April 26, 2006
OPINION://Capitalism 2.0
In my Freedom to Connect speech I alluded to the need for a “third way” in the funding of networks, one that better aligns the needs of users and producers.
There are many, many competing models out there for muni networks, privately-financed networks, and numerous hybrids thereof. But rather than get lost in the weeds of analysis of individual cases, I’d like to show some examples of what I mean about diversity of funding models for collective provision of public and social goods. They’re simple ones, but they make the point.
I live one street away from the Georgian-era New Town of Edinburgh. Many of the streets are arranged around private squares which have private parks in the middle. You need a key to get into the park. They’re all immaculately kept.
(Note tha a Porche SUV is not compulsory to live in New Town. Lexus, BMW and Mercedes are also allowed if you can’t afford a Porche.)
If you live around the square then the deeds to your house stipulate that you have to contribute to the upkeep of the park. Doesn’t matter if you have 3 kids and 2 dogs, or are an albino agoraphobic sociopath with an allergy to grass. Many residents complain and bitch about the cost, but that’s the deal. If you don’t like it, live somwhere else. You’ve had 200 years’ notice of the rules.
What’s nice about this is that it’s still based on voluntary exchange, not coercive taxation. The coercion is only applied if you fail to live up to your part of the deal when you bought your property. Any model that captures the self-interest of capitalism gets my vote. Ones that rely on politically motivated allocation of resources are suspect by default.
Another local model of service provision is buses. There are basically three bus markets in Edinburgh:
- Local buses within the city boundary and immediate outlying villages. Lothian Buses are owned by the city council and have a near-monopoly on this market.
- Routes to nearby Scottish towns and cities. A number of private operators run these routes, notably First Bus and Stagecoach.
- Routes to distant cities. Several long-haul operators do these, particularly National Express/Scottish Citylink.
Here’s the view of of my apartment window this evening. The dome on the right is the Lothian Buses garage, where 1000 buses go to sleep each night. It’s a listed (protected) building because of the unusual industrial architecture.
By the way, on the left of the picture is a white plain building. That’s my phone exchange, which is now delivering me DSL service at 6 times the speed I got a month ago for 15% less cost from the same provider. Believe me, there’s no need to Save the Internet over here — it’s doing very nicely, thank you very much.
Anyhow, back to the real subject. The “local access network” for public transport is publicly owned. Fares are lower than in comparable cities elsewhere. My wife complains, but the service is pretty frequent, pervasive and reliable. Product innovation could be better — there are electronic signs at major stops telling you how long you have to wait, but London-style payment smart cards are nowhere to be seen. Yet it doesn’t impinge at all on the competitiveness of the other, longer, routes.
The problem with “Capitalism 1.0” is that it doesn’t work well with networked goods. The voluntary exchange for large numbers of people has too high a co-ordination cost. As a result we end up with weirdness like spectrum auctions that insist on 95%+ population coverage for cellular networks. Everyone in London gets a choice of 5, whereas if you live in the wrong Welsh valley, you get a choice of zero. We don’t have “fluid connectivity” where we can seamlessly join up bits of connectivity that may be around and ensure that those who participate in the value network are suitably remunerated in a transparent and effortless fashion. We pay too high a price to have telcos and other players come along and perform the co-ordination function for us, and once a private entity captures a critical ‘hub’ (like, say, eBay with auctions) they may effectively be impossible to displace. We end up paying rent to enter the market square when we’re surrounded by miles of empty public land that in principle could do the same job if only we could agree which field to meet in.
I don’t really have the answer to the “Capitalism 2.0”. All the DRM and intellectual property arguments are part of the debate, and the complexity of those issues suggests we’re still waiting for the next Adam Smith to come along and lay out the way forwards.
UPDATE: The BBC, a classic hybrid-funded networked public good, seems to get it in spades. So much so, I’d almost go out and buy a TV set to see it happen!
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