Netizens and Protecting the Public Interest in the Development and

1

• Netizens and Protecting the Public Interest in
  the Development and  Management of the Internet
• An Economist's Perspective
• Anders Ekeland, NIFU STEP anders.ekeland_at_nifuste
  p.no
• Past, Present and Future of Research in the
  Information Society,
• Tunis, 13th 15th, 2005

2
The role of economic theory

• What is the role of economic theory in the
  discussion about Internet development and
  governance?
• There is not economic theory in singular. There
  are different paradigms in economics, different
  schools of thought inside each paradigm,
• There are main-stream neo-classical theory, but
  also evolutionary, post-keynesian, Marxian
  theories, radical institutionalist theories.
• But the neo-classical is special in its
  theoretical foundations, it is static, ahistoric,
  has very special theory of human rationality
  this is the fundamental reason why economics
  and economists are in perpetual conflict with
  the other social sciences if they have not
  succeeded in imposing the Gary Becker world view
  on the topic (crime, suicide, marriage).

3
The role of economic theory cont.

• What is the role of economic theory in the
  discussion about Internet development and
  governance?
• The fact that one paradigm, the neo-classical
  theory, poses as the economic theory is in
  itself a phenomenon that needs critical analysis.
  
• Since neo-classisical theory is so extremely
  dominant - has a profound influence on policy
  formulation including Internet governance we
  need to understand it, need to develop a
  theoretical and empirical critique.
• Most people, including most economist do not
  realize the extreme static nature of this theory.
  They think that it is the result of a process
  where prices change firms compete and then
  equilibrium is reached. That is not case.

4
The extreme static nature of neo-classical theory

• The core of this theory proposition that perfect
  competition creates the maximum social welfare,
  i.e. a static general equilibrium is the
  benchmark for all policies.
• Competiton is a profoundly dynamic phenomenon,
  but in perfect competition everything is given
  preferences, technologies, initial endowments and
  prices. In everyday language competition is not
  competition at all but a total standstill, it is
  actually perfect stagnation (Nature mort,
  Stilleben)
• As is pointed out by many leading economists
  there is no way to make it dynamic, i.e.
  realistic. All the fundamental results the most
  efficient use of resources, Pareto optimality
  vanish completely. (Haavelmo, Stiglitz, H. Simon)

5
The limits and limitations of neo-classical theory

• When there is asymmetric information no
  reason why government, the research community
  should not know better than Markets which of
  course has happened and happens all the time.
• By habit neo-classical theory takes the initial
  endowments, the is the distribution of wealth as
  given. We study efficiency, politicians handle
  distribution this is only possible in complete
  static framework. Important for the self-image of
  objectivity, of rigorousness in contrast to
  other social science disciplines.
• The Clinton Gore privatization of the Internet
  In July 1997 Clinton directed the Secretary of
  Commerce to privatize the Domain Name System. The
  Federal Regulation became know as the Green
  Paper.

6
The limits and limitations.

• When there is asymmetric information no
  reason why government, the research community
  should not know better than Markets which of
  course has happened and happens all the time.
  Internet is of course a prime example of that.
• By habit neo-classical theory takes the initial
  endowments, the is the distribution of wealth as
  given. We study efficiency, politicians handle
  distribution this is only possible in complete
  static framework. Important for the self-image of
  objectivity, of rigorousness in contrast to
  other social science disciplines.
• The Clinton Gore privatization of the Internet
  In July 1997 Clinton directed the Secretary of
  Commerce to privatize the Domain Name System. The
  Federal Regulation became know as the Green
  Paper.

7
Optimum welfare demands competition, competition
demands privatizaton

• The Green Paper is important because of its
  vision of the governance of the DNS
• Beside stability, three main points
• Competition .
• Where possible, market mechanisms that support
  competition and consumer choice should drive the
  management of the Internet because they will
  lower costs, promote innovation, encourage
  diversity, and enhance user choice and
  satisfaction.
• (That markets where not essantial to develop the
  Internet is out of sight and out of mind in this
  neo-classical vision of the world.)
• Private Sector, Bottom Up Coordination
• The private process should, as far as possible,
  reflect the bottom-up governance that has
  characterized development of the Internet to
  date.
• Representation
• Management structures should reflect the
  functional and geographic diversity of the
  Internet and its users. Mechanisms should be
  established to ensure international participation
  in decision making.

8
The answer is not more market, more competition

• We think this auction system could break the
  logjams that have characterized the addition of
  new gTLDs to the root. A paradigm shift is
  required to make this work. ICANN has to stop
  treating the name space as a public good
  requiring strict regulation in the public
  interest. Once it recognizes that domain names
  are private goods, and allows market allocation,
  a more efficient system of name space management
  should emerge. (Mannheim and Solum (2004, p.
  365, note 204).
• And why not have auctions for competing
  Internets, so that consumer choice and
  innovation will be maximized?
• What was the consequence of the successful UMTS
  auctions? Bankruptcy, monopolisation,
  transactions costs we pay the bill for that.
  The costs of competition has no place in
  neo-classical theory.
• The neo-classical theory will always strive to
  push policies in a liberal, deregulation
  direction more power to the already powerfull.

9
A theory that cannot understand people

• A classical approach to the institutional
  economics of the non-profit firm would suggest
  that the managers of the firm (the Board of
  Directors, President of ICANN, and general
  Counsel) would seek to maximize their individual
  utilities. ICANN directors receive no direct
  monetary compensation beyond expenses. Nor is the
  monetary compensation for ICANNs top management
  extraordinarily high by non-profit standards.
  There is no evidence of rent-seeking behaviour by
  the ICANN management (bribery). Rather, members
  of the ICANN board and management appear to
  derive utility from their participation in the
  ICANN process. Mannheim and Solum (2004, p. 365,
  note 204)

10
The proof of the pudding is the eating

• The almost religious belief in the wonders of the
  Market led to the dotcom boom, the dotcom bust,
  the Enron scandal.
• Billions of dollars squandered on badly desiged
  projects and outright fraud
• Human and physical resources that could have been
  spent on giving more people and institutions
  access, closing the digitial divide rich-poor,
  North-South.
• When you used it in Russia a experiment the
  dynamics diverged and a social catastrophy was
  the result.
• The Nordic countries have done everything wrong
  , high-taxes, compressed wage scale, large income
  transfers and is probably one of the best
  variety of capitalism.
• The question of initial endowments
• the Internet belongs to human kind if the US
  captured it we would have made a new Internet
  technically not very difficult.
• the fundamental aspect of the Internet is
  exchange of information, especially of opinions.
  Its commercial use one form of information
  exchange is secondary. This communication
  system belongs to us all. We have a common.
• the Internet is a mighty mechanism for realising
  the visions of enlightened democracy it can
  also be used for commercial uses, but they are
  secondary

11
An evolutionary, Netizen perspective on Internet
governance

• There should be democratic, representative
  control over the Internet. Not by one government,
  especially not by a private, US institution, that
  lacks legitimacy, representative electoral
  procedures and open procedures.
• The Internet was shaped by a two social groups
  the researchers and the first, enthusiastic and
  competent users. They are fortunately still with
  us.
• The question of by whom cannot be seen in
  isolation from for whom and for what purpose.
  
• The UN, the ITU, ICANN all have their
  imperfections. Some governments are not
  representative of their inhabitants at all. The
  basic answer to these imperfections is to
  strenghten the Internat-based discussion,
  consiously empower the participants in
  structurally unfavorable positions.
• Neither Markets nor Bureacracy is the
  solution.

12
Summary

• There are several economic theories
  neo-classical is clearly the most ideological of
  them. Weak scientific foundation, very strong
  policy, normative conclusions
• Markets work, we must make them work for our
  purposes a dynamic, realistic understanding of
  markets is crucial. The funamental law of markets
  is competition creates monopoly, only innovation
  counteracts that tendency.
• One must grasp the fundamental contradiction
  between a democratic system
• one man one vote
• versus
• one dollar one vote
• Only democratic system can decide on the
  development of society including the Internet.
• A fundamental criterion for a real economic
  theory is that it is democratic, i.e. the society
  is primary in the theory and markets are
  secondary.

13
Competition according to Morgernstern

• Consider competition the common sense
  meaning is one of struggle with others, of fight,
  of attempting to get ahead, or at least to hold
  ones place. It suffices to consult any
  dictionary of any language to find that it
  describes rivalry, fight, struggle, etc. Why this
  word should be used in economic theory in a way
  that contradicts ordinary language is difficult
  to see.
• No reasonable case can be made for this absurd
  usage which may confuse and must repel any
  intelligent novice. In current equilibrium theory
  there is nothing of this true kind of
  competition there are only individuals, firms or
  consumers, each firm and consumer insignificantly
  small and having no influence whatsoever upon the
  existing conditions of the market (rather
  mysteriously formed by tatônnement) and therefore
  solely concerned with maximizing sure utility of
  profit the latter being exactly zero.
• The contrast with reality is striking the time
  has come for economic theory to turn around and
  face the music.
• Morgenstern, Oscar (1972), Thirteen Critical
  Points in Contemporary Economic Theory An
  Interpretation, Journal of Economic Literature,
  Vol 10, No. 4 (Dec. 1972, 1162-1189).