On the Internet: do the poor subsidize the rich?

[“Original title: Perverse subsidies”. It is Chapter 13 in my book Towards a Political Economy of Information (2004). I reproduce it here because it raises an issue that is taken very much for granted today.]

It was appropriate technology advocate E.F. Schumacher, author of the widely-acclaimed book Small is Beautiful, who once said that technologies often carry a built-in ideology which is so deeply embedded that one can’t have a technological transplant without getting at the same time an ideological transplant. Among the examples Schumacher cited were nuclear power and the Concorde jet.

To this list, we might also add the current darling of the media, the Internet. The Internet’s design provides a built-in subsidy for globalization, and all Internet users are forced to contribute to this hidden subsidy, whether they like it or not.

Distance-dependent costs

Before the Internet, most telecommunications fees were distance-dependent, because the costs are distance-dependent. One paid more to call another country than to call one’s neighbor. In fact, one often paid a lot more, because many governments adopted the policy of making international communications subsidize local communications, making communications more affordable to local citizens.

The trend today, however, is to reverse this idea that international traffic should subsidize local traffic. The reversal is strongly pushed by global corporations, who comprise a huge segment of international communications usage. They have already managed to push back international rates in the U.S. The lower U.S. rates now serve as platform for pressuring other countries to bring down their international rates as well.

In the Philippines today, for example, international charges are going down, while local charges are going up.

At the rate charges are being adjusted, we may soon reach a point where local traffic is subsidizing international traffic, which can lead to a perverse situation where the phone companies make higher margins on poorer users, to subside the richer users.

Subsidizing international traffic

This perverse situation is already the norm among Internet service providers (ISPs), which charge either a flat rate, by the minute, or by kilobyte, regardless of destination. Whatever the scheme, an email to another user in one’s server costs as much as an email to a business contact on the other side of the world. Accessing your own server’s website costs as much as accessing a website anywhere else.

Yet, Internet traffic within the same ISP definitely use less resources than international traffic. If the costs were properly assigned, such local email should cost less than a similar international email; and an email to a user on the same provider should cost even less, because it uses less resources. Yet, the charges are the same – a clear case of local traffic subsidizing international traffic, a hidden subsidy for globalization.

ISPs don’t charge lower for local traffic because distinguishing by destination for accounting purposes would cost too high; it is cheaper to charge the same rate regardless of destination.

Built-in bias vs. local

Here is a technology with a built-in bias against the local in favor of the global, whose very design spares the global the burden of paying for the full cost of its communications, makes it impossible for the local to use its natural competitive advantage of nearness, and forces the local to subsidize the global.

Despite the fact that local Internet traffic use fewer resources than international Internet traffic, most efforts to reflect this in a charging scheme have failed so far, reflecting a rather deeply-embedded bias for globalization within the core of Internet technology.

Thus, hidden in the Internet’s design is a built-in subsidy for globalization, and all Internet users are forced to contribute to this hidden subsidy, whether they like it or not.

Today, the various media, communications and data technologies are converging towards a single Internet backbone. So, it is not far-fetched to assume that similar hidden subsidies for globalization – together with the monoculture that it carries – will soon emerge in telephony and the media, if they are not in fact already in place.

Biased taxation too

If you think about it, such subsidy is also emerging in taxation. Because we joined GATT/WTO, import tariffs (a tax on products made abroad) are going down and will soon be zero for many products. Yet, local taxes (including taxes on products made locally) are going up. What is this if not an emerging subsidy for products made abroad?

Schumacher was right. Together with technological transplants, we are getting ideological ones.


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  1. […] We reproduce an intriguing critique by Roberto Verzola: […]

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