Book Description

We are living through a transition from the industrial age to the information age. The parts of our economy related most closely to information and digital content may have been the first to feel the shift, but they will not be the last. The formative stories of the information age - the Internet investment bubble, the Microsoft trial, the advent of Open Source, and the P2P wars - present a pattern that we are likely to see time and again. Understanding that pattern, however, involves disentangling the various strands of technology, economics, and law. A basic grounding in these three areas reveals a simple pattern. Technology creates new opportunities for consumers, or end users. They reap an immediate benefit. Clever businesses or providers devise new business models to avail themselves of the new technology. They benefit too. But amidst all those benefits, someone also loses - often large, powerful incumbents whose expectations the new technologies dashed. Incumbents fight back using the only weapons remaining, typically the law. They push for legal solutions that attempt to restore the transaction costs that information technology eroded. And there you have the battles over our transition from industrial age to information age in a nutshell. Many readers will immediately recognize this pattern as the framework of the Microsoft vs. Open Source and the Entertainment Giants vs. P2P battles. But it shows up in many places, both large and small, that not everyone sees as part of the same trend. The reason that we can configure cars on line but not buy them directly from the manufacturer is that incumbent middlemen dealers (who often carry substantial local clout) avail themselves of laws prohibiting direct sales from auto makers to drivers. In a more controversial vein, white collar (and pink collar) job offshoring is part of the same pattern. Reduced information costs allow companies to offshore numerous tasks, benefiting both the clever companies themselves and their customers, who share the fruits of lower costs. But it disintermediates the incumbents who provide labor that is no longer cost-effective. The incumbents immediate reaction is to fight back by using the law to impede trade. Digital Phoenix traces these ideas from their roots in computer science and artificial intelligence, industrial organization and network economics, and intellectual property and antitrust law, through the information economy's formative tales, and into their future across broad swathes of politics and society. It also provides some prescriptions. The first challenge is to see the unfolding pattern for what it is. The second is to recognize that, in the long run, technology will always trump law. The third is to face reality: it takes a while to get to the long run, and incumbents will fight to make the transition as long and as painful as possible. The fourth is to find ways to alleviate enough of the incumbents' own pain to reduce their resistance. So if you ever find yourself wondering what Apple's iTunes has in common with the adjustment assistance of trade law, there's your answer - they're both palliatives for incumbents designed to smooth our transition to the information age.