The Phoenix Enters the Dragon’s Lair
Last week, I received an e-mail request from Pei Zhao, in the People’s Republic of China. Mr. Zhao is translating Digital Phoenix into Chinese; the Shanghai Yuandong Press will publish the Chinese version shortly. He invited me to draft a new Preface. In one of the delicious ironic twists that are becoming increasingly frequent in the global information age, this Preface will allow me to address my Chinese readers from a 2006 perspective, but not my American readers. In fact, were it not for The Informationist, the English version of my Chinese Preface might never appear anywhere. Thanks to the modern miracle of the blogosphere, however, I can preserve my thoughts here in all of their original untranslated (or pre-translated) glory:
Preface to the Chinese Edition
It is an honor and a privilege to preface this Chinese translation of Digital Phoenix. It’s an honor because it demonstrates a belief on the part of the translator and the publisher that a Chinese audience exists for my work. It’s a privilege because it gives me an opportunity to address that audience.
As I pondered what I wanted to say to this newly accessible audience, I realized the book’s primary message could hardly be tailored for China any better than it already is. That conclusion may seem surprising. After all, the book’s core stories—the Internet bubble, the Microsoft trial, Napster and the battles over digital music downloads, and the rise of open source software—unfolded primarily in the U.S., secondarily in Europe, and in the case of one passage, in Peru. The book mentions China only in passing. Even a casual reader should discern that I wrote Digital Phoenix as an American scholar eyeing an American audience.
Nevertheless, I always conceived of Digital Phoenix as more than simply the sum of these stories, and its messages as more universal than parochial. In fact, I arranged the book to frame its recounting of these tales with matters of universal significance: The first few chapters provide the technical background explaining what information products are; the economic background explaining how to convert information products into profitable businesses; and the legal background explaining the ways that developed economies regulate information products and businesses. The closing chapter places the entire discussion into its broader sociopolitical context.
Digital Phoenix is an extended case study of a world early in its transition from the industrial age to the information age. Within that broad framework, the economy is leading the transition—and selected digital industries like software, entertainment, and the Internet are leading the economy. The book’s major stories merely illustrate the pattern of challenges that all of our institutions and traditions will face as the information age engulfs increasingly large swathes of our lives.
The basic pattern is straightforward: Technology creates opportunities. Economics dictates which opportunities people will develop. Policy concerns label some new opportunities desirable and others undesirable. Law attempts to increase the costs of undesirable opportunities, thereby changing the economic calculus. Technology responds to the needs of the unfolding economic behavior. The entire process then repeats itself. . . again and again and again. Much of the discussion in Digital Phoenix focuses on showing how this pattern arose in each of the book’s transformational economic stories. Other parts of the discussion, however, focus on the future—on projecting the ways that this pattern explains the broader societal conflicts that are now unfolding, including the global reconsideration of education, the internationalization of the service workforce, and the rise of anti-liberal terrorism as a force on the global scene.
Most of the book represents the ways that I saw the world between 2001 and 2003, when I did most of the writing. I tried to keep it current through the summer of 2004, when I penned the Epilogue and finalized the text for the first English edition. An invitation to draft a new Preface in October 2006 provides me with an opportunity to revisit both my storytelling and the worldview that underpinned it. For that opportunity alone, I am grateful.
The events of the past few years have added chapters to each of the information economy stories, but have done little to alter my view of either the stories themselves or the worldview that I depicted:
Microsoft’s antitrust woes continue, though their epicenter has moved from Washington to Brussels. The EU seems to issue new rulings against Microsoft every few months, in repeated efforts to restrain its behavior and to fine it for past misdeeds. Microsoft itself remains as profitable and as pervasive as ever—though in many ways, its power over the software industry appears to have ebbed as new challengers have emerged into significance. Why? Perhaps, as various antitrust enforcers and Microsoft’s adversaries contend, because a decade of intense transatlantic antitrust scrutiny has accomplished at least some of its goals. Perhaps, as Microsoft itself and most of its supporters contend, because Microsoft’s power over a competitive software industry was always illusory, and its current batch of competitors are smarter and better than the previous batch. In all likelihood, both explanations are at least partially accurate. The software business is hardly static, and even a monopolist could not easily control it for long. The hobbling of the monopolist—even with inadequate restraints—created openings that others could exploit. Such exploitation answers at least one of the questions that I had to leave hanging in the summer of 2004: Google is real; it has become a significant player in the information economy; its significance is likely to persist throughout the foreseeable future; and it has joined Microsoft as a major investor in Chinese scientific research.
And yet. . . as I noted in the 2004 Epilogue, Microsoft’s attempts to leverage Windows XP into positions of dominance in the media player and server markets bore some fruit, but were far less successful than its earlier drive to corner the browser market. As I write this Preface in October 2006, Microsoft’s recent announcements about its soon-to-be-launched Vista platform have raised a flurry of concerns throughout the security software community. Plus ça change.
On the other fronts, the open source movement remains vibrant and growing, though lingering questions concerning the viability of its contracts and its inherent conflicts with patent law remain. China’s role in the open source movement also continues to grow—as do complaints that at least some Chinese open source contributors are contributing less than the full fair share of their advances.
Concerns about the conflicts between international norms of copyright law and the distribution of music and movies similarly continue to rage. Napster’s demise led to Grokster, which in turn collapsed following a defeat in the U.S. Supreme Court. Lawsuits abound, copyright holders grow increasingly shrill, national governments consider increasingly draconian enforcement measures, and international pressure to curb infringement abounds. Numerous governments in the developed world have tried to lean particularly hard on China and on other developing economies on this issue, often trying to tie unrelated trade benefits to intellectual property enforcement. Again, the specifics of the music and software stories may have changed over the past two years, but the trends themselves remain as I saw them more than five years ago.
Perhaps the most interesting developments came in the story that has changed the least: the Internet bubble. As the years since its collapse mount, the investment bubble recedes into an increasingly dim memory. Several years ago, I chose to subtitle Digital Phoenix “Why the Information Economy Collapsed and How it will Rise Again.” I chose this subtitle largely for marketing purposes. Between 2001 and 2003, I found it painfully difficult to interest anyone in a book about the information economy. Many swore that I was describing last year’s news, a dead phenomenon of the 1990s that interested no one other than economic historians. I had to promise a skeptical audience that I would make the material by relevant by explaining what would unfold in the future. That skepticism persisted in many quarters beyond the book’s initial release in May 2005. By the end of 2005 though, it had evaporated completely. As 2006 unfolded, I began to hear critics question the very idea of a collapse. As the years go by, I suspect that such criticisms will mount. This Preface allows me to set the record straight, at least for my Chinese audience: The information economy never truly collapsed, and I never believed that it had. I did—and do—believe that the public perceived a collapse, and that public inattention to the causes of that perception risks leading us towards further bubbles, busts, and dead ends. I wrote Digital Phoenix to help the world emphasize the components of the information economy that represent honest growth while avoiding the hucksterism and mirages that led to an irrationally exuberant boom and bust.
These updates to the stories that Digital Phoenix relates would be relevant to any new release of the book. While I am grateful for the opportunity to include them, they have little to do with China. What a Chinese audience does afford me, however, is an opportunity to emphasize the book’s most important point: The information age empowers individuals. Societies that allow their citizens to avail themselves of that newfound empowerment will prosper.
As the world’s most populous country and by some measures its second largest economy, China has long been a study in extremes. During China’s glory years, the Chinese people were the world’s wealthiest, best educated, and most successful; during China’s darkest periods, its people were among the world’s poorest and most miserable. As The Economist recently reminded its readers:
China, once the world’s technological leader, provides a sobering lesson on how economies can slide down the international league table. In the 18th century it was the world’s biggest economy, with a GDP seven times as large as Britain’s. But it kept its doors closed to foreign goods, so it was left behind by the industrial revolution and the explosion in global trade. In 1793 Lord George Macartney was sent to Peking by King George III to establish a permanent British presence and open up trade relations with China. But the Chinese emperor Qianlong informed his visitor that “we have not the slightest need of your country’s manufactures.” China’s economic isolation was to last for almost another 200 years, during which real incomes fell. By 1950 China’s GDP per person had shrunk by a quarter compared with Lord Macartney’s day; Britain’s had risen fivefold.
During those 200 years, China’s leaders repeatedly tried to isolate the country from global trends, and repeatedly refused to allow individual citizens to choose the manufactures that served their own personal needs and tastes. Over the past few decades, a more enlightened Chinese leadership has come to appreciate the wisdom of liberal market capitalism. By trusting their own people to make economic decisions, China’s leaders have unleashed the amazing talent and creativity that they had long suppressed. The results have been nothing short of miraculous. China has been the world’s fastest growing economy year after year.
The extent to which China’s government trusts its citizens to exploit their newfound sense of individual empowerment, however, remains severely constrained. Though China’s leaders have freed its citizens to make a wide range of economic decisions, they continue to limit its citizens’ freedom in most other areas. One of Digital Phoenix’s key messages is that these limitations will imperil China’s continued growth and welfare. As the information age unfolds, societies will prosper in proportion to the use they make of new technological capabilities. Governments that do not trust their own people to thrive in the empowered environments of the information age will never leap to the forefront of world leadership. A China that limits its citizen’s access to political, religious, and sociological ideas will repeat the mistake that doomed it to miserable existence in the industrial age; it will effectively tell the world, “we have not the slightest need of your country’s ideas.”
To many, this admonition might sound heretical—and wrong. Yet history has repeatedly shown that free thought generates ideas, innovation, excitement, and ultimately leadership. Limitations on freedom can generate powerful spurts born of emulation, but they can never catapult a society into a position of global leadership. Perhaps the classic Twentieth Century example of this phenomenon arose in the Soviet Union. Through sheer terror and coercion, Stalin was able to turn a nation of peasants and serfs into a major industrial power in only a fraction of the time that the freer nations of Western Europe had required. The key to Stalin’s apparent success, however, was emulation. His command and control economic plans began with models of successes and of failures—models that countries like Germany and England had provided through their Nineteenth Century experiments with industrialization. Stalin did not have to wonder how best to build a chemical plant; he merely copied German’s successful designs. This approach reached its limit when the Soviet Union ran out of things to copy. As soon as it caught up to Western levels of industrialization, the rapid growth stopped. From that point forward, Soviet scientists and planners rarely led the world in any areas of industrialization other than selected niches of the military and space sciences—where international competition impelled a certain discipline and creativity that was lacking from the consumer-oriented domestic spheres.
China is likely undergoing a similar transformation today. Centuries of failed government policies deprived the Chinese people of their rightful position among the world’s success stories. Government-imposed limitations crippled Chinese creativity, entrepreneurship, self-expression, growth, and philosophical exploration. Decades of economic freedom have unleashed all of these repressed talents, with results that are the envy of the world. Chinese entrepreneurs have launched numerous successful Internet ventures. Chinese manufacturers now lead the world in quality production at low prices. Large Chinese companies have acquired numerous rivals around the world—perhaps most significantly, China’s Lenovo now makes IBM’s PC line, once an important symbol of American dominance in the world of computing.
All of these advances to date, however, remain in the form of catch-up. Many people believe that China is now poised to leap into the future, to contribute fundamental scientific and commercial advances that are not only made in China, but that are conceived in China as well. Given China’s wise investment in scientific and engineering education, some advances seem likely—certainly, companies like Microsoft and Google bet heavily on this outcome when they placed research facilities in China. Nevertheless, people told that there are limits on their freedom to think creatively will ultimately hit limits on their ability to innovate—and thus to grow. I can only hope that China’s leaders are wise enough to avoid this pitfall. I hope that they recognize that the Chinese people are worthy of dignity, respect, and honor. In the information age, China’s leaders will have to trust individual Chinese citizens to make a full range of decisions—and to succeed or to fail as those decisions and circumstances dictate.
At its core, Digital Phoenix is an inquiry into the transition from an industrial age world to an information age world. Though its specific emphasis is a collection of stories from business and economics, it remains an articulation of the spectacular growth potential latent in individual empowerment—and of the backlash that such empowerment and opportunity engenders. I wrote the book, and in particular, the socioeconomic context of Chapter 9 and of the Epilogue, with the United States in mind. Had I been writing for a Chinese audience, I would have chosen different examples, but the message would have remained the same: individual empowerment and widespread opportunity will make the world a better place. They will make us all richer, healthier, and happier, if only we choose to let them. The choice is ours. And the future of more than just the information sector hangs in the balance.
Bruce Abramson
San Francisco, CA, USA
October 2006
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