The Master Switch: The Rise and Fall of Information Empires By Tim Wu, New York: Knopf, 2010. Post a Comment We should all be glad that Columbia law professor Tim Wu has accepted a position at the FTC as a senior adviser for consumer protection and competition issues regarding the Internet and mobile phones. He has both the legal background and the historical business perspective Washington needs to tackle the knotty problems about how best to regulate (and not regulate) the telecommunications industry. In his new book, The Master Switch, Mr. Wu defines and explains what he calls “the Cycle.” The Cycle basically describes the typical evolution of an information technology from the domain of hobbyists—think Alexander Graham Bell in his attic in Boston and Steve Jobs and Steve Wozniak in that Los Altos garage—to large monopolistic institutions—such as AT&T and pre-cable network TV. Here’s the general pattern: A disruptive technology spawns a fledgling industry, which is largely open and accessible to a many players. Slowly it evolves into a closed industry controlled by one or a few big corporations. Those in control tend to fight innovation because it threatens their own power base and source of profits. This state of control prevails until another disruptive technology succeeds in upstaging the dominant one.
Wu traces the variations in this cycle’s pattern through well over a century of major innovations and upheavals in information technology. He starts with Western Union, which actually held a monopoly not just on the physical infrastructure of the wires but also on what news stories were sent to which presses, through its tight partnership with the Associated Press. At that time the Associated Press newswire was, except for local news, the single source that newspapers across the country had for news. Together the two monopolies rigged the news in 1876 to manipulate their political candidate, Rutherford B. Hayes, into the presidency. The result, Tim Wu says, created an electoral crisis that makes Bush v Gore “look like a garden party.”
The Master Switch recounts the subsequent rise (and fall) of the Bell Company and AT&T, the radio industry and RCA, the movie industry and the Studio system, television and the network system, the rise of cable, and finally the Internet. Early on in each cycle there was a widespread belief that the new technology was going to change the world for better, whether by improving society in general or the quality of the lives of individuals. Parallels with today’s fascination with technology abound: For example, people were excited about radio because it was going to create a “virtual community”—little did they envision the Babel of talk shows and advertising that would eventually overtake those air waves. For an industry to actually grow into a powerful monopoly, Wu points out, there always had to be one powerful, single-minded, visionary leader. And there also had to be the strong scent of money: ”The shift from an open industrial phase to a closed market usually begins when capital interests spy the potential for greatly increased profit through monopoly, or when they demand greater security for their investments.”
Although monopolies work particularly well for information technologies in some ways, they also prevent new technologies from emerging, often with the help of the government. Thus did the AM radio industry convince the government to curb the superior technology FM radio. Washington moved the FM bandwidth to accommodate television and then it limited FM station wattage, thus ensuring that AM would dominate the radio industry. Likewise, the government for many decades protected the monopoly of AT&T while entrusting it with both of Sandia National Laboratories established after WWII and with the building of a system of towers in Alaska and northern Canada as a first alert network during the Cold War.
So what does Tim Wu think about the Internet? He rightly sees it in many ways as the very opposite of what the vertically integrated telephone system of AT&T was: The Internet is a decentralized system. In fact it was designed that way by necessity, according to Internet pioneer Vint Cerf. The designers had to pull together a network where the wires belonged to AT&T and the computers belonged to an odd and far-flung band of government and academic organizations, each with its own systems and protocols. By definition the system we know as the Internet had to be designed to recognize the autonomy of its members. In addition to this, even in the 1960s, the popularity of centralized systems, which people saw materialize in the regimes of Germany and Russia, had lost its appeal.
But Wu also points out that the users of the Internet have never had control over the infrastructure that makes the whole network run. Will this open decentralized network succumb to the cycle that every other information technology has gone through in the last hundred and fifty years? Here at best Wu admits to speculation, but he speculates with history as his guide. Right now he sees Google as holding the Master Switch, the switch that turns communications into a network, the switch that can determine who will have access and who will be heard. And he sees the openness of Google struggling with those institutions, industries, and companies who favor closed systems, including AT&T and the cable industry, Hollywood, and Apple (oddly enough he makes no mention of Microsoft here).
Wu says that we should not underestimate the dangers of centralized controls, should they begin to emerge again. It is time, he concludes, for us to pay attention. What he proposes is an approach based on the “Separations Principle.” This means that the government would ensure that the organizations who control the three major aspects of the information industry—those who control access to information, those who develop the information, and those who own the network infrastructure—must be kept separate, rather like the separation of church and state. The key is to avoid the vertical integration of an industry that gave AT&T, Paramount Pictures in the early years of film, and the duopoly of NBC and CBS in their heyday, control over content, infrastructure, and access. And, the bureaucracies in the federal government responsible for oversight must maintain neutrality to make sure that innovators can have a chance to create their own markets and industries.
So when it comes to the Internet, Mr. Wu is not altogether sure that “this time is different.” “It is too much to ask any corporate entity . . . to be the guardian of the general economic good,” writes Wu. In other words, the good intentions of Google’s “Don’t be evil” slogan is not enough. Which is why we should be happy to have Tim Wu at the FCC, helping to figure these very large issues out.