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June 18, 2006
David Warsh, Proprietor


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Nine Different Ways to Make a Living

“Overcoming what we intuitively ‘know’ requires disciplined analysis.”  That is the underlying strategy of Yale Law School professor Yochai Benkler’s long-awaited book about property and production — everything from the highly-proprietary organizations to which some producers devote their working lives to the relatively open commercial systems that are much more common to the communities of peer production that, Benkler argues, rapidly are becoming the most interesting of all.

Somewhat misleadingly, Benkler’s book is titled The Wealth of Networks.

The problem stems from what we mean by networks. One definition, popular among economists, holds that a network industry is one in which the value obtained by a new user depends on the number of people already connected. Thus railroads, telephones and broadcasting systems are obvious networks. So are rental cars (and golf carts), computer operating systems, bank ATMs and music players.

At this point, economists usually begin to run into trouble. In The Economics of Network Industries, Oz Shy, of the University of Haifa, explains that neither the markets for food products nor government debt are network industries, because they do not entail the usual complementary goods, compatibility considerations, standards, switching costs and economies of scale. That will come as news to dairy farmers and Treasury secretaries, each of whom require a large network of vendors, distributors and sales outlets to make the market function smoothly for their product. In a highly specialized modern economy, every industry is a network industry. Nor have economists yet found much to say about the myriad networks that involve little or no pecuniary exchange; in other words, that are not technically “industries” at all. That currencies are networks is obvious; only slightly less so are languages (e.g. English, French, Ojibwa), professional societies, scientific disciplines, industrial user groups, churches, gangs, families, theatergoers, fan clubs — in short, any community of persons (nodes) characterized by links.

Economists first delved into networks in the early 1980s, when the advent of personal computers and the Internet compelled attention to a host of practical problems that for more than century had been dealt with informally, in terms of “natural monopolies” and their regulation. They are still sorting out what has been learned so far, when, and by whom. And while the expansion of networks clearly has something to do with the stupendous increase in wealth and health that has taken place over the last century, the source of wealth is not networks themselves, but rather the growth of knowledge that makes them possible — how to make a telegraph, a telephone, a radio, a television, a transistor, a microprocessor, a personal computer, an operating system, a router, an email protocol, an Internet, a World Wide Web.

Benkler, however, is interested in a topic much deeper than the analysis of the economics of networks. He is interested in the larger universe of productive entities, not just firms and industries and sole proprietorships, but networks of all conceivable varieties.  This much he stakes out with his subtitle: “How Social Production Transforms Markets and Freedom.” It is an arena over which sovereignty is customarily claimed by economists, but without much justification. So forget networks and concentrate on what he means.

“For all of us,” he writes, “there comes a time on any give day, week and month, every year and in different degrees over our lifetimes, when we choose to act in some way that is oriented toward fulfilling our social and psychological needs, not our market exchangeable needs.” There is nothing especially mysterious about this decision in its quotidian dimension, he notes; each of us knows when it is time to rush home to our family, bring tea to a sick friend, play bridge or help neighbors to move.  Economists commonly describe this margin as the work-leisure tradeoff. But Benkler argues that this is the wrong way of dividing the world. Bettter to distinguish between market and social modes of production, and the decisions we all make about allocating our time between them.

For not only do many persons choose to work for pay in organizations designed to insulate them from market forces in the performance of their tasks– soldiers, teachers, scientists, clerics, bureaucrats, police, newspaper reporters, philanthropists. A great many people who spend much of their time in market sectors do things “for free” as well — they inspire fashions, attend professional meetings, swap secrets, organize protests, contribute suggestions, refine products, patch software, write letters to editors, circulate newsletters, initiate political reforms, participate in twelve-step programs, inspire religious revivals and raise families. What needs to be understood, Benkler asserts, is that these many and diverse social actions “can turn into an important modality of economic production.” Just because Bill Gates stops pushing Windows and starts working on public health doesn’t mean he has ceased to be productive.

At a time when residual hopes for “communism” as an alternative to “global capitalism” have been shattered, it is easy to miss the significance of these diverse organizational forms. The sharing and emulation that is the hallmark of social production runs against the grain of many of the most basic intuitions drawn from a century and a half of experience of industrial production, Benker writes. There are no non-commercial automobile manufacturers, nor volunteer steel factories.  Yet many kinds of information are produced socially and given away for free:  basic science in non-profit universities and research institutes; Internet standards and widely-used software by cooperative networks of volunteers; news by communities of users, typified by slash.com and Wikipedia.

In other words, the “triumph of the market” is what we “know” that isn’t so. If anything, it was the social production of information that triumphed in recent years (though only when tightly connected to market forces): consider the way the Internet Engineering Task Force, a planning body composed entirely of unsalaried volunteers free to shift among employers, created a technology pursued by myriad competitors that has effectively trumped the monopolizing tendencies of not only Microsoft but the central switching telephone companies as well.     

Moreover, the advent of cheap computers and virtually limitless storage, connected in a lightning-fast global network, promises to continue to shift the balance of possibilities in ways favorable to social production of knowledge and culture. No longer s it necessary to work for one of a relative handful of giant firms in order to make a difference. More new kinds of institutions are appearing every day. Says Benkler: “Without a broadly accepted analytic model to explain these phenomena, we tend to treat them as curiosities, perhaps transient fads, possibly of significance in one market segment or another.”

A centerpiece of his analysis, therefore, is a three-by-three matrix of strategies for producing new ideas, a kind of tic-tac-toe how-to diagram built along lines familiar to students of recent developments in economics.

On the vertical axis is the ease of excludability of the new information, the possibilities grouped in three stereotypical categories, from the most easily appropriated (“propertized”) ideas at the top of the ladder to the somewhat-widely shared on the middle rung to the universally available at the bottom.

The horizontal axis expresses the extent to which the new idea’s instantiation is nonrival — that is, the degree to which its possession by one person reduces the amount available for consumption by another. A hamburger is a thoroughly rival good; an instruction manual for a McDonald’s restaurant is equally non-rival. Here the possibilities are grouped under three broad headings:  the public domain, the domain within the firm and the domain of barter and sharing.

It adds up to nine different ways to make a living producing new ideas.

The activities on the topmost rung depend on strong property rights.

Top left are what Benkler calls the Romantic Maximizers.  These are authors and composers who sell to publishers and make their money by exercising exclusive rights.

Top right is labeled RCA (after the famous company’s strategy in the early days of radio): A small number of companies hold blocking patents to keep would-be rivals out; they form patent pools, offer cross-licenses and otherwise carve up markets to preserve their exclusive rights.

Top in-between is Mickey, meaning Walt Disney Inc., a.k.a. The Mouse, meaning a firm which may reuse the inventory it has created or bought from Romantic Maximizers for derivative purposes, re-versioning Mickey as a movie, a television series, an amusement park, and so on.

The middle rung is where most of us are to be found, in markets that are generally non-exclusionary, making money from producing new ideas, but not owning them proprietarily, at least for the most part.

Middle-left are the Scholarly Lawyers, who write articles in order to attract clients, or bands (the Grateful Dead) who give away their music but charge money for performances, software developers (Red Hat) who make their money from customization and training.

Middle-right are Learning Networks, cooperative agencies by which similar organizations share information and shape policy:  the Internet Engineering Task Force, agricultural the Associated Press, the Silicon Valley professional societies and ethnic groups through which scientists and engineers from different firms diffuse knowledge.

Middle-middle are Know-How Firms, companies such as Microsoft, Intel and Bloomberg, that have cheaper or better production processes because they spend more on research efforts or have better-quality management systems; law and accounting firms that build on existing competences.  

On the left wing of the bottom rung, where neither the market nor exclusion is involved, is Joe Einstein” the most familiar type, who gives his discoveries away for free in return for status, reputation, the thrill of the chase:  Nobel Prizes as an alternative to the patent system. Here also are youth soccer coaches, Wikipedia contributors, amateur choirs who perform for free, the writers of letters to editors, free software developers, list contributors, ham radio operators and other hobbyists.

Right-bottom is the Limited Sharing Network” familiar to anyone who has ever circulated a paper among colleagues, hoping they will improve it before publication. The weekly email version of Economic Principals is a limited sharing network, and the frequent copy-editing heads-ups are much appreciated.  So are the working papers series published by the National Bureau of Economic Research, the Social Science Research Network and the Center for Economic Policy Research, and so are the formal conditions of reciprocity imposed by Gnu general public license and other “copyleft” conditions.

And middle bottom, finally, is Los Alamos, a model in which in-house information is freely shared in order to produce sufficient valuable new ideas to insure a steady stream of public funding.  Just how vulnerable corporate research and development might be was underscored by the news last week that the developer who purchased Bell Laboratories’ famous campus in Murray Hill, N.J., where the transistor and the laser were developed, intends to tear the building down.  Small cubicles and vaulting public spaces might have been fine for industrial scientists and engineers, but the MBAs and lawyers who come after them want windows. 

It is true, Benkler notes, that recent years have seen a fairly pronounced tipping of the innovation system towards the proprietary mode. “Partly as a result of the ideological and military conflict with communism, partly as the result of the theoretical elegance of a simple and tractable solution, policy makers and their advisers came to believe towards the end of the twentieth century that property in information was like property in wristwatches and automobiles.”  The more clearly you defined and enforced it, they concluded, the more production of it you would get. Thus the patent system was overhauled, broadened and strengthened; so were copyright and trademark laws. Alas, it has not turned out to be the case. The newly expanded systems of rights are clogging corporations, universities and the courts. ASCAP is threatening to sue cities and town in suburban Boston for permitting teenage singing groups to perform show tunes in neighborhoods without paying royalties.

But social trends are pushing in the opposite direction. So is research in economics, now that the nonrivalry of knowledge is becoming a generally recognized fact. (Still more theoretical elegance!) The idea that an innovator — whether the author of Broadway show tune or the inventor of a method of chemical synthesis — should go on collecting a return long after the cost of achieving his bright idea  has been covered, and made available, particularly in the case of wonder drugs, at prices astronomically above its marginal cost, is open to question as never before.  Indeed, the very idea of patents (as opposed to prizes) for successful medicines is under attack.

Law professors, including Harvard’s Charles Nesson, Stanford’s Lawrence Lessig and Duke’s James Boyle have been among the early formulators of this debate, but their contributions haven’t always been easy to fathom. (For example, Eben Moglen, of Columbia Law School, put it this way: “If you wrap the Internet around every person on the planet and spin the planet, software flows in the network. It is an emergent property of connected human minds that they create things for each other’s pleasure and to conquer their uneasy sense of being too alone.”) At 515 pages, Yochai Benkler’s book is, if not exactly concise, at least clear — a landmark in this discussion, the starting point for a real conversation between law and economics.

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