The Master Switch Symposium: From Hale to Wu
posted by Frank Pasquale
A Columbia law professor writes a series of cutting edge articles on dominant firms of his day. He publishes some of his leading works during an age of laissez-faire, but they still attract a dedicated following. When a Democrat seizes the presidency after an economic calamity, some of his top appointees are influenced by the theories of the professor. The professor’s magnum opus articulates a vision of responsible corporate conduct, arguing that personal freedom depends on the conduct of leading businesses in the community.
At this point, I could either be describing Robert Lee Hale or Tim Wu. Both have addressed “private coercive power” backed by the state. Hale addressed public utilities’ exploitation of their monopoly position. Wu has analogized the internet to the electric grid, reasoning that the grid’s “general purpose and neutral nature” enabled “waves of innovation.” Rejecting laissez-faire, Wu observes that a “pure [market plus] antitrust approach is inadequate for any of the main ‘public callings,’ i.e., the businesses of money, transport, communications, and energy” (303). Hale also recognized the case for regulation in such industries. Wu forcefully demonstrates that we are entering an era of digital “public callings,” by comparing companies like Apple to media and communications barons of old.
But the vast differences between Hale’s Freedom Through Law (1952) and Wu’s The Master Switch (2010) speak volumes about changes in the American political climate over the past six decades. Hale’s work chronicled the gradual victory of democratic constraints over arbitrary and exploitative business practices. Wu acknowledges those victories, but is often more interested in the dark and collusive forces of capture (83, 312) than the promise of enlightened regulation. Hale saw coercive private power everywhere, but Wu concludes that norms now restrain it: “rare is the firm willing to assert an intention and a right to dominate layers of the information industry beyond its core business” (314). Hale discussed the “principles for determining how the wealth of the community should be distributed” (541), patiently detailing the case law of ratemaking and taxation in the first half of the 20th century. Wu’s book is postmaterialist, more interested in the cultural and political impacts of our information age giants than the grubby details of what they charge.
Wu’s emphasis on culture and freedom to tinker makes his book a much better read than Hale’s. Wu regales the reader with stories of high-power dinner parties and casual comments from powerbrokers ranging from Theodore Vail to Eric Schmidt. His prose is a tour de force, animating “industrial wars” long entombed in dry-as-dust tomes. (I recently perused a sample of such works at the Prelinger Library’s media history section, and Wu’s writing beats that of any I read.) Hale plods though the minutiae of the prerogatives of investors in railroads and telephone companies, making Freedom Through Law a slog for all but the most determined reader.
Yet what Wu achieves in form, he may sacrifice in content. For while Wu frequently discusses the role of advertising at the dawn of mass communications, he rarely (if ever) discusses its importance for Google. That’s an unfortunate omission, for, as Joseph Turow has demonstrated, there has been an explosive growth in intermediaries between advertisers and publishers online. I’ve questioned the emerging economic incentives in a series of works on search engines. But rather than revisit that ground, consider this story in the NYT today about a recent search engine optimization dispute:
Why did Google fail to catch a campaign [of result manipulation by J.C. Penney] that had been under way for months? One, no less, that benefited a company that Google had already taken action against three times? And one that relied on a collection of Web sites that were not exactly hiding their spamminess?
Mr. Cutts emphasized that there are 200 million domain names and a mere 24,000 employees at Google. “Spammers never stop,” he said. Battling those spammers is a never-ending job, and one that he believes Google keeps getting better and better at.
Here’s another hypothesis, this one for the conspiracy-minded. Last year, Advertising Age obtained a Google document that listed some of its largest advertisers, including AT&T, eBay and yes, J. C. Penney. The company, this document said, spent $2.46 million a month on paid Google search ads — the kind you see next to organic results. Is it possible that Google was willing to countenance an extensive black-hat campaign because it helped one of its larger advertisers? It’s the sort of question that European Union officials are now studying in an investigation of possible antitrust abuses by Google.
In the information economy, finance firms determine what is funded, and dominant internet firms heavily influence what is found online. We need to understand far more about the material bases of their decisions than we currently do. Hale’s work exposes the stakes of the asymmetry of information between the regulators and the regulated. As Duncan Kennedy observed, Hale’s “analysis suggests a theory about the distribution of wealth, income, power, and knowledge in capitalist society[:]” “that law, or rather the legal ground rules that structure bargains between competitive/cooperative groups, plays a larger ‘causal’ role in distribution than it is allotted in” purely economic accounts.
Wu’s position on law vacillates; he sometimes affirms the importance of FCC regulation and antitrust to guarantee a separation between “layers” online, but seems much more attracted to implementing a separations principle as a “norm taken as axiomatic or generally accepted to such an extent that to the degree it regulates, the regulation is a matter of self-regulation” (309). The question then becomes: how is such a norm perpetuated and reinforced? There are decent sociology and anthropology literatures on the reproduction of norms and culture, but those fields are not really engaged in The Master Switch. That’s unfortunate, because Wu’s model of a “cycle” of innovation and monopolization can easily be misinterpreted as fatalistic or deterministic without a richer account of how he expects layer separation norms to be entrenched (or evolve).
For example, Paul Duguid takes Wu to task for his support of self-regulatory norms, arguing in The Nation that:
Wu’s faith in Google as a defender of an open Internet has suffered with the recent revelation that Google, Verizon and AT&T have been meeting secretly with the FCC to restrict, it is suggested, “net neutrality” and so carve up the space of future innovation. In a piece for Slate, a disenchanted Wu implored those at Google who still believe in its founding principles to “take back the firm.” But the attempt to game net neutrality is likely to be part of company strategy rather than the sign of unprincipled leadership. If Wu expects innovation to be driven by market calculation, he can’t expect Google to have a soul any more than we could expect AT&T to have a heart.
[Kevin] Kelly and Wu speak for a new technocracy, and their books epitomize its libertarianism and its frustration with the political system. . . . Wu and Kelly claim that the smoothly self-regulating dynamics of markets and technological innovation can supersede the unmanageable modern state and its conflicting interest groups (upper and lower classes, labor and capital, left and right, public and private). But it’s likely that such a scenario would lead not to a world without politics but rather to one dominated by market-servile technocrats insisting that in a technological society, they alone would make the best leaders.
I think that is an unfair characterization of Wu, because his consistent advocacy for net neutrality (and, now, commitment to government service at the FTC) exemplifies the positive public role of an engaged legal scholar. But I hope to see more Hale-style realism in his future works.
We can’t be satisfied with an information ecosystem where we cannot know, for example, if The Nation got downgraded in search results for its reviewer’s Google-bashing, or J.C. Penney got a free pass for some time because of its faithful advertising.* We need to understand the financial relationships (and the data) driving the world pictures that Comcast, Apple, Facebook, and Amazon present us with. Let’s hope that agencies like the FCC and FTC require enough ex post disclosure of online business practices that a future author can write the history of our information economy with the verve, insight, and historical accuracy that grace Wu’s account of radio, television, and telephone service.
* Lest anyone call me a Googlephobe, I’m making exactly the same case about proprietary algorithms at other large and important firms, ranging from insurers’ doctor-ranking sites to employers, in the book I’m currently writing, called The Black Box Society.
Image Credit: 1915 Telephone from the Wolfsonian Museum in Miami.
February 13, 2011 at 3:27 pm
Posted in: Cyberlaw, Economic Analysis of Law, Symposium (The Master Switch)
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Responses (3)
James Waldrop, HostMyCalls Hosted PBX Service - February 13, 2011 at 10:28 pm
I fail to understand the anti-trust argument against Google when there are dozens of search engine competitors to choose. If Google looks the other way on black hat practices of its largest advertisers, then Google risks their own reputation and position in the market place.
The back room deals that are shaping the future of the Internet are scarily similar to the back room deals that have shaped politics. The FCCs Net Neutrality rules deserves the scrutiny that it is receiving. However, listening to Representative Marsha Blackburn sound similar to Verizon’s legal council is also disturbing. Before any regulation, transparency of network management practices is needed.
Tim Wu - February 14, 2011 at 5:02 pm
Fantastic post. As you’ve noticed I have mixed feelings about this thing called law; indeed my misgivings about the venture are in part what led me into the legal profession.
In the book the misgivings were expressed by noticing how many well-intended regulatory schema can become twisted, in time, into tools for destroying innovation or challenges to the existing order. I find it hard to be fond of such things.
On the other hand, I do strongly feel that unsupervised private power leads to abuse. The Western Union episode from the Master Switch is a good example.
So that leaves me in an admittedly conflicted position. It leads me to want what john kenneth galbraith called countervailing forces – a sort of checks and balances between private and public spheres, but at the same time a deep awareness of the tendency of the two to collude instead of counter each other.
Frank Pasquale - February 15, 2011 at 7:36 pm
@Tim: Yes, I agree with you re “how many well-intended regulatory schema can become twisted, in time, into tools for destroying innovation or challenges to the existing order.” My wikileaks post today reflects that conflict. It’s probably the hardest issue for those who care about reform.
Fordham Law had a very interesting event on regulatory capture in the finance industry:
http://www.fordham.edu/campus_resources/enewsroom/archives/archive_2033.asp
I hope that scholars in the communications/internet field might consider holding a similar event.
The “countervailing forces” idea is also key. If the dominant firms at each layer of the internet would respect your Separations Principle, perhaps they could each keep one another in check. On the other hand, if vertical integration becomes more common, we may need to think about very different “checks and balances.”
I think we need to consider publicly funded alternatives in some internet spheres. Maybe that means NSF or NTIA funding for a non-profit search engine or social network or book search. Maybe much more ambitious programs should be undertaken. Just as an unregulated private insurance system would not find it profitable to provide everyone with access to care, unregulated ISPs, search engines, and social networks are not going to find it profitable to provide everyone with the access to knowledge and networking they need.
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