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Contest Essay

Does the New Economy Require a Free Economy?

Second Prize ($1,500)

“Every step and every movement of the multitude, even in what are termed enlightened ages, are made with equal blindness to the future; and nations stumble upon establishments which are indeed the result of human action, but not the execution of any human design.”
—Adam Ferguson, An Essay on the History of Civil Society1.

It has become a commonplace that we now live in a knowledge economy. This new economy, brought about in a great measure by information technology and the development of the Internet, has become the fact of economic life in the twenty-first century. The growth of the Internet and what we might loosely call cyber-culture, including cyber-commerce, has developed largely unchecked and unaided by national governments.2 Apart from the initial investment by the United States military in the precursor to the Internet, the rapid progress in technology and in the use of that technology has been largely the domain of private individuals and companies.3

This is a far cry from the intellectual consensus of much of the twentieth century, which sought an active role for government in both the economy and in the development of science and technology. Changed attitudes about the role of government have allowed the space for the new economy to develop; but to say that the new economy has developed without government assistance or hindrance is not to say that this will always be the case. Increasingly, governments have turned their attention to the booming cyber-culture, and what was once encouraged as a harmless and possibly beneficial information exchange and economic tool is now viewed with wariness by government functionaries and others who see a culture and economy developing beyond the control of national governments.

One recent example of this is the French government’s attempt to prevent the sale of Nazi memorabilia over the Internet.4 A French court ruled that Yahoo!, the U.S.-based Internet service provider, must block French users’ access to a site which bought and sold Nazi memorabilia. Yahoo! defended itself by arguing that the globally accessible nature of the Internet made such a move impossible. The international nature of the Net and the cyber-economy thus mount huge obstacles for national governments that wish to preserve their sovereignty by controlling the economic interactions of their citizens.

This incident also suggests more philosophical questions that lie behind the emergence of this new cyber-economy. It would be relatively easy to make an economic case for free trade over the Internet. One might appeal to the long tradition of economic thinkers, from Adam Smith onward, who have argued for the superior efficiency of free exchange. That, however, would not directly address the concerns of the French government here: what is at stake is freedom as a social value. The French government’s argument is not about economic benefits; it is about whether the free interaction of private individuals, in person or through electronic media, ought to be regulated to ensure social goals. The sale of Nazi memorabilia is opposed not because it is economically inefficient, but because it is deemed to contradict French laws against racism.

If proponents of freedom in the new cyber-economy wish to defend their position, it is not enough for them to argue that e-commerce is most efficient and beneficial when left unchecked by governments. For those, like the French government, who wish to restrict free exchange are those same individuals who ignore this argument in relation to traditional economics. The French government would act to close a shop in Paris that sold Nazi memorabilia for the same reasons it seeks to prevent such a service from being provided on the Internet. That in one case its legal sovereignty allows it to do so, while in the other the global nature of the Internet hampers this aim, does not detract from the fact that the same motives and mindset lie behind each action.

What defenders of freedom in cyber-space must counter is the view that desirable social goals can or should be achieved by deliberate government action. They must make a moral case for freedom in the new economy.

By appealing to arguments from the Classical Liberal tradition, proponents of freedom in the new economy might be able to construct such a moral case for their position—a case which both argues for the intrinsic necessity of freedom in the new economy and which counters the claims of those who would restrict those freedoms.

We might begin by dividing the views of those who would restrict freedom in the new economy into two separate but related propositions. First, the view that governments ought to act to secure social goals: this view suggests that in certain cases a government has the responsibility to balance the freedoms of its citizens against the achievement of certain desirable social goals. Secondly, that governments are able to act in such a manner to achieve those goals which are deemed socially desirable by them. Two views, in other orders, answer the following questions affirmatively: 1) Ought the government act to achieve social goals? and 2) Can the government act to achieve social goals?

Let us apply these two propositions to the French government’s case against Yahoo!.

First, it is clear that the French government believes that it ought to act to promote the social goal of opposing racism by restricting the exchange of Nazi memorabilia. Its justification for this lies in democratically passed legislation laid down by an elected government to secure a social goal of that government. The will of the people, democratically expressed through their representatives, allows the government the legal power to legislate against such acts and to prosecute those who carry them out. The French government thus believes that the social benefit of ending racism outweighs the loss of freedom to those citizens who would deal in Nazi trinkets.

Secondly, the French government believes that it can succeed. By prosecuting Yahoo! in line with French legislation, it will be able to force Yahoo! to desist from the practice. The French government makes no attempt to prevent individuals from using Yahoo! to sell memorabilia, instead it seeks to prevent the provision of the Yahoo! service itself. Rather than prosecuting the shopkeeper, as it were, it prosecutes his landlord.

So the French government’s actions show that it believes it ought to act to achieve a social goal which outweighs freedom, and that it can act to do so through traditional legal means.

However, as Yahoo! argued, the French Government can go to court and that court can order Yahoo! to desist; but because of the nature of the Internet, Yahoo! cannot practically comply with the ruling. They could prevent France-based sites from offering the service, but they could not prevent sites based elsewhere from doing so. Nor could not they prevent French Internet users from accessing those sites.

Clearly, the French government is unable at present to secure the goals of its social policy in relation to the Internet. The nature of the Internet means that the second proposition of those who oppose freedom in the new economy—that government can act to secure social goals—is effectively false. There is nothing the French government can do to prevent its citizens from accessing foreign-based websites of whose content it disapproves.

What then would be required for the French government to be able to act effectively? Well, it could attempt to secure an international treaty whereby nations “respect” the sovereignty of others by enforcing their standards. That is to say, a global standard of censorship would have to be established. This indeed is what the French Premier Lionel Jospin appears to hint at in reaction to the Yahoo! case.5

The likelihood of such an agreement taking place is slim owing to differing national attitudes toward censorship and social control. In the particular case of the United States, it would appear that such a treaty would be unconstitutional with regard to the provisions for freedom of speech in its founding document. In addition, the sheer economic significance of the new economy to the “real” economy of the United States has given service providers a strong lobbying position which would make any attempt at passing such a treaty through Congress fraught with difficulty.

A treaty of censorship standards, then, ultimately would not assuage the concerns over sovereignty which motivate the French here. The French government might then take more drastic action by restricting the access of French citizens to the Internet as a whole. If they cannot select which sites to censor, then they might legally impose software restrictions on Internet usage at a wholesale level. This in itself is also highly improbable. Democratic governments that believe that they can achieve social goals by legislation and litigation have to balance that belief against the restrictions that it would place on individual freedom. As their mandate is in some measure based on the consent of the people, attained through representative democracy, they must be careful that the balance that they strike matches that of the views of the majority of the people. Wholesale restriction on the use of personal computers and the Internet must then be seen as excessive; using the sledgehammer of total restriction to crush the grape of a supposed encouragement of racism.

The French government, then, has a problem. Given the international nature of the Internet and the interconnection of the various sites that comprise it, they have little scope to enforce their social goals through traditional methods of legislation and litigation. The new economy, it would appear, has little respect for national sovereignty in the traditional sense.

Part of the reason for this is that governments have played very little part in the development of the Internet. The new economy and cyber-culture are perfect examples of Friedrich Hayek’s conception of a spontaneous order. They have arisen not as the result of the conscious overall planning of a corporate body, but through the interaction of a variety of differently motivated individuals and associations of individuals. As the Ferguson quotation at the beginning suggests, the new economy is the result of human action, but not the product of any human design. One such example of this is the creation of the company Yahoo! itself, which its founders admit was never intended to grow into anything more than a mutual information exchange.6

By it’s very nature the Internet is not something which was intended for a single purpose or purposes; it was not designed or planned but rather evolved. As such, it differs constitutionally from other, more traditional, objects of government legislation. Traditional industries in the past also evolved spontaneously, but as the twentieth century showed, they were susceptible to government intervention because of the conception of legal sovereignty. The British government in the immediate post-war era, for example, was able to nationalise key industries because it had a moral and legal basis on which to act. It was able to act because those physical industries were undertaken within the geographical and legal boundaries that made up the sovereignty of that state.

This, as we have seen, is not the case with the new economy. The global accessibility of the Internet, and the ease with which sites can be moved between servers based in different geographic locations, prevents traditional government control. The conception of national sovereignty actually works against a government’s desire to restrict the access of its citizens to certain materials. By bringing into conflict differing standards of censorship and differing approaches to those social ends achievable by legislation, the new economy has shown that traditional conceptions of national sovereignty are inaccurate for understanding the interdependent and interactive nature of both e-commerce and cyber-culture.

The new economy, then, has changed the playing field of national sovereignty in a manner that has increased the freedom of individuals and associations of individuals to act, interact and express themselves free from the interference of governments who are determined to pursue social policy through legislation. What is more, this increased freedom is not the result of a deliberate “plan” or revolution by a coherent cyber-culture working to subvert traditional authority. Far from it, it is an unintended consequence, a side effect, of the interactive nature of the development of the new economy. No one group of cyber-libertarians sat down and planned this putsch against the traditional powers of government: it just happened without the explicit intention of anyone.

The new economy and unintended libertarian consequences, then, are not the result of the purposive action of individuals. Rather they are a spontaneous order that has arisen as a result of human interaction. Writer’s who have advanced spontaneous order theories, most notably F. A. Hayek, who draws on the work of the Scottish Enlightenment, and Michael Polanyi, stress the benefits of approaching the analysis of social phenomena through notions of self-regulating orders. Polanyi’s example of spontaneous ordering is of water settling in a jug. The individual particles adjust themselves both to each other and to their surroundings to form an order that was neither imposed nor intended by any of those particles.7 Applied to social interaction, this model suggests that individuals adjust themselves to each other and to their circumstances based upon their own knowledge of their unique position. Such knowledge need not be explicit, that is to say that the adjustment need not be undertaken consciously, and it may be effected without the individuals in question possessing knowledge of the sum of their adjustments. Indeed, Hayek argues at length that the vast complexity of such orders precludes any individual or group of individuals from possessing the knowledge requisite to comprehend the totality of the order or orders.8

This then is the model of the gradual development of the cyber-culture and economy that have grown over the past decade. No one mind conceived or created it, and no one mind would have been capable of so doing even if it had wished to.

Government action then interferes with this process of the gradual development of spontaneous order. As Hayek puts it: “The spontaneous order arises from each element balancing all the various factors operating on it and by adjusting all its various actions to each other, a balance which will be destroyed if some of the actions are determined by another agency on the basis of different knowledge and in the service of different ends.” 9

A government that seeks to impose a set of social ends upon the spontaneous order of cyber-culture will necessarily pervert the functioning of the order. In addition, as a result of the vast complexity of the Internet, this task becomes virtually impossible. No one body has the resources or knowledge necessary fully to control or to direct the activity of those engaged through electronic media.

That the spontaneous order of the Internet operates efficiently is not to be doubted. Compared with a technocratic attempt to create a similar, but managed, system of interaction—such as is to be found in the French state’s Minitel system10—the Internet is vastly more efficient and successful at fulfilling the various purposes of its users. Spontaneous adjustment, then, is more efficient than technocratic command when it comes to the material satisfaction of wants. This, for Hayek, is a simple fact of epistemology and human interaction.

However, as we noted before, superior efficiency is not an argument recognised by those who propose technocratic government. They argue for the primacy of certain social values and goals over efficiency—a position whose logic demands state intervention to secure these goals. As we have seen with Yahoo!, this position is impossible in practice with relation to the Internet; and as we see from Hayek, it is impossible in theory with relation to spontaneous orders generally. The fact remains, though, that these arguments do little to persuade those in government who advance intervention. One reason for this is not that the arguments of impossibility fail to convince, but that they are not recognised by those who believe that governments ought to act.

We have returned, then, to the moral case for freedom in the new economy. The French government, as we saw before, believed that it ought to act, that it had a moral case or obligation to intervene in the free exchanges of its citizens. The moral obligation toward the social good of the suppression of racism outweighs, in their view, any logical arguments based on the evidence of the impossibility of the success of such intervention.

Indeed, if we were to imagine a future scenario where government action to secure social goals through Internet censorship were possible—perhaps through some vast bureaucracy or Orwellian Ministry of Truth, or through some leap in software technology—the motivation behind action in such a future would remain the same as that which prompts those current attempts. Some in government believe they ought to act, and as such will attempt to act even if their attempts are faced with almost certain failure.

The attempts of the French government, then, are doomed to failure. No matter how strongly those in government believe that they ought to act to intervene in the new economy, they are effectively powerless to do so. Traditional notions of national sovereignty have been rendered obsolete by the spontaneous complexity that has developed across the globe in the form of cyber-culture11. It would appear that, for the present at least, the question of whether governments ought to intervene in the new economy is actually hypothetical. If, as we have seen, they are powerless to secure their social goals through Internet censorship, then any action which they undertake—like that in the case of Yahoo! and the French government—is bound to fail. For the time being, no matter how badly governments want to intervene, and no matter how hard they attempt to do so by traditional means, they are bound to fail. The new economy is a free economy, a spontaneous order of mutually adjusting particles, and these particles will simply adjust themselves to the futile attempts of governments to shape their motion.

End Notes

1. Ferguson, Adam. An Essay on the History of Civil Society, edited Fania Oz-Salzberger, Cambridge: Cambridge University Press, 1995, p. 119.

2. Postrel, Virginia. The Future and its Enemies: The Growing Conflict over Creativity, Enterprise, and Progress. New York: The Free Press, 1998, p. 36.

3. Doherty, Brian. “Cybersilly: A Review of Cyberselfish: A Critical Romp through the Terribly Libertarian Culture of Hi-Tech, by Paulina Borsook.” Reason Vol.32 No. 4, August/September 2000, p. 67-70.

4. Rimensnyder, Sara. “No Liberte Online,” Reason Vol. 32 No. 5, October 2000, p. 11-12.

5. Ibid p. 12.

6. Postrel, Virginia. The Future and its Enemies: The Growing Conflict over Creativity, Enterprise, and Progress. New York: The Free Press, 1998, p. 181. See also p. 144 where Postrel discusses how the etiquette and rules of the net evolved spontaneously.

7. Polanyi, Michael. The Logic of Liberty. London: Routledge, 1951, p. 155.

8. Hayek, F.A. Law, Legislation and Liberty, Vol. 1, London: Routledge, 1993, p. 49-50.

9. Ibid, p. 51.

10. Postrel, Virginia. The Future and its Enemies: The Growing Conflict over Creativity, Enterprise, and Progress. New York: The Free Press, 1998. p. 19.

11. Indeed, in terms of internet censorship, individual sovereignty leads the way in the form of commercially produced software purchased by individuals to meet their own needs.

12. Postrel, Virginia. The Future and its Enemies: The Growing Conflict over Creativity, Enterprise, and Progress. New York: The Free Press, 1998. p. 44-45.

Craig Smith is a graduate student in Political Philosophy in the Department of Politics at the University of Glasgow.