The iPhone, Free Markets, and Alternative Energy
In a comment on our recent discussion about energy, Harvey notes that "the free market is a myth."
This is, of course, absolutely correct.
The free market is a myth in the same way that freedom of speech is a myth and that freedom of religion is a myth. Ideally, anyone can say anything he or she wants. In reality, it's better to avoid committing libel or shouting "fire!" in a crowded theater. Ideally, there would be no interference, government or otherwise, in one's spiritual beliefs or the practices derived from them. In reality, religious practices can't be used as an excuse to exploit or endanger others, or to deprive them of their freedom.
Perfect freedom of speech is likely to remain beyond our grasp, but the ideal of "freedom of speech" is a good thing even if it is a myth. It reminds us that speech should be as free as we can get it. The same is true,for religion and -- I believe -- for markets.
Look at what happens when markets are made more free. Apple has demonstrated this very well over the past couple of years by turning the business model for mobile telephone applications on its head. Before the iPhone came along, mobile apps were a highly protected "walled garden." The carriers and and the equipment manufacturers didn't want anybody but them to play with their sandbox toys.
Apple changed all that. If you want to build an app for the iPhone, you just need to follow their standards. The doors have been flung open wide, and to what result? An explosion of creativity, and an explosion of new business. And not just for Apple. The app developers benefit by being able to profit from their work, and the consumers benefit by having a device whose value is (potentially) increased with each new app downloaded -- if not each new app developed.
But of course, it isn't really a "free market." It's just a lot more free than what existed before -- which is great. But Apple is still setting those standards and deciding who can or can't develop an application run on their platform.
So we might talk about an idealized, mythical free market that is completely unconstrained, but there's a limit to how free you can get. The reality is that markets have to be regulated and that businesses often seek to protect their interests, not only through direct competition in the marketplace, but also by leveraging social and government pressures.
To address the question of energy, we've had no new nuclear power plants built in the US for some decades now. Who prevented that from happening? Well, the people, of course, especially environmentalists. And the government.
Anyone else?
Okay, you can call me overly suspicious, but I can't help but imagine that the oil companies might have played a role. New players have a hard time competing in a "free market" when established players take steps to make sure that the market isn't really all that free.
Another example: the vast majority of the money that has been pumped into biofuels in this country has gone towards corn-based ethanol -- only attaching multiple hamster wheels to our vehicle's drive trains and trying to get the little rascals to spin in unison would be less practical approach. The farm lobby has worked tirelessly to get the government behind this non-free-market (and ultimately not workable) approach.
We need to see an alternative energy market which is as dynamic and creative as the iPhone app market. Of course, the former would work on a time scale, and be supported by a group of players, several orders of magnitude slower and smaller than the latter. But the result would be the same -- a big boost in business for the alternative fuel players and a rich new set of choices for the consumers.
How do we create a more level playing field to make that possible? I don't know. But it's possible that the government might have a role to play. The iPhone app success story is a great tribute to the free market, as are so many stories of huge business success built on the Internet. But as Stephen reminded us last week, the Internet itself was not a product of the free market. It was a government project.
There are any number of ways the government might help: research initiatives, tax incentives, push prizes. Or maybe they could simply enforce reasonable regulation on new businesses and industries, while allowing the ultimate economic good of our country -- rather than pressure tactics from lobbyists -- determine which new technologies are introduced and in what time frame.
But now, I guess I'm just dreaming, eh?
Comments
I think you missed something.
The Apple software market is widely pilloried for closing things up.
There's so many apps for the Iphone because of the wide user base and ease of installation. Not because of Apple "freed up the market".
Prior to the Iphone you could install any application you wanted by any developer on your Windows Mobile, Palm, or Symbian phones unless your carrier prohibted it (most didnt).
Posted by: Dustin | November 7, 2009 08:51 AM
Prior to the Iphone you could install any application you wanted by any developer...
Um, and now you can't?
Actually, the openness I was referring to was on the development end, not the consumer end, but let me preemptively concede your coming argument that it was way easy to become a developer for Windows Mobile, Palm, or Symbian apps and that hoards of people were doing it and getting rich in the process.
Interestingly, even if I'm wrong about iPhone freeing up the market (and I'm not sure that I am; I'm just conceding the point for the sake of argument), it's still a great story about how the free market works -- in this case opening up a new market by way of a new platform.
Should Apple be pilloried for doing that? I guess some would argue that Microsoft should have been pilloried for introducing a Mac-like Windows when Mac already existed. But let's not go there.*
* Of course, the Mac vs. Windows argument is always an edifying thing to engage in, and represents a great use of everyone's time, but I've got a really busy weekend lined up.
Posted by: Phil Bowermaster | November 7, 2009 01:25 PM
How do we get our government back from lobbyist, and free our markets from a fixed game (not reasonable regulations). Campaign financing reform would be a good start, I think. Enough money to balance our budget mess, in my state, is spent in campaign races every couple of years.
Posted by: Harvey | November 7, 2009 03:32 PM
If the free market is a myth, how can we have such a huge variety of food to eat, clothes to wear, shelter to live in, tools to use, etc?
Believe me, government run economic systems shut down competition and destroy choice. They have to. Centralized decision-making requires drastic simplification of the system in order to function at all.
A free market economy can manage complexity because the information within it is distributed throughout the system, and not confined to the top bureaucrats.
Free markets match up well with fast-moving information societies. Hide-bound bureaucracies don't.
Posted by: Sally Morem | November 7, 2009 03:53 PM
Unlike Phil, I don't have anyone in my life with weekend-busyness-adding privilages and thus have the time to weigh-in on this topic.
Not owning an I-phone myself, I can't speak from direct experience regarding the usage of the varied apps so-far developed. However, Apple made it quite clear subsequent to the I-phone's release that they avidly encouraged individuals to develop applications for the technology (verses the previous corporate model of simply not agressively objecting to individuals doing so), to the degree that Apple officially published development standards and a mechanism whereby peiople could market their product(s). I think Phil's point is well made that the Apple business model differs in kind as well as spirit to those that preceeded it.
As to "Free Markets"; here I'm afraid I'm going to have to part fom Phil's statement:
The free market is a myth in the same way that freedom of speech is a myth and that freedom of religion is a myth.
A myth is an acknowledged falsehood, told to explain or illustrate some point or issue in an attention-capturing manner. Like religion and speech, the relative freedom of markets are measured on an open-ended scale ranging from a stipulated condition of "perfect" (itself a disturbingly nebulus standard) to whatever level of activity is actually on display. As such, the concept is intended to measure the relative distinctions between competing markets (or religions, etc), not their claimed distance from some hypothetical but mutually applicable (and that distinction is critical) standard. Thus, a "free market economy" is one that is permitted to adhere as closely as possible to an un-interferred with (do note I did not say "unregulated") medium of transaction.
Here, I submit, is the evidence that Harvey errs (as does Dustin in his comment above). Apple has seemingly deliberately created a medium within which regulated but un-interferred with transaction may take place, and this model differs significantly from the previous lessez faire model displayed by other manufacturers. Or is Harvey (and presumably Dustin) trying to argue that ignoring what individuals do with your product (after they pay for it, of course :)) is somehow not distinct from actively encouraging individuals to develop applications within an established (and universally recognised to be propritary) technology business model?
The argument that because something fails to achieve it's hypothetical maximum expression it must therefore be dishonest or false is a varient of the strawman argument technique familiar to debators and (here's that word again) political theorists. Short of requiring everybody to read Adam Smith (with a period-correct dictionary ready to hand) for a start, I confess I don't have a good answer as to how to get past this recurring objection to the mechanism of advancing change (as distinct from that of regressive - often as not repressive - change). I suggest we are going to have to do so at some point (if only through applicaton of the historical example - sheer weight of numbers) if we are to have any hope for any first-person transaction in as-yet-unrealised technology such as is commonly the topic on these good pages.
Posted by: Will Brown | November 7, 2009 05:02 PM
On a separate note, I wish to contend with the following sentiment:
But as Stephen reminded us last week, the Internet itself was not a product of the free market. It was a government project.
By this logic, the US airlines industry was never a product of market competition either. It too has it's origins as a "government project" (specifically, the US Army Air Corp and post-WW1 government efforts to encourage air mail delivery). I suspect Juan Trippi and Howard Hughes (to name only two examples) would - and did - vociferously - argue to the contrary.
While it is often little recognised (or only underappreciated) how much of modern human existence has it's genesis in some country's government meddling in transactional markets, often as not said "meddling" is/was the result of a percieved threat to said governments concept of "national security". Snicker all you like knowing what we do now of the "robust" nature of web-based communications, but one of the principle justifications for the creation of ARPAnet was to create a communications conduit for a post-tertiary nuclear strike environment.
Phil: Aubrey de Grey worked for a UK government university when he developed his theories regarding aging; is SENS a "government project" as a result?
Because initial R&D of a given technology may have occured in response to a percieved government need doesn't really have much relevance to a follow-on market application of subsequent iterations of the original research efforts. A market is any locale that permits (or perhaps facilitates is more accurate) a transaction for percieved value between two or more independant interests. Whether or how many of those transactors is a government as opposed to an individual person or company is of less importance to a market's "freedom" than is the degree of interference and active manipulation of the transactional process any of those might impose on the market venue.
In his post, Phil goes on to suggest that government might restrain itself to "reasonable regulation" of market transactions in future, but fails to offer a metric for determining between that ideal and "pressure tactics from lobbyists". Almost certainly because he knows there isn't one (that anyone else would agree to). A free market is free only to the extent that transactors are honest in their adherence to market principles of conduct and operation (prompt delivery of the stipulated goods, payment of the agreed price per the negotiated terms, honest accounting, etc). The less this is the case, the less free a market is, but the principles that govern a free market still exist and apply.
A final question; Phil has blogged in the past about his interest in SENS technologies becoming available within his lifetime; how "reasonable" is he likely to consider regulations that inhibit that result, and is Phil applying "pressure tactics" in his blog-lobbying to achieve his selfish ends? :)
Posted by: Will Brown | November 7, 2009 10:23 PM
Harvey & Will -
re: Regulation of the Reasonable Variety
I think campaign finance reform is fraught with problems, including potential 1st amendment conflicts, as well as the likelihood that the rules, no matter how fairly conceived, will be twisted into the service of some ideological agenda.
Taking on lobbyists is much more promising. Will, let's see if I can help you out with the whole reasonable / unreasonable thing. Federal government implementing guidelines to prevent geothermal drilling from causing earthquakes: reasonable. Federal government implementing draconian guidelines for building nuclear power plants as dictated by the coal lobby (and thus preventing any from being built): unreasonable. I think this is similar to your regulation/interference dichotomy.
All -
re: The Meaning of "Myth"
I do not use the word "myth" as a pejorative term. That does seem to be the way Harvey is using it* so there was probably some confusion owing to the fact that I was responding to him. I do not agree that a myth is necessarily untrue, much less a falsehood.
In this piece I was using the word to refer to an unrealized (and probably unrealizable) ideal. I don't think it's dishonest to talk about free speech as something we currently enjoy in a practical sense, while acknowledging that we don't experience it in an absolute and ideal sense.
Will -
re: Government Projects
I didn't mean to say that the Internet has never been subject to market forces. And, yes, a lot of commercial technology comes from defense projects. But rarely does the same instance of the technogy occur in both sectors at once. Cold War bombers didn't moonlight as airliners. But the network you and I are both using right now in the private sector is in a very real sense the same network the DOD kicked off 40 years ago. I'm not saying that today's Internet is a government project. I'm saying that but for that project, it's very unlikely that you and I would ever have met. Commercial air travel (and SENS) would have shown up sooner or later even without "government projects." But I think the Internet would have had much harder time catching on - in the rapid way that it did - had it not started as a public resource. Ironically (considering that we're talking about a Defense project) the private sector would have had a hard time coming up with anything so open and adopted so widely.
* Which surprises me, seeing as I know he's a big Joseph Campbell fan
Posted by: Phil Bowermaster | November 7, 2009 11:29 PM
Campaign finance reform will work if it takes the George Will form: All rules and regs are hereby repealed. They are replaced by two regs.
1. No cash donations; donations must be made by checks or credit cards.
2. All donations must be posted on a public Internet site within 24 hours. Postings must contain name of donor, amount of donation and occupation of donor.
There shall be NO restrictions whatsoever on amounts raised or amounts permitted from donors, individuals or corporations or unions.
Result? Candidates' time and money required to engage in fundraising efforts will be greatly eased. The system will be totally transparent. Constituents will know who is trying to buy their candidate and by how much.
Every regulations attempting to equalize moneys raised have triggered huge undesirable unintended consequences, many of which have been noted here. Scrap it all.
The George Will Plan (he came up with it), will make it far easier for candidates who appreciate and support technological development to express their support during campaigns and vote when required to unblock the way of development after they are elected.
Posted by: Sally Morem | November 8, 2009 09:44 AM
Several somewhat unrelated responses, if I may.
My objection to the reasonable regulation and lobbyist concept had as much to do with McCain's silly overreach as it did with the activities in the lobby of the Willard Hotel in DC during the Grant administration (the reputed inception of the practice as a profession). People will always seek to influence events to better advance their position. What I find problematic is the "reasonable" qualification itself. Basicly, who sez, when, how and by what process is the standard modified? Sticking to your coal example (which I agree is a good one), there are literally millions of our fellow citizens who disagree with your qualification. Are they all to be expected to just fall on their fiscal sword and take one for the national team? What's "reasonable" in any of that?
Since a myth is any assertion not provably true, I don't think the character of the teller is called into question so long as the myth is honestly identified as such. You seem to be arguing for the standard of "not provably false" instead (otherwise known as "proving a negative"). Am I understanding your assertion correctly?
My concern regarding government projects has more to do with the property question than anything else (though a key aspect of market theory). To illustrate my concern, who owns the internet(s)?
As to George Will's idea about financing electoral campaigns, it would probably only work if you were somehow able to simultanously outlaw political parties as well (at least as regards any type of fund raising and disbursement activity). One of the critical shortcomings of market theory is the lack of any type of inherent enforcement mechanism that doesn't itself catastrophicly interfere with market functionality. Other than individual rectitude, of course. Since electoral campaigns are simply another kind of market transaction, the temptation to "make things fair and transparent" is demonstrably inescapable. Knowing who the crooks are amongst your political overlords isn't all that satisfying an alternative either, Sally.
A fun discussion; thanks all.
Posted by: Will Brown | November 8, 2009 11:50 AM
Just knowing who the would-be overlords are would be enough to trigger massive political opposition, especially during campaign season.
The reason America has a two-party system is because it's a winner take all system. Such a system seems to be a chaotic system (in the scientific sense) in that it rewards people for organizing politically to take at least 50% plus 1 vote control over Congress. By so doing, they naturally align themselves into two major parties.
When a third party starts growing in popularity, one of the two major parties will start co-opting it by taking similar political stands.
There was only one exception to this rule: The rise of the Republican Party in the 1850s. That happened because the old Whig Party had died out, not leaving any competition for the Democrats.
Posted by: Sally Morem | November 8, 2009 10:23 PM
Hi,
The iPhone is really wonderful gadget.I think the apple's standards are pretty much good to get more from the developers.
Posted by: batterien | November 9, 2009 06:14 AM
I don't know if it was easier or that there were a ton of people making lots of money. The big reason some developers make lots of money on the Iphone is due to the large base of potential customers and ease of app installation.
That's certainly possible. I was merely pointing out what I felt was an error in your post. I don't necessarily disagree with the conclusions.
I don't care if they should be or not...they are. I certainly am not interested in a Mac vs. Windows argument. That's one of the stupidest arguments it's possible to have.
Look, the point of my comment wasn't whether the Iphone was good, bad, popular, or not...merely that Apple didn't introduce a more free market, they introduced a market that was more restrictive for both consumers and developers. You can't argue with that...it's plain fact.
The Iphone is succesful not because of it's "freeness", but because of it's ease of use and Apple's marketing muscle.
Posted by: Dustin | November 11, 2009 01:56 PM