The Policy Delusion Of Allocative Efficiency In Connection With gTLD Auctions
The following text is excerpted from a three-part essay titled ”Three Steps Toward An Ecology For The Digital Commons”. Part three of the essay (here) discusses from a systems perspective the present state of the digital commons which arises from interest accommodations that might in the end turn out to have unintended consequences. Policy accommodations that favor this or that “interest” sometimes result in unintended consequences that do not make practical sense from the standpoint of public choice policy making. In other words, systems theory shows how unintended consequences from policy options often occurs when a smaller system, in this instance ICANN which represents the regnant political and Internet governance model, attempts as a practical matter to regulate the larger system which is the global Internet. ++++++++++++++++++++ The Policy Delusion Of Allocative Efficiency In Connection With gTLD Auctions By Derick Harris Authoritative allocation in the policy-making process in one way or another eventually reduces to “who gets what”. In “The Economic Case for Auctions in New gTLDs, ICANN’s consultants point to “allocative efficiency” as a policy option for “putting scarce resources into the hands of those who value them the most”. The ICANN policy paper states that “the results of auctions tend to create greater social value than alternative allocation mechanism s. The paper also states the following: “For example, suppose that one applicant for a gTLD has the true intention and capability of serving many users, while a second applicant has in mind a narrow application that would serve only a few limited interests. The first applicant would generally be able to justify a higher bid for the gTLD than the second applicant; consequently, the first applicant would be likely to win the gTLD in an auction. “By contrast, in a comparative evaluation, the second applicant might be able to win the gTLD if it were more persuasive (or hired the more effective consultant or lobbyist); and in a lottery, the two applicants are by definition equally likely to win. Similarly, an auction process would tend to favor a high-quality, low-cost applicant over a low-quality, high-cost applicant. And an applicant who intends to develop the gTLD immediately would be able to justify a higher bid than an applicant whose purpose is to hold the gTLD, unused, for speculative purposes.” It is difficult to see the actual rationale behind such “allocation efficiency” from the standpoint of public choice policy making, meaning accommodations to self-interested agents. The simple reason for this is because interest accommodations from the standpoint of public choice policy have a demonstrated tendency to favor certain class interests at the expense of other classes. In fact, instrumental reasoning by which we mean “theories0that focus on the most efficient or cost-effective means to achieve a specific end, but not in itself reflecting on the value of that end”, shows why it is difficult to imagine “greater social value” “ stemming from an allocative process where social utility becomes a function of an auction of a gTLD, presumably to the highest bidder. This makes no sense if the stated policy goal is “greater social value”. Whereas in a perfect situation with perfect information as to the eventual social utility of this or that policy option across a broad range of interests might make sense; to argue that “allocative efficiency” can possibly stem from interest accommodations, large or small, does not square with a situation that is far removed from allocation models that relate to radio spectrum auctions in the past. ICANN apparently agrees that “no allocation mechanism will perfectly address needs for transparency, objectivity and scalability, and auctions have received severe criticism in some contexts.” For one thing the context of the Internet “commons” consists of magnitudes of difference in connection with utilization by end users who have direct access to the means of intellectual production which takes the form in many cases of both free and transparent access to the necessary productivity tools, meaning the intellectual and technical capital without which the Internet is irrelevant. =0 A Moreover, this has never been the case with all antecedent mass media which have historically required vast amounts of capital in order to create content; and, thus, “allocative efficiency” might figure into the allocation process. However, this is demonstrably not the case in the present situation. To argue in the instance of a global collective commons that allocative efficiency and greater social value require auctions simply is not the case. In fact there is no reasonable rationale for an auction system that allocates gTLDs if the reason given by the entity providing such allocations is social utility. Here from a systems perspective it is feasible to see why the result of the gTLD process as presently contemplated by ICANN simply reproduces an ideological component that is inconsistent with “greater social value”, if by “value” we mean social utility spread across the arc of the Internet itself. There is a so-called “law” of unintended consequences isn’t a law if by a law we mean a rule. Common sense tells us that certain things happen not by design standing alone, but by accident as the result of an action that was intended to arrive at a perceived but nonetheless wrongheaded solution to a problem. The unintended result of such happenings occurs when the means used to deal with the problem creates another problem that turns out to be worse than the problem the original solution was intended to cure. =0 AOne of the better known and more spectacular examples of unintended consequences involves the collapse of the Tacoma Narrows Bridge in November 1940 What happened from an engineering standpoint to Tacoma Narrows Bridge was that of a freakish accident with causal relationships that with hindsight were subsequently understood. What caused the bridge to collapse? The reason for the occurrence was what engineers referred to after the fact as “transverse vibration” caused by the way the wind on that particular day interacted with certain structural characteristics unique to that bridge. In systems this is sometimes referred to as "turbulence". However, a better way to consider unintended consequences from our present (contemporary) perspective is to think of "negative resonance". From a systems standpoint an unintended consequence is this. "[It's] what happens when a simple system tries to regulate a complex system.... A political system is simple. It operates with limited information...short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences.” At Tacoma Narrows the unintended consequence of the method used to construct the bridge was that it was from the get go aerodynamically unstable. This would have induced what engineers refer to as “turbulence”. However, to attribute the bridge problem to simp le turbulence is to fail to come to grips with complex interactions that occurred between the bridge and its environment. Thus, to attempt a causal explanation is really to fall into the chicken and egg (either/or) trap such as whether it was ultimately the bridge design or the wind that caused the collapse. The ultimate collapse of the bridge apparently was a systemic matter where a number of variables came together even though each one of them standing alone was not problematic in and of itself. Therefore, at least one way of looking at what occurred is to see it in terms of a cascade of events where the unintended consequence of a bridge design whose structural components interacted in an unforeseen manner with its larger environment. The collapse of the first Tacoma Narrows Bridge (subsequently replaced) was an example of what happens when a relatively simple system (the bridge) inadvertently tried to control its relationship with a more complex system (the totality of its environment), and failed. Why use the word "resonance" instead of "turbulence"? Resonance in physics is “the tendency of a system to oscillate at maximum amplitude at certain frequencies”. Too much oscillation (resonance) and the system goes out of whack. It is true that turbulence in the vicinity of the bridge as well as design flaws both contributed to the eventual outcome. But "resonance" is a more accurate way to describe the complex sequence of interactions upon which the outcome was20predicated. Accordingly, the "happening" at Tacoma Narrows is instructive for getting a systems perspective on resonance in a public policy environment where authoritative allocations that respond to interest accommodations can be seen to portend the possibility of a collapse of a different kind. In other words, the systems perspective provides a tool for us to see from a policy standpoint that certain "interest accommodations", meaning "who gets what", that do not coincide with the broader interests of a larger system, might be a prescription for trouble. The political “system we are looking at is at present the regulatory environment within which the technical infrastructure of the Internet is "managed" by a small system, in this case ICANN , whose existence itself is a function of the dominant or regnant intellectual paradigm that defines the larger political environment which is the U.S. Government. It is clear from a structural perspective that the dominant policy model for Internet governance at present arises from the political culture of America. Resonance in that sense is an ongoing political process within which the present regulatory apparatus that manages the technical infrastructure of the Internet can be seen to be a smaller system that presently exerts "control" over a more complex system which is the Internet "commons" itself. The question that thus arises from a systems perspective is whether at present we are beginning to see the first intimations of20something mindful of the (previously discussed) "tragedy of the commons", where policy accommodations that favor certain interests will always tend to result in those interests extracting as much "utility" from the commons as they possibly can. As was noted in part one of Three Steps Toward An Ecology For The Digital Commons”, the so-called "tragedy of the commons” occurs when self-centered interests are allowed to overcome the capacity of the "commons" as a common communal system to deal with self-centered demands. The eventual result is a breakdown of the entire system. Thus, it is arguable that an unintended consequence of future policies imposed on the larger system (the Internet) by the smaller system (ICANN) could if not properly attenuated might result in an unhealthy transformation of the entire Internet as we know it. Why is this the case? To consider whether certain policy options that favor this or that interest might become problematic, one has only to look at the present and past behaviors of the smaller system from the standpoint of the policy outputs that are impacting the Internet commons at present. The “commons” is a structural apparatus that contains elements of regulation at the center, as well as elements of regulation from the Internet's constituent elements on the periphery, which means the in-country bureaucracies that control access to the Internet around the world. Notwithstanding what ICANN imagines itself to represent, which is part20and parcel of an apparently "open" process that emphasizes regulatory outputs based on certain consultative processes, we also see that for practical purposes and notwithstanding "open-ness", certain stated policy outputs such as the method for awarding new generic top level domains (gTLDs) are so-called "program implementations" that ultimately stem from a U.S. government mandate that can be seen to contradict that which the Internet Society previously set forth in documents as a "code of conduct" for the public Internet. In other words, for practical purposes "the system itself" will be closed by default to certain interests in respect of certain authoritative allocations such as the new generic TLDs if the contemplated process which is predicated on the "economic case" for a policy option that where "contenders" for an authoritative allocation (a new gTLD) simply pony up dollars to secure the new TLDs. Notwithstanding transparency and efficiency, the plain and simple fact of the matter is auctions favor the moneyed classes and, thus, efficient allocation of public resources is a non-sequitur if by efficiency we mean the social utility referenced by ICANN itself in its economic case for auctions. There is no genuine “economic case” if by “economics” we actually mean political economy. In contrast, if by economic case ICANN actually means an argument that will raise substantial amounts of money for ICANN by handing out pure public goods to private corporations that can afford such “goods”, then perhaps such a “case” can be made. Nor is this the first time such a policy option has been considered. For example, in March 2203 the Social Science Research Network at Loyola Law School in Los Angeles framed a similar "compelling case for allowing the market to operate in the creation of new gTLDs". However, even in in that instance the Loyola study also questioned whether "ICANN itself should act as a profit-maximizer. Instead, we reason that, because ICANN is a non-profit corporation and because it is the trustee for a natural monopoly.” That being the case and because ICANN is in fact a natural monopoly, the onus is upon ICANN to act as conservator of the public interest writ large. Moreover, and given its present master which is at a superficial level U.S. Government policy imperatives, it is reasonable to ask whether there is something that works at a deeper level in policy making, which is a particular "way of thinking" about Internet governance. That deeper something (or way of thinking) can be characterized as a policy perspective that ultimately stems from the ideology of the empire of business, which is the regnant policy paradigm that manifests itself throughout American political culture. Thus, and without worrying about moral imperatives such as what ICANN "ought" to do in connection with the ultimate well being of the Internet commons, it is interesting to consider whether ICANN is capable as an institution of utilizing a policy option that favors "the public interest" instead of this or that interest, which is the precisely the policy option that ICANN apparently favors, given its present mandate. To see why such is the case, all that is required is to examine that mandate in juxtaposition with the above-mentioned Internet "code of conduct", as follows: “From the early days, the Internet pioneers recognised that many Internet functions required trust and that, in effect, the Internet was a public "commons", relying on the good conduct of those who used it to operate to its maximum technical and social potential. The demographics of Internet use today are very different and many of the trust relationships are now being formalised with technical and administrative processes. Nevertheless the statements in these early Internet "code of conduct" documents remain a very good guide for responsible Internet operators and users and a useful historical reference for technical operations.” If by "the Internet" we limit our definition to the technical infrastructure behind the network of networks of distributed computers through which universal connectivity is facilitated, the problem is attenuated by the fact that the overall technical integrity of the Internet covers every aspect of the "commons". Thus, from the standpoint of public choice policy making, technical supervision of the root zone by a natural monopoly pursuant to general IETF specifications makes sense. However, what we ar e seeing from the apparent and present policy framework at ICANN vis-á-vis Internet “governance” or "regulation", is that "technical stability" has somehow transformed itself into a much broader mandate that contemplates a "control" function, where non-technical specifications relating to high-level access from the privileged perspective of ownership of the means of Internet connectivity becomes an artifact of "official" U.S. government policy, and ideology, both of which amount to the ideology of the empire of business. Nor is this a value judgment. It is what it is. The National Telecommunications and Information Administration (NTIA) which is itself a part of the U.S. Commerce Department is in fact what the Internet Governance Project as "rulers of the “root”. These "rulers" make sure that at the top of the Internet's inverted tree hierarchy called the DNS there is a technical steady state insofar as managing root zone files that list the names and numeric IP addresses of the authoritative DNS name servers for all top-level domains. And, it is apparently the case that technical management of the root zone from the standpoint of the Internet's technical infrastructure, achieves what it was intended to do. The authoritative allocation problem arises because apart from managing the technical stability of the DNS, the present ruling authority insists on controlling certain parameters of a larger system through legal agreements that invest the20smaller system with authoritative allocations, meaning regulatory favors that are determinative of who shall have access to the "commons" as a whole. Here we see that ultimately it is the United States Government via the NTIA which actually rules the root because NTIA has assigned a variety of tasks to a subordinate organization (ICANN) where the mandate emphasizes "increase institutional confidence...[in ICANN and thus ICANN should] ...implement effective processes that will enable long term stability, accountability and responsiveness through increased contract compliance". It is apparently the case that "stability" of the DNS, even though the stability process literally from the beginning of ICANN has been politically problematic from the standpoint of "who got what", has nonetheless been a reasonably successful policy output. However. from the standpoint of policy articulations regarding governance, meaning control, of the Internet commons per se, the most telling aspects of NTIA control over ICANN can be found in language that states another policy objective of the United States Government: namely, that ICANN's mandate shall also be aimed at “continued private sector leadership” in order to foster “enhanced competition”. In other words the public Internet is about to be privatized. Period. This is notwithstanding rhetorical language about consultative processes, improving institutional confidence, accountability, and the rest of it. In other words, while on the surface is seems hard to find fault wi th what appear to be reasonable policy objectives, it is unavoidably the case that sooner or later the present mandate given to ICANN by NTIA corresponds from a systems perspective that results in a simple political system (ICANN) attempting to regulate through control of the root zone, a complex global system by gate keeping access to the entire "commons", while doing so at the expense of the peripheral spokes that hold together the wheel (meaning the ISO 3166 code (ccTLDs). From a policy perspective the spokes that hold together the wheel, meaning privatization as a function of the ideology of the empire of business, amounts to a prescription for unintended consequences. Whether or not such unintended policy consequences will arise from authoritative allocations of certain Internet resources by ICANN to preferred third parties in the form of interest accommodations in the form of new generic top level domains (gTLDs), remains to be seen. What is already clear, however, is that notwithstanding the consultative process by which ICANN appears to interact with a variety of Internet stakeholders in order to arrive at regulatory consensus, the plain and simple fact of the matter is that the actual day-to-day "interests" that have been and will continue to be dominant, are commercial interests. From a systems perspective the issue of "who gets what" only becomes problematic when vertical integration of the means of intellectual production as well as ownership of the str uctural apparatus, meaning the pure public good which is "the commons" itself, is subordinated to some interests at the expense of other interests. When that happens the system as "a system" becomes destabilized. Specifically, the means of production that supports the entire structural purpose of the Internet is intellectual property of one kind of another, meaning content. Internet connectivity is entirely pointless without content. Advertising is one such element of content. Copyright is another element. Intellectual property in the form of web logs, wikis and other forms of content are another element. It follows that if in the interests of bureaucratic efficiency as well as ideology, that which is nominally a pure public good is subordinated to certain private interests that have no stake whatsoever in the "ecology" of the commons, we then see the first intimations of a systemic problem. Furthermore, all present indications from ICANN in connection with a new round of gTLDs tentatively set to begin in 2009 point to increasing domination of DNS name space allocations by private sector interests in the form of (a) sponsored domains that correspond with corporate trademarks and generic word classifications; and (b) what ICANN has itself referred to as the “economic case” for auctions in new gTLDs, which for practical purposes means that henceforth (and as previously mentioned), authoritative allocations for new top domains will go to those interests that have the deepest pockets. It would be unfair and, indeed, somewhat off the mark to characterize present Internet governance as completely one sided. It is not. Nonetheless, it is also clear that from the standpoint of world wide Internet governance that the concept of the “public” Internet as a uniform and coherent "commons" for global connectivity accessible to all comers on an equal footing, is about to be challenged as never before. Will there in fact be unintended consequences that arise from what are ultimately economic choices that, if the present policy implementation goes forward, will in fact favor business interests over all other interests concerning "who gets what”? We will have to wait and see.