and write his own texts, combining this research. He would then need to select portions, clear the copyrights to reprint them, find a printing house that would set his text and pictures in a press, pay to print a number of copies, and then distribute them to all children who wanted them. Clearly, research today is simpler and cheaper. Cutting and pasting pictures and texts that are digital is cheaper. Depending on where the teacher is located, it is possible that these initial steps would have been insurmountable, particularly for a teacher in a poorly endowed community without easy access to books on the subject, where research would have required substantial travel. Even once these barriers were surmounted, in the precomputer, pre-Internet days, turning out materials that looked and felt like a high quality product, with high-resolution pictures and maps, and legible print required access to capital-intensive facilities. The cost of creating even one copy of such a product would likely dissuade the teacher from producing the booklet. At most, he might have produced a mimeographed bibliography, and perhaps some text reproduced on a photocopier. Now, place the teacher with a computer and a high-speed Internet connection, at home or in the school library. The cost of production and distribution of the products of his effort are trivial. A Web site can be maintained for a few dollars a month. The computer itself is widely accessible throughout the developed world. It becomes trivial for a teacher to produce the "booklet" - with more information, available to anyone in the world, anywhere, at any time, as long as he is willing to spend some of his free time putting together the booklet rather than watching television or reading a book.

When you multiply these very simple stylized facts by the roughly billion people who live in societies sufficiently wealthy to allow cheap ubiquitous Internet access, the breadth and depth of the transformation we are undergoing begins to become clear. A billion people in advanced economies may have between two billion and six billion spare hours among them, every day. In order to harness these billions of hours, it would take the whole workforce of almost 340,000 workers employed by the entire motion picture and recording industries in the United States put together, assuming each worker worked forty-hour weeks without taking a single vacation, for between three and eight and a half years! Beyond the sheer potential quantitative capacity, however one wishes to discount it to account for different levels of talent, knowledge, and motivation, a billion volunteers have qualities that make them more likely to produce what others want to read, see, listen to, or experience. They have diverse interests - as diverse as human culture itself. Some care about Viking ships, others about the integrity of voting machines. Some care about obscure music bands, others share a passion for baking. As Eben Moglen put it, "if you wrap the Internet around every person on the planet and spin the planet, software flows in the network. It's an emergent property of connected human minds that they create things for one another's pleasure and to conquer their uneasy sense of being too alone."/11 It is this combination of a will to create and to communicate with others, and a shared cultural experience that makes it likely that each of us wants to talk about something that we believe others will also want to talk about, that makes the billion potential participants in today's online conversation, and the six billion in tomorrow's conversation, affirmatively better than the commercial industrial model. When the economics of industrial production require high up-front costs and low marginal costs, the producers must focus on creating a few superstars and making sure that everyone tunes in to listen or watch them. This requires that they focus on averaging out what consumers are most likely to buy. This works reasonably well as long as there is no better substitute. As long as it is expensive to produce music or the evening news, there are indeed few competitors for top billing, and the star system can function. Once every person on the planet, or even only every person living in a wealthy economy and 10-20 percent of those living in poorer countries, can easily talk to their friends and compatriots, the competition becomes tougher. It does not mean that there is no continued role for the mass-produced and mass-marketed cultural products - be they Britney Spears or the broadcast news. It does, however, mean that many more "niche markets" - if markets, rather than conversations, are what they should be called - begin to play an ever-increasing role in the total mix of our cultural production system. The economics of production in a digital environment should lead us to expect an increase in the relative salience of nonmarket production models in the overall mix of our information production system, and it is efficient for this to happen - more information will be produced, and much of it will be available for its users at its marginal cost.

The known quirky characteristics of information and knowledge as production goods have always given nonmarket production a much greater role in this production system than was common in capitalist economies for tangible goods. The dramatic decline in the cost of the material means of producing and exchanging information, knowledge, and culture has substantially decreased the costs of information expression and exchange, and thereby increased the relative efficacy of nonmarket production. When these facts are layered over the fact that information, knowledge, and culture have become the central high-value-added economic activities of the most advanced economies, we find ourselves in a new and unfamiliar social and economic condition. Social behavior that traditionally was relegated to the peripheries of the economy has become central to the most advanced economies. Nonmarket behavior is becoming central to producing our information and cultural environment. Sources of knowledge and cultural edification, through which we come to know and comprehend the world, to form our opinions about it, and to express ourselves in communication with others about what we see and believe have shifted from heavy reliance on commercial, concentrated media, to being produced on a much more widely distributed model, by many actors who are not driven by the imperatives of advertising or the sale of entertainment goods.

=== Strong Exclusive Rights in the Digital Environment ===

: [[Chapter 2, section 4]]

=== Note ===

11. Eben Moglen, "Anarchism Triumphant: Free Software and the Death of Copyright," <i>First Monday</i> (1999), http://www.firstmonday.dk/issues/issue4_8/moglen/


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[[John Stuart Mill, On Liberty]] |[[Table of Contents]] | [[2.  Some Basic Economics of Information Production and Innovation|Chapter 2: Summary]]<br>[[Talk:Chapter 2, section 3|Discuss The Effects of Exclusive Rights]]
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