The laws of physics eventually wins, even in cyberspace
August 14, 2010 Leave a comment
“If a more advanced life form were given the task of providing to the human species a tool that possessed the potential to save itself from itself, it would have invented the Internet. What remains to be seen is whether the species is sufficiently evolved to properly manage the tool.”
– My thought for the day published in Comlink, 12/31/1996
The net neutrality issue is finally being debated, thanks not to populist politics, but rather the supply and demand dynamics of electromagnetic spectrum. Unfortunately, I believe activists and advocates have been exploited all along on this issue, often apparently without their awareness.
I beg people to not limit their scope or the debate to consumer publishing and communication, which may account for the super majority of time and bandwidth, but a tiny portion of impact. The modern Internet increasingly represents the service economy worldwide—meaning the majority of the U.S. jobs and economy, the marketing and transaction mechanism for global trade, banking, education, and e-government. Even raw commodities are substantially included in this debate as the pricing, marketing, education, trade and logistics are increasingly conducted over the Internet. Internet economics and global economics are now substantially the same issue, so this is much less an access and free speech issue today than one of global economic security—one cannot function without the other.
When was the net neutral?
For a very brief time following the commercialization of the Internet, the medium was a reasonably level playing field. Small businesses around the world were able to sell products through an uncorrupted distribution channel in a manner that was sustainable with modest upfront investment and could scale with organic revenue. From 1995 through 1997, or before the trillion dollar herd stampeded, a very diverse and functional economy was in its infancy. It was then a classic pay as you go system that was mutually beneficial to customer and vendor. The burgeoning sustainable economy was then substantially replaced by the largest price war in human history, and quickly transformed into a battle of manipulation between institutions, regions, and nations as the scope and scale of the opportunity and threat became apparent.
This historic and relatively pure medium, which I referred to as phase 1 of e-commerce (IJHIT- ISBN 0-9624990-8-0), lasted less than three years. As institutional investors began to study growth rates in cases like our incubator, even relatively challenged MBA analysts of the type that tend to filter institutional investments could see the best opportunity since the wheel, but few could see the collective damage of their individual behavior. To do so would have been career suicide anyway—truth wasn’t politically correct in this era.
Companies like Amazon were founded that would require several billion dollars in funding before break even, and many years of profits in the best of the best to earn back their ‘start-up costs’. Amazon was at least charging for products with a real business model; many that followed were pure capital predators, some of which went beyond giving away free services that cost tens of $millions to paying more for eyeballs than the profit margins of advertisers could pay for.
What drove the predatory insanity?
Some pension funds saw the medium as the answer to decades of under-funding amidst cost of living inflation that was increasingly self-created. University endowments began to achieve academic Nirvana where in some cases funds became so large with such high returns that the most expensive institutions could have provided free education, but did not—rather salaries, bonuses and overhead grew. Dorm rats who lusted for rich parties paid for by others were drawn to capital centers where get-rich-and-out investors manipulated relationships from seed to exit in what appeared to me to be systemic fraud. Governments surrounding the capital centers on the coasts became so fat on the feast that their self-destructive engines would soon redefine unsustainable. Fly over states suffered with an increasingly difficult moral dilemma—participate in the frenzy or starve? Does this sound like a level playing field?
It can be a very difficult emotional process for humans to voluntarily wean themselves from harmful or self-destructive practices, particularly after entire ecosystems become dependent and those involved are getting very rich, but at some point it must substantially find some equilibrium.
Bubbles tend to occur in clusters—the culture and skills tend to move from one bursting bubble to the next until people wise up. The financial crisis finally ended the price war, with a few exceptions like social networking that continued to be funded at worse odds for success than the regulated casino industry.
Who doesn’t like free?
The free or nearly free addiction model has been exploited since trade was invented. Unless tightly restricted and regulated—preferably with highly ethical folks involved, free empowers consolidation of power in those who control forms of duopolies and oligopolies, to include (eventually) national governments and financial centers with corporate partners. Sound familiar? Free invites and then demands manipulation, for it lacks the governing forces that enable diversified and dynamic markets to correct. For a good example look at the destructive forces of health insurance when healthcare costs appear free and unregulated; any such system will eventually fail when corrective action is not allowed in some form—whether competition, regulation or more commonly necessary; both.
In contrast, pay as you go empowers consumers and small businesses that create jobs in a diversified, sustainable ecosystem that ultimately government and institutions depend upon, without which they too eventually fail. To my knowledge no model has yet been crafted that works better than the simple exchange of currency for products and services.
Whether dealing with unaffordable housing, healthcare, or bandwidth, subsidies deemed necessary due to injustice are most appropriately dealt with by co-ops, non-profits, and governments—preferably in that order, NOT startups or corporations. Private corporations, particularly publicly traded giants, should not be in the subsidy business, as they are in the best position to expand dominant market share from one industry to another, precisely what anti-trust was intended to prevent. The inevitable result of market manipulation is some form of privatization of profits at the public expense with increasing influence over the political process.
Pay as you go is the most just referee I have found, sporting honesty, transparency and adaptability as virtues, which is no doubt why those threatened by same resist the simple model.
Why tail wagging the dog is bad for everyone
Having tested the hypothesis of self-regulation in the modern economy, with our global economy nearly collapsing, one would think the lesson would still be fresh, but we’ve seen the result with reform attempts regardless of party. The biggest risk moving forward however may well be a conclusion by the masses that regulation isn’t necessary, or worse—even possible. Lord help us.
We are still employing primarily industrial policy and tools for a computer driven economy, with only modest exceptions recently in real-time reporting by the SEC. While it’s true that national power in a global economy has been severely eroded, multi-nationals are not a viable alternative to functional government. We cannot expect multi-nationals to manage the global economy—management is legally bound to serve corporate interests within the limits of regulation, period—everything else is noise. I have yet to observe a viable alternative to functional government, rather only conflicted claims and ideological spin to the contrary.
The bandwidth proposal by Google and Verizon is nothing more than another long overdue wakeup call to national governments within a global economy that is increasingly conducted via the Internet and Web. When governments charged with the responsibility fail to regulate in some rational form, those with the greatest interests at stake tend to do so. This phenomenon is as predictable as the water wars in the wild west, the shadow banking system peddling 120% L to V paper, or states defending against open borders. That organizations would move to protect their interests should not come as a surprise—by law, public corporations in the U.S. are compelled to do so, regardless of claims to the contrary—we call it fiduciary responsibility.Mark Montgomery Founder & CEO Kyield