The Shape of Things
Exploring the Evolving Transformations in American life

By G. A. Keyworth, II

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At the dawn of this century that is soon to conclude, one of man's great discoveries was just beginning to blossom. Albert Einstein's explanation of the photoelectric effect led to an entirely new body of knowledge that we now call "quantum mechanics." It allows us to to understand, and therefore to manipulate, the intricate workings of matter itself. One of the more pervasive examples of what quantum mechanics made possible is the phenomenon we know as quantum tunnelling--the basis for semiconductor electronics. And I say "pervasive" because it is man's harnessing of that microscopic phenomenon of tunnelling that is causing the widespread change we are here to discuss. Tunelling enables microelectronics which, in turn, permits the cost of digital computing to decline so rapidly that it is becoming pervasive--like the grains of sand from which its semiconductors are made.

When all those computers are connected so that they can communicate, the result is cyberspace. The technological evolution from quantum mechanics to cyberspace has been gradual and even orderly. What is more abrupt, however, is the transformation which our cultures, economies and even our societies are undergoing as a result.

So too is today's economy somehow different. For more than two hundred years, industrial economies were characterized by one overarching feature--the accumulation of barriers to new entrants. Whether through economies-of-scale, proximity to resources, regulation, or simply by establishing a strong brand-name, industrial economies built barriers to new entrants. Those barriers were present in all markets, whether local, regional or national, and for virtually all goods and services, from Coca Cola to clothing to airlines.

New entrants could, of course, emerge but the barriers were high. In the new economy, those barriers are much lower and, in some cases, nearly absent. As recently as ten years ago, few would have predicted that IBM's market capitalization on the New York Stock Exchange would be surpassed by a software company. But, two years ago, that happened, when the value of Microsoft's shares exceeded IBM's. In fact, the value of Microsoft today is nearly as large as the combined worth of General Motors and Ford. One expression of the new economics that is often heard in Silicon Valley is referred to as "The Law of the Installed Base." It says that, when technological change occurs, which is becoming more and more often, whoever has an installed base of customers is at greater risk than a new entrant. And few companies are more aware of that law than Microsoft and Intel.

With so many of our citizens, especially younger people, becoming digital, and with barriers to new enterprises falling rapidly, it is hardly surprising that the very nature of our society is also changing. What is remarkable, however, is the similarity between HOW both our societies and computer architectures are changing, and the speed with which it is taking place. In each instance, the overarching trend is toward becoming more distributed. Mainframes, those symbols of centralized power, are being replaced, steb by step, by distributed computing. In fact, one of the main debates in computing circles today is whether the asymptote of this trend will be the computer merging into the digital network. While I very much doubt that conclusion, it is not impossible. What is startling, however, is that so much of this change occurred in little more than a decade.

So far, I have stressed two points. The first is that it is the plummeting cost of digital computing that is driving the change to new cultures, economies and societies, what Alvin and Heidi Toffler have described as the transition from the "second wave" industrial age to the "third wave" knowledge age. My second point is that the defining feature of that transition, and what most distinguishes third wave behavior from second wave, is diminshed barriers to new entrants. Nowhere is the divergent nature of those two behaviors manifested more clearly than in the two terms most often used in the discussion over digital connection--Information Superhighway and Cyberspace.

The second-wave term information superhighway connotes rigid physical limits connecting concentrated, centralized elements. Cyberspace, in contrast, is characterized by its lack of limits and by its distributed, decentralized nature. The information superhighway presupposes immutable laws of conservation--what goes north on the highway must return south, whereas in cyberspace we assume that, since the cost of replication is negligible, the amount of information consumed vastly exceeds production. As one of my distinguished colleagues, Peter Huber, has expressed it, "we all run information deficits in cyberspace."

Superhighways tend to be government owned, operated by bureaucracies, and with limited access. Cyberspace, with the Internet as its initial manifestation, has a vast array of ownerships, is operated by empowered individuals, and with virtually unlimited access.

Having said what cyberspace is not, let me be clear about what it is. Expressed in the barest of terms, cyberspace is the culture and society of people who are individually empowered by digital connection. The digital connection that enables cyberspace is ubiquitous and non-hierarchal, peer-to-peer in architecture. The result is an abundance of information, readily available, with an economy characterized by its low barriers to new entrants.

One of, if not the, fundamental dilemmas of cyberspace resides in the nature and ownership of property. Our experience tells us that clear and enforceable property rights are necessary for markets to work. Moreover, defining those property rights is a central role of government. Law, as we know it, was developed to protect those rights. In the Toffler's first wave, which was agriculturally based, law was required to establish ownership, and thereby ensure order, of the principal source of production, land. In the second wave, manufacturing became the economic driver, and the structure of modern law grew around the centralized institutions that needed protection for their reserves of capital, manpower, and hardware. In each of those earlier economic systems, maintaining stability was the important factor in defining property rights.

Their laws were designed to preserve the predictability necessary to either land stewardship or capital formation. In the third wave we have now entered, information to a large extent replaces land, capital, and machines. And, since digital technology is separating information from the physical world where first and second wave property law found definition, it should come as no surprise that the third wave is bringing a fundamental shift in the purposes and methods of law. In fact, that fundamental shift is likely to extend beyond those statutes that govern just intellectual property.

The dilemma is this: if digital property can be reproduced and distributed instantaneously, everywhere and without cost, without our knowledge, without its even leaving our possession, how can we protect it? How are we going to get paid for the work we do with our minds? And, if we can't get paid, what will assure the continued creation and distribution of such work?

Today's copyright and patent law is based upon the physical expression of ideas or knowledge. Books, newsprint, tapes and CDs are tangible means to preserve property rights under present law. They simply don't exist in cyberspace. Instead, value is obtained more by the way the information is presented than by its content.

New software is often introduced at no cost to the user, but with the expectation that he or she, having invested time and effort in learning to use it, will pay for next-generation upgrades. Providers of information that is timely can extract a fee for property that will, tomorrow, be free. Such intangible features as ease and efficiency of use, quality of presentation, timeliness and format--those are the kinds of things that represent value in a cyberspace economy. As another of my distinguished colleagues, John Perry Barlow, has so aptly pointed out, "whether you think of yourself as a service provider or a performer, the future protection of your intellectual property will depend on your ability to control your relationship to the market--a relationship that will most likely live and grow over time. The value of that relationship will reside in the quality of performance, the uniqueness of your point of view, the validity of your expertise, its relevance to your market, and, underlying everything, the ability of that market to access your creative services swiftly, conveniently, and interactively."

In spite of our experience to the contrary, how ideas are presentated in cyberspace will be more important than the ideas themselves. I think of providing value in cyberspace as constructing elements of the ultimate digital-to-analog interface--matching the overabundance of available, digital information to the inherent, analog limitations of we human beings.

And that diverts me, for a moment, to a subject that perturbs me. That is the obsessive fascination with bandwidth that contributes so much confusion to the all-important matter of converting our existing communications systems from outmoded analog, designed largely for voice service, to the kind of digital infrastructure required for cyberspace.

My concern derives from what I will call the "30-30 rule"--that we humans can take in information at only about 30 megahertz through our eyes or, even slower, at 30 kilohertz through our ears. This, ultimately, is the requirement that will shape the communications infrastructure of cyberspace. Much higher bandwidth is, of course, required for machine-to-machine communications, between elements of the network, but it is at the man-machine interface where the maximum value is added. The focus upon bandwidth is, I fear, a result of our second wave experience, where it is the movement of information that is valued, not its presentation. Regulators and deregulators would better focus on making it easier to convert our analog telecommunications systems to digital infrastructures, rather than on maximizing bandwidth.

Bandwidth is important, because it will make connected computing richer, but the fact remains that we humans lack a broadband input channel to access all that bandwidth directly. And, in the meantime, it is digital connection, to link together those ever more pervasive computers, that we need, even more than bandwidth.

I have spoken of the importance of re-examining the appropriateness of current copyright and patent law, because the central premises of cyberspace differ so markedly from our first and second wave experience. And I have stressed that the value received for how information is presentated is outweighing its content. Let me go further, and suggest that copyright and patent laws will, gradually but inexorably, prove to be outmoded in cyberspace. Based on largely irrelevant, physical premises, and unable to adapt to the pace of technological progress in cyberspace, they simply will be abandoned.

Peter Huber has proposed something that, to me, makes much more sense. That is that the body of common law, developed from judicial decisions based on custom and precedent, is more adaptable to change and better able to provide the essential protections that are needed in cyberspace. Although, at first that may seem a radical proposal, it in fact returns to a well-established mechanism of resolving disputes--the courts. It allows accomodation to change, within ethical bounds and, in contrast to copyright and patent law, common law is not tied to a rigid requirement that property be physical in nature.

Among the already-digital, there is another, more technical, feature of cyberspace that allows the individual providers of information to protect their digital property. That is encryption, but not in the usual sense of government controlled encryption. It is encryption in the sense that the creators of digital property can use technology, in the form of software tools, to contain, restrict, or meter the use of their ideas. This, of course, encompasses much more than enciphering and deciphering information. For example, in the language of object orientation, it means creating "agents" to build and maintain the relationship between the creator and customer.

Drawing liberally from John Perry Barlow, let me summarize his thoughts on property in cyberspace:

The protections that we will develop will rely far more on ethics and technology than on law.

Encryption will be the technical basis for most intellectual property protection. (And should, for this and other reasons, be made more widely available.)

The economy of the future will be based on relationship rather than possession. It will be continuous rather than sequential.

Along with the diminished barriers to new entrants that define the cyberspace economy go diminished economies-of-scale. Taken together, they mark the decline of the concept of a monopoly or, at least, of an enduring monopoly. This is but another way of restating what I referred to earlier as "the law of the installed base." With technological progress opening new ways to serve yesterday's markets, one-time monopolies are being replaced by competitive battlegrounds. Even where monopolies do emerge, the pace of technological change is threatening to make them short-lived. This is true not only for digital technology, but for all the goods and services in cyberspace. The reason, as George Gilder has pointed out, is because the very nature of competition in cyberspace is different.

Second wave static competition, whereby many providers compete to sell similar products at the lowest price is, of course, good because it brings more value to the customer. But the dynamic competition of cyberspace, where different industries with different technologies compete to meet customer's needs, is even better. It is better because it allows competing technologies and new products to challenge the old ones and, if they really are better, to replace them. Static competition will lead to faster and stronger horses, but dynamic competion gives us the automobile. One need only look at what is happening in such entrenched areas as the market for mail, where fax machines and overnight delivery challenge the public monopoly, or in television, where cable and satellite-TV have broken the monopoly of broadcast, or the change that is underway in voice telephony.

Such dynamic competition--the essence of what the Austrian economist Joseph Schumpeter called "creative destruction," is the nature of the cyberspace economy. Nowhere are the results more dramatic than in our own computer industry and, in particular, in Silicon Valley, California. A negative view might be that there has been so much destruction, so many companies were born, flourished, and died. But that can only be viewed as a modest price to pay for the wholescale economic rejuvenation of the United States that it catalyzed. And, not surprisingly, that renewed competitiveness is concentrated in the more important areas of high growth, such as computing, telecommunications, pharmaceuticals, and the broad array of service segments. In many ways, I look at Silicon Valley as the first colony of cyberspace.

There are many things one can already observe about the cyberspace economy. Although many features are still obscured, good data abound. But we know much less about how people adapt to cyberspace. We do, however, have strong indications that that adaptation is not easy. And I point to the simple fact that, in my own country, although we have experienced a generally healthy economy and low unemployment for more than a decade, there is a widespread sense of uncertainty, even anxiety, about the future. Yet we are progressing, inexorably, toward a cyberspace society. To gain some insight into how that is occurring, it is informative to look at the changing natures of individual freedom, the community and of government.

Perhaps the first manifestation of the new nature of individual freedom is what we call the "hacker," that completely digital young person who ignored most of our social pressures and rules to develop a set of computer skills through an early and intense exposure to the Personal Computer--the PC. Those skills eventually made the hacker highly marketable. He or she became a technician, an inventor and, in many cases, a creator of new wealth. None is better known than Bill Gates, who chose founding Microsoft over social pressure to continue his Harvard education.

The hacker is neither a rare nor an unimportant feature in America today. Where parents once presumed the hacker would learn the ways of conventional America, it is conventional America that is learning the ways of the hacker. By choosing individuality over conformity, performance over concensus, the hacker became our frontiersmen in cyberspace.

The nature of freedom was redefined in the transition to the industrial age. The second wave relied on standardization, and its institutions, corporate and government bureaucracies, reflected conformity. It might even have made sense that, in some cases, a government would prohibit entrepreneurs from entering new markets. It might even have made sense that, in a world of one-way broadcast communications, a government would assume ownership over the spectrum and limit the viewpoints expressed there. Those kinds of infringements on individual freedom were made in order for the system to "work." They make little sense in cyberspace. The sheer complexity of the third wave is simply too great for any centrally planned bureaucracy to manage. Demassification, customization, individuality and freedom--these are the natural features of cyberspace.

If the hacker is the pioneer, the frontiersman in cyberspace, then his early communities may be on the internet. The internet is, in itself, a paradox. As the first step toward the kind of digital connection that enables cyberspace, ubiquitous and non-hierarchal, it is also a step toward conforming--at least to a common connection standard. But there is little conformity in the way the internet is used. Copyright laws are, generally, ignored; propriety is eschewed for the explicit; and privacy is more a challenge than a right.

But, in spite of this seeming paradox, there is both order and an emerging sense of community on the internet. There is order because software is being introduced, rapidly, both to make the internet easier to access, use and explore, and to make it more palatable, whether through encryption for privacy or censoring software. And there is community because "electronic neighbourhoods" are proliferating, bound together not by geography but by common interests.

My own son, studying for his doctorate in Buddhist history, is part of a global internet community of like-minded scholars. On a more mundane level, my own love of Bassett Hound dogs is shared with a community of people with similar friendships. What matters is that these relationships are the kind of glue that hold communities together, and they are new.

Looking beyond this first phase of experience with the digital connection, we can see the broader effects of reduced pressure on highways, less air pollution, and diminished concentration of population in urban areas. This is more than a mere optimist's speculation; more and more companies are accepting the home office as a legimitate part of the modern institution. The SOHO, a new acronym for "small office, home office," is the fastest growing segment of the American PC market.

Whereas we have much to learn about the nature of society in cyberspace, we can be sure it will be more distributed, and decentralized than in the past. And all indications are that it will be composed of less heterogeneous communities, linked more by common interests than by common location. One could envision this trend as, in fact, a renewed sense of community, sort of a return to the first wave agrarian community. What is different, of course, is the lack of common physical location.

However one perceives the cyberspace community, whether as a return to the past or as something utterly new, the connection between them is far more likely to be a weaker one than the kind of governments we have now. Taking the early internet communities as examples, the very sameness of interests that binds them will create an expanded diversity among them. Or, conversely, communities in cyberspace will simply be affected less by what happens in other communities.

And that brings me to my final point, which pertains to the nature of national government in cyberspace. I remain a skeptic when I hear talk, generally more hypothetical than factual, that nations are becoming less well-defined, with borders succumbing to international commerce. If anything, the common bonds of language, culture and religion that tie nations together are becoming even stronger, it seems. I see no evidence that it will be different in cyberspace. What I do see as different is the nature of government in cyberspace. Just as surely as economies of scale and barriers to entry, those twin bastions of the second wave industrial era, are diminishing, so too will the concept of today's centralized, bureaucratic state. And it is already happening. The question is no longer whether second wave governments are in remission, but rather what will the governments of cyberspace look like?

First, and in order to not be irrelevant, it must be "digital." That means it must recognize that change--the greatest fear of all bureaucracies--can be beneficial, and that enabling the citizens of cyberspace is the only acceptable path to success. To be sure, this sounds so utopian as to be suspect. On the proactive side, ask yourselves what IBM is having to learn to survive and why Microsoft and Intel thrive; or why Washington is so enthusiastic to return authority to the fifty states. On the more reactive side, ask why France is experiencing so much turmoil, or why the highly regulated telecommunications industry is so slow to change compared to the computer industry.

Massive, widespread decentralization is already, irreversably underway. Sometimes welcomed, sometimes resisted, the trend is hardly disputable. New dimensions of individual freedom, manifested by the renewed dominance of the consumer, are already underway, in virtually all markets. In this broad sense, defined by my young colleague with the sign over her door prohibiting all but the "digital" to enter, the world is becoming "digital."

Second, governments in cyberspace will learn to follow their citizens, adapting to changes in their societies. The concept of who best represents the "elite" will change, as I think it already is in America. I recently had the priviledge of sharing a few hours over dinner with Newt Gingrich, certainly the most powerful politician in America, and Bill Gates. Let me assure you there was no doubt as to whom was the role model for young Americans. Bill Gates may have been too modest to see himself in that role, but Newt made him aware.

Let me summarize my main points. Cyberspace is not a surrealistic future that we confront, it is already upon us. The global economy is being shaped by it, and Microsoft's surpassing IBM's value is tangible proof. Moreover, cyberspace is not an abstraction--simply expressed, it is the culture and society of people who are individually empowered by digital connection. The digital connection that enables cyberspace is ubiquitous and non-hierarchal. The result is an abundance of information, readily available, with an economy characterized by its low barriers to new entrants, and diminished economies-of-scale. What is important about the requisite infrastructural change is the conversion from analog to digital, far more than the inevitable increase in bandwidth. Property in cyberspace, no longer a physical entity, cannot be protected by copyright and patent laws, but instead needs to rely for protection on ethics and technolgy. The body of common law may be a practical means to achieve that. Dynamic competition, among new and different industries and technologies, will replace the static competition of the industrial age.

The culture and society of cyberspace may be best understood by viewing "hackers" as the first inhabitants of cyberspace. Rejecting the social pressures and rules of the second wave, they represent the digital mindset that is rejuvenating the American economy. With highly marketable skills in distributed computing and networking, obtained in nonconforming ways, hackers have become an essential means for institutions to reject second wave habits. Via the internet, they are creating the first third-wave society, comprised of electronic communities.

Taken together, these are the observable elements in the transition from the second wave, industrial age to cyberspace. To complete this transition, governments must become more decentralized and more progressive, adapting to cyberspace, along with their citizens.

G.A. Keyworth, II, chair and senior fellow
The Progress and Freedom Foundation

last update: April 27, 1998
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