Who is the ICANN Chairman, and what
has she done with Esther Dyson ;-)
Jay.
Cyberspace and the American Dream:
A Magna Carta for the Knowledge Age
by Esther Dyson, George Gilder, George Keyworth, and Alvin Toffler
Release 1.2, August 22, 1994
Preamble
The central event of the 20th century is the overthrow of matter. In
technology, economics, and the politics of nations, wealth -- in the form
of physical resources -- has been losing value and significance. The powers
of mind are everywhere ascendant over the brute force of things.
In a First Wave economy, land and farm labor are the main "factors of
production." In a Second Wave economy, the land remains valuable while the
"labor" becomes massified around machines and larger industries. In a Third
Wave economy, the central resource -- a single word broadly encompassing
data, information, images, symbols, culture, ideology, and values -- is
actionable knowledge.
The industrial age is not fully over. In fact, classic Second Wave sectors
(oil, steel, auto-production) have learned how to benefit from Third Wave
technological breakthroughs -- just as the First Wave's agricultural
productivity benefited exponentially from the Second Wave's
farm-mechanization.
But the Third Wave, and the Knowledge Age it has opened, will not deliver
on its potential unless it adds social and political dominance to its
accelerating technological and economic strength.
This means repealing Second Wave laws and retiring Second Wave attitudes.
It also gives to leaders of the advanced democracies a special
responsibility -- to facilitate, hasten, and explain the transition.
As humankind explores this new "electronic frontier" of knowledge, it must
confront again the most profound questions of how to organize itself for
the common good. The meaning of freedom, structures of self-government,
definition of property, nature of competition, conditions for cooperation,
sense of community and nature of progress will each be redefined for the
Knowledge Age -- just as they were redefined for a new age of industry some
250 years ago.
What our 20th-century countrymen came to think of as the "American dream,"
and what resonant thinkers referred to as "the promise of American life" or
"the American Idea," emerged from the turmoil of 19th-century
industrialization. Now it's our turn: The knowledge revolution, and the
Third Wave of historical change it powers, summon us to renew the dream and
enhance the promise.
The Nature of Cyberspace
The Internet -- the huge (2.2 million computers), global (135 countries),
rapidly growing (10-15% a month) network that has captured the American
imagination -- is only a tiny part of cyberspace. So just what is cyberspace?
More ecosystem than machine, cyberspace is a bioelectronic environment that
is literally universal: It exists everywhere there are telephone wires,
coaxial cables, fiber-optic lines or electromagnetic waves.
This environment is "inhabited" by knowledge, including incorrect ideas,
existing in electronic form. It is connected to the physical environment by
portals which allow people to see what's inside, to put knowledge in, to
alter it, and to take knowledge out. Some of these portals are one-way
(e.g. television receivers and television transmitters); others are two-way
(e.g. telephones, computer modems).
Most of the knowledge in cyberspace lives the most temporary (or so we
think) existence: Your voice, on a telephone wire or microwave, travels
through space at the speed of light, reaches the ear of your listener, and
is gone forever.
But people are increasingly building cyberspatial "warehouses" of data,
knowledge, information and misinformation in digital form, the ones and
zeros of binary computer code. The storehouses themselves display a
physical form (discs, tapes, CD-ROMs) -- but what they contain is
accessible only to those with the right kind of portal and the right kind
of key.
The key is software, a special form of electronic knowledge that allows
people to navigate through the cyberspace environment and make its contents
understandable to the human senses in the form of written language,
pictures and sound.
People are adding to cyberspace -- creating it, defining it, expanding it
-- at a rate that is already explosive and getting faster. Faster
computers, cheaper means of electronic storage, improved software and more
capable communications channels (satellites, fiber-optic lines) -- each of
these factors independently add to cyberspace. But the real explosion comes
from the combination of all of them, working together in ways we still do
not understand.
The bioelectronic frontier is an appropriate metaphor for what is happening
in cyberspace, calling to mind as it does the spirit of invention and
discovery that led ancient mariners to explore the world, generations of
pioneers to tame the American continent and, more recently, to man's first
exploration of outer space.
But the exploration of cyberspace brings both greater opportunity, and in
some ways more difficult challenges, than any previous human adventure.
Cyberspace is the land of knowledge, and the exploration of that land can
be a civilization's truest, highest calling. The opportunity is now before
us to empower every person to pursue that calling in his or her own way.
The challenge is as daunting as the opportunity is great. The Third Wave
has profound implications for the nature and meaning of property, of the
marketplace, of community and of individual freedom. As it emerges, it
shapes new codes of behavior that move each organism and institution --
family, neighborhood, church group, company, government, nation --
inexorably beyond standardization and centralization, as well as beyond the
materialist's obsession with energy, money and control.
Turning the economics of mass-production inside out, new information
technologies are driving the financial costs of diversity -- both product
and personal -- down toward zero, "demassifying" our institutions and our
culture. Accelerating demassification creates the potential for vastly
increased human freedom.
It also spells the death of the central institutional paradigm of modern
life, the bureaucratic organization. (Governments, including the American
government, are the last great redoubt of bureaucratic power on the face of
the planet, and for them the coming change will be profound and probably
traumatic.)
In this context, the one metaphor that is perhaps least helpful in
thinking about cyberspace is -- unhappily -- the one that has gained the
most currency: The Information Superhighway. Can you imagine a phrase less
descriptive of the nature of cyberspace, or more misleading in thinking
about its implications? Consider the following set of polarities:
Information Superhighway / Cyberspace
Limited Matter / Unlimited Knowledge Centralized
/ Decentralized Moving on a grid / Moving in
space Government ownership / A vast array of ownerships
Bureaucracy / Empowerment Efficient but not hospitable
/ Hospitable if you customize it Withstand the elements /
Flow, float and fine-tune Unions and contractors / Associations
and volunteers Liberation from First Wave / Liberation from Second
Wave Culmination of Second Wave / Riding the Third Wave
The highway analogy is all wrong," explained Peter Huber in Forbes this
spring, "for reasons rooted in basic economics. Solid things obey immutable
laws of conservation -- what goes south on the highway must go back north,
or you end up with a mountain of cars in Miami. By the same token,
production and consumption must balance. The average Joe can consume only
as much wheat as the average Jane can grow. Information is completely
different. It can be replicated at almost no cost -- so every individual
can (in theory) consume society's entire output. Rich and poor alike, we
all run information deficits. We all take in more than we put out."
The Nature and Ownership of Property
Clear and enforceable property rights are essential for markets to work.
Defining them is a central function of government. Most of us have "known"
that for a long time. But to create the new cyberspace environment is to
create new property -- that is, new means of creating goods (including
ideas) that serve people.
The property that makes up cyberspace comes in several forms: Wires,
coaxial cable, computers and other "hardware"; the electromagnetic
spectrum; and "intellectual property" -- the knowledge that dwells in and
defines cyberspace.
In each of these areas, two questions that must be answered. First, what
does "ownership" mean? What is the nature of the property itself, and what
does it mean to own it? Second, once we understand what ownership means,
who is the owner? At the level of first principles, should ownership be
public (i.e. government) or private (i.e. individuals)?
The answers to these two questions will set the basic terms upon which
America and the world will enter the Third Wave. For the most part,
however, these questions are not yet even being asked. Instead, at least in
America, governments are attempting to take Second Wave concepts of
property and ownership and apply them to the Third Wave. Or they are
ignoring the problem altogether.
For example, a great deal of attention has been focused recently on the
nature of "intellectual property" -- i.e. the fact that knowledge is what
economists call a "public good," and thus requires special treatment in the
form of copyright and patent protection.
Major changes in U.S. copyright and patent law during the past two decades
have broadened these protections to incorporate "electronic property." In
essence, these reforms have attempted to take a body of law that originated
in the 15th century, with Gutenberg's invention of the printing press, and
apply it to the electronically stored and transmitted knowledge of the
Third Wave.
A more sophisticated approach starts with recognizing how the Third Wave
has fundamentally altered the nature of knowledge as a "good," and that the
operative effect is not technology per se (the shift from printed books to
electronic storage and retrieval systems), but rather the shift from a
mass-production, mass-media, mass-culture civilization to a demassified
civilization.
The big change, in other words, is the demassification of actionable
knowledge.
The dominant form of new knowledge in the Third Wave is perishable,
transient, customized knowledge: The right information, combined with the
right software and presentation, at precisely the right time. Unlike the
mass knowledge of the Second Wave -- "public good" knowledge that was
useful to everyone because most people's information needs were
standardized -- Third Wave customized knowledge is by nature a private good.
If this analysis is correct, copyright and patent protection of knowledge
(or at least many forms of it) may no longer be unnecessary. In fact, the
marketplace may already be creating vehicles to compensate creators of
customized knowledge outside the cumbersome copyright/patent process, as
suggested last year by John Perry Barlow:
"One existing model for the future conveyance of intellectual property is
real-time performance, a medium currently used only in theater, music,
lectures, stand-up comedy and pedagogy. I believe the concept of
performance will expand to include most of the information economy, from
multi-casted soap operas to stock analysis. In these instances, commercial
exchange will be more like ticket sales to a continuous show than the
purchase of discrete bundles of that which is being shown. The other model,
of course, is service. The entire professional class -- doctors, lawyers,
consultants, architects, etc. -- are already being paid directly for their
intellectual property. Who needs copyright when you're on a retainer?"
Copyright, patent and intellectual property represent only a few of the
"rights" issues now at hand. Here are some of the others:
Ownership of the electromagnetic spectrum, traditionally considered to be
"public property," is now being "auctioned" by the Federal Communications
Commission to private companies. Or is it? Is the very limited "bundle of
rights" sold in those auctions really property, or more in the nature of a
use permit -- the right to use a part of the spectrum for a limited time,
for limited purposes? In either case, are the rights being auctioned
defined in a way that makes technological sense? Ownership over the
infrastructure of wires, coaxial cable and fiber-optic lines that are such
prominent features in the geography of cyberspace is today much less clear
than might be imagined. Regulation, especially price regulation, of this
property can be tantamount to confiscation, as America's cable operators
recently learned when the Federal government imposed price limits on them
and effectively confiscated an estimated $___ billion of their net worth.
(Whatever one's stance on the FCC's decision and the law behind it, there
is no disagreeing with the proposition that one's ownership of a good is
less meaningful when the government can step in, at will, and dramatically
reduce its value.) The nature of capital in the Third Wave -- tangible
capital as well as intangible -- is to depreciate in real value much faster
than industrial-age capital -- driven, if nothing else, by Moore's Law,
which states that the processing power of the microchip doubles at least
every 18 months. Yet accounting and tax regulations still require property
to be depreciated over periods as long as 30 years. The result is a heavy
bias in favor of "heavy industry" and against nimble, fast-moving baby
businesses.
Who will define the nature of cyberspace property rights, and how? How can
we strike a balance between interoperable open systems and protection of
property?
The Nature Of The Marketplace
Inexpensive knowledge destroys economies-of-scale. Customized knowledge
permits "just in time" production for an ever rising number of goods.
Technological progress creates new means of serving old markets, turning
one-time monopolies into competitive battlegrounds.
These phenomena are altering the nature of the marketplace, not just for
information technology but for all goods and materials, shipping and
services. In cyberspace itself, market after market is being transformed by
technological progress from a "natural monopoly" to one in which
competition is the rule. Three recent examples:
The market for "mail" has been made competitive by the development of fax
machines and overnight delivery -- even though the "private express
statutes" that technically grant the U.S. Postal Service a monopoly over
mail delivery remain in place. During the past 20 years, the market for
television has been transformed from one in which there were at most a few
broadcast TV stations to one in which consumers can choose among broadcast,
cable and satellite services. The market for local telephone services,
until recently a monopoly based on twisted-pair copper cables, is rapidly
being made competitive by the advent of wireless service and the entry of
cable television into voice communication. In England, Mexico, New Zealand
and a host of developing countries, government restrictions preventing such
competition have already been removed and consumers actually have the
freedom to choose.
The advent of new technology and new products creates the potential for
dynamic competition -- competition between and among technologies and
industries, each seeking to find the best way of serving customers' needs.
Dynamic competition is different from static competition, in which many
providers compete to sell essentially similar products at the lowest price.
Static competition is good, because it forces costs and prices to the
lowest levels possible for a given product. Dynamic competition is better,
because it allows competing technologies and new products to challenge the
old ones and, if they really are better, to replace them. Static
competition might lead to faster and stronger horses. Dynamic competition
gives us the automobile.
Such dynamic competition -- the essence of what Austrian economist Joseph
Schumpeter called "creative destruction" -- creates winners and losers on a
massive scale. New technologies can render instantly obsolete billions of
dollars of embedded infrastructure, accumulated over decades. The
transformation of the U.S. computer industry since 1980 is a case in point.
In 1980, everyone knew who led in computer technology. Apart from the
minicomputer boom, mainframe computers were the market, and America's
dominance was largely based upon the position of a dominant vendor -- IBM,
with over 50% world market-share.
Then the personal-computing industry exploded, leaving older-style
big-business-focused computing with a stagnant, piece of a burgeoning total
market. As IBM lost market-share, many people became convinced that America
had lost the ability to compete. By the mid-1980s, such alarmism had
reached from Washington all the way into the heart of Silicon Valley.
But the real story was the renaissance of American business and
technological leadership. In the transition from mainframes to PCs, a vast
new market was created. This market was characterized by dynamic
competition consisting of easy access and low barriers to entry. Start-ups
by the dozens took on the larger established companies -- and won.
After a decade of angst, the surprising outcome is that America is not only
competitive internationally, but, by any measurable standard, America
dominates the growth sectors in world economics -- telecommunications,
microelectronics, computer networking (or "connected computing") and
software systems and applications.
The reason for America's victory in the computer wars of the 1980s is that
dynamic competition was allowed to occur, in an area so breakneck and
pell-mell that government would've had a hard time controlling it _even had
it been paying attention_. The challenge for policy in the 1990s is to
permit, even encourage, dynamic competition in every aspect of the
cyberspace marketplace.
The Nature of Freedom
Overseas friends of America sometimes point out that the U.S. Constitution
is unique -- because it states explicitly that power resides with the
people, who delegate it to the government, rather than the other way around.
This idea -- central to our free society -- was the result of more than 150
years of intellectual and political ferment, from the Mayflower Compact to
the U.S. Constitution, as explorers struggled to establish the terms under
which they would tame a new frontier.
And as America continued to explore new frontiers -- from the Northwest
Territory to the Oklahoma land-rush -- it consistently returned to this
fundamental principle of rights, reaffirming, time after time, that power
resides with the people.
Cyberspace is the latest American frontier. As this and other societies
make ever deeper forays into it, the proposition that ownership of this
frontier resides first with the people is central to achieving its true
potential.
To some people, that statement will seem melodramatic. America, after all,
remains a land of individual freedom, and this freedom clearly extends to
cyberspace. How else to explain the uniquely American phenomenon of the
hacker, who ignored every social pressure and violated every rule to
develop a set of skills through an early and intense exposure to low-cost,
ubiquitous computing.
Those skills eventually made him or her highly marketable, whether in
developing applications-software or implementing networks. The hacker
became a technician, an inventor and, in case after case, a creator of new
wealth in the form of the baby businesses that have given America the lead
in cyberspatial exploration and settlement.
It is hard to imagine hackers surviving, let alone thriving, in the more
formalized and regulated democracies of Europe and Japan. In America,
they've become vital for economic growth and trade leadership. Why? Because
Americans still celebrate individuality over conformity, reward achievement
over consensus and militantly protect the right to be different.
But the need to affirm the basic principles of freedom is real. Such an
affirmation is needed in part because we are entering new territory, where
there are as yet no rules -- just as there were no rules on the American
continent in 1620, or in the Northwest Territory in 1787.
Centuries later, an affirmation of freedom -- by this document and similar
efforts -- is needed for a second reason: We are at the end of a century
dominated by the mass institutions of the industrial age. The industrial
age encouraged conformity and relied on standardization. And the
institutions of the day -- corporate and government bureaucracies, huge
civilian and military administrations, schools of all types -- reflected
these priorities. Individual liberty suffered -- sometimes only a little,
sometimes a lot:
In a Second Wave world, it might make sense for government to insist on the
right to peer into every computer by requiring that each contain a special
"clipper chip." In a Second Wave world, it might make sense for government
to assume ownership over the broadcast spectrum and demand massive payments
from citizens for the right to use it. In a Second Wave world, it might
make sense for government to prohibit entrepreneurs from entering new
markets and providing new services. And, in a Second Wave world, dominated
by a few old-fashioned, one-way media "networks," it might even make sense
for government to influence which political viewpoints would be carried
over the airwaves.
All of these interventions might have made sense in a Second Wave world,
where standardization dominated and where it was assumed that the scarcity
of knowledge (plus a scarcity of telecommunications capacity) made
bureaucracies and other elites better able to make decisions than the
average person.
But, whether they made sense before or not, these and literally thousands
of other infringements on individual rights now taken for granted make no
sense at all in the Third Wave.
For a century, those who lean ideologically in favor of freedom have found
themselves at war not only with their ideological opponents, but with a
time in history when the value of conformity was at its peak. However
desirable as an ideal, individual freedom often seemed impractical. The
mass institutions of the Second Wave required us to give up freedom in
order for the system to "work."
The coming of the Third Wave turns that equation inside-out. The complexity
of Third Wave society is too great for any centrally planned bureaucracy to
manage. Demassification, customization, individuality, freedom -- these are
the keys to success for Third Wave civilization.
The Essence of Community
If the transition to the Third Wave is so positive, why are we experiencing
so much anxiety? Why are the statistics of social decay at or near all-time
highs? Why does cyberspatial "rapture" strike millions of prosperous
Westerners as lifestyle rupture? Why do the principles that have held us
together as a nation seem no longer sufficient -- or even wrong?
The incoherence of political life is mirrored in disintegrating
personalities. Whether 100% covered by health plans or not,
psychotherapists and gurus do a land-office business, as people wander
aimlessly amid competing therapies. People slip into cults and covens or,
alternatively, into a pathological privatism, convinced that reality is
absurd, insane or meaningless. "If things are so good," Forbes magazine
asked recently, "why do we feel so bad?"
In part, this is why: Because we constitute the final generation of an old
civilization and, at the very same time, the first generation of a new one.
Much of our personal confusion and social disorientation is traceable to
conflict within us and within our political institutions -- between the
dying Second Wave civilization and the emergent Third Wave civilization
thundering in to take its place.
Second Wave ideologues routinely lament the breakup of mass society. Rather
than seeing this enriched diversity as an opportunity for human
development, they attach it as "fragmentation" and "balkanization." But to
reconstitute democracy in Third Wave terms, we need to jettison the
frightening but false assumption that more diversity automatically brings
more tension and conflict in society.
Indeed, the exact reverse can be true: If 100 people all desperately want
the same brass ring, they may be forced to fight for it. On the other hand,
if each of the 100 has a different objective, it is far more rewarding for
them to trade, cooperate, and form symbiotic relationships. Given
appropriate social arrangements, diversity can make for a secure and stable
civilization.
No one knows what the Third Wave communities of the future will look like,
or where "demassification" will ultimately lead. It is clear, however, that
cyberspace will play an important role knitting together in the diverse
communities of tomorrow, facilitating the creation of "electronic
neighborhoods" bound together not by geography but by shared interests.
Socially, putting advanced computing power in the hands of entire
populations will alleviate pressure on highways, reduce air pollution,
allow people to live further away from crowded or dangerous urban areas,
and expand family time.
The late Phil Salin (in Release 1.0 11/25/91) offered this perspective:
"[B]y 2000, multiple cyberspaces will have emerged, diverse and
increasingly rich. Contrary to naive views, these cyberspaces will not all
be the same, and they will not all be open to the general public. The
global network is a connected 'platform' for a collection of diverse
communities, but only a loose, heterogeneous community itself. Just as
access to homes, offices, churches and department stores is controlled by
their owners or managers, most virtual locations will exist as distinct
places of private property."
"But unlike the private property of today," Salin continued, "the potential
variations on design and prevailing customs will explode, because many
variations can be implemented cheaply in software. And the 'externalities'
associated with variations can drop; what happens in one cyberspace can be
kept from affecting other cyberspaces."
"Cyberspaces" is a wonderful pluralistic word to open more minds to the
Third Wave's civilizing potential. Rather than being a centrifugal force
helping to tear society apart, cyberspace can be one of the main forms of
glue holding together an increasingly free and diverse society.
The Role of Government
The current Administration has identified the right goal: Reinventing
government for the 21st Century. To accomplish that goal is another matter,
and for reasons explained in the next and final section, it is not likely
to be fully accomplished in the immediate future. This said, it is
essential that we understand what it really means to create a Third Wave
government and begin the process of transformation.
Eventually, the Third Wave will affect virtually everything government
does. The most pressing need, however, is to revamp the policies and
programs that are slowing the creation of cyberspace. Second Wave programs
for Second Wave industries -- the status quo for the status quo -- will do
little damage in the short run. It is the government's efforts to apply its
Second Wave modus operandi to the fast-moving, decentralized creatures of
the Third Wave that is the real threat to progress. Indeed, if there is to
be an "industrial policy for the knowledge age," it should focus on
removing barriers to competition and massively deregulating the
fast-growing telecommunications and computing industries.
One further point should be made at the outset: Government should be as
strong and as big as it needs to be to accomplish its central functions
effectively and efficiently. The reality is that a Third Wave government
will be vastly smaller (perhaps by 50 percent or more) than the current one
-- this is an inevitable implication of the transition from the centralized
power structures of the industrial age to the dispersed, decentralized
institutions of the Third. But smaller government does not imply weak
government; nor does arguing for smaller government require being "against"
government for narrowly ideological reasons.
Indeed, the transition from the Second Wave to the Third Wave will require
a level of government activity not seen since the New Deal. Here are five
proposals to back up the point.
1. The Path to Interactive Multimedia Access
The "Jeffersonian Vision" offered by Mitch Kapor and Jerry Berman has
propelled the Electronic Frontier Foundation's campaign for an "open
platform" telecom architecture:
"The amount of electronic material the superhighway can carry is dizzying,
compared to the relatively narrow range of broadcast TV and the limited
number of cable channels. Properly constructed and regulated, it could be
open to all who wish to speak, publish and communicate. None of the
interactive services will be possible, however, if we have an eight-lane
data superhighway rushing into every home and only a narrow footpath coming
back out. Instead of settling for a multimedia version of the same
entertainment that is increasingly dissatisfying on today's TV, we need a
superhighway that encourages the production and distribution of a broader,
more diverse range of programming" (New York Times 11/24/93 p. A25).
The question is: What role should government play in bringing this vision
to reality? But also: Will incentives for the openly-accessible, "many to
many," national multimedia network envisioned by EFF harm the rights of
those now constructing thousands of non-open local area networks?
These days, interactive multimedia is the daily servant only of avant-garde
firms and other elites. But the same thing could have been said about
word-processors 12 years ago, or phone-line networks six years ago. Today
we have, in effect, universal access to personal computing -- which no
political coalition ever subsidized or "planned." And America's networking
menu is in a hyper-growth phase. Whereas the accessing software cost $50
two years ago, today the same companies hand it out free -- to get more
people on-line.
This egalitarian explosion has occurred in large measure because
government has stayed out of these markets, letting personal computing take
over while mainframes rot (almost literally) in warehouses, and allowing
(no doubt more by omission than commission) computer networks to grow, free
of the kinds of regulatory restraints that affect phones, broadcast and cable.
All of which leaves reducing barriers to entry and innovation as the only
effective near-term path to Universal Access. In fact, it can be argued
that a near-term national interactive multimedia network is impossible
unless regulators permit much greater collaboration between the cable
industry and phone companies. The latter's huge fiber resources (nine times
as extensive as industry fiber and rising rapidly) could be joined with the
huge asset of 57 million broadband links (i.e. into homes now receiving
cable-TV service) to produce a new kind of national network -- multimedia,
interactive and (as costs fall) increasingly accessible to Americans of
modest means.
That is why obstructing such collaboration -- in the cause of forcing a
competition between the cable and phone industries -- is socially elitist.
To the extent it prevents collaboration between the cable industry and the
phone companies, present federal policy actually thwarts the
Administration's own goals of access and empowerment.
The other major effect of prohibiting the "manifest destiny" of cable
preserves the broadcast (or narrowband) television model. In fact, stopping
an interactive multimedia network perpetuates John Malone's original
formula -- which everybody (especially Vice-President Gore and the FCC)
claims to oppose because of the control it leaves with system owners and
operators.
The key condition for replacing Malone's original narrowband model is true
bandwidth abundance. When the federal government prohibits the
interconnection of conduits, the model gains a new lease on life. In a
world of bandwidth scarcity, the owner of the conduit not only can but must
control access to it -- thus the owner of the conduit also shapes the
content. It really doesn't matter who the owner is. Bandwidth scarcity will
require the managers of the network to determine the video programming on it.
Since cable is everywhere, particularly within cities, it would allow a
closing of the gap between the knowledge-rich and knowledge-poor. Cable's
broadband "pipes" already touch almost two-thirds of American households
(and are easily accessible to another one-fourth). The phone companies have
broadband fiber. A hybrid network -- co-ax plus fiber -- is the best means
to the next generation of cyberspace expansion. What if this choice is
blocked?
In that case, what might be called cyberspace democracy will be confined to
the computer industry, where it will arise from the Internet over the
years, led by corporate and suburban/exurban interests. While not a
technological calamity, this might be a social perversion equivalent to
what "Japan Inc." did to its middle and lower classes for decades: Make
them pay 50% more for the same quality vehicles that were gobbling up
export markets.
Here's the parallel: If Washington forces the phone companies and cable
operators to develop supplementary and duplicative networks, most other
advanced industrial countries will attain cyberspace democracy -- via an
interactive multimedia "open platform" -- before America does, despite this
nation's technological dominance.
Not only that, but the long-time alliance of East Coast broadcasters and
Hollywood glitterati will have a new lease on life: If their one-way video
empires win new protection, millions of Americans will be deprived of the
tools to help build a new interactive multimedia culture.
A contrived competition between phone companies and cable operators will
not deliver the two-way, multimedia and more civilized tele-society Kapor
and Berman sketch. Nor is it enough to simply "get the government out of
the way." Real issues of antitrust must be addressed, and no sensible
framework exists today for addressing them. Creating the conditions for
universal access to interactive multimedia will require a fundamental
rethinking of government policy.
2. Promoting Dynamic Competition
Technological progress is turning the telecommunications marketplace from
one characterized by "economies of scale" and "natural monopolies" into a
prototypical competitive market. The challenge for government is to
encourage this shift -- to create the circumstances under which new
competitors and new technologies will challenge the natural monopolies of
the past.
Price-and-entry regulation makes sense for natural monopolies. The tradeoff
is a straightforward one: The monopolist submits to price regulation by the
state, in return for an exclusive franchise on the market.
But what happens when it becomes economically desirable to have more than
one provider in a market? The continuation of regulation under these
circumstances stops progress in its tracks. It prevents new entrants from
introducing new technologies and new products, while depriving the
regulated monopolist of any incentive to do so on its own.
Price-and-entry regulation, in short, is the antithesis of dynamic
competition.
The alternative to regulation is antitrust. Antitrust law is designed to
prevent the acts and practices that can lead to the creation of new
monopolies, or harm consumers by forcing up prices, limiting access to
competing products or reducing service quality. Antitrust law is the means
by which America has, for over 120 years, fostered competition in markets
where many providers can and should compete.
The market for telecommunications services -- telephone, cable, satellite,
wireless -- is now such a market. The implication of this simple fact is
also simple, and price/entry regulation of telecommunications services --
by state and local governments as well as the Federal government -- should
therefore be replaced by antitrust law as rapidly as possible.
This transition will not be simple, and it should not be instantaneous. If
antitrust is to be seriously applied to telecommunications, some government
agencies (e.g. the Justice Department's Antitrust Division) will need new
types of expertise. And investors in regulated monopolies should be
permitted time to re-evaluate their investments given the changing nature
of the legal conditions in which these firms will operate -- a luxury not
afforded the cable industry in recent years.
This said, two additional points are important. First, delaying
implementation is different from delaying enactment. The latter should be
immediate, even if the former is not. Secondly, there should be no half
steps. Moving from a regulated environment to a competitive one is -- to
borrow a cliche -- like changing from driving on the left side of the road
to driving on the right: You can't do it gradually.
3. Defining and Assigning Property Rights
In 1964, libertarian icon Ayn Rand wrote:
"It is the proper task of government to protect individual rights and, as
part of it, formulate the laws by which these rights are to be implemented
and adjudicated. It is the government's responsibility to define the
application of individual rights to a given sphere of activity -- to define
(i.e. to identify), not create, invent, donate, or expropriate. The
question of defining the application of property rights has arisen
frequently, in the wake of oil rights, vertical space rights, etc. In most
cases, the American government has been guided by the proper principle: It
sought to protect all the individual rights involved, not to abrogate
them." ("The Property Status of the Airwaves," Objectivist Newsletter,
April 1964)
Defining property rights in cyberspace is perhaps the single most urgent
and important task for government information policy. Doing so will be a
complex task, and each key area -- the electromagnetic spectrum,
intellectual property, cyberspace itself (including the right to privacy)
-- involves unique challenges. The important points here are:
First, this is a "central" task of government. A Third Wave government will
understand the importance and urgency of this undertaking and begin
seriously to address it; to fail to do so is to perpetuate the politics and
policy of the Second Wave.
Secondly, the key principle of ownership by the people -- private ownership
-- should govern every deliberation. Government does not own cyberspace,
the people do.
Thirdly, clarity is essential. Ambiguous property rights are an invitation
to litigation, channeling energy into courtrooms that serve no customers
and create no wealth. From patent and copyright systems for software, to
challenges over the ownership and use of spectrum, the present system is
failing in this simple regard.
The difference between America's historic economic success can, in case
after case, be traced to our wisdom in creating and allocating clear,
enforceable property rights. The creation and exploration of cyberspace
requires that wisdom to be recalled and reaffirmed.
4. Creating Pro-Third-Wave Tax and Accounting Rules
We need a whole set of new ways of accounting, both at the level of the
enterprise, and of the economy.
"GDP" and other popular numbers do nothing to clarify the magic and muscle
of information technology. The government has not been very good at
measuring service-sector output, and almost all institutions are incredibly
bad at measuring the productivity of information. Economists are stuck with
a set of tools designed during, or as a result of, the 1930s. So they have
been measuring less and less important variables with greater and greater
precision.
At the level of the enterprise, obsolete accounting procedures cause us to
systematically overvalue physical assets (i.e. property) and undervalue
human-resource assets and intellectual assets. So, if you are an inspired
young entrepreneur looking to start a software company, or a service
company of some kind, and it is heavily information-intensive, you will
have a harder time raising capital than the guy next door who wants to put
in a set of beat-up old machines to participate in a topped-out industry.
On the tax side, the same thing is true. The tax code always reflects the
varying lobbying pressures brought to bear on government. And the existing
tax code was brought into being by traditional manufacturing enterprises
and the allied forces that arose during the assembly line's heyday.
The computer industry correctly complains that half their product is
depreciated in six months or less -- yet they can't depreciate it for tax
purposes. The U.S. semiconductor industry faces five-year depreciation
timetables for products that have three-year lives (in contrast to Japan,
where chipmakers can write off their fabrication plants in one year).
Overall, the tax advantage remains with the long, rather than the short,
product life-cycle, even though the latter is where all design and
manufacturing are trending.
It is vital that accounting and tax policies -- both those promulgated by
private-sector regulators like the Financial Accounting Standards Board and
those promulgated by the government at the IRS and elsewhere -- start to
reflect the shortened capital life-cycles of the Knowledge Age, and the
increasing role of intangible capital as "wealth."
5. Creating a Third Wave Government
Going beyond cyberspace policy per se, government must remake itself and
redefine its relationship to the society at large. No single set of policy
changes that can create a future-friendly government. But there are some
yardsticks we can apply to policy proposals. Among them:
Is it based on the factory model, i.e. on standardization, routine and
mass-production? If so, it is a Second Wave policy. Third Wave policies
encourage uniqueness. Does it centralize control? Second Wave policies
centralize power in bureaucratic institutions; Third Wave policies work to
spread power -- to empower those closest to the decision. Does it encourage
geographic concentration? Second Wave policies encourage people to
congregate physically; Third Wave policies permit people to work at home,
and to live wherever they choose. Is it based on the idea of mass culture
-- of everyone watching the same sitcoms on television -- or does it
permit, even encourage, diversity within a broad framework of shared
values? Third Wave policies will help transform diversity from a threat
into an array of opportunities.
A serious effort to apply these tests to every area of government activity
-- from the defense and intelligence community to health care and education
-- would ultimately produce a complete transformation of government as we
know it. Since that is what's needed, let's start applying.
Grasping the Future
The conflict between Second Wave and Third Wave groupings is the central
political tension cutting through our society today. The more basic
political question is not who controls the last days of industrial society,
but who shapes the new civilization rapidly rising to replace it. Who, in
other words, will shape the nature of cyberspace and its impact on our
lives and institutions?
Living on the edge of the Third Wave, we are witnessing a battle not so
much over the nature of the future -- for the Third Wave will arrive -- but
over the nature of the transition. On one side of this battle are the
partisans of the industrial past. On the other are growing millions who
recognize that the world's most urgent problems can no longer be resolved
within the massified frameworks we have inherited.
The Third Wave sector includes not only high-flying computer and
electronics firms and biotech start-ups. It embraces advanced,
information-driven manufacturing in every industry. It includes the
increasingly data-drenched services -- finance, software, entertainment,
the media, advanced communications, medical services, consulting, training
and learning. The people in this sector will soon be the dominant
constituency in American politics.
And all of those confront a set of constituencies made frightened and
defensive by their mainly Second Wave habits and locales:
Command-and-control regulators, elected officials, political
opinion-molders, philosophers mired in materialism, traditional interest
groups, some broadcasters and newspapers -- and every major institution
(including corporations) that believes its future is best served by
preserving the past.
For the time being, the entrenched powers of the Second Wave dominate
Washington and the statehouses -- a fact nowhere more apparent than in the
1993 infrastructure bill: Over $100 billion for steel and cement, versus
one lone billion for electronic infrastructure. Putting aside the question
of whether the government should be building electronic infrastructure in
the first place, the allocation of funding in that bill shows the Second
Wave swamping the Third.
Only one political struggle so far contradicts the landscape offered in
this document, but it is a big one: Passage of the North American Free
Trade Agreement last November. This contest carried both sides beyond
partisanship, beyond regionalism, and -- after one climactic debate on CNN
-- beyond personality. The pro-NAFTA coalition opted to serve the
opportunity instead of the problem, and the future as opposed to the past.
That's why it constitutes a standout model for the likely development of a
Third Wave political dialectic.
But a "mass movement" for cyberspace is still hard to see. Unlike the
"masses" during the industrial age, this rising Third Wave constituency is
highly diverse. Like the economic sectors it serves, it is demassified --
composed of individuals who prize their differences. This very
heterogeneity contributes to its lack of political awareness. It is far
harder to unify than the masses of the past.
Yet there are key themes on which this constituency-to-come can agree. To
start with, liberation -- from Second Wave rules, regulations, taxes and
laws laid in place to serve the smokestack barons and bureaucrats of the
past. Next, of course, must come the creation -- creation of a new
civilization, founded in the eternal truths of the American Idea.
It is time to embrace these challenges, to grasp the future and pull
ourselves forward. If we do so, we will indeed renew the American Dream and
enhance the promise of American life.
