ch00.txt

.bookmark preface
+ Preface

> Once upon a time, there was a great Empire that ruled the known world.

++ Cost Gravity: The Endless Fall to Free

For fifty years, Moore's Law has reliably predicted the exponential upward trend of our silicon future. Yet every now and then, technology tabloids warn that Moore's Law is about to end. It can't last, we're told, and when it ends, the future will fall into darkness and uncertainty. Yet inevitably and without fail, scientists find yet another way to extend it, and we collectively sigh in relief.

Moore's Law isn't a mythical beast that magically materialized in 1965 and threatens to unpredictably vanish at any moment. In fact, it's part of a broader ancient mechanism that has no intention of stopping. This mechanism, which I call //cost gravity//, pulls down the price of technology by about half every two years.

Cost gravity affects our entire human world. It is inevitable and unstoppable, driven by the spread of information and knowledge. Every two years, any given technology becomes twice as available at half the cost, and twice as powerful with half the bulk. Look around and observe that many old (and previously expensive and large) technologies are effectively free today, except for the influences of other ancient forces such as natural resources and friction. Cost gravity has existed and will exist as long as life itself.

Superficially, technology is a human invention. Broadly, however, //all// life is information-based and therefore subject to cost gravity. Take bacteria, for example. Bacteria are highly advanced life forms that evolve rapidly to survive in almost any condition. Bacteria share their genes in the way open source programmers share their code. Antibiotic resistance is scary, not because there's one colony of resistant bacteria somewhere, rather because these genes can pass to other bacteria that need them. Bacteria have recently been found in the inhospitably frozen Antarctic. Genetic information flows through the bacterial world just like knowledge flows through the human world.

Or consider a living cell, which has more moving parts than a Boeing 777 and is smaller than a micron. Cells are self-healing, self-reproducing, and self-organizing. You might be tempted to invoke the supernatural to explain such sophistication. The real answer is that cells represent three-and-a-half billion years of cost gravity at work.

In human society, cost gravity makes expensive technologies into cheap ones. The curves are exponential: price falls to zero, power rises to infinity. Cost gravity does more than explain why so many things are more affordable than ever before; it provides a context for human history. Cost gravity takes emperors' toys and turns them into commoners' tools, and as it does this, it drives profound social, economic, and political change.

Here's how it works: A vital new technology enters society as an expensive item for the wealthy elite. The elite use it to expand their power base. However it's the middle classes who actually make the products. The technology naturally falls into their hands and they aggressively improve it. They compete for customers by making it faster, cheaper, and more reliable. The technology enters mass production and becomes available to all. The farmer and the laborer suddenly gain access to this new power. Society reshapes itself like bubbles in a lava lamp. New businesses emerge and power moves from old to new.

Inevitably, old money fights back and tries to squash the newcomers. It buys oppressive laws, builds police states, and crushes the commercial middle classes. Old money sometimes wins, though not for very long. Political systems crash and are replaced by new ones. The page turns and the story starts again.

Most histories overlook this process and focus instead on political changes and events without explaining why they happen. I argue that every great empire is born out of a monopoly on a vital new technology: bronze, iron, the horse, irrigation, roads, military organization, finance. In each instance, essential knowledge spreads until everyone has access to it. Then the empire loses its monopoly, crashes, and the cycle repeats.

It is hard to understand exponential curves. Our minds give up as we approach the infinite. The curve tends to look either totally flat or like a straight cliff. We can look at history and collapse it into: "clean water and roads let the Romans build their empire" or "my portable phone has more computing power than the whole of NASA in 1962." When I tell you that in 60 years, the average person on the planet will have and use more computing power than the entire Internet today, does that concept fit into your world view?

One reason the phenomenon is hard to grasp is that there is not one single technology to consider, rather, millions. The key ones are those that solve critical problems yet remain too expensive for common use, such as solar power, genetic engineering, advanced medicine, privacy, high-bandwidth communications, higher education, political organization, insurance, banking, translation, and so on. It's fair to predict that all of these -- at least when the patents, which I'll talk a lot about later in this book, have expired -- are affected by cost gravity and will be one-thousandth the cost in 20 years, and one-millionth the cost in 40 years.

Once we realize that the curve has always existed and will always exist, we see that there is no coming "singularity." What does happen, predictably, is that as the cost of key technologies falls below certain thresholds, these technologies create explosive changes in society. While the curve is mostly invisible, these tipping points are not.

To take one historical example, paper existed for thousands of years, yet only in the fourteenth century did it become a mass-market product. There is a theory that the Black Death left enough cheap linen clothing lying around to spawn the mass production of paper. This is a possibility. More likely, the price of paper fell (thanks to cost gravity) below the critical level where any household could buy a printed book. At any rate, cheap paper broke the church's monopoly on information and opened the way for the Renaissance.

In the last decade, we crossed another one of those tipping points as computing -- once the key to global monopolies in finance and industry -- dropped into the range of the average household budget. Our twentieth century empires are crashing, and we're witnessing that crash and the seeds of the rebirth.

++ What Happened to Wall Street?

In 2007, it was already clear that multiple bubbles (consumer credit, the housing market, the trade in derivatives, and so on) were going to burst sooner rather than later. In 2009, banks and entire countries started to collapse. Today, we are still picking up the pieces and the bill. Most of us were -- and still are -- surprised and shocked. The common view was that banks were invulnerable. After all, they were among the wealthiest institutions on the planet. They were literally "where the money was." How can a bank's share price go down? Later, as bank after bank failed and had to be rescued by the taxpayer, the general public was shocked. The only possible cause must have been corruption and fraud.

For sure, corruption and fraud were present. As Naomi Klein lucidly explained in her 2007 book [http://www.naomiklein.org/shock-doctrine "The Shock Doctrine"], any crisis is an opportunity for the mega-bandits to move in and empty the coffers. It's certain that some groups knew that banks would collapse and bet heavily on that. The crisis was long in the making. It was fully predictable; indeed, it was inevitable.

Here's why. Let's rewind 30 years and see how the banks work. We're in 1980, and banks are the shining cornerstones of modern society. They are large, boring houses for financial machines. The banks arbitrate between those who have money and those who need it, a vital service for which people gladly pay. Critically, this service takes vast amounts of computing power. Simply adding and subtracting and multiplying and dividing all those figures takes industrial-strength brute force. Banks have huge data centers: rows of blinking mainframes and humming disk drives, all adding up to tons of heavy metal in massive air-conditioned halls.

Meanwhile -- silent and unstoppable -- the spread of knowledge drives down the cost of computers. First, smaller and cheaper minicomputers spread into departments. Then the personal computer explodes into the home, university, and business. Large firms like IBM try to keep their prices stable, meaning they give their customers more and more computing power for the same price.

The true cost of building a bank-sized data center drops by 50% every two years. The result is that older banks start to face competition from small aggressive competitors, especially as the Internet begins to make the local branches obsolete. The big banks grow by buying smaller local banks, an easy task due to the fact that they possess lots of excess capacity. Then, they cut costs by shutting branches and merge with insurance companies to expand their services.

All the while, competition is driving down profit margins. If your bank asked 5% per year for a mortgage and another bank 1,000 km away offered 4%, you would not hesitate to go with the lower rate. Similarly, if your bank offered 3% interest on savings, and a foreign competitor offered 6%, where would you put your money? For years, in Europe, you could literally earn 2-3% more on deposits than you had to pay on a mortgage. This should have been a clear sign of trouble, yet people just assumed there was some magic at play.

Fast-forward a few more years, and banks' main traditional markets are close to worthless. The European single market means they face ever more competition. They're in a trap, borrowing money from the stock markets in order to expand internationally so that they can compete. It's a one-way trip. If you don't make your quarterly profits, your stock price falls and your cost of borrowing rises. The only banks that escape are those who stick to luxury products for the richest clients and avoid the stock markets.

The large banks //must// find ways to continue to make their 6% profit annually. And higher profits come only from higher risks; there is no other route. So governments oblige by removing regulations, and banks get new high-risk space to move into. They push mortgages onto people who cannot afford them. They push credit cards so aggressively that even a dog can get one. And as they accumulate more and more risk, they hide it from view by repackaging it all into derivatives, which they sell to foreign banks. Eventually, the trade in derivatives becomes the new territory and banks turn into bookmakers, betting against themselves and taking a commission on each deal.

Meanwhile, cost gravity never stops. By 2013, the cost of running a 1980's bank had fallen by 128,000 times. If it cost $10 per month to handle one customer in 1980, by 2013 it cost just over $75 per month for 1M customers. And by 2052, it will cost only $1.00 per month to handle the banking needs of every person on Earth.

The collapse happened because those ever-riskier bets didn't pay off. It was predictable, and [http://www.eupaco.org/report:david-martin some people did predict it], yet there was a huge incentive for those involved to not think it through. You might feel as though it was criminally stupid to make those bets. Certainly, it was immoral to have the public purse pay the debt while still giving bonuses to all involved. In the end, every empire bets on borrowed time. It's always the same, whether the time scale is "next quarter" or "next century." Bank or beggar, life is always "so far, so good."

When we understand that cost gravity caused the banking crash, we can try to predict the future of banking. Banking is an essential service. However, it cannot be profitable except by rolling back time and banning cheap information technology, or by creating artificial barriers to competition.

There seem to be two plausible outcomes. One is to nationalize the large banks and turn banking and insurance into a not-for-profit service of the state. Europe seems to be going this way. As part of their rescue packages, many countries took control of failing banks like ING, BNPParibasFortis, Dexia, and ABNAmro, and cleaned out the existing management. Whistle blowers have helped the new technocrat owners launch prosecutions for manipulation of share prices and other forms of fraud. Ironically, 20 years ago and before the trend of privatization, many of these banks were publicly owned state banks.

In the US, the trend is quite different. Instead of intervening in the running of the banks, the US government intervened in the markets. They helped the largest banks like JPMorgan Chase & Co. buy up their competitors at fire sale prices, keep their existing management with no investigations or prosecutions, and gain monopoly control over the market to extract profits as before. The US approach seems similar to how mobile phone operators have an effective cartel, with government support, to extort profits from phone and Internet users.

++ The Digital Revolution

When I started studying at the University of York, Computer Science wasn't yet a proper subject; it was an abstract (and mostly tedious) offshoot of mathematics. It was another 10 years before I got my first modem and connected to the embryonic Internet of email, news groups, and bulletin boards of the early 1990's.

We are close to [https://www.google.com/search?q=how+many+phones+in+the+world full planetary connectivity] by at least mobile phone, and increasingly via smartphones that provide Internet access. Getting on line -- even if "only" via a shared mobile phone -- is the surest way to escape poverty, just as moving to a city was previously the best way to escape poverty since the nineteenth century.

Powered by steam and coal, the Industrial Revolution of the late eighteenth and early nineteenth century brought people into new cities where they redefined social, economic, and political reality. The new social concentrations of nineteenth century industrial cities allowed an entrepreneurial middle class to emerge, and quite rapidly their economic power turned into political power. In 1848, a political revolution occurred across Europe, leading to the establishment of parliamentary democracy in many countries.

The Digital Revolution is having the same effect: people congregate into new communities and entrepreneurs build new economies around those communities, which form a new economic class. When their economic power exceeds that of their old "legacy" competitors, and as the fights break out, they begin to seek political representation and power. Economic change leads to social change and then political change: all of it driven by cost gravity.

Technological revolutions express themselves as class struggles. The upper class is the "old money": those who were rich and powerful under the old system. The middle class is the "new money": those who have adapted to exploit new opportunities by breaking and redefining convention, and who are growing richer. The lower classes, unable to make the leap into the new social models, are excluded from the new prosperity. The true lower classes of the Industrial Revolution were not the factory workers. They were those in rural areas who were unable to migrate and take part in the new city life.

Old money fights back, using whatever weapons are available. Occasionally, they use guns and bayonets. More typically, old money restricts economic freedom and throttles the life out of the new middle classes by using trade laws, repressive taxes, and subsidies -- whatever it takes to slow or stop their growing economic power. Few people realize the role technology is playing in an ongoing revolution until it's too late to stop it. The emperor's old toy doesn't look disruptive until it's in the hands of millions. Then come the laws banning, controlling, and restricting it. Horses only for the nobles. Books only for the priests. As we'll see, these attempts to control and restrict the technology of the Digital Revolution are central to our story.

In 1815, as the Industrial Revolution peaked, British landowners (the old money) enacted the Corn Laws to block the transfer of power to the new middle classes by taxing industrialization. The historian [https://en.wikipedia.org/wiki/Corn_Laws#cite_note-2 David Cody writes], "After a lengthy campaign, opponents of the law finally got their way in 1846 -- a significant triumph which was indicative of the new political power of the English middle class." By 1850, the Industrial Revolution was over and across Europe, power shifted away from landowners and towards the new urban middle classes.

In the early twenty-first century, the upper classes are business and political elites who accumulated their wealth and power over the last fifty years. The middle classes are all those who "got connected," soon to be most of world's population, and the lower classes are the shrinking few who cannot yet get on line. We will, over the next decades, see similar attempts by this generation of old money to throttle the growing power of this global digital middle class.

++ The Counter-Revolution Today

What is the twenty-first century equivalent of Britain's nineteenth century Corn Laws? How is old money fighting the revolution? There are two main strategies: property laws and simple repression.

The first is based on continuously extending the legal definition of "property" so that it appropriates any and all assets built by the digital economy. Property is entirely a political construction. Imagine an economy where upstream farmers have easy access to water and dominate agriculture. Adhering to the natural laws of cost gravity, technology for irrigation and flood control falls to free, and the downstream farmers, who previously lived in a swampy delta, start to prosper. Up to then, water is not considered property. Now the upstream farmers, who control the political system, enact a law stating that the water in a river belongs to whoever lives furthest upstream. The downstream farmers must pay exorbitant taxes or go to prison.

Political systems claim to do what is best for society. That is not how things happen. Laws are written by the powerful for their own benefit first, that of others incidentally. It's up to the downstream farmers to organize, gain power, and fix the laws. Democracy does not create balance in a society; it can only express its balances or imbalances.

In the early twenty-first century, an insipid set of copyright and patent laws are lazily and cynically bundled together as "intellectual property." These laws are designed -- just like those water laws -- to tax the new "digital farmers" and slow down or stop their growing economic and political power.

The second strategy is classic good-cop/bad-cop repression. On the one hand, we have the bread of cheap goods and the circus of "reality TV." On the other, we have the bloody hand of the wars on drugs, terrorism, piracy, indecency, and privacy. Our cities are blanketed with spy cameras, our networks monitored, and our police forces casually militarized. We label undesirables as dangerously anti-social: "drug criminal," "terrorist," "hacker," "pirate." Then we lock them up, torture them, use them as slave labor, and/or execute them. Those who raise a hand in defense of the undesirables or leak information about the state's excesses are tarred with the same brush.

Society is measured by how it treats those outside the mainstream. In 2011 in Norway, a man who killed 77 people for political reasons was labeled "insane" and treated as mentally ill. In other countries, he would have been labeled as a "terrorist" and tortured for years. Abuse of children is a terrible thing. Branding teenagers who send nude pictures of themselves as sex offenders, with life-long consequences, does not protect anyone. We are often so afraid of losing our bread and circuses and so quick to fear and hate others that we're ready to give up our neighbors without a struggle. We often clap as authorities drag away the wretched lawbreakers.

And the labeling continues: "extremist," "communist," "liberal," "union organizer," "intellectual," "atheist" -- and the midnight knock on the door is for our parents, brothers, children, ourselves.

Torturers and brutes know no limits except those we place on them. That is, we cannot as society //expect// authority to behave itself and then act surprised when it does not. The secret services will spy on us illegally. The police will detain and abuse vulnerable individuals illegally. This is how authority behaves when it is free of oversight. So in the long term, a peaceful society has to learn to regulate its police forces and spies, keep them in line, and moderate their behavior by force.

++ Creating the Future

Conflict defines us. It destroys us, or makes us stronger. It's out of conflict that new political structures emerge, for politics is essentially about organizing disparate groups and factions to win power through some kind of conflict, and then keeping these groups in balance to prevent further conflict. The new political structures of the twenty-first century will be unlike any we've ever seen before. Today, we have the seeds, and already they are international, anonymous, decentralized, self-organizing, fast, and accurate.

When we say that the Internet "removes borders," this will one day literally be true. Two generations from now, the political structure of nation-states will be as quaint as medieval city-states, shires, and dukedoms. Just as with the Corn Laws in nineteenth-century Britain, the injustices of the counter-revolution are driving a generation to political activism. Perhaps the first and most significant digital activist was Richard Stallman, who in 1989 nailed the GNU General Public License (GPL) to the church door. I'll come back to Stallman's story in [#going-digital]. Today, activists across the world are occupying the squares and streets of our cities, demanding an end to crony politics.

I started to decrypt and document the dynamics of the digital revolution and counter-revolution in 1999, and then in 2005 took over as president of the [http://www.ffii.org Foundation for a Free Information Infrastructure] (FFII), a European activist network that fought software patents. We built websites and campaigns, organized conferences, and wrote laws. They called us "anti-business" so we wore suits and brought countless small business owners to speak. We tried to convince emerging Internet giants to support us.

We were five years too early. At the time, Google had a single solitary patent lawyer and could not take the patent problem seriously and help us. While we defeated a huge army of lobbyists in the European Parliament in 2005, it was a temporary success. Every committed FFII activist burned out and had to go back to a "normal" life.

The FFII is more or less shuttered now. It spawned successors like [http://www.april.org April] and imitators like [http://endsoftpatents.org End Software Patents]. Younger minds, unhampered by twentieth century conventions of style and reputation, continue to deconstruct the concept of "organization." They are creating new activist communities capable of challenging entire governments. From FFII to Anonymous, they are the Anti-Corn-Law League of the digital revolution.

The scene is vast and global. While in the nineteenth century, political change could be triggered by a single event in a single city, today's political structures reach into every pocket in the world. There is no dividing line between the battles over the occupation of Tahrir Square in Cairo and the endless patent lawsuits fought in the Court of Appeals of the Federal Circuit in Texas. "The odds are on the cheaper man," [http://en.wikisource.org/wiki/Arithmetic_on_the_Frontier said Rudyard Kipling]. Cost gravity can't be stopped, except by burning the libraries and murdering every person with an education, and even that only pauses things for a generation. It has been tried in Soviet Russia, Uganda, Cambodia, Rwanda, and North Korea.

As the official site of the UK Parliament notes about the Anti-Corn-Law League in the late-1800's: "//Growing pressure for reform of parliament in the eighteenth and nineteenth centuries led to a series of Reform Acts which extended the electoral franchise to most men (over 21) in 1867//." The repeal of the Corn Laws was just one part of a wholesale transfer of power from the old to the new. The same will happen in the post-industrial world.