<nettime> political economy of Internet [1/2]

["K.Patelis" <cop02kp@gold.ac.uk>]

Dear All,

I forward to you a article written sometime ago published in J.Curran
(eds) (1999)Media Organisations Arnold (they have copyright over this -
the joys of publishing in academia!)

I assume I will get the normal "we are beyond the Californian Ideology"
responce, this articles clearly understands so spare me! 

Hope you like it

Korinna Patelis

-----------------------
THE POLITICAL ECONOMY OF THE INTERNET

The development of the Internet in the West was attended by a hyped
ideology that sees in the Internet the cure for a number of ills besetting
contemporary society: Internet-philia. This hegemonic approach to the
changes the Internet impregnates extends to all aspects of life, from
academia to finance, to politics. It has essentially framed the way we
perceive and talk about the Net, marginalising any approach that does not
subscribe to the rosy technological deterministic view of our inevitable
free-market future. Though some have pointed to the metaphysical,
speculative and futuristic nature of the discussions involved (Barbrook
1996, Hacker 1996, Krocker 1996, Sardar 1996, Schuler 1998, Schudson
1998), the lack of systematic critique and the holistic nature of the
dogma in question has led to an unprecedented move towards deregulation in
communication and to the uncritical introduction of e-commerce on-line.
The Internet has become a symbol for global free-market capitalism. In
opposition to the existing paradigm, this article will show that
socio-economico-political factors determine on-line communication and
largely control the future of the Internet. Consequently, the regulation
of Internet related industries is of paramount importance, if the Internet
is to have any public service function. 

Internetphilia has been announcing the inevitable arrival of a whole new
era, one whose features are dramatically different, whose qualities and
mechanisms cannot be understood with past methods of analysis. It
constantly perpetuates the notion of a clear break with the past. The
motor engine of such newness is purely technological; it is a change in
essence, a qualitative change ( Kahin & Nessson 1997:vii) which in turn
installs a new mode of producing, distributing and consuming information.
The underlying theme is the transition from analogue to digital
information; the ability to store information in combinations of one and
zero is the messiah of the new era (Negroponte 1995:11-20)(Al Gore 1994).
The basic qualities possessed by digital technology are newness and
dynamism. Everything is new , everything is in constant fast movement.
What is new today will be old tomorrow because the digital injects all
aspects of society with dynamism. Dynamism destroys power by making it
temporary . Consequently everything will be transformed continuously,
nothing will be stale, no structures will prevail. No knowledge will be
diachronic, no policy definite, no question permanent; therefore our
understanding of knowledge has to change.  The digitalisation of
technology is causing changes in society as a whole, changes which cannot
be understood, addressed, or dealt with if a new philosophy is not
installed. 
     The constant reference to time and the up-to-dateness of knowledge
labels those critical of technopia "anachronistic", their understanding of
the technological change "poor", they are "digitally homeless" (Negroponte
1995:7). Through this process alternative perspectives are silenced and
Internet-philic authors assume the position of cyber-visionaries.
Internetphilia's strength lies in its ability to present itself as the
messiah of the digital era. And it is only by assuming this cyber-elite
position that it proceeds to found its faith in the Internet. 

Internetphilia advocates that Internet communication will enhance freedom
. Freedom is what the virtual frontier stands for; the value that is
prioritised over any other. However, the freedom in question is the
negative idea of freedom, meaning freedom from external restrictions - as
opposed to a positive idea of freedom as freedom to (Berlin 1969 ).
Internetphilia is fixated upon the idea that the Internet is free; a
sovereign entity. What is constantly implied is that the Internet by
virtue of being free is constituted in the realm of virtual freedom, above
existing relations, above society. Freedom from reality is what virtuality
in the age of the Internet stands for, and freedom from reality means
freedom from any social, economic or political micro or macro process,
culture included. The Internet substitutes for the structured confined
system of corrupt representative democracy an inherently free paradigm for
direct democracy. To be a Netizen and participate in this de-localised
agora is natural right in the digital world; one free from territoriality
and social constraints. Freedom to act in the Internet means freedom to
speak. Freedom of expression - virtually the symbol of cyber-freedom - is
what Netizens campaign for,

It is further maintained that the Internet is global (Gore 1994a:7),
because it annuls distance and thus removes the limitations of geography
(Negroponte 1995:165), (Johnson & Post 1997:6) transforming the
geopolitics of information, i.e. the unequal access to information across
the globe due to geographical location, (Negroponte 1996a) . Geography is
redundant as is also geo-power. Consequently, the Internet will empower
individuals inhabiting the social margins and the institutions and
countries of the socio-economic periphery (Poster 1995) (Turckle 1995)
(Johnson & Post 1997). It will subvert the current power structure by
transforming citizens across the globe from orthodox media couch-potatoes
to active producers of on-line information (Goodwin 1996). Such
empowerment is further enabled by the fact that technically the Internet
is decentralised, it has no centre and thus cannot be technically
controlled (Negroponte 1995; Johnson and Post 1997; Froomkin 1997; Gates
1996; Volkmer 1996; Barret 1996; Caruso 1996; Schwartz 1997); not to
mention that the sheer volume of information passing through makes it
impossible to exercise any control over it (Johnson & Post 1997). The idea
is that the technical impossibility of regulation and control cripple
nation-state power (Carruso 1996:57). This and Internetphilia's concern
with individual freedom mean that Internetphilia is inherently
anti-statist (Poster 1995, Browning 1996, 1998, Kline & Burstein 1996,
Rodrigues 1997, Chapman 1995, Gidary 1996, Barlow 1996, Heileman 1996,
Steele 1996, Economist 1997a, Negroponte 1996, Economist 1996b, Volkmer
1996, Kahin 1997, Abrams 1997, Johnson & Post 1997, Rapp 1997, Abraham
1997, Froomkin 1997, Neuman, Mc Knight & Solomon 1997). 
 The state is portrayed as an inefficient anachronism, a bureaucratic
enemy of freedom, its presence unnecessary for the proper functioning of
the Internet . The state loses its legitimacy in the on-line world
(Johnson & Post 1997:10); it ought and will slowly wither away as
cyberspace becomes wider and wider (Negroponte 1995:230, Barlow 1996a). 

The above faith in the Internet is shared by Internetphilia's advocates
who come from all aspects of life and vary in their focus. In academia and
journalism one can, firstly, distinguish a liberal-populist approach
concerned with individual freedom and the Internet as the market place of
ideas (Negroponte 1995, Froomkin 1997, Dyson 1998); the most recent
advocates of such an approach are market determinists; (Solomon 1997,
Huber 1997, Economist 1997, Schwarz 1997, Barlow 1997, Kahin 1997, Rosseto
1997:244, Tapshot 1996). Second, one also finds a more postmodernist
approach analysing how Internet communication frees the subject from the
ontological curse of modernity (Poster 1995, Turckle 1995, Reid 1996,
Renan 1996). In politics, the Clinton administration in the U.S. and the
Bangeman approach in the E.U have been the key proponents of the
liberalisation of communication in the name of convergence (Clinton
Administration 1993, 1995, 1997, Clinton 1992, 1998, Gore, 1993, 1994,
1994a, Bangeman 1997, Bangeman 1997a, KPMG 1996 Papas 1997:5 CEC
1994:8,15, CEC 1997). In business too, the exploitation of the digital
moment has been inevitable ( Gates 1996, Henning 1997, Hammond 1996). 
Internetphilia articulates in two ways. Though these are not neatly
separated, the first, whose central tenets are analysed above, refuses to
accept that there is private property in the on-line world line (Barlow
1996:172, Negroponte 1995:59) or that property affects the on-line world
(Turckle 1995). The Internet is constructed as an inherently anarchic
system, juxtaposed to the current property system.  Internetphilia's
second articulation, currently hegemonic, shares the features outlined
above, but is also characterised by a celebration of the existing private
property system, a market determinism which, with the announcement of
convergence, is naturalised as the only way for the future of public
policy. In short the Internet and the market are presented as essentially
similar entities, inseparable and self-regulatory.  Internetphilia's
second articulation developed in response to the Internet's incipient
commercialisation. The Internet was now viewed as commercialised : "it has
gone corporate", mainstream (Schwartz 1997:15, Economist 1996, Lorh 1994,
Noam 1997, Andrews 1994, Hudson 1997:11-37, Miller 1996:23-24, Henning
1997:17-18, Sassen 1997). In the face of such commercialisation any claim
that the Net transcends material relations was no longer sustainable. In
replacement of such a claim came a celebration; a bold assertion/approach
which exclusively constitutes the way in which the Internet and private
property are discussed, namely, that the Internet gives rise to a whole
new financial environment, a new economy. It is a "digital economy" based
on abundance rather than scarcity; a market where supply equals demand and
prices are set at the lowest optimum level; where oligopolies are avoided
owing to low market-entry costs; where market dysfunctions are history and
diversity is guaranteed. This market is a producer and consumer paradise.
Its hallmark is dynamic competition (Gilder 1996:5). 
 In the world of bits, there is no packaging, there is no distribution
(they are automatic). Marginal costs are abolished, in consequence of
which economies of scale no longer yield a competitive advantage. Whereas
differential pricing is difficult in an atom economy, it is a matter of an
extra click in the bit-economy. Such characteristics lead to an increase
in network efficiency. This is the market driven by demand. For, if the
necessary condition for market efficiency is that the marginal willingness
to pay equal marginal cost (Varian 1996, Negroponte 1997), price on the
Net equals marginal willingness to pay. In other words, demand sets prices
and, instead of scarcity of supply the Web economy "exhibits a scarcity of
demand" (Schwartz 1997:2). Demand can finally get its revenge, it can
obtain the power it always deserved, for this is the market of the people
(Negroponte 1997a: 112). In other words, traditional market conditions
that can lead to exploitation are based on scarcity. If the Internet is
the perfect market, then capitalism is the perfect system, for no
inequalities will be produced (Geer 1996:24). In B. Gate's words
 
Capitalism, demonstrably the greatest of the constructed economic systems,
has in the past decade clearly proved its advantages over the alternative
systems, As the Internet evolves into its broadband, global interactive
network, those advantages will be magnified. Product and service providers
will see what buyers want a lot more efficiently than ever before and
consumers will buy more efficiently. I think Adam Smith would be pleased
(Gates 1996)

 If the market cannot be dominated, no company can have increasingly large
profits (Stol 1996:283) and attempts to colonise cyberspace are doomed to
fail (Bloomberg 1997, Kantor 1998, Stol 1996:282). 

Through the notion of the new economy, the market and the Internet are
constructed as essentially similar entities; the Internet bears a
fundamental resemblance to the market. Indeed, it becomes a metaphor for
it. As Kahin puts it Then again, the market itself has never moved this
fast. Within a growing investment community, the Internet is seen not only
as the once and future NII, but as a vast frontier for innovationand
enterprise. It is at once physical, logical and institutional , an organic
mesh of unfathomable richness and vitality. It bears an eerie resemblance
to the marketplace itself-which, with the coming of the electronic
commerce, it promises to electrify in a reciprocal embrace ( Kahin 1997:
184)

Given the virtues of the new economy, why deprive the world of the
opportunity for the Internet to install an environment of competition and
act as a democratiser in other areas of economic activity apart from
communication? In setting up this argument Internet-philia places
e-commerce at the center of the agenda. If the Internet is an economy of
abundance, then the buying and selling of goods other than communication
should not jeopardise e-communication (Hagel & Amstrong 1997:16).
Gradually, the Internet is not defined solely as a communications medium,
but also as a delivery platform, an infrastructure/technology on which
many applications can be run as the users fancy (Solomon 1998, Lehr 1998). 
Given the prospect of using the Net for both e-commerce and
e-communication, as well as any other application, how does one regulate
it? And in the face of such a perfect digital economy, why should one
regulate it? The promises of the new economy have strengthened the
anti-statist basis of Internetphilia. The anti-statist campaign launched
for the CDA is accompanied by a hegemonic conviction that the Internet is
not, cannot and should not be regulated. The theme which facilitates
Internetphilia's quest for minimum regulation and the free market is
convergence. What is put forth is that telecoms, a liberalised industry,
and broadcasting, more or less regulated, are converging into one
technology. It is not sound to have two different regulatory paradigms for
the same technology. A liberalised paradigm is better able to deal with
the ever mutating technological change as well as with the
multi-functional nature of the Net. In short if different applications are
to co-habit online than only a liberalised regulatory regime can deal with
them. In public policy, convergence is the core of Internetphilia's second
articulation. 

Internetphilia's two articulations are very similar: for the first, a
distinction between production and consumption online does not exist. For
the latter, a distinction between production and consumption online can be
made, but it is insignificant since the power relationship between the two
has been subverted by the perfect market. 
 
The backlash There is a tendency to perceive of Internetphilia as an
ideology that is now going through a backlash, the expression of the
Internet's adolescence, a hype cured by the medium's maturation (Naom
1997, Sassen 1997, Bettig 1997, Hudson 1997). Such an approach is
misleading. Firstly, it does not make any chronological sense since
Internetphilic literature is on the increase.  Secondly, it is itself
Internetphilic since it reflects the notion of constant change. Thirdly,
it underestimates the centrality of Internetphilia's second articulation
for the business world. The Internet has become virgin economic territory
for every entrepreneur. Fourthly, it is blind to the fact that public
policies, echoing and promoting the above central claims, are being
instituted and implemented at the same time as authors are speaking of a
backlash. Internetphilia differs from the hyped ideologies that attended
the rise of cable TV, for example, in that it involves/brings about
dramatic policy changes in the regulation of communications technologies:
the Telecommunications Act of 1996, the Green Paper on Convergence are
unprecedented moves towards deregulation in the history of mass
communication. The backlash scenario undermines how central public policy
has been in promoting the Internetphilic agenda. The neoliberal policy
framework set by Internetphilia in the name of technological determinism
has urged governments across the world to adopt a U.S.-based liberal
framework for the regulation of e-communication. Any sporadic backlash
against such an agenda has been labeled anachronistic or protectionist. A
whole neoliberal way of perceiving of communication has been dictated in
the name of technology. The Internet's symbolic power in promoting
state-capitalist development and resurrecting bankrupt free- market policy
is a power on the increase. With the arrival of e-commerce such power has
consequences that extend to areas other than communication. There is no
backlash against the Internet's symbolic power. 
 Finally, the notion of a backlash does not recognise how central the
introduction of e-commerce is in affecting the whole nature of the
Internet. E-commerce alters the function of the Internet from a
communication medium to a delivery platform. Its terrestrial equivalent
would be to introduce 500 new TV shopping channels and argue that this
will not affect the function of TV.  The introduction of e-commerce
on-line needs to be criticised. It has not been sufficiently criticised
because backlash and criticism have one more shortcoming. They reduce all
objections to access, and hence an 'info-rich and info-poor' analysis
stands as the only opposition to Internetphilia (Bettig 1997, Sussman
1997:171).  Though access is an important issue, centering on access for
critique leaves the impression that it is the lack of infrastructure and
access that are stifling the digital democracy. But such a standpoint
reflects the Internetphilic tenets which should be overcome. The uneven
spread of the Internet's development is recognised in OECD reports, EU
official documents, global information infrastructure documents, etc.  An
access-centered critique is formalist, it makes no normative claims and
defends no ideal function for the Internet, it merely restates that the
individual should have access to the Internet. There is no discussion of
Internet content. The content could be anything. 

To produce a fruitful critique one has to comprehend that it is not
Internetphilia's level of euphoria that is problematic, it is not that the
correct questions have been set and Internetphilia merely gives the wrong
answers. It is that the questions are wrong. What does demand for Internet
access mean? Access to what? And access for what purpose?  Why should the
advocators of free-market capitalism be given the right to hegemonise a
medium, and define its whole nature? Why is the market more inherently
similar to the Net than to the radio? Why should e-commerce and
e-communication co-exist - even if compatible? Do we put stores in our
schools though we may accept that this would not intervene in the learning
process? Why is it taken for granted that the ideal is an Internet the
uses of which are decided by the individual? And who has accepted a priori
that there is a sovereign entity such as the abstract individual to
determine such access?  Internetphilia's philosophical basis can be
criticised on the same grounds as many neo-liberal dogmas: a faith in the
abstract individual (Marx 1968:29), an unfounded conviction that the
individual is detached from the social, that it is sovereign (Sandel 1982,
Taylor 1990, Walzer 1983, MacIntyre 1981, 1988, 1990). Also a belief in
negative liberty founded upon the tautology that man, being born free,
ought to be free. In addition, it can be argued that Internetphilia is a
technological deterministic dogma. It can also be argued that it
naturalises and reifies the market and the Net. Furthermore,
Internetphilia exhibits an unjustified faith in direct democracy. It is
also blind to the fact that scarcity is a not a technologically dictated
phenomenon but an economic reality. Thus, no matter what the technology in
question, there is no such thing as an economy of abundance, since
economic goods are by definition scarce. 

 Continuity in the digital world The way in which we perceive of the
questions central to understanding e-communication has drastically to
change. To do so it is necessary to mend the carefully constructed
ruptures with the past and posit "power" as a central concept in our
understanding of the Internet. Internetphilia dislocates the Internet from
economic, historical and social conditions, leaving its audience confident
that knowledge of the virtual world does not assume an understanding of
such conditions. It establishes an analytic framework marked by virtual
communication essentialism, a tendency to describe and analyse the
Internet in a historical, institutional and above all economic vacuum, the
central assertion being that even if there is an Internet economy such an
economy is novel and different. This in turn skillfully renders concerns
related to financial inequality, public function and pluralism redundant.
In order, then, that any paradigmatic shift be possible, it is imperative
that it be attended by an understanding of on-line communication as
physically located within current socio-economic power structures and
therefore as framed by material factors. 

The current picture of the Internet is in striking contrast to
Internetphilic claims. Inequalities in Internet development and the nature
of the development in question mirror rather than subvert state-capitalist
power structures. This is no surprise given that there has been no attempt
to develop the Internet in any other fashion. The Internet did not develop
in a economic vacuum, it is part of a wider context and economic
environment. As a communication medium it is enabled by a combination of
technologies the production of which has been commodified for at least one
decade, the infocommunication sector valued at 1.3 trillion (Herman and Mc
Chesney 1998). Estimates of the Internet's participation in this economy
vary. According to Forester Research, Internet activity generated revenue
of over $2.2 billion in 1995; ActivMedia claims that reported online
revenues reached 21.4 billion in 1997, Forester's estimate is $14,4
billion in the 1997. Estimates of what revenue the Internet will be
generating by 2001 vary from Forrester's 45.4 billion dollars (Forrester
1995) to B.Gates own prediction of 13-15 billion by 2001 (Wheelwright G.
1996: 9); ActiveMedia projects this figure to 1.234 billion in 2002.  Thus
the Internet is a commodified medium, the exchange value of online
communication is prioritised over its other values.  There are four main
ways in which such prioritisation takes place, each generating significant
revenues. First, the commodification of access: the internet service
provision market is now worth 8.4 billion dollars (AOL alone has 13
million subscribers and is worth 2 billion dollars).  Second, the
commodification of Internet navigation tools and search engines (Yahoo's
revenues alone where $30, 206,00 in the first quarter of 1998). Third,
advertising: Web advertising revenue grew by 28% to 169.8 million in the
third quarter of 1997 (Cowles/Simbanet 1997). For the sake of clarity the
Internet economy can be divided into infrastructure and content as shown
in Figure 1. Such a distinction (though false) firstly makes it clear that
the Internet is physically located; this means its function is totally
dependent upon Internet infrastructure. The two parts of the Internet
economy exist in a hierarchy, without the infrastructure there can be no
online activity or content (OECD 1997). Internet infrastructure is the
production and distribution of the online world, distribution being of
paramount importance. Connectivity, bandwidth and hardware are for the
Internet what transmission reception, clearness and T.V. sets are for
television broadcasting; and they are scarce. Speed stability and security
are factors that make up connectivity.  The infrastructure/content
distinction moreover routes e-communication into older industries, old
fashioned markets with well established players. This has to be reflected
back to the notion of an 'economic break with the past'. Routing Internet
industries into older industries undermines the notion of a totally "new
economy", a virgin market, uncontaminated by the monopolies of old-media,
where "everybody gets to have a go"; the Internet is inevitably determined
by older economies and industries. 

Figure 1:The Internet Economy
THE CONTENT

	Broadcasters, Web-casters, on-line content providers, Web-site
designers, database providers, advertisers, governments, on-line users? 

THE INFRASTRUTURE	Search Engines, Navigation Tools, ISP's Hardware,
Software
& Server Industries Public Telecommunication Operators
 
There is, of course, convergence in the Internet economy. A more accurate
term for describing this phenomenon is vertigal integration. ISP's are
being bought by telecoms companies, search engines are launching joint
ventures with telecoms and ISP's (MCI & YAHOO), broadcasters & telecoms
(Line-One: the joint venture of BT and News Corp). Since infrastructure
determines content, vertical integration or synergies are instigated and
benefit companies that are part of the Internet infrastructure; 

It is precicely because infrastructure determines content that the
Internet cannot be said to be hyper-geographical or hyper-economical.
There is an Internet architecture, a geo-economy that determines
e-activity. Such a geo-economy constitutes a series of inequalities which
not only determine who uses the Internet but above all the way in which
the Internet is used. All connections to the Internet do not cost the
same, are not of the same speed or bandwidth; all uses of the Internet are
not growing at the same speed, all subscriptions do not allow the same
activity, all content does not have the same chance of being viewed. 

[End of 1/2]
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