The Net As Free Market Utopia? Think Again

Many prophets of cyberspace think the Internet is the apotheosis of the marketplace. The whole affair is marvelously decentralized and self-executing, with no need for pesky regulations. Any seller can offer wares to any buyer, worldwide. For theorists such as authors George Gilder and John Naisbitt, and for Peter Huber of the Manhattan Institute for Policy Research, the world of computer-mediated communication realizes a market utopia--Adam Smith with a computer.

I'm not so sure. For starters, consider the history of the Internet. It grew out of the Defense Dept.'s Advanced Research Projects Agency Network (ARPANET), a system designed to link remote computers for purposes of weapons development, military command and control, and pure research. The government funded most of the early advances that made possible today's user-friendly home computers linked by phone lines--packet switching of data, graphical interfaces, and the architecture of the Net itself.

Where the Pentagon left off, the university and scientific community picked up. The forerunners of the Internet, such as BITNET (a nonprofit inter-university cooperative) and the National Science Foundation's NSFNET, were developed mainly for research purposes. Usage was subsidized by government. Although some private companies, such as Xerox Corp. (through its Palo Alto Research Center, PARC), contributed to the technology underlying today's Internet, nobody imagined that a network designed for defense communications would someday be used for home shopping.

RIDICULE. When the linkage of remote computers was still in its infancy, the prospect of commercial payoff was so distant and improbable that no private company could have justified the venture based on the profit motive. Although the AT&Ts and IBMs of that era had plenty of scientists and deep pockets, the Internet was spawned not by private investments but by the Pentagon and the universities--the two principal centers gf technical virtuosity with goals other than profit.

Moreover, as the Internet developed, so did a unique subculture--one intensely committed to decentralization and open access but also skeptical of opportunism and profiteering. Early attempts to use the Net to advertise were roundly "flamed"--bombarded with scorn and ridicule--by Net aficionados. The guardians of Net culture and the celebrants of cybercapitalism share a reverence for benign anarchy but not the same worship of the profit motive.

Surfing the Net, one appreciates that most of the thousands of "Web sites" offering information to anyone who logs on are free services--typically put online by enthusiasts for the sheer joy of discovery, invention, and communication. Perhaps cyberculture's most fiercely held tenet is that information ought to stay free.

Of course, the Internet is in its infancy as a commercial marketplace. Until now, it has been mainly a medium of scientific and research exchange, of chat groups for cancer patients, O.J. Simpson watchers, and thousands of other "virtual communities." As soon as software is perfected assuring the security of credit-card purchases, amateur and nonprofit uses will coexist uneasily with home shopping, pay-per-use entertainment, and other commercial ventures.

PIGGYBACKING. But the Internet will remain something other than pure capitalism. It would not exist if not for a scientific, research, and hacker community with extra-market motives. While it is surely becoming a prime avenue for commerce, that is not all it is. The ethic of free information is so deeply rooted on the Net that it's hard to see how fee-for-service data will drive out free data.

Some lessons here: Subcultures, contrary to both Karl Marx and George Gilder, are not mechanical reflections of material interests: They have a way of taking on lives of their own. Much of Internet culture is a distinctive hybrid, with as much in common with Jerry Garcia as with Adam Smith. The conservative enthusiasts of technology and free markets, notably House Speaker Newt Gingrich, should think twice before they defund public-sector scientific and technical research and turn the whole shooting match over to private enterprise. While the Net may be mostly self-regulating, it's comforting to have the Justice Dept. in the background making sure that no single company takes over its gateways.

Entrepreneurs can surely piggyback on this remarkable infrastructure, profit from it, and carry it to the next stage. But they should realize whose shoulders they are standing on. And they may run into more resistance and a more complex set of values than they anticipate.

Before it's here, it's on the Bloomberg Terminal.