frontline

The Internet: Capitalism's extraordinary mistake

As the US and its allies prepared their bombing missions in October, the media propaganda war was already in full swing. Thousands of images and millions of words praised US policy, which was equated with the values of civilisation. Many socialists who had experienced such propaganda campaigns before were surprised, however, by the level of intelligent discussion in their workplaces and communities in the face of this imperialist hype. A major contributor to this continuing openness has been the Internet, an unpredictable and accidental but powerful new participant in the world media arena. How did this happen? How have the global capitalist corporations lost some of the reins of media control? Greg Harris argues that the answer goes much further than the rise of a new technology.

Around 1450 Johann Gutenberg invented moveable type. This created the possibility of the modern printing press. Within a few decades there were millions of published books and other items. According to one reading of history, Gutenberg's invention was the cause of this huge thirst for reading. A more rational interpretation is that Gutenberg provided the tool by which an awakening population could get the information they were already seeking, a tool that contributed to this mood. The Renaissance was a revolutionary time, demanding revolutionary technologies.

TWO TRENDS

The 20th century was a century of wars and revolutions. Numerous new technologies were employed to develop the electronic media. Most of these were designed to broadcast information, almost exclusively by governments and the wealthy. The turmoil from the late 1980s laid the basis for further media changes. The collapse of Stalinism in the Soviet Union and Eastern Europe was accompanied by a new capitalist triumphalism: Margaret Thatcher's victory over the miners, the defeat of the Sandinistas in Nicaragua, the Reagan years in the US, the rise of neoliberalism as governmental orthodoxy, the blight of postmodernism on areas of academic investigation, painted one picture. But there was a counter trend: the renewal of socialist theory, the first stirrings of a movement with an internationalist alternative to capitalist globalisation, a yearning for communication and information beyond the 'vast wasteland' of the mass media.

These two opposing globalising trends each had their preferred technologies. For the capitalist globalisers we saw the reinvention of television, especially satellite distribution. Despite a sometimes subversive message (such as The Simpsons) the medium is about global capitalist markets, and with audiences of 4 billion it is the one technology which capitalism is delivering to the masses. We saw proprietary data networks delivering key financial information in fractions of a second. We saw the US national information infrastructure and global information infrastructure initiatives, dedicated to establishing global data networks to deliver new commercial services to those who could afford them. And we saw huge, super-secure military networks exchanging secrets hidden by unbreakable codes, the only privacy in an increasingly intrusive world.

The opposing tendency was represented by dispersed (but still 'high tech') access to global e-mail in academia; the amateur and anarchic networks such as Fidonet; the communities of technologists, known as hackers, driven by beliefs about making technology useful; community activists, trade unionists, and human rights campaigners wanting to link beyond their city or country to share experiences; political activists taking the opportunity for organising provided by this; researchers wanting to overcome the tyranny of distance as fields of research became global. Their technologies: a range of national networks which from the early 1990s, driven by requirements for e-mail interconnectivity, joined up with an old and apparently superseded technology, the Internet: unreliable, insecure, and hard to measure for billing purposes.

Both these trends showed that the world was on the edge of a global data network that would let millions and eventually billions of people exchange information across the world immediately. One vision saw the financial opportunity that the commodification of all these global relations could create, a 21st century global information dependence to match the 20th century dependence on the private car. The other had a less clear vision, one that was focused on making the new technology useful, using the technology to help overcome the increasing complexity of late 20th century life. Where the first vision was clear and well funded the second was vague, and only accidentally funded. There was only room for one primary global network. The two visions clashed, and by 1995 this first battle was over: the Internet had won, the commercialised information superhighway was, for the moment, vanquished.

THE LESSONS OF HISTORY

To understand this result it is necessary to look at the history of the Internet's development. The origins of the Internet can be traced back to the successful launch of the first satellite in October 1957, the Soviet Sputnik. In the United States, the panic which followed saw huge investment poured into US academic research, including the creation of the Defense Advanced Research Projects Agency (DARPA). One project which DARPA funded would grow to become the Internet.

According to one version of history, the purpose of the Internet project was to save money. DARPA was funding projects at diverse research centres across the US, which used a range of incompatible computer systems. Information from one project couldn't be rapidly shared with another. The solution required was a network communications language (a protocol) which could communicate with this range of computer systems. It would be a relatively benign technology, providing an efficient and comparatively cheap method of allowing the researchers to exchange information. (Only 'relatively' benign, as much of the research being funded at the time was on how to use technology to drive Vietnam back to the stone age, or to destroy the Soviet Union.)

This theory has some gaping holes: First, at each network site, the communication computers used were Honeywell DDP-516 computers. These were 'ruggedised' computers designed to operate in a battlefield. (At one Las Vegas computer show one was attacked with a sledge hammer to prove its robustness.) Secondly, why was the chosen network architecture non-hierarchical (not a traditional feature of US military thinking)? This was neither a requirement, nor a characteristic, of existing networks. Its primary purpose is to remove any single point of failure (the US phone network of the time which was hierarchical did have a single vulnerable centre).

An alternative explanation comes from a Rand Corporation proposal of the pre-Internet period. This group worked as a private 'think tank', primarily for the US government. In 1964 Paul Baran of Rand Corporation prepared a research paper 'On Distributed Communications'. Baran's work is still available at http://www.rand.org/publications/RM/baran.list.html. It is full of terms like 'withstanding heavy enemy attacks,' 'large numbers of breaks', and 'secrecy is of paramount importance.' This is the sort of language that would have had Pentagon generals reaching for their cheque books.

So the Internet started life as an off-beat idea to keep military commands flowing over a partially destroyed military and public telecommunications system in a nuclear war scenario. For that purpose even the US military would accept a non-hierarchical network.

From chaotic beginnings, the Internet grew beyond the control of DARPA, partly because it was so useful to so much research, not just military funded research. The method used for development of Internet standards was unusual: rather than establishing a standards body that then sold highly priced copies of recommendations, the Internet founders established a system called 'Requests For Comment' or RFCs. Today the entire Internet set of standards is based on thousands of RFCs, produced without payment and available for implementation without charge. A group called the Internet Engineering Task Force, part of the Internet Society, continues this tradition of open standards development for the Internet. The end result is a network which involves 400 million or so people around the world, mainly getting non-commercialised use out of it (e-mail, chat sessions, information exchange and so on). The Internet's military origins are sometimes referred to as evidence of the value of military spending. In reality the success of the Internet following these beginnings is a credit to the engineers (during the 1960s and early 1970s often opponents of the Vietnam war) who subsequently worked to build the Internet as a public good.

CAPITALISM'S TECHNOLOGY BONFIRE

For the past 12 months the capitalist financial press has debated the question of whether the Internet has been a 'success'. In terms of usefulness for a growing proportion of the world's population the answer is yes. But hundreds of millions of people using a partially free e-mail service or swapping music files isn't capitalism's real concern, which is: Is the Internet profitable? To date the answer is no, and an examination of this quickly shows us a classical example of capitalist overproduction.

Most people in the world don't have access to a phone. But if they did, and if they spoke 24 hours a day for the whole year, all those conversations could be carried over the world's telephone cables in a few hours. This gives an idea of how oversupplied the world is with communications infrastructure. The result has been an unprecedented collapse in the industry. According to the Financial Times some $4 trillion in stock market wealth, including around $1 trillion in actual material investment, has been destroyed. By August this year, some 350,000 jobs had gone in the sector, alongside 200,000 in related information technology industries. Brand new million dollar equipment is smashed up for scrap metal.

The waste defies imagination. In June telecommunications equipment manufacturer Nortel Networks set a record for a three month loss of $19.2 billion. Other companies have posted huge drops in anticipated value. The major optical components manufacturer JDS Uniphase has been reported as considering writing down $40 billion currently listed as 'goodwill' on its books, and France Telecom saw a drop in the estimated value of its Orange subsidiary of $100 billion in the months leading to a partial float (contributing to its current debt of $65 billion).

After spending $18 million on a Norwegian mobile phone licence, Finnish operator Sonera simply gave it back for free because it couldn't afford to use it. In all Sonera's $4 billion investment in European mobile phone licences is widely considered to be worthless, according to the August 11 Financial Times.

In the last week of August equipment manufacturer Lucent Technologies announced that it was closing down Chromatis Networks, a business that it bought for $4.5 billion in stock last year. Lucent's debt was been classified as 'junk status' by credit rating agency Standard & Poor in June, and further reduced in July. Ratings for other companies such as Marconi and Alcatel are also being cut. These reductions damage the corporations in two direct ways: first they increase the cost of borrowing, and second they can lead to dumping of shares where investors (such as pension funds) are barred from owning speculative grade debt.

These results magnify the earlier Internet 'dotcom' financial disaster. Since the start of 2000 around 500 major Internet businesses have failed. Many of these were simply vehicles for defrauding investors. But others appeared to have a purpose (although how many on-line pet supply companies does California really need?).

The second quarter of this year saw the first decline in personal computer (PC) sales in 15 years. International Data Corporation estimates that PC chipmaker revenues will decline from $50 billion to $38 billion this year, reflecting the collapse of many chipmakers' employment and plans. According to the August 1 Financial Times, major US chipmaker Motorola made the extraordinary statement that 'its markets were in such turmoil that it could not forecast its performance next year.' The September 5 Financial Times reports that 'a large telecoms operator has gone bust on average every six days for the past six months.' This is leading to tens of thousands of jobs disappearing every week from large equipment manufacturers.

Current telecommunications industry problems stem directly from an early 1990s vision of future consumer patterns, described in the clash of views above. Following the explosion of the PC industry in the late 1980s, the data communications industry came into its own. Initially this was based on proprietary and very expensive services, such as providing stock market information to the financial services industry. But by the late 1980s it was already clear to media and technology corporations that a mass consumer market was waiting to emerge.

THE INTERNET WINS OUT

As it turned out, the corporations were correct in their prediction of a fundamental change in global communication. Much to their surprise, however, all of their investments failed. The winner was the Internet, an unreliable ('best effort') network most suited to email and haphazard free data retrieval (the World Wide Web). It provided no security or billing mechanisms, although these are critical commercial requirements. The Internet also turned every user into a potential publisher. Perhaps worst of all, it was based on free standards, precluding the possibility of control by patent (in contrast to early development of film, radio and television).

In 1995 and 1996 most investment on earlier alternatives was abandoned, and hundreds of billions of dollars started to make their way into Internet companies, regardless of the unsuitability for business of its architecture. Much of this investment was based on the mistaken belief that human civilisation was about to be transformed into a home-based mass of consumers making all their purchases on line. (By contrast, book sales at on-line retailer Amazon.com are now growing at just 2 per cent a year.)

The Internet also provided a means of circumventing telephone company monopoly through the introduction of (poor quality) international and national telephone services. This made it an ideal means of entering the phone market for new competitors (many of whom have since failed). After decades of monopoly profits both government and corporate telephone giants started to panic. Major players such as AT&T, British Telecom and Deutsche Telekom each hired new chief executives from the computer industry and set out to recapture markets, both in their traditional phone territory and in the high speed Internet delivery area.

The introduction of Wireless Application Protocol (WAP) phones at the end of the 1990s was the first attempt to move the Internet craze to phones (although WAP was deliberately designed to be incompatible with the Internet). WAP was a marketing disaster, but by the time this became visible the phone companies had already gone down a path of massive investment in 3G (third generation) mobile. European governments were able to sell 3G licences for a total of 120 billion euros. This cost at a time of declining markets and the burst of the Internet business dotcom bubble created the conditions for disaster.

Was this disaster predictable? One major problem for the technology corporations is how to convert technology based productivity improvements into profit. As socialist economist Ernest Mandel wrote in his 1962 book Marxist Economic Theory, when new production methods are introduced it is initially unclear 'whether these methods will continue to bring super-profits to their initiators or if they will lead, on the contrary, to an all-round lowering of prices of production.' In this industry evidence points to the latter.

Harvard University professor Michael Porter writing in the March 2001 Harvard Business Review complains: "The great paradox of the Internet is that its very benefits; making information widely available; reducing the difficulty of purchasing, marketing, and distribution; allowing buyers and sellers to find and transact business with one another more easily, also make it more difficult for companies to capture those benefits as profits... The openness of the Internet, with its common standards and protocols and its ease of navigation, makes it difficult for a single company to capture the benefits of a network effect." Instead, he writes, "companies have turned competition into a race to the bottom," and "simply improving operational effectiveness does not provide a competitive advantage."

Commenting on the disaster that the telecommunications sector has become, the Financial Times September 9 editorial similarly warns that 'investors must be under no illusion that high technology will improve general profit levels. It will not. The advantage of improved efficiency will be eroded by competition.'

WHAT HAPPENS NEXT?

We live in a world controlled by the 'free market'. Regardless of how useful the Internet is, if it can't make a profit, and cuts into the profits of other industries, then the market will try to subvert or replace it. The Economist on August 9 this year predicts that 'the rules governing the Internet will end up like those governing the physical world.' These physical world rules, of course, include such capitalist 'rules' as the right of the wealthy to control what is published, despite the rhetoric of a free press. The Internet today is therefore under attack, particularly around the issues of 'intellectual property', censorship, privacy and national autonomy.

'Intellectual property rights' or IPR are presented as a simple continuation of the right of people to benefit from their artistic or intellectual endeavour. In practice the owners of IPR generally have no association with the 'intellectual property' creators. The creator of Thomas the Tank Engine, for example, sold the idea for around 60,000 pounds, while this 'brand' is now valued at hundreds of millions of pounds. The creator of Superman died impoverished. What we are now witnessing is a huge property grab. The anti-research US Digital Millennium Copyright Act (DCMA) is one of the weapons being used for this. A small number of global corporations and a few dozen national corporations now control the overwhelming majority of film, photographic, writing, music and research archives and outlets for the world's creative endeavour, and control is being tightened. So when a music industry executive speaks up for the poor artists losing income because teenagers are swapping music files, have a closer look. John Perry Barlow is a former member of the Grateful Dead, and a campaigner against IPR. According to his figures, 40 per cent of revenue from US live concerts gets to performers compared to 4 per cent of CD sales revenues. Performers aren't being abused by Internet users swapping songs, he says, but by the industry that is 'robbing them blind.'

Censorship is a major feature of any government discussion about the Internet. This takes the form of government censorship, such as in Australia, and the voluntary or compulsory use of 'filters' such as NetNanny which block users from viewing certain sites. There are two serious issues here. Firstly, these filters are produced for the largest market, the US 'Bible Belt', and reflect those values. So along with sexual images they often block health education, feminist, gay and lesbian, and left wing political information. The second issue is that because of the huge size and diversity of the World Wide Web, blocking of pages is done by machine, and the names of sites blocked are not released. The socialist movement has a long tradition of opposing censorship, and should stand firmly against this extension of censorship regimes.

Elimination of privacy is the major threat that the Internet poses today, with associated implications for freedom of association. Modern technologies and systems are being designed to track Internet users wherever they are, with an accuracy of a few city blocks. For a technology that is nominally geography independent this is a major change. Systems track the surfing habits of tens of millions of Internet users. Combine that with other technologies such as giant databases, global positioning, and facial recognition software, and we are moving towards a situation where the minute by minute location and activities of much of the world's population could be tracked. This would provide governments with a huge measure of social control. Now that much of this technology exists the focus moves to a civil liberties fight to limit the gathering, exchange and use of this information.

National autonomy is a complex area for the Internet. Without doubt sections of the US ruling class are interested in spreading a belief in US-defined democracy to Third World and ex-Soviet intellectual élites. Through the Soros Foundation and similar initiatives the Internet has played a role in this. However, most campaigns against the Internet organised under the banner of 'national independence' have a clearly reactionary flavor. This applies, for example, to the appeal to 'Asian values' by repressive Asian governments who object to Internet information access. Another is the attempt by several countries to control the Internet in order to maintain existing censorship laws.

One entirely reactionary campaign of the US government has been the recent message that in order to benefit from Internet e-business, nations need to open their local market to global telecommunications companies, privatise any investment that governments have in that area, and spend money on infrastructure to facilitate the delivery of US goods to local consumers. The fight against this message forms part of the anti-privatisation and anti-neoliberal agenda campaigns. It has not emerged as an 'anti-Internet' campaign.

There is one area in which the US government has an outrageous level of control over the Internet, and that is in the Internet's top design. This includes the Internet Corporation for Assigned Names and Numbers (ICANN), with responsibility for major changes including the issuing of a new domains such as .com or .org. ICANN developed under the auspices of the US government, and is incorporated in California and therefore subject to Californian courts. The US Commerce Department also maintains a veto over ICANN's major decisions.

Together this control and the threats described are being used to keep a rein on the Internet. But compared to the controls that are exercised over the issue of a new television broadcasting license, these remain flimsy. Governments and corporations are on the constant lookout for ways to increase this control, and believe that they will be able to use the September 11 terrorist attacks to gain this. Whether this is successful depends on the strength of the civil liberties and antiwar movements in coming months and years.

The Internet today offers an extraordinary range of possibilities. For example, simply by listing a URL (such as www.scottishsocialistparty.org) on a banner or placard means that anyone seeing television or press coverage of an event knows exactly where to go to get in touch or find more information. E-mail, news, discussion and coordination among union and community activists is made immensely simpler if even one person in a community has Internet access. The widespread availability of encryption means it is possible for activists operating under conditions of repression to exchange information securely. (Conversely, any information sent over the Internet that isn't encrypted can easily be viewed by third parties.) Effective web sites can go a long way to distributing information, including whole libraries of socialist literature.

Many people want to defend the Internet as it exists. The Internet is being undermined as an open information distribution medium on many fronts. The response to some of these, such as the campaign against DMCA, are well coordinated, and socialists should use every opportunity to link up with these (publicising their activities, linking them up with the traditional union and progressive movements, and where possible providing organising expertise).

But there is a wider spirit out there, and socialists should also relate to this. It is found in the workplaces of the 'new economy' (open source programming activists, engineers for social responsibility and for productive uses of technology), in academia (librarians for free information, researchers against financial, legal or geographic limits on their collaboration), in the arts and the media (for free exchange of music and other creative endeavour against the industry monopolies, journalists against censorship and for free speech), and many others. Much of this sentiment is found in the technology sector, an area often considered individualistic and distant from the progressive movement. It is summed up in the phase 'information wants to be free'. For a system based on private property that message is unwelcome. For socialists it is a message against capitalism, and a signpost for the future.

Top