May 09
4
Adam Smith and P2P – The Functional Society.
Modern capitalism was built substantially if not totally using the concepts that were originally set down by Adam Smith in his work, “The Wealth Of Nations”
Smith was actually totally against the idea of the power of a marketplace being concentrated in the hands of a few.
In a true open market place as imagined by Smith there are no cartels.
However in the content industry there has been a continuing concentration of market clout in the hands of only a few for a number of years. In the telecommunications industry there is also massive concentration of clout, with Australia being totally dominated by one player in essence.
The key players in the massively concentrated areas of clout take great care to ensure that they do not meet any of the criteria to cause investigation by regulatory watchdogs even though from time to time their pricing policies as a group have the appearance of predation.
Fortunately necessity is the mother of invention, even in largely controlled marketplaces – mainly as a result of the spread of information technology.
The content industry considers P2P as a massively disruptive technology. It is claimed by them that P2P is at the heart of piracy. They would have us believe that it is an enabling technology that is causing great harm to them and to the creative people they represent.
However I believe it could be argued that P2P is actually not disruptive. Instead it is a technology that provides increased efficiency.
This is entirely keeping with Adam Smith’s philosophies on devising methodologies to ensure that the market determines its own comfort level aided by regulatory assistance. [Smith A – Sheep Farming and Wool Price.]
What is missing in today’s equation is an acceptable regulatory framework that will govern the use of P2P. It does not have to deliver a moral reality, just a fair one considering market forces, costs, and materials – all entirely within the parameters laid out by Adam Smith as being conducive to delivering an efficient marketplace.
In the world of manufacturing that governs physical goods, firstly analogue content and then more recently digital works (but delivered on physical media), there is a simple and well established model for pricing goods. The price of the content is a fixed cost. The price of manufacturing is a variable cost. A notional royalty to reward the content owners is included. A margin is added onto the manufacturing cost and from that a structure is created that rewards all participants in the process.
The development of a fully digital distribution system is quite different. It firstly takes the distribution cost away from the historical distributor and shifts that cost over to the consumer, through the consumers’ payment for bandwidth.
It then changes the quality requirement on the distributor and puts the consumer in charge of determining the level of fidelity he or she would like.
These changes come as a result of a shift in the ownership of the tools that are available to consumers. The ownership of those tools has the potential to vastly improve the efficiency of many aspects of society, but only in the event that there is a fundamental revisiting of the framework for capitalism that was established by Smith.
All parties in the transaction of content should be rewarded. Of that there is no doubt. However the level of the reward that is distributed needs to reflect the fundamental shift in the cost structure that has taken place. In doing so, a truly open market for content will emerge in which appropriate rewards are delivered to all creative producers of copyrighted works. This will mean that there will be a need for regulation. But the regulation will need to be substantially different to what it is currently.
Imagine the work that went into manufacturing a bible before the advent of the printing press. A monk might replicate only several hand-lettered and illuminated books in his lifetime. Clearly such a book would be priceless.
The advent of the Gutenberg press meant that mass production could take place. As scarcity gave way to abundance prices dropped because the effort to produce was reduced. With the advent of P2P we now have true ubiquity at our fingertips. Clearly this should produce a new pricing model that reflects the pure acquisition of the underlying work rather than a pricing model that attempts to extract more margin for less effort, which is the model that the content companies have been trying to maintain.
The fact is that until an optimized regulatory structure is created that reflects changed market conditions and prices the change accordingly, there will be a continuing disruption that will take place. This is because the market is not “free” in the Adam Smith sense of what makes capitalism work.
While there are cartels in operation, (if it quacks like a duck and waddles like a duck, then it isn’t going to turn into a turkey regardless of what it may call itself), there will be continuing pressure to stop regulatory change. We need to understand that as technology improves, regulations need to change too. Copyright law does not need to be overturned. It does need to adapt.
If we are going to live in a capitalist society and espouse Adam Smith’s philosophies to guide us we would do well to actually follow what he said.
If our regulations are driven by a false set of hypothoses there is no doubt that they will cause legislators to reach false conclusions. That, in turn, will absolutely ensure that there will be failure of the business model and that will be rapidly followed by a failure of our society.
Society requires logic and consistency for optimum functionality.
Unreasonable regulations will lead to a dysfunctional society.
P2P needs to be embraced with the preconditions that all digital content flows are to be paid for at a rate that is near zero. That way efficiency is rewarded, downloads are legalized, content creators are rewarded, the public is not demonized. Society wins.
In conclusion, I can think of no words more compelling than Adams Smith’s own words on the duty of Government.
First, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works, and certain public institutions, which it can never be for the interest of any individual, or small number of individuals to erect and maintain; because the profit could never repay the expense to any individual, or small number of individuals, though it may frequently do much more than repay it to a great society.