[Reader-list] Commons to Enclosures - Tragedy or Comedy

[Jeebesh Bagchi]

`The Enclosure Movement` - the process of fencing off commons (primarily 
began with land, later water, forests etc got added to the ever hungry list) 
and bringing in regimes of complicated property rights (private, state, 
corporate through grab, franchise, lease etc) have been going on for a very 
long time. 

Some bright economists looked into a small tract of these commons in England 
(around 16th - 19thC) and generated a popular theory called the `The Tragedy 
of the Commons`.  The argument is simple. The commons where either 
underutilised or overutilised and thus could not be taken care of. The 
enclosures worked because it allowed for incentives to make things 
productive. 

This argument. is now gathering momentum around the internet and the 
knowledge industry. 

I am enclosing an article by an `Nobel` economist who evokes the tragedy of 
the commons to argue a business model for the net. His conclusion and his 
arguments seems to be in two different direction. interesting read.

cheers
Jeebesh
  
The Tragedy Of The Commons 
Daniel McFadden, Forbes ASAP, 09.10.01 
http://www.forbes.com/asap/2001/0910/061_2.html

Immigrants to New England in the 17th century formed villages in which they 
had privately owned homesteads and gardens, but they also set aside 
community-owned pastures, called commons, where all of the villagers' 
livestock could graze. Settlers had an incentive to avoid overuse of their 
private lands, so they would remain productive in the future. However, this 
self-interested stewardship of private lands did not extend to the commons. 
As a result, the commons were overgrazed and degenerated to the point that 
they were no longer able to support the villagers' cattle. This failure of 
private incentives to provide adequate maintenance of public resources is 
known to economists as "the tragedy of the commons." 

 Contemporary society has a number of current examples of the tragedy of the 
commons: the depletion of fish stocks in international waters, congestion on 
urban highways, and the rise of resistant diseases due to careless use of 
antibiotics. However, the commons that is likely to have the greatest impact 
on our lives in the new century is the digital commons, the information 
available on the Internet through the portals that provide access. The 
problem with digital information is the mirror image of the original grazing 
commons: Information is costly to generate and organize, but its value to 
individual consumers is too dispersed and small to establish an effective 
market. The information that is provided is inadequately catalogued and 
organized. Furthermore, the Internet tends to fill with low-value 
information: The products that have high commercial value are marketed 
through revenue-producing channels, and the Internet becomes inundated with 
products that cannot command these values. Self-published books and music are 
cases in point.  

 Management of the digital commons is perhaps the most critical issue of 
market design that our society faces. Four major models exist for how such a 
market can be organized. In the first model, the information that consumers 
seek is bundled with advertisements that companies are willing to purchase. 
In this model, the Internet works like magazines or supermarket newspapers. 
Advertisers pay the costs of supply, and the price to consumers is zero, sort 
of, except for the implicit cost of screening out banner ads. This is the 
business model that the Internet portals adopted in the mid-'90s. 
Self-generated advertising sustained the model for a few years, but the 
bursting of the dot-com bubble suggests that it may be a long time before it 
happens again. 

 A second model ties information content and organization to Internet access. 
In this model, your ISP account includes a monthly fee for content, a portal, 
and personal services, with competition among access providers assuring the 
consumer of attractive services. Market operation would be analogous to that 
for cable TV, with subscribers offered packages that would access different 
channels of information. The flaw in this model is that your ISP has the same 
dearth of incentives to deliver comprehensive information services that your 
HMO has to provide you with comprehensive health care. To assure good 
delivery of services to customers would take a market with many more choices 
than are available. 

 The third model considers Internet information and organization a private 
good, owned by a monopolist (read: Microsoft), which has a direct incentive 
to provide and charge for the information that consumers value. This is 
likely to be an expensive solution for consumers, but it may be a more 
practical and stable way to provide essential information than the earlier 
alternatives. 

 The fourth model channels the supply of Internet information through a 
nonprofit corporation, like the Public Broadcasting System, or through a 
regulated monopoly, like electricity generators operating with the oversight 
of the Federal Energy Regulatory Commission. 

 The free-spirited Internet user may bridle at the market models in which 
consumers pay for content either through an ISP or monopoly control of 
information. Nevertheless, the imperatives of survival are likely to push the 
digital information business in one of these directions, with significant 
restrictions on the breadth of information available, and costs to consumers 
that are likely to be occasionally large and always irritating. 

 The PBS model is probably a nonstarter because few would want to have any 
quasi-governmental organization controlling information, and financing 
PBS-like organizations is itself a problem that invites political mischief. 
As for the virtues of regulation, history is fraught with examples that 
should dissuade anyone from going down that path. The advertising-supported 
business model is unlikely to attract venture capital for some years to come. 

Thus, your fate is likely to be determined by the forthcoming battle between 
ISP-based value-added services such as AOL and information channeled through 
the Microsoft juggernaut and bundled into the license fee for your operating 
system. All indications are that the legal system will follow up the 
demolition of Napster with rulings that extend intellectual property rights 
down every path that electronic ingenuity can devise to return revenues to 
providers. 

 If the scenarios I have outlined seem dismal, it gets worse. One of the 
enchanting features of the Internet over the past decade has been unabashed, 
free-wheeling innovation. To become a billionaire, start with a garage. The 
evolving information market models are bad news for innovation. If you expect 
your ISP to encourage innovation, remember that these guys are your local 
telephone or cable company, organizations not known for their inventiveness. 
Microsoft or AOL might do a little better, but monopolists have little 
incentive to innovate unless they feel the hot breath of potential 
competitors on their backs. A monopolized information market, tightly bound 
with restrictive intellectual property rights and exclusivity arrangements, 
is likely to present formidable barriers to potential competitors. 

 Is the looming problem of marketing information a serious impediment to 
recovery of the Internet economy and the digitalization of commerce? Probably 
not. The solutions that resolve the problem of the digital commons are likely 
to be ingenious ways to collect money from consumers with little noticeable 
pain, and these should facilitate the operation of the Internet as a market 
for goods and services. Just don't expect it to be free. 

Daniel McFadden won the Nobel Prize for economics in 2000. He is the E. 
Morris Cox Professor of Economics at the University of California, Berkeley.