<incom> Lords of Cyberspace: The Return of the Rentier

[rverzola at gn.apc.org]

 Lords of Cyberspace: The Return of the Rentier
 by Roberto Verzola, Philippine Greens


The information sector: Economics 101

An information economy (previously called a post-industrial or knowledge
economy, also called a cyber-economy) is an economy whose information
sector has become more dominant than its industrial or agriculture
sectors. The information sector is that sector of the economy that
produces, handles, or transfers information goods. At the core of this
sector are information and communications technologies (ICT) for
generating, manipulating, distributing and using information.

Information goods, being non-material goods, are quite different from
agricultural or industrial goods, which are material goods. The main
cost of producing information is incurred at the research and
development (R&D) stage -- when the first instance or copy of that
information product is created. The original copy can then be stored and
reproduced electronically at very little cost. If digital format is
used, then perfect copies of the original can be made very cheaply over
unlimited generations of copies. Digital technology, with its unique
capability to copy or transfer information without degradation, is the
key that opened up the development of the information sector into a
full- blown economic sector.


Understanding the information sector: what's the key?

The very low cost of reproducing information lies at the heart of
understanding this sector and the basic conflicts within it. Until one
appreciates the implications and consequences of near-zero cost of
reproduction, one will not understand why information goods are
qualitatively different from other goods and why the information sector
is qualitatively different from other sectors.

On one hand, for instance, information goods are easy to share freely.
On the other hand, the potential profits from selling information goods
are very high, because the marginal costs of production (the cost of
making the next unit of the product) are very low. Here lies the germ of
the basic conflicts within the information sector.

We share information all the time, reflecting the social nature of
information. The easier to reproduce it, the more we tend to share it.
But if information is freely shared, who would buy it at a high price?
If one can get it for free, why pay for it?

Because the free sharing of information goods undermines their
potentially high prices, commercial information producers want to
prohibit the free exchange of information. Then, they can create an
artificial scarcity, which enables them to keep prices -- and profit
margins -- high.

This is the whole concept behind intellectual property rights (IPR) such
as copyrights and patents. IPRs prohibit the public from freely sharing
information; they give the information producer the exclusive right to
use, make copies or sell the product. IPRs are, in effect, information
monopolies. Today, they are the principal form of information ownership.
The information economies of today are monopolistic information
economies. Information monopolies make high profit margins possible in
the information sector.

In a capitalist system, investments tend to go where the profit margins
are highest. The high margins in the information sector encourage the
shift of investments from the industrial and agricultural sectors to the
information sector. The transformation of the U.S. economy from an
industrial to an information economy is the simply the result of this
natural movement of investments to areas which promise the highest rates
of return.


Cyberlords: the rent-seeking class of the information sector

The most important property owners of the information sector are
rent-seekers. They control or own an information resource or
infrastructure and get their regular income from charging rents for it
use. There are two types of cyberspace rentiers:

*the software owners, who control the programs, the data, or the
content; and
*the hardware owners, who control the infrastructure, the servers, the
facilities or the equipment for distributing, using, or consuming the
information goods.

Rents take the form of patent and copyright royalties, license fees,
subscription fees, entrance fees, usage charges, technology charges and
so on.

These rentiers of the information sector are the landlords of
cyberspace. They may therefore be called cyberlords.

Cyberlords who control the software may be called information
cyberlords. These include the owners of software companies, database
companies, music, video and film companies, publishers, genetic
engineering firms, pharmaceutical and seed firms, and similar companies
who earn most of their income from IPR rents.

Cyberlords who control the hardware may be called industrial cyberlords.
These include the owners of communication lines and equipment, radio and
TV stations and networks, Internet service providers, theater
distributors and owners, cable TV providers and operators, integrated
circuit manufacturers, and other firms. With these facilities
converging towards a single global information infrastructure for data,
voice communications, media, entertainment, financial transactions,
payments, etc., the industrial cyberlords are consolidating, merging
and creating huge new monopolies that control large chunks of these
facilities.

The cyberlord class also includes highly-paid professionals who are
indispensable to the economic viability and growth of cyberlords. These
include top-level managers, lawyers, and others whose income are mainly
payments from cyberlords they work for. Lawyers, in particular, are
absolutely necessary for the enforcement of the copyrights, patents,
and other IPRs of information cyberlords.

The social nature of information continually asserts itself. Thus,
information products tend to spread themselves globally as soon as they
are released, regardless of the will and intentions of the producers.
Cyberlords, therefore, have no choice but to globalize their operations
as well, and to follow where their information products go. They push
the globalization process incessantly to ensure that every country,
every nook and corner of the globe, is within the reach of their
mechanisms for rent extraction. Thus, cyberlords are an important
social base of globalization. As they gain political dominance in a
country, a new ruling class of rentiers will emerge, ushering a 
neo-feudal era ruled by cyberlords.


WTO: enforcing the cyberlords’ property rights

To strengthen their global reach, cyberlords needed a global legal
infrastructure for extracting rents. This turned out to be the World
Trade Organization (WTO). Under the WTO's persistent pressure, various
international agreements have been concluded or are being pushed that
protect and advance the interests of cyberlords. The most important
agreement, without which cyberlords would not be able to realize their
high profit margins, was the TRIPS agreement under GATT, which bound
all WTO members to very high standards of IPR protection.

The TRIPS agreement was followed by other WTO agreements essential to
the growth and expansion of the information sector, and which have been
or are in the process of being concluded. These include: the e- commerce
agreement, the information technology agreement, and the agreement on
telecommunications. These agreements ensure low-duty or tax- free
transactions, an increasingly deregulated playing field, the lifting of 
restrictions to the entry of foreign firms, and other policies
beneficial to cyberlords who operate globally. These also include
agricultural agreements, in so far as they ensure markets for the
genetically-engineered agricultural products (which may be seen as
information products of the genetic variety) of information economies.


Three types of economies

With the emergence of powerful information economies led by the U.S., we
can distinguish between three major categories of economies in the
world, depending on the production sector that is most dominant: the
information economies, the industrial economies and the agricultural
economies.

Compare the prices of typical products: an agricultural crop like sugar;
a industrial manufacture like a small refrigerator; and an information
product like software. A $100 software on a CD can be copied within
minutes for less than a dollar. A $100 refrigerator would need a lot of
metal, plastic, glass and other materials, as well as sufficient energy
to process and mould them into a working appliance. To produce $100
worth of sugar, one needs to plant lots of sugar cane, grow them for
months, harvest them and then process some several hundred kilos of
sugar. Yet, in a WTO-ruled world, these products are supposedly of
equal value. Clearly, the greatest returns will be enjoyed by the 
information economy and the lowest (often, negative) by the agricultural
 economy, with the industrial economy somewhere in between.

In the past, industrial economies enjoyed a favorable pattern of trade
with agricultural economies. This colonial trade pattern kept the
erstwhile colonies under the economic control of the former, although
the latter had gained formal political independence. Similarly, we can
expect information economies to enjoy a favorable trade pattern with
industrial and agricultural economies. The higher profit margins in the
information sector will allow information economies to continue to
extract large amounts of resources from developing agricultural and
industrial economies. Agricultural economies try very hard to
industrialize, in the hope of extricating themselves from the colonial
trade pattern with their industrial trade partners. But they will not 
necessarily succeed in doing so. By the time they reach industrial
status, the U.S. and Europe will have become full-blown information
economies, thereby remaining in a very good position to continue such a
colonial trade relationship.

Historically, therefore, the emergence of the global information economy
can be seen as the third wave of a continuing globalization process. 
The first wave involved direct conquest through colonialism. The second 
consists of the post-colonial expansion of industrial economies
producing material goods. The third is the emergence of the global
information economy.


High initial costs filter out the poor

Can we not leap-frog development stages and right away become an
information economy? Won’t the new information and communications
technologies (ICTs) democratize benefits and make it possible for poor
countries to catch up with the developed economies? Not likely. In fact,
new ICTs are bound to exacerbate the existing gap between rich and poor
countries, and between rich and poor sectors in every country.

Consider the nature of an information product, whether software,
hardware, or a data connection: the initial costs (the development
costs, the equipment costs, the leased line costs, etc.) are high, but
the operating or recurring costs are low. Because the initial costs are
high, few firms or individuals can afford them. These high initial
costs serve as barrier, filtering out those who have little or no
capital. But the rich who can afford the high initial costs then enjoy
lower operating costs (the cost of reproducing software, running
equipment, maintaining a leased line, etc.). This makes them much more
competitive vis-a-vis those who have been excluded from the new ICTs
because of the high initial costs. The more competitive rich will get 
richer, the less competitive poor will get poorer.


We might be able to overcome the high costs

The introduction of ICTs is clearly an expensive proposition for most
developing countries. They compete for our peoples’ time, skills and
attention, taking resources away from essential activities like food
production, health services, basic education and so on. Yet, the
possibilities of the new technologies are also tantalizing, and many
people sincerely feel that these technologies also have some benefits
to offer and, properly deployed, can facilitate solutions in providing
for basic needs.

How does a poor country solve the problem of providing for its people
facilities which are terribly expensive and which are hardly affordable?
Here are five strategies that countries can try to reduce ICT costs:

* Emphasize appropriate technology, make do without the online frills,
and concentrate on low-cost off-line technologies, which can bring in
the most essential services; these technologies include email-based
approaches like Googlemail and www4mail, text-based approaches,
storage-based (instead of connectivity-based) approaches like VCD
players cum CDROM browsers; intermediate technologies like micro- power
broadcast stations.

* Use free/open software like Linux/GNU and OpenOffice whenever they are
available, because they take full advantage of the benefits of pooling
together the intellectual resources not only of a country but of the
whole Internet community and their approach is in harmony with the
nature of information, giving all users the freedom to use, to share and
to modify software.

* Apply genuine compulsory licensing where commercial software is the
only option; GCL is an internationally-recognized mechanism that allows
poor countries to access technologies on their own terms.

* Set up public access stations that do not require the ordinary citizen
to pay a fixed monthly charge; and

* Work out a system of public or community ownership over the hardware
infrastructure to minimize rent-seeking by private interests, which can
lead to further concentration of wealth.


But can we overcome the technology's built-in ideology?

While the preceding strategies may allow developing countries to deploy
ICTs more effectively, these may not be enough. It was appropriate
technology advocate E.F. Schumacher, author of the widely-acclaimed book
Small is Beautiful, who once warned that technologies often carry a
built-in ideology which is so deeply embedded that one cannot have a
technological transplant without getting at the same time an ideological
transplant -- the biases, values and mindsets carried by the technology.
This is as true of the Internet as with the earlier technologies that
Schumacher cited, such as nuclear power and the Concorde jet.

On the Internet, we much watch out for the following built-in biases
embedded in the technology:

The superiority of the English language (and, by extension, culture?).
The lingua franca of ICT is English. Programming languages, including
the languages for programming hardware, are in English or derived from
English. This forces technical persons to consider English a necessary
language to learn, because it is a key to technology access. From
knowledge of the language comes familiarity and identification with the
culture behind that language.

Automation. The ICT perspective is to replace men and women with
machines. The process may create new jobs, but these new jobs are also
subject to the same bias: they will also, in the future, be replaced by
machines. Hidden centralism and hierarchy. This centralism and the
corresponding power hierarchy is facilitated by the growing
privatization and corporate control of Internet facilities as well as
decision-making and can be seen in the following:

* consolidation of control over information content and infrastructure,
with a corresponding growth of enormous powers to those who wield such
control;

* assignment of IP network addresses, those dotted numbers which are
needed to establish a permanent presence on the Internet, without which
one is a second class Internet citizen, and the assignment of which is
now largely corporate-controlled;

* the domain name system (DNS), which is as important as the IP address
in establishing a personality in cyberspace; and

* the technical standards, which include communications protocols,
packet formats, mail and document formats, sound and video formats, and
all the different standards that make internetworking possible and
without which there will be no Internet.

These centralist elements, by the way, make the Internet a perfect
listening post and control point for military and intelligence
applications. Globalist bias. On the Internet, by the very design of the
technology, the global players enjoy a hidden subsidy by local players,
a perverse case of the poor subsidizing the rich. Whenever ISPs charge a
flat rate regardless of destination, those who communicate with nearby
contacts pay as much as those who communicate with distant contacts,
even if the latter use more network resources. This is a hidden subsidy
for globalization that comes with the design of the technology itself.

Unlimited growth. A major criterion in Internet design is 'scalability'
-- that the design should allow for unlimited expansion and can be
indefinitely extended to larger and larger scales. It is true that
information, because it is non-material, can increase practically
without limit. The problem is in extending this thinking to the material
world.

No accountability. The ease in establishing transitory social contacts
on the Internet and hiding identity not only discourages the growth of
social responsibility but also fosters unaccountable behavior patterns.
As a result, the Internet has become the natural habitat of scam
artists, spammers, and other anti-social elements whose brazen
unaccountable behavior are tolerated by server system administrators.

It is as if the ideology of the cyberlord class had been embedded in the
technology itself. To become a truly appropriate technology, the
Internet needs a redesign based on a very different ideological
perspective. In the meantime, unless ICT users are fully aware of and
consciously reject these hidden, built-in biases, as they use these
technologies, they are also getting a dose of the ideology behind them.


And can we defeat the cyberlords and their neo-feudal rule?

Feudalism has been defeated before. It can be defeated again. The feudal
rule of landlords was defeated by land reform. Cyberlords can be
defeated by a similar property reform which can be summed up as follows:
stop the privatization of information, information resources, and
information facilities; work for public domain information content,
tools, facilities and infrastructure; and develop non-monopolistic ways
of rewarding intellectual activity. The Philippine Greens, for
instance, have formulated the following demands in the information
sector:

1. The right to know. It is the government’s duty to inform its citizens
about matters that directly affect them, their families or their
communities. Citizens have the right to access these information. The
State may not use "national security"’ "confidentiality of commercial
transactions", or "trade secrets" as reasons to curtail this right.

2. The right to privacy. The government will refrain from probing the
private life of its citizens. Citizens have the right to access
information about themselves which have been collected by government
agencies. The government may not centralize these separate databases by
building a central database or by adopting a unified access key to the
separate databases. Nobody will be forced against their will to reveal
any information they do not want to make public.

3. No patenting of life forms. Modified or not by human intervention,
these may not be patented: life forms, biological and microbiological
materials, and biological and microbiological processes.

4. The moral rights of intellectuals. Those who actually created an
intellectual work or originated an idea have the right to be recognized
that they did so. Nobody may claim authorship of works or ideas they did
not originate. No one can be forced to release or modify a work or idea
if he/she is not willing to do so. These and other moral rights of
intellectuals will be respected and protected.

5. The freedom to share. The freedom to share and exchange information
and knowledge will be recognized and protected. This freedom will take
precedence over the information monopolies such as intellectual property
rights (IPR) that the State grants to intellectuals.

6. Universal access. The government will facilitate universal access by
its citizens to the world’s storehouse of knowledge. Every community
will be enabled to have access to books, cassettes, videos, tapes,
software, radio and TV programs, etc. The government will set up a wide
range of training and educational facilities to enable community members
to continually expand their know-how and knowledge.

7. Compulsory licensing. Universal access to information content is best
implemented through compulsory licensing. Under this internationally-
practiced mechanism, the government itself licenses others to copy
patented or copyrighted material for sale to the public, but compels the
licensees to pay the patent or copyright holder a government-set royalty
fee. This mechanism is a transition step towards non-monopolistic
payments for intellectual activity.

8. Public stations. Universal access to information infrastructure is
best implemented through public access stations, charging at subsidized
rates. These can include well-stocked public libraries; public telephone
booths; community facilities for listening to or viewing training
videos, documentaries, and the classics; public facilities for telegraph
and electronic mail; educational radio and TV programs; and public
access stations to computer networks. Another approach in building
public domain information tools is to support non-monopolistic
mechanisms for rewarding intellectual creativity. Various concepts in
software development and/or distribution have recently emerged, less
monopolistic than IPRs. These include shareware, freeware, 'copyleft'
and the GNU General Public License (GPL). The latter is the most
developed concept so far, and has managed to bridge the transition from
monopoly to freedom in the information sector.

9. The best lessons of our era. While all knowledge and culture should
be preserved and stored for posterity, we need to distill the best
lessons of our era, to be taught -- not sold -- to the next generations.
This should be a conscious, socially-guided selection process,
undertaken with the greatest sensitivity and wisdom. It is not something
that can be left to a profit-oriented educational system,
circulation-driven mass media, or consumption-pushing advertising.

The key issue in the information sector is IPR. Information cyberlords
will rise or fall depending on how this issue is resolved. In the
software field, the short-term strategy is the expansion of various
forms of compulsory licensing of commercial information products.
Long-term strategies include protecting the people's freedom to use,
share, and modify information tools and content through free software
licensing; resisting the patenting of life forms; phasing in
non-monopolistic rewards for intellectual activity; and encouraging the
social sharing of non-material goods.

In the infrastructure area, we should advocate various forms of
community/public control or ownership over backbone information
facilities and infrastructures, to minimize private and corporate
rent-seeking.

Such strategies run squarely against WTO principles, which are highly
protectionist over IPRs and which favor corporate control over
information facilities. As the legal infrastructure which cyberlords
rely on for maintaining their high profit margins, the WTO will remain
major arena of struggle in the information sector. The WTO setbacks in
Seattle and in Cancun have opened windows of opportunity to question the
various pro-cyberlord WTO agreements, particularly TRIPS. Developing
countries must try to get these agreements postponed, reviewed, and
modified, to weaken pro-cyberlord provisions and strengthen those
provisions that increase public access and control over information
content and facilities.

While the cyberlord class has become increasingly powerful, the source
of its power is also the key to its weakness. This is the extremely low
cost of reproducing information, which is the basis of the social nature
of these goods. It is impossible to stop people from sharing
information, regardless of the will of information producers and
cyberlords. The more we freely share information that they want locked
up under IPR, the weaker information monopolies will become.

This is how we can stop the return of the new rentiers.


Roberto Verzola
World Social Forum, Mumbai, India
January 18, 2004

Note:

Roberto Verzola's pieces on the the information economy have been
collected into a book, entitled Towards a Political Economy of
Information: Studies on the Information Economy, which will be launched
on March 10, 2004 by the Foundation for Nationalist Studies (FNS). He
may be reached at rverzola at gn.apc.org. The book can be ordered from 
lrc_fns at yahoo.com

The following is the table of contents of the book:

Part I. Information and Intellectual Property Rights (IPR)
1. The miracle of the loaves
2. A new offensive against the Third World
3. U.S. piracy in the 19th century
4. The 'piracy' of intellectuals
5. GATT: Free Trade or Monopoly Growth?	
6. IPR: a clash of value-systems
7. Towards a political economy of information

Part II. ICTs and the Internet
8. Expanding market for information economies
9. A hierarchy of access
10. ICT: job creator or destroyer?
11. A poor learning environment
12. An interactive idiot box
13. Private space controlled by rentiers
14. Perverse subsidies
15. Internet cafes: connectivity for the masses?

Part III. Genetic Information And Genetic Engineering
16. Turning farmers into 'pirates'
17. Pirating genetic resources
18. Beware of modern vampires
19. Biosafety and genetic contamination

Part IV. Monopolistic Information Economies
20. Information monopolies and the WTO
21. Globalization: the third wave
22. Cyberlords: rentier class of the information sector	
23. Testing the political strength of a cyberlord
24. Globalization: poor design?
25. What could be more important than efficiency? 

Part V. Alternatives: A Non-Monopolistic Information Sector
26. A well-kept IT secret
27. IT or AT?
28. Community rights over biological material: property or moral rights?
29. Low-cost strategies for ICT deployment in developing countries
30. Greening the information sector	
31. Alternatives to globalization