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nettime:*Markets and Anti-Markets,4/4 DeLanda
Diana McCarty on Fri, 7 Feb 97 01:16 MET


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nettime:*Markets and Anti-Markets,4/4 DeLanda


What would happen if bandwidth scarcity was to end all of a sudden? To
begin with the current channels used by the Internet are owned by telephone
companies, and the technology that runs those channels was designed to deal
with bandwidth scarcity. When bandwidth is expensive much of the
infrastructural investment is on the hardware switches that control the
movement of analog or digital information through the conduits. Today, as
Guilder argues, the telephone companies have replaced much of the old
copper wire with optical fiber, vastly increasing the amounts of data that
can flow through these channels. However, to take advantage of the huge
bandwidth increase that optical fiber makes possible, we need to get rid of
hardware switches, replacing them with control devices simulated by
software. But this move is resisted by the telephone companies since they
are in the business of selling services based on switches. This is an
example of a corporate culture that develops around a specific set of
practices and the specific economic situation of bandwidth scarcity that
then becomes so rigidified that it cannot change easily. The packet
switching design of the Internet of military origin is in danger of being
replaced by old-fashioned circuit switching, in the form of the new
standard the TelCo.'s are trying to impose, ATM. ATM is supposed to replace
IP, Internet Protocol. Because they are in the business of selling services
based on switches, they cannot take advantage of this new world of
bandwidth plenty.

A similar point applies to other potential channels for data such as
wireless transmission through the electromagnetic spectrum. Just like the
switched based technology evolved in the world of bandwidth scarcity, so
our current broadcast technology grew to take advantage of the limited,
hence scarce, space in the radio portion of the spectrum. Today, the
technology exists to use higher frequency portions of the spectrum, like
microwaves, increasing bandwidth enormously, but the cellular telephone
companies that should be rushing to take advantage of this are still caught
in the scarcity-based paradigm. (However, this is not entirely true now, as
low orbit satellite systems operating in this spectrum are being heavily
invested in by communication corporations.) A system of optical fiber
liberated from switches, a "fibersphere" as Guilder calls it, together with
the use of the atmosphere at high frequencies, could result in a world that
bandwidth is so plentiful as to be virtually free. So far so good. But when
Guilder switches to an analysis of the economic consequences of these
developments and even more to his advice to policy makers, Guilder's
ideological baggage completely overrides his technological insights. There
are two biases which any invisible hander will bring to an analysis. First,
the most obvious one: any intervention by the government is by definition
evil, since it interferes with the invisible hand, therefore one has to
attack government regulations even if they serve to break up monopolies,
thereby contributing to technological development, as was the case with the
break up of AT&T in 1984. Guilder uses a slight of hand to accuse the
government of creating the monopoly in 1913. This is ridiculous. AT&T
ruthlessly eliminated all its small competitors prior to 1913 and only
settled into its monopoly regulated form once it had already won via
anti-competitive, antimarket tactics. Newt Gingrich and John Perry Barlow's
speeches reflect this pro-corporate, anti-government perspective. If you
read interviews with CEOs, the head honchos of large multinational
corporations, from the early 1970s, the entire discourse of "Let's break
the national government" and "governments are obsolete, etc." was already
part of their own little theoretical contribution. It does not take a
genius to say why. National governments, today, are one of their main
obstacles to the global expansion of antimarkets. They would like no
regulations, no labor protection, nothing that would stop them from
converting the world into a global supermarket. It is quite ridiculous that
today pseudo-populists ideologues in the United States are supposedly
taking this banner of "Let's break the government" as a radical move.

The second bias is more dangerous because it is less obvious: one divides
society into private and public sectors and then one applies the term
market to all private organizations, regardless of their size, structure,
or economic power. This ideological maneuvre is performed through several
operations. First one uses the word competition, as if it applied to both
the anonymous competition between hundreds of buyers and sellers in a real
market, the only one to which Adam Smith applied his invisible hand theory,
as well as to the competition between oligopolies, for example, General
Motors, Ford, and Chrysler. The problem is that these two forms of
competition are completely different. In the competition between
oligopolies--involving rivalry between opponents which must take each
others responses into account when planning a strategy--oligopolies will
set their own prices but will always avoid entering into a price war with
one another. You might remember two years ago when Compaq started by
dropping the prices of personal computers and forced the rest of the
oligopolies producing personal computers into a price war, which, of
course, was good for consumers but was bad for these large corporations.
Large corporations have a variety of means to avoid price wars. One of them
applies when they exist as a joint stock company: they have a management
hierarchy, a lot of stock holders, and a board of directors which
supposedly represent the stock holders. But in the board of directors they
sit people from banks or large insurance companies that also sit on the
board of directors of other corporations. Although they are not a monopoly
conspiring to push prices up, these interlocking directorates, as
institutional economists call this phenomenon, make it into a completely
different kind of entity. In other words, the competition between
antimarkets should not be called competition, but rivalry. But if you want
to keep the word, then a distinction should be made between
market-theoretic competition and game-theoretic competition, involving
rivalry and knowledge of the opponent that characterizes antimarket
dynamics.

As economist John Kenneth Galbraith has shown, oligopolies are structures
as hierarchical as any government bureaucracy with as much centralized
planning and as little dependency on market dynamics. Unlike the small
buyers and sellers in a real market who are price takers, oligopolies are
price makers. They create prices by adding a mark-up to the cost of
production, and they may manipulate that mark-up as much as they want. In
short when one confuses these two different kinds of competition, one fails
to distinguish between markets and antimarkets. The consequences of these
two biases are very obvious: oligopolies with the power to absorb smaller
competitors through horizontal and vertical integration are eliminated from
the picture, and the landscape now contains only markets and the
government, with monopolies like electric utilities being the only
antimarket forces left but one that can be easily dismissed. (A very
typical right wing ideological maneuver is to dismiss monopolies. Guilder
agrees that there is such a thing as monopolies like those famous robber
barons in the 19th century who created the railroad industry. But he
dismisses Microsoft because the enormous profits that this monopoly
generates is seen as transitory. Therefore, the menace they represent is
dismissed as largely imaginary. Guilder actually says this. Microsoft is
today playing a similar role as the robber barons, but, according to
Guilder, its potential menace and any government action should be
dismissed.) When Wired Magazine interviewed Newt Gingrich the only pointed
question they asked him was, "What would you do about Microsoft. Would you
pursue the antitrust case against it?" And Gingrich responded with
something like, "No I wouldn't. In this I am influenced by Guilder, and the
answer is "no" because Java will now become the operating system of the Net
and that will end the domination of Windows 95." So, what if Bill Gates has
a virtual monopoly on operating systems, a position of power that allows
him to control the evolution of software that runs on top of those
operating systems? "No problem," says Guilder, "In a world of bandwidth
plenty the paradigm of operating systems will change to one of distributed
software on the Internet, and this by itself will end Microsoft's
domination." Dream on. This, of course, assumes that Microsoft, using its
enormous leverage, cannot simply buy and internalize any company it needs
in order to ensure its presence in a network economy.

In short, the core of Guilder's ideological maneuver is to lump together
small producers and oligopolies in one category and to call that "the
market" and to focus exclusively on government regulation as the only real
enemy, dismissing monopolies as chimerical. Applied to his theory of the
Internet, the theory works like this. A world of bandwidth scarcity like
today's cable television favors the creation of large companies wich
acquire control of both the channel and the contents flowing through those
channels and, therefore, gain monopoly rents. For example, TCI a cable
giant in the United States, also owns content producing channels such as
the Discovery Channel, Home Shopping Network, TNT, etc. With bandwidth
scarcity gone, argues Guilder, the rationale for owning both conduit and
data is gone, and this will benefit small producers of content. Here he
seems to siding with real decentralized markets. But what are his policy
recommendations to get to this decentralized world created by cheap
bandwidth? Well, the fastest way to get there is to allow the optical fiber
infrastructure of the telephone companies to be combined with the final
connection to homes owned by cable companies and create a huge monopoly.
His reasoning is totally absurd. Remember that according to Guilder this
would all be a transitory monopoly, an evil thing that we must live with
for a while but will go away. The government which, of course, opposes the
merger between the TelCo.'s and the cable giants is the enemy of the people
because its antitrust regulations are preventing us from enjoying the
benefits of the world with cheap bandwidth.

I could go on adding detail to this criticism, one that Guilder, himself,
makes easy by offering such an obvious target. But we would wrong to think
that the only ones to be ideologically biased are rightwing invisible
handers. Left wing commodifiers, i.e., intellectuals for whom the very
entry of an object into a market involves commodification (which is seen as
a bad thing), are equally simplistic in their assessments. I strongly
believe that neither side of the political spectrum can be trusted anymore
in their economic analysis, and a new economic theory, one that respects
the lessons of economic history and that assimilates the insights from
nonlinear dynamics and complexity theory, should be created. The elements
for this new theory are already here not only from institutional economists
and materialist historians but from philosophers of economics that are now
more than ever participating in dispelling the myths that have obscured our
thought for so many centuries.




----------------

Q: (Andreas Broeckmann) The way you describe the non hierarchical
economies, the market, its a very appealing model and there are problems
that we are dealing with at the moment as content producers that resemble
what you are describing. Is there any way of intervening and strategically
acting within these really fluid environments. I guess that developing an
economic theory for this is one way of doing this, but ...[tape] So the
question is how much space is there for individual agency.

MDL: I obviously believe that there is plenty of space for individual
agency, but again, it really depends on how we draw our distictions. For
instance, we tend to think of capitalist institutions being run by
entrepreneurs, but of course that is not the case. As far back ,as I said,
as the fourteenth and fifteenth centuries large economic institutions, ones
that had economic power were run by managers. And the moment the joint
stock corporatation began, ownership and control were separated, and now
indeed you had a completely hierachical structure. An entrepreneur is a
completely different category, particularly if he is an entrepreneur of a
small business. He is the owner and the force behind that particular
business. Anything that we can do to create the conditions for
entrepreneurs to fluorish is somehting that would help the creation of
decentralized decision making structures. In other words, there is
individual agency in the form of entrepreneurship. There is also individual
agency in the form of criticism of standards that go on in the Internet.
For instance, (and I already talked about this in Madrid when you asked me
a similar question) the payment structure in the Internet, standards for
which are being developed now, should essentially include micro payments,
that is 5 cents or even better 1 cent payments, and the possibility of
doing that efficiently. If we set a lower limit of say, ten dollars, like
credit cards sometimes have, by that very means we will be influencing who
can actually be a producer on the Internet. Another thing that would
immediately change the nature of the Net is if we switched to asymmetric
technology, i.e., more bits coming to your computer than going out. The
moment more bits come into your computer than go out, then you are becoming
a consumer and a computer is becoming a vehicle for you to consume things.
And you send a few bits of email to your relatives and friends. It is
essential that we keep the hardware of the Internet perfectly symmetrical
to allow small producers to produce. Those are some areas, some of
criticism, some of direct intervention, that I can think of right now. As I
said, we must proceed with a lot of caution here because the very first
thing, and its the most important thing, we must do is to avoid creating a
caricature of history in which the decentralized structures appear as the
heroes and centralized structures as the villains. The reason for this is
twofold. First of all, decentralized structures become centralized
structures. Apple Computer started with $1300 in a garage and two
entrepreneurs but the monent they brought in a professional manager from
Pepsi Cola and kicked out Steve Jobs, it was already an antimarket
institution. So obviously, small businesses grow into big ones and become
antimarkets. This is not a new phenomenon. The large fairs in the 13th and
14th centuries such as the Champagne Fairs were huge markets that were
already hierarchical with a money market at the top, luxury items next, and
then the humble goods that were exchanged in the marketplace. Markets give
rise to hierarchies, hierarchies give rise to markets. We need to confront
the complexity and never over simplify,  just so we can give ourselves a
role as the heroes of decentralization. Besides that, of course, we need to
consider that many of the right wing, and particularly extreme right wing
like the skinheads or the militia movement in the United States, are
completely decentralized. Therefore, there is nothing intrinsically good or
heroic about decentralization. If I am drawing these distinctions carefully
right now, it is because I believe it is crucial for us to understand our
economic history and therefore to be able to intervene in the present and
the future, not becuase I am trying to romanticize decentralized decision
making per se.

Manuel DeLanda (delanda {AT} pipeline.com)

Delivered at MetaForum IIIUNDER CONSTRUCTION/Budapest Content Conference
October 1996, www.isys.hu/metaforum

transcribed and edited by Tom Bass and Manuel Delanda


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