Tag Archives: policy

Biting the hands that feeds it

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Yesterday I read an article which explained that a Republican Congressman berated the head of the National Science Foundation for high gas prices. This is pretty distressing because it shows a clear lack of understanding of the goals of the NSF, the role of industry in innovation, consumers and the policies the Republican party and the US government has in place in regard to fuel usage.

First of all, the NSF is an organization that funds cutting edge research that expands the frontier of science. The goal is not to pick winners at that early of a stage. Picking a technology specifically to reduce the cost of fuel would be that. The goal is to pick the best ideas in a broad range of topics and fund several ideas within the same topic to get competing technologies and research groups. They groups can look at the same problem with a different perspective and lead to very different results, which together could lead to a huge break through (if they each don’t get their own break through or the same one). The goal is to create variety. I’m sure there are tons of projects that are focused on creating alternative fuels and increasing the efficiency of our combustion engines. However, the research isn’t going to be commercializable for 10 to 15 years. That’s just how long it takes. The research we’re funding today will be driving our economy through the next decade. 
If the Congressman wants a better target to go after, he should look to the car companies. There has been research for a large number of years on engine technology, however not all of it has been used to actually improve efficiency. Some times it’s used to increase the power of the vehicle. They do this because that’s what the consumer wants. Americans love their big powerful cars. There’s no reason why my mother in-law NEEDS to drive the extended Tahoe, but she does – she feels safer in her “Battle wagon.” However, the vehicle gets very low gas mileage, which of course is a double whammy when the prices increase. Huge tank and high prices make it expensive. The more gas the vehicle uses the higher the prices will be going. In Europe the gas prices Americans are complaining about are absurdly low. In the Netherlands it’s something like $8/gallon, around $3 of that is in taxes. However, in those countries there are much more fuel efficient vehicles because they have to be. Many of those countries don’t really want people to be driving.
The same car manufacturers that complain about putting minimum fuel economy standards on cars are able to meet higher standards in Europe. The US government could easily play a role in increasing the standards for new vehicles. They may not be doing enough. Continually increasing the standards with higher gas prices will increase the incentives for manufacturing those vehicles. Especially if the US government provides a customer for those cars. This would ensure that the car companies will be able to sell a minimum number of the vehicles without fear of a complete flop of the technology. 

Continued fall out from MegaUpload arrests

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A few days ago I discussed some of the actions taken by the hacker community and the impression that the MegaUpload arrests were related to SOPA. After some time we see that this arrest didn’t happen over night, you could argue the announcement and the timing was done poorly. However, I think that we should be paying attention to the ramifications of these arrests. Torrent Freak is reporting that there has been a massive response from the Cyberlocker companies. These cyberlockers were similar to MegaUpload in that a user would be able to upload a song and then anyone would be able to download it or stream the video. Now these companies are removing the search capabilities from their website and are restricting users to only their files.

While, what MegaUpload may have done may be illegal, the impact of the arrests is a foretelling of the impact of a law like SOPA. Internet companies argued that SOPA would be a job killing bill that it would kill innovation and break the internet. I think that this action clearly demonstrations that they are correct. For instance, Torrent Freak mentioned that several companies are shutting their doors and others are changing their services. Since it’s space based service, it is likely that each of these companies only has a few employees. However, they make a good chunk of change. MegaUpload was making several million and their competitors were likely making millions a month.

All of that money is going to be gone by next billing cycle. Not a single one of those companies where users were paying a premium will pay them another dime. Ad revenue will dry up, MegaUpload made almost a million alone since 2007 on ads. All of this money was getting put back into the economy through the purchase of servers, software and other equipment. It allows employees to buy stuff and was making a positive contribution to the economy.

From the different companies there was obviously innovation occurring. MegaUpload never allowed duplicates on its servers and when a duplicate was uploaded it would find another version of it and supply the link to the end user. Infringing content would just have the link removed, not the actual content. This would make searching for the real version difficult for copyright holders as it would be a game of wack the mole where the content would appear here, then with another link and so forth.

What other solutions could have been reached? I think there’s plenty of space here for further innovation for a business model. As users are using sites like this for personal storage and for video streaming, users are paying for content as well as clicking and viewing ads. Clearly there should be a way for the content owners to make money off of it as well. However, I have yet to read an article or a comment about the content industry approaching any of these companies, other than through DMCA, about working to pay some sort of royalty or set up a license agreement.

I think that a way to bring the balance back from the power being exclusively in the hands of the RIAA and MPAA (I’m just going to type RIAA from here on out), companies like Pandora.com, Spotify, Last.FM, MegaUpload (or any of its competitors), Google/YouTube, Vemeo and anyone else that uses licensed content should form their own consortium. Let’s just call it Content Users and Managers of America or CUMA for sure (I couldn’t think of anything really witty there (it doesn’t have to be just of America)). CUMA would provide a counter balance to the RIAA in that it provides equal footing and a way to combine the might of the end users. There are demands for these products, but the products simply do not demand the price premium they used to demand. Since these products aren’t able to demand the premium and the RIAA thinks that it should, they are overcharging as there are freely available alternatives which people flock to. Essentially, the RIAA needs to realize that for the websites allowing people to access the are getting paid pennies (if that) for a single view on a website. So for most sites, they can make more money if they don’t pay licensing fees. Lowering licensing fees is something that CUMA would be able to work for, to put it inline with expected ad revenue. This would allow for broader innovation in the market and reduced piracy.

It’s obvious from the amount of money that MegaUpload made that people are willing to pay to be able to watch as much content as they can when they want it. I feel like a broken record here (ha HA!), but people are willing to pay for content if it’s easily accessible.

I expect additional fall out from this. If SOPA or some similar style bill ever passes, expect this type of reaction to occur in other segments of the online industry. Online content is one of the places with a great deal of innovation and killing it would be a shame when there are possible solutions to this problem without resorting to industrial policy making and picking winners.

Update: I just saw this article Looks like MegaUpload has figured out a way to allow musicians to make money off of free downloads for original works through their site. This is some seriously awesome innovation.

Did yesterday’s internet black out save the internet?

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I’ve seen a lot of commentary about how the web may have been saved because of the internet’s “abuse of power.” How parts of the internet shut down for a day. I’m sure this impacted a great deal of people, may have actually hurt our economy a little bit. However, one day of action won’t save the internet.

I’ll agree it made a huge impact as support for SOPA/PIPA has plummeted. Yes, this round of attack by the MPAA and RIAA may have been twarted, but this is just the beginning of the fight for the internet. Ars Technica, has an excellent write up for a plan for how to address some of the concerns of copyright holders in a much better fashion. A manner which would not destroy the internet like SOPA/PIPA.

However, I think that this is a case of industrial policy legislation that is picking winners. In several blogs and posts at the Urban Times, I have written in favor of using some policies to enact changes of behavior. However, in these cases it’s because a novel technology isn’t being adopted that leads to benefits for the social good. In the case of copyright holders, these policies aren’t for the common good, but are being put into place to protect an aging business model that is not innovative. The policies I recommend are to help innovators compete against the status quo.

Data has shown that increasing the availability or decreasing the availability impacts the rate of piracy for television shows. Which indicates to me, policies should be striving to push companies to increase access to copyrighted material, not to go after pirating website. The responsibility for dealing with pirates should be with the copyright holder. They have the means to actually reduce piracy through reducing the amount of licensing fees and increasing accessibility.

We should be pushing our government leaders to put initiatives in places that require massive concessions from copyright holders, if they abuse their copyright position, including losing that copyright. Subscription services like Spotify and Pandora allow users to get access to content either free, with ads, or for a small price. However, these services don’t allow users to access everything. This leads to frustration. If I was able to listen to whatever on Spotify, there’d be no reason to pirate.

What does this mean? Well, we can celebrate the change in positions of congressional members, however this isn’t over yet. OPEN act may be the next step in this battle. Free internet should be our goal, free as in speech not beer. However, people are willing to pay and I think in this case, business models need to catch up with technology.

Economics, Philosophy and Science

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The Occupy Wall Street movement has spawned a great deal of branch protests. It has increased our awareness of economic, educational and governance issues. We have seen a series of aggressive police actions and amazing responses from victims. Historically, universities have been a sites of unrest. Berkeley had it’s riots in the 60’s, there’s the famous Kent State shooting picture and there are many other examples. What do much of these have in common? The state has used it’s authority and power to overly aggressively clamp down on protesters. However, violent protesters can’t be accepted, but non-violent protesters cannot be met with force. It’s part of our heritage to protest the government.

However, it’s important to understand what we’re protesting and why. It was clear from the beginning of the OWS movement that most of the people didn’t really understand what they were protesting. Very broad general things like Wall Street making too much money or the fact that no one has gone to jail. I think it’s important that for protesting to be effective the leaders and a majority of the protesters need to be well educated on what it is exactly they are protesting.

In this case the protesters needed to be educated on economics and philosophy/morality. Why economics, those guys are like the bad guys man? Well, sadly, to have an actual conversation with these people you need to speak their language. You don’t have to actually accept their assumptions as true or accurate, but you need to be well educated on the topics. Additionally, if you are well educated on economics, you’ll know there are different capitalist perspectives on economics that indicate that a more equal society is a safer and happier society. Using evolutionary economics, policies can be crafted to help protect economies from crashes. In addition, being educated in slightly beyond the basic supply demand curve, it will help prevent the wool from being pulled over our eyes. This will also allow more members of our society to enter public discourse and understand and speak intelligently about the topics that impact all of us. People will actually understand what socialism and communism actually mean.

In addition to a good economic ground work, we also need to understand some basic philosophy. People are accused of moral relativism, we need to know what it actually means (morality is flexible based on the situation) and how that impacts people’s actions. We also need to know when our leaders are behaving morally, immorally and what sort of freedoms we should be giving to people. Our country is founded on the philosophical ideas of the enlightenment. The US government was founded on rights, which all people should have regardless of sex, race or whatever. This includes speech and protest. If these are within our rights, then we need to protect them from people that believe it is their right to physically assault you when you exercise your rights. Morality and ethics can also drive our legislature to define laws based on humanist principles to ensure living wages and the right to live for all people. Or at least the need to create the social mobility claim to have in our society. Decreasing costs of education reduces the initial burden after school which allows people to take more risks, which may allow them to move from one social strata to the next. These should be done for moral reasons and because education and research has been shown both neoclassical economics and evolutionary economics to be a huge driver of sustained economic growth.

We also need a strong scientific foundation, which will provide a healthy dose of skepticism for government and data published by any group on either side. It gives the tools to decide if we should accept these data or open our tool box and figure out where the flaw in the data is. Science is the driver of current economic growth. It is what allows the next big break through at the platform level. We’ve had several platforms, coal, steel, rail, and we’re currently on the silicon platform/computing platform. To develop new platforms we need to continue to drive to the frontier of science.

Our founding fathers embodied these ideals. Jefferson was a philosopher that wrote his own version of the bible. He and Franklin were both accomplished scientists. All of them believed in the rights of the people that exist not because they are given to them by the government, but because they are natural rights all people have. It is important that we acknowledge these rights and make sure we are educated in these topics to ensure an actual debate over the problems we’re facing as a society. Without being educated in the importance of these topics we’ll begin to argue based on the best sound byte and not on the content of the message.

In closing, all people need to become literate in these topics to provide the best foundation for an argument. Without being able to speak the right language, you’ll sound like whining children that’s wondering like a child lost in the woods, or out of your element if you will. With these tools, anyone can talk coherently and powerfully against the very things our own government protests in other countries.

Innovation and government regulation

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Yesterday during a short twitter discussion the topic of US governmental policies killing new business starts came up. With the 140 characters I wasn’t able to property address the issue that was raised. It is extremely clear that SOPA is an innovation killer, because it effectively requires everyone to have a copyright lawyer on staff at the start of any sort of web company. If you have pictures, video, commentary or whatever on your site you’ll possibly be the target of some copyright holder. This policy isn’t in place and appears, for the moment, to be killed. I expect this law to be resurrected in a year or so. Despite the face that the EU adopted a resolution against SOPA.

Let’s look beyond SOPA though, what other policies are in place that seem to prevent job growth? One of the biggest ones right now is tax levels for people making $250,000 or more. Politifact did an analysis of Congressman Boehner’s claim that taxing millionaires hurts small businesses and prevents hiring. They found this statement to be False. Of course this does depend on the definition of a small business, which Politifact expresses is difficult to define. One metric that I’m aware of is based off the annual sales, where sales over $500,000/year moves you out of the small business area. This may not be the best amount, but let’s say your company has sales of $3,000,000 a year and has enough profit to pay you $1,000,000 of that a year. This tells me that you aren’t reinvesting and trying to continue to grow your firm, probably aren’t paying your employees very well. Additionally, at this amount of sales it is likely that as an entrepreneur you’ve had to get capital investment in one of several ways, loans or from venture capital. A bank wouldn’t care if you were getting paid a million a year, but there’s no way a VC would allow you to pay yourself that if they weren’t getting a good size chunk of money too and you were still planning on reinvesting in the future enough to get a huge IPO. Now, if you’ve built this company from the ground up to this level on your own, then you aren’t paying yourself that kind of money. You would have to be re-investing that money back into the firm to get new equipment hiring the best people, etc.

Another way for companies to get started is through spin-off from another company, bootstrapping themselves to get going or spinning-out of a university. I have an article that will come out soon in the Urban times that addresses some policies that can help with the creation of Spin-outs and start-ups. In the US, we still have the best policies for this. The EU as a collective and European countries are modeling many of their intellectual property laws and funding methods off of US policies. A few examples are a very similar law to the Dole-Bayh law from the 80’s to allow universities to own IP and to give it to their employees if they wish. The creation of technology incubators – this was a truly American innovation, innovation prize contests and national seed funds. The continual reinvention of these policies in the US allows us to create more new companies than European counterparts from a variety of sources.

Are there other policies that hurt the creation of companies? Yes, sure. I’m sure there are some pollution regulations that negatively impact the survival rate of firms. However, from a purely economic perspective this regulation is forcing the company to internalize the cost of the negative externality. Which the company should innovate to reduce the amount of pollution they are creating or buy equipment that reduces their costs in other ways. Innovation to reduce pollution should reduce the cost of raw materials, because they are being used more efficiently and in lower quantities. Every company wants to be able to reduce the amount of raw materials they use. In the next few years we will see greener companies, not because they have a desire to be sustainable, but because it’s more profitable. The regulations the EPA puts into place requires companies to internalize negative externalities, which from both a evolutionary and neo-classical economic perspective is expected from the market and when the market fails then and only then the government needs to step in.

There will be regulations that are industry specific that may slow the amount of innovation and creation of firms, but some of that is surely death by a thousand paper cuts (too much paper work) and the inability to figure out a way to acquire enough funds to get the company going. Compared to European countries the US is the leader for ease of firm creation and the EU is still playing catch up in that regard.