The Internet Today

Today, Wikipedia, Reddit, and a variety of other websites that I use on a daily basis to stay informed and learn are offline. These sites are protesting the SOPA/Protect IP bills currently going through Congress. Jason Harvey explains why:

SOPA and PROTECT IP contain no provisions to actually remove copyrighted content, but rather focus on the censorship of links to entire domains.

If the Attorney General served [a website] with an order to remove links to a domain, we would be required to scrub every post and comment on the site containing the domain and censor the links out, even if the specific link contained no infringing content. We would also need to implement a system to automatically censor the domain from any future posts or comments. This places a measurable burden upon the site’s technical infrastructure. It also damages one of the most important tenets of reddit, and the internet as a whole – free and open discussion about whatever the fuck you want.

More or less, what is happening here is big media — a sector in decline due to new technologies, and the obsolescence of old business models — is trying to bite back through getting government to rig the market to protect their old failing business models.

Newspaper advertising is falling off a cliff:

Home movie revenue has hit a wall:

And, music sales have dramatically fallen:

More importantly, the rising trend of file sharing has given media companies the sense that they are “losing revenue”:

The trouble is file sharing isn’t “lost revenue”. There is no guarantee whatever that a file downloaded is somehow a substitute for a sale. It’s a fundamentally different kind of transaction. For a start, it’s free. Consumers will take things for free that they would never buy, because it costs them less to do so. More importantly, it’s not stealing; it’s copying, and there is a difference. It’s not taking a physical product that someone has manufactured. There’s no direct lost revenue. And ultimately, if enough people copy it, it builds exposure for a product.

There are still many ways for big media to monetise their products in this new world: the music industry can stop concentrating on record sales, and started concentrating on concert tickets. Newspapers can move their businesses online, or use Apple’s tablet distribution model. Movie distributors can focus on high-definition content like Blu Ray, which is hard to redistribute online. That’s just off the top of my head.

But of course, this is creative destruction. Times change, societies change, fortunes will be made and fortunes will be lost.

So it’s in the interests of the big media elite to harness the power of government to create draconian laws to snub out the copy and paste new media culture that has developed, because that opens up a whole new revenue stream: litigation. If you can’t earn your millions, you might as well litigate your way to them.

The problem with that is that it’s another zombie idea. Our copy and paste culture, our freewheeling culture is a huge source of innovation. Shutting down new media, and stifling creativity will just create more social stagnation, and anger and disillusionment in the young. We live in the era of the parody, the era of the remix, the era of the pastiche. This legislation poses a serious threat to that era. Are we destined to venture into a new era of beige conformity, and Chinese-style internet censorship? I hope not.

Big media should be spending their money on creating compelling products and content delivery systems that make people want to buy, rather than trying to legislate and litigate their way to success. For all of the draconian measures that might be put in place to prevent copyright “theft” and shut down alternative media, if big media’s product sucks, people will not buy it.

Small Business: The Real Job Creators

The most annoying thing about the establishment’s ongoing obsession with maintaining the status quo, and supporting and bailing out older and larger companies?

Dinosaurs don’t create jobs.

From the Economist:

Research funded by the Kauffman Foundation shows that between 1980 and 2005 all net new private-sector jobs in America were created by companies less than five years old. “Big firms destroy jobs to become more productive. Small firms need people to find opportunities to scale. That is why they create jobs,” says Carl Schramm, the foundation’s president.

And it doesn’t stop there.

From Wikipedia:

In the US, small business (less than 500 employees) accounts for around half the GDP and more than half the employment. Regarding small business, the top job provider is those with fewer than 10 employees, and those with 10 or more but fewer than 20 employees comes in as the second, and those with 20 or more but fewer than 100 employees comes in as the third.

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Are Corporations People?

I have always found something inherently creepy about Mitt Romney — indeed, in a choice between Obama and Romney with a gun to my head, the gun looks like an increasingly attractive proposition. Most puzzling is his defence of corporate personhood:

Corporations are people, my friend… Everything corporations earn ultimately goes to people

Do corporations breathe? Do they eat, sleep, feel and think? Do they require housing? Do they have families? Or medical care? Do they pay income tax? Do they have DNA? Eyes? Ears? Teeth? Has Texas ever executed one?

No. Corporations are not people. Corporations are composed of people, and for a very good reason. From Wikipedia:

Limited liability is a concept whereby a person’s financial liability is limited to a fixed sum, most commonly the value of a person’s investment in a company or partnership with limited liability. In other words, if a company with limited liability is sued, then the plaintiffs are suing the company, not its owners or investors. shareholder in a limited company is not personally liable for any of the debts of the company, other than for the value of their investment in that company.

Corporations essentially exist to allow groups of people to act collectively, without taking personal responsibility if the entire thing goes down like a lead balloon. Sure, if an employee of a corporation behaves in a criminal manner, they are sometimes jailed. Yet corporations — ever since the birth of the modern corporation through Standard Oil — have created what is known as the agency problem. Corporations allow their owners to win, without the possibility of deep losses. And what does this mean in terms of responsibility? It means that things like the BP Oil spill are much, much more likely. Because if you can’t get hurt, you’re not going to exercise diligence in the same way you would if you could get more hurt. This is why the juggernauts of global industry — the titans of Wall Street in particular — blow up so frequently and so violently. Corporations are firewalls, spinning mammoth profits through risky bets, but allowing management and shareholders to hide behind them when their risky behaviour comes home to roost. And what happens if the house falls down? The creditors — or more frequently in recent years since we adopted this perverse bailout culture, the taxpayer — take the hit. The philosopher Nassim Nicholas Taleb wrote on his Facebook page:

Hammurabi’s code, ~3800 years ago, removed the agency problem as a condition for transaction: “If a builder builds a house and the house collapses and causes the death of the owner – the builder shall be put to death. If it causes the death of the son of the owner , a son of that builder shall be put to death.” Everything in past 100 years has been to shield managers from liabilities. Think of Fukushima.

Either limited liability should be abolished  — corporations could still exist, but their owners and management are personally responsible for any debts and destruction incurred — or their behaviour should be taxed punitively to encourage individual and small business initiatives — the real wealth creators, job creators and innovators — over large scale destructo-juggernauts. At the very least, we should completely stop bailing them out when they blow up. That’s responsibility.

Corporations are certainly not free market entities. Their very reason for existence — limited liability — is created through government fiat. Capitalism and markets existed long before the creation of limited liability, and surely will exist for a long time after its demise.