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.

Political economy of abundance

I have been studying in the past few months the subject of abundance.

My interest in this subject grew out of my interest in information, information technology and information economics. I think most of us who have not yet realized it ourselves can easily believe the claim that information goods have become easily accessible and abundant, especially to those who have Internet access. Abundance in the information economy comes from the diminishing cost of reproducing information, making it easy for anyone to share information with others. If you consider the vast and incredible collections of materials on the Internet, from Google to Wikipedia, from the websites to the blogs, from the various file, audio and video exchange sites to YouTube, I think you’d agree that one term which describes all these accurately is abundance.

After my semi-retirement from software, hardware and Internet work, I did volunteer work on environmental and agriculture issues. I worked with farmers groups. After nearly ten years of doing so, I realized that a unifying thread connects my experiences in the information sector, in nature and in agriculture. What is it? You guessed it, abundance.

Like the information sector, nature also teems with abundance. The reason is simple, every species is genetically programmed to reproduce its own kind. The reproductive urge built into every living organism is the source of abundance in nature and, by extension, in agriculture.

I have also been studying economics these past few months. One fundamental assumption in economics is scarcity. Economists define their jobs as the study of efficient options in the context of scarcity. This focus on scarcity has created a blind spot among economists. Many have missed, taken for granted, ignored or rejected abundance as an interesting field for study.

That’s the study I’m currently doing.

If you are interested in this subject, please download my paper Undermining Abundance, which will appear as a chapter in a book that will be released in the next few months by Zone Books, entitled Intellectual Property Rights and Access to Knowledge.

I’m working on another paper now, entitled “Studying Abundance”, which I will also release soon.

The miracle of the loaves

In those days when there again was a great crowd without anything to eat, he summoned the disciples and said, “My heart is moved with pity for the crowd, because they have been with me now for three days and have nothing to eat. If I send them away hungry to their homes, they will collapse on the way, and some of them have come a great distance.” His disciples answered him, “Where can anyone get enough bread to satisfy them here in this deserted place?” Still he asked them, “How many loaves do you have?” “Seven,” they replied. He ordered the crowd to sit down on the ground. Then, taking the seven loaves he gave thanks, broke them, and gave them to his disciples to distribute, and they distributed them to the crowd. They also had a few fish. He said the blessing over them and ordered them distributed also. They ate and were satisfied. They picked up the fragments left over – seven baskets. There were about four thousand people.[1]

In this Biblical story, four thousand people ate and were satisfied, with seven baskets of food left over, after seven loaves of bread and a few fish were distributed among them.

The miracle of the loaves teaches us that there are things which we can share, without losing them. A beautiful story, for instance. Or useful knowledge. They are, after all, food for the mind. Like the miraculous fish and loaves of bread, we can start with little, share them with others, feed thousands, and end up with more than we started with.

Everytime we share knowledge with the hungry, a book or a tape with friends, we are celebrating the miracle of the loaves

(Chapter 1, Towards a Political Economy of Information by Roberto Verzola)

Towards a Political Economy of Information (full text)

“We are all familiar with the typical story of an isolated village at the edge of the forest. Some villagers have to go to town to buy a few necessities, and maybe to stock the village store. Others need to go to sell some products for cash. Villagers start to feel that the foot path to town is insufficient for their needs.

Village activists may even pursue the issue and organize the people to demand a better road. Eventually, public opinion is swayed, and a petition is submitted. The government, the villagers are pleasantly surprised, is amenable to the idea. Road-building eventually starts.

As completion date nears, the village organizes a welcome party for the first vehicle that is coming in. A few days later, the village wakes up to the rumble of engines and smell of diesel exhaust. The vehicles have come. And they are logging trucks, carrying men with chain saws.”

These are the first few paragraphs of a chapter in my book, Towards a Political Economy of Information. The book analyzes the social impacts of new information and communications technologies (ICT). It is a compilation of pieces I have written over the years.

I am making available for download the full text of the book here. The pdf file is 1.3Mb.

Roberto Verzola (Author)