Saturday, December 16, 2006

the economic quirkiness of information

A commodity is something that you sell and/or buy. For example, MS Office is a commodity. Open office is not a commodity, its' cost is free.

Information aka "intellectual property"

Digital information differs from physical commodities, such as cars and pizza. The marginal cost of information is zero. Marginal cost is the cost of producing an extra copy.

For non digital information such as books and magazines the marginal cost of the information is zero too. Even though the paper and ink have cost, the information itself costs nothing to reproduce.

This is the first quirk of information. Having it does not interfere with sharing it. Digital information is a nonrival good. If you eat my pizza or drive my car then I am deprived. However, if you read my blog then that doesn't prevent me and others from reading it at the same time.

So, why do we charge for information, above and beyond the cost of delivery of that information to the user? How does this work? eg. that MS charges good money for every copy of Windows and MSOffice that it distributes and becomes very wealthy in the process, since the marginal cost to them of all those copies is zero, apart from the packaging.

This is an artificial economy based on the general idea that we need to reward the creators of good software. Otherwise, it is argued, in our society, where money is important, there is no incentive for MS to produce and to keep improving MSOffice. It doesn't make economic sense but is written into Law: proprietary rights of publishers, copyright law, patent law.

However, it has already been shown in practice that the free and open source model of software production also works very well. Linux is a more reliable operating system than Windows. There are many such examples, too many to be ignored. FOSS is a well established, alternative and successful model of software production.

The second quirk can be described with the phrase, "on the shoulders of giants". After Newton:
"If I have seen further it is because I stand on the shoulders of giants"
Information, when shared, inputs and outputs onto itself and in this way can be further developed. This is how progress through innovation and creativity happens. All innovation and creativity is a derivative work, built on the work of others. There is no such thing as a brand new idea.
"The crux of creativity is variation on a theme" - Hofstadter
I don't have to work out the theory of Darwinian evolution from scratch because Darwin and others have already done the hard thinking. Once an idea is "out there" it takes on a life of its own and can be further enriched. In copyright law this is called "derivative works". It is illegal for me to make a variation of Mickey.

Hence, we can view information ("intellectual property"), especially digital information (bits), as different from other commodities like cars and pizza.

Firstly, it's important that information be shared as much as possible because that is good for the creative and innovative development of society. This is the "on the shoulders of giants" factor.

Secondly, it's possible for information to be shared fully because it is nonrival. Anyone can make a copy for zero cost and the holder of the original copy still has full access to the information.

These two facts make digital information different from other commodities.

We would be better off treating software like maths and science knowledge. Bits are becoming our new main medium of discourse. We need to keep the bits free.

There doesn't seem to be any real evidence that proprietary rights, copyright law and patent law actually contribute to an increase in society's innovation and / or creativity. Innovation and creativity comes from non market forces and from market forces who do not depend on Intellectual Property rights. For example, see my article, software patents stink

Here is a thumbnail sketch of the growing multilayered battle over information:
hardware - tampering with hardware to prevent copying (DRM, TPM)
economic - locking in users to proprietary brand, eg. MS schools agreement
standards - locking in users to use particularly formats, eg. *.doc rather than *.odt
legal - copyright law strengthened
software - spying on users computers through automatic updates
cultural - demonising those who resist all this as "pirates"

Yochai Benkler, The Wealth of Networks, pp. 35-41

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