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Cyberspace and the American Dream: A Magna Carta f

This statement represents the cumulative wisdom and innovation of many dozens of
people.  It is based primarily on the thoughts of four “co-authors”: Ms.  Esther
Dyson; Mr. George Gilder; Dr. George Keyworth; and Dr. Alvin Toffler.  This
release 1.2 has the final “imprimatur” of no one.  In the spirit of the age: It
is copyrighted solely for the purpose of preventing someone else from doing so.
If you have it, you can use it any way you want.  However, major passages are
from works copyrighted individually by the authors, used here by permission;
these will be duly acknowledged in release 2.0.  It is a living document.
Release 2.0 will be released in October 1994. We hope you’ll use it is to tell
us how to make it better.  Do so by:

(The Progress & Freedom Foundation is a not-for-profit research and educational
organization dedicated to creating a positive vision of the future founded in
the historic principles of the American idea.)

Preamble

The central event of the 20th century is the overthrow of matter. In technology,
economics, and the politics of nations, wealth — in the form of physical
resources — has been losing value and significance. The powers of mind are
everywhere ascendant over the brute force of things.

In a First Wave economy, land and farm labor are the main “factors of
production.” In a Second Wave economy, the land remains valuable while the
“labor” becomes massified around machines and larger industries. In a Third Wave
economy, the central resource — a single word broadly encompassing data,
information, images, symbols, culture, ideology, and values — is actionable
knowledge.

The industrial age is not fully over. In fact, classic Second Wave sectors (oil,
steel, auto-production) have learned how to benefit from Third Wave
technological breakthroughs — just as the First Wave’s agricultural
productivity benefited exponentially from the Second Wave’s farm-mechanization.

But the Third Wave, and the Knowledge Age it has opened, will not deliver on its
potential unless it adds social and political dominance to its accelerating
technological and economic strength. This means repealing Second Wave laws and
retiring Second Wave attitudes. It also gives to leaders of the advanced
democracies a special responsibility — to facilitate, hasten, and explain the
transition.

As humankind explores this new “electronic frontier” of knowledge, it must
confront again the most profound questions of how to organize itself for the
common good. The meaning of freedom, structures of self-government, definition
of property, nature of competition, conditions for cooperation, sense of
community and nature of progress will each be redefined for the Knowledge Age —
just as they were redefined for a new age of industry some 250 years ago.

What our 20th-century countrymen came to think of as the “American dream,” and
what resonant thinkers referred to as “the promise of American life” or “the
American Idea,” emerged from the turmoil of 19th-century industrialization.  Now
it’s our turn: The knowledge revolution, and the Third Wave of historical change
it powers, summon us to renew the dream and enhance the promise.

The Nature of Cyberspace

The Internet — the huge (2.2 million computers), global (135 countries),
rapidly growing (10-15% a month) network that has captured the American
imagination — is only a tiny part of cyberspace. So just what is cyberspace?

More ecosystem than machine, cyberspace is a bioelectronic environment that is
literally universal: It exists everywhere there are telephone wires, coaxial
cables, fiber-optic lines or electromagnetic waves.

This environment is “inhabited” by knowledge, including incorrect ideas,
existing in electronic form. It is connected to the physical environment by
portals which allow people to see what’s inside, to put knowledge in, to alter
it, and to take knowledge out. Some of these portals are one-way (e.g.
television receivers and television transmitters); others are two-way (e.g.
telephones, computer modems).

Most of the knowledge in cyberspace lives the most temporary (or so we think)
existence: Your voice, on a telephone wire or microwave, travels through space
at the speed of light, reaches the ear of your listener, and is gone forever.

But people are increasingly building cyberspatial “warehouses” of data,
knowledge, information and misinformation in digital form, the ones and zeros of
binary computer code. The storehouses themselves display a physical form (discs,
tapes, CD-ROMs) — but what they contain is accessible only to those with the
right kind of portal and the right kind of key.

The key is software, a special form of electronic knowledge that allows people
to navigate through the cyberspace environment and make its contents
understandable to the human senses in the form of written language, pictures and
sound.

People are adding to cyberspace — creating it, defining it, expanding it — at
a rate that is already explosive and getting faster. Faster computers, cheaper
means of electronic storage, improved software and more capable communications
channels (satellites, fiber-optic lines) — each of these factors independently
add to cyberspace. But the real explosion comes from the combination of all of
them, working together in ways we still do not understand.

The bioelectronic frontier is an appropriate metaphor for what is happening in
cyberspace, calling to mind as it does the spirit of invention and discovery
that led ancient mariners to explore the world, generations of pioneers to tame
the American continent and, more recently, to man’s first exploration of outer
space.

But the exploration of cyberspace brings both greater opportunity, and in some
ways more difficult challenges, than any previous human adventure.

Cyberspace is the land of knowledge, and the exploration of that land can be a
civilization’s truest, highest calling. The opportunity is now before us to
empower every person to pursue that calling in his or her own way.

The challenge is as daunting as the opportunity is great. The Third Wave has
profound implications for the nature and meaning of property, of the marketplace,
of community and of individual freedom. As it emerges, it shapes new codes of
behavior that move each organism and institution — family, neighborhood, church
group, company, government, nation — inexorably beyond standardization and
centralization, as well as beyond the materialist’s obsession with energy, money
and control.

Turning the economics of mass-production inside out, new information
technologies are driving the financial costs of diversity — both product and
personal — down toward zero, “demassifying” our institutions and our culture.
Accelerating demassification creates the potential for vastly increased human
freedom.

It also spells the death of the central institutional paradigm of modern life,
the bureaucratic organization. (Governments, including the American government,
are the last great redoubt of bureaucratic power on the face of the planet, and
for them the coming change will be profound and probably traumatic.)

In this context, the one metaphor that is perhaps least helpful in thinking
about cyberspace is — unhappily — the one that has gained the most currency:
The Information Superhighway. Can you imagine a phrase less descriptive of the
nature of cyberspace, or more misleading in thinking about its implications?
Consider the following set of polarities:

information Superhighway     /     Cyberspace

Limited Matter               /     Unlimited Knowledge Centralized
/     Decentralized Moving on a grid             /     Moving in space
Government ownership         /     A vast array of ownerships Bureaucracy
/     Empowerment Efficient but not hospitable /     Hospitable if you
customize it Withstand the elements       /     Flow, float and fine-tune Unions
and contractors       /     Associations and volunteers Liberation from First
Wave   /     Liberation from Second Wave Culmination of Second Wave   /
Riding the Third Wave

The highway analogy is all wrong,” explained Peter Huber in Forbes this spring,
“for reasons rooted in basic economics. Solid things obey immutable laws of
conservation — what goes south on the highway must go back north, or you end up
with a mountain of cars in Miami. By the same token, production and consumption
must balance. The average Joe can consume only as much wheat as the average Jane
can grow. Information is completely different. It can be replicated at almost no
cost — so every individual can (in theory) consume society’s entire output.
Rich and poor alike, we all run information deficits.  We all take in more than
we put out.”

The Nature and Ownership of Property

Clear and enforceable property rights are essential for markets to work.
Defining them is a central function of government. Most of us have “known” that
for a long time. But to create the new cyberspace environment is to create new
property — that is, new means of creating goods (including ideas) that serve
people.

The property that makes up cyberspace comes in several forms: Wires, coaxial
cable, computers and other “hardware”; the electromagnetic spectrum; and
“intellectual property” — the knowledge that dwells in and defines cyberspace.

In each of these areas, two questions that must be answered. First, what does
“ownership” mean? What is the nature of the property itself, and what does it
mean to own it? Second, once we understand what ownership means, who is the
owner? At the level of first principles, should ownership be public (i.e.
government) or private (i.e. individuals)?

The answers to these two questions will set the basic terms upon which America
and the world will enter the Third Wave. For the most part, however, these
questions are not yet even being asked. Instead, at least in America,
governments are attempting to take Second Wave concepts of property and
ownership and apply them to the Third Wave. Or they are ignoring the problem
altogether.

For example, a great deal of attention has been focused recently on the nature
of “intellectual property” — i.e. the fact that knowledge is what economists
call a “public good,” and thus requires special treatment in the form of
copyright and patent protection.

Major changes in U.S. copyright and patent law during the past two decades have
broadened these protections to incorporate “electronic property.” In essence,
these reforms have attempted to take a body of law that originated in the 15th
century, with Gutenberg’s invention of the printing press, and apply it to the
electronically stored and transmitted knowledge of the Third Wave.

A more sophisticated approach starts with recognizing how the Third Wave has
fundamentally altered the nature of knowledge as a “good,” and that the
operative effect is not technology per se (the shift from printed books to
electronic storage and retrieval systems), but rather the shift from a mass-
production, mass-media, mass-culture civilization to a demassified civilization.

The big change, in other words, is the demassification of actionable knowledge.

The dominant form of new knowledge in the Third Wave is perishable, transient,
customized knowledge: The right information, combined with the right software
and presentation, at precisely the right time. Unlike the mass knowledge of the
Second Wave — “public good” knowledge that was useful to everyone because most
people’s information needs were standardized — Third Wave customized knowledge
is by nature a private good.

If this analysis is correct, copyright and patent protection of knowledge (or at
least many forms of it) may no longer be unnecessary. In fact, the marketplace
may already be creating vehicles to compensate creators of customized knowledge
outside the cumbersome copyright/patent process, as suggested last year by John
Perry Barlow:

“One existing model for the future conveyance of intellectual property is real-
time performance, a medium currently used only in theater, music, lectures,
stand-up comedy and pedagogy. I believe the concept of performance will expand
to include most of the information economy, from multi-casted soap operas to
stock analysis. In these instances, commercial exchange will be more like ticket
sales to a continuous show than the purchase of discrete bundles of that which
is being shown. The other model, of course, is service.  The entire professional
class — doctors, lawyers, consultants, architects, etc. — are already being
paid directly for their intellectual property. Who needs copyright when you’re
on a retainer?”

Copyright, patent and intellectual property represent only a few of the “rights”
issues now at hand. Here are some of the others:

Ownership of the electromagnetic spectrum, traditionally considered to be
“public property,” is now being “auctioned” by the Federal Communications
Commission to private companies. Or is it? Is the very limited “bundle of
rights” sold in those auctions really property, or more in the nature of a use
permit — the right to use a part of the spectrum for a limited time, for
limited purposes? In either case, are the rights being auctioned defined in a
way that makes technological sense?

Ownership over the infrastructure of wires, coaxial cable and fiber-optic lines
that are such prominent features in the geography of cyberspace is today much
less clear than might be imagined. Regulation, especially price regulation, of
this property can be tantamount to confiscation, as America’s cable operators
recently learned when the Federal government imposed price limits on them and
effectively confiscated an estimated $___ billion of their net worth. (Whatever
one’s stance on the FCC’s decision and the law behind it, there is no
disagreeing with the proposition that one’s ownership of a good is less
meaningful when the government can step in, at will, and dramatically reduce its
value.)

The nature of capital in the Third Wave — tangible capital as well as
intangible — is to depreciate in real value much faster than industrial-age
capital — driven, if nothing else, by Moore’s Law, which states that the
processing power of the microchip doubles at least every 18 months. Yet
accounting and tax regulations still require property to be depreciated over
periods as long as 30 years. The result is a heavy bias in favor of “heavy
industry” and against nimble, fast-moving baby businesses.

Who will define the nature of cyberspace property rights, and how? How can we
strike a balance between interoperable open systems and protection of property?

The Nature Of The Marketplace

Inexpensive knowledge destroys economies-of-scale. Customized knowledge permits
“just in time” production for an ever rising number of goods. Technological
progress creates new means of serving old markets, turning one-time monopolies
into competitive battlegrounds.

These phenomena are altering the nature of the marketplace, not just for
information technology but for all goods and materials, shipping and services.
In cyberspace itself, market after market is being transformed by technological
progress from a “natural monopoly” to one in which competition is the rule.
Three recent examples:

The market for “mail” has been made competitive by the development of fax
machines and overnight delivery — even though the “private express statutes”
that technically grant the U.S. Postal Service a monopoly over mail delivery
remain in place.

During the past 20 years, the market for television has been transformed from
one in which there were at most a few broadcast TV stations to one in which
consumers can choose among broadcast, cable and satellite services.

The market for local telephone services, until recently a monopoly based on
twisted-pair copper cables, is rapidly being made competitive by the advent of
wireless service and the entry of cable television into voice communication. In
England, Mexico, New Zealand and a host of developing countries, government
restrictions preventing such competition have already been removed and consumers
actually have the freedom to choose.

The advent of new technology and new products creates the potential for dynamic
competition — competition between and among technologies and industries, each
seeking to find the best way of serving customers’ needs.  Dynamic competition
is different from static competition, in which many providers compete to sell
essentially similar products at the lowest price.

Static competition is good, because it forces costs and prices to the lowest
levels possible for a given product. Dynamic competition is better, because it
allows competing technologies and new products to challenge the old ones and, if
they really are better, to replace them. Static competition might lead to faster
and stronger horses. Dynamic competition gives us the automobile.

Such dynamic competition — the essence of what Austrian economist Joseph
Schumpeter called “creative destruction” — creates winners and losers on a
massive scale.  New technologies can render instantly obsolete billions of
dollars of embedded infrastructure, accumulated over decades. The transformation
of the U.S. computer industry since 1980 is a case in point.

In 1980, everyone knew who led in computer technology. Apart from the
minicomputer boom, mainframe computers were the market, and America’s dominance
was largely based upon the position of a dominant vendor — IBM, with over 50%
world market-share.

Then the personal-computing industry exploded, leaving older-style big-business-
focused computing with a stagnant, piece of a burgeoning total market. As IBM
lost market-share, many people became convinced that America had lost the
ability to compete. By the mid-1980s, such alarmism had reached from Washington
all the way into the heart of Silicon Valley.

But the real story was the renaissance of American business and technological
leadership. In the transition from mainframes to PCs, a vast new market was
created. This market was characterized by dynamic competition consisting of easy
access and low barriers to entry. Start-ups by the dozens took on the larger
established companies — and won.

After a decade of angst, the surprising outcome is that America is not only
competitive internationally, but, by any measurable standard, America dominates
the growth sectors in world economics — telecommunications, microelectronics,
computer networking (or “connected computing”) and software systems and
applications.

The reason for America’s victory in the computer wars of the 1980s is that
dynamic competition was allowed to occur, in an area so breakneck and pell-mell
that government would’ve had a hard time controlling it _even had it been paying
attention_. The challenge for policy in the 1990s is to permit, even encourage,
dynamic competition in every aspect of the cyberspace marketplace.

The Nature of Freedom

Overseas friends of America sometimes point out that the U.S. Constitution is
unique — because it states explicitly that power resides with the people, who
delegate it to the government, rather than the other way around.

This idea — central to our free society — was the result of more than 150
years of intellectual and political ferment, from the Mayflower Compact to the
U.S. Constitution, as explorers struggled to establish the terms under which
they would tame a new frontier.

And as America continued to explore new frontiers — from the Northwest
Territory to the Oklahoma land-rush — it consistently returned to this
fundamental principle of rights, reaffirming, time after time, that power
resides with the people.

Cyberspace is the latest American frontier. As this and other societies make
ever deeper forays into it, the proposition that ownership of this frontier
resides first with the people is central to achieving its true potential.

To some people, that statement will seem melodramatic.  America, after all,
remains a land of individual freedom, and this freedom clearly extends to
cyberspace. How else to explain the uniquely American phenomenon of the hacker,
who ignored every social pressure and violated every rule to develop a set of
skills through an early and intense exposure to low-cost, ubiquitous computing.

Those skills eventually made him or her highly marketable, whether in developing
applications-software or implementing networks. The hacker became a technician,
an inventor and, in case after case, a creator of new wealth in the form of the
baby businesses that have given America the lead in cyberspatial exploration and
settlement.

It is hard to imagine hackers surviving, let alone thriving, in the more
formalized and regulated democracies of Europe and Japan. In America, they’ve
become vital for economic growth and trade leadership. Why? Because Americans
still celebrate individuality over conformity, reward achievement over consensus
and militantly protect the right to be different.

But the need to affirm the basic principles of freedom is real. Such an
affirmation is needed in part because we are entering new territory, where there
are as yet no rules — just as there were no rules on the American continent in
1620, or in the Northwest Territory in 1787.

Centuries later, an affirmation of freedom — by this document and similar
efforts — is needed for a second reason: We are at the end of a century
dominated by the mass institutions of the industrial age. The industrial age
encouraged conformity and relied on standardization. And the institutions of the
day — corporate and government bureaucracies, huge civilian and military
administrations, schools of all types — reflected these priorities.  Individual
liberty suffered — sometimes only a little, sometimes a lot:

In a Second Wave world, it might make sense for government to insist in the
right to peer into every computer by requiring that each contain a special
“clipper chip.”

In a Second Wave world, it might make sense for government to assume ownership
over the broadcast spectrum and demand massive payments from citizens for the
right to use it.

In a Second Wave world, it might make sense for government to prohibit
entrepreneurs from entering new markets and providing new services.

And, in a Second Wave world, dominated by a few old-fashioned, one-way media
“networks,” it might even make sense for government to influence which political
viewpoints would be carried over the airwaves.

All of these interventions might have made sense in a Second Wave world, where
standardization dominated and where it was assumed that the scarcity of
knowledge (plus a scarcity of telecommunications capacity) made bureaucracies
and other elites better able to make decisions than the average person.

But, whether they made sense before or not, these and literally thousands of
other infringements on individual rights now taken for granted make no sense at
all in the Third Wave.

For a century, those who lean ideologically in favor of freedom have found
themselves at war not only with their ideological opponents, but with a time in
history when the value of conformity was at its peak. However desirable as an
ideal, individual freedom often seemed impractical. The mass institutions of the
Second Wave required us to give up freedom in order for the system to “work.”

The coming of the Third Wave turns that equation inside-out. The complexity of
Third Wave society is too great for any centrally planned bureaucracy to manage.
Demassification, customization, individuality, freedom — these are the keys to
success for Third Wave civilization.

The Essence of Community

If the transition to the Third Wave is so positive, why are we experiencing so
much anxiety? Why are the statistics of social decay at or near all-time highs?
Why does cyberspatial “rapture” strike millions of prosperous Westerners as
lifestyle rupture? Why do the principles that have held us together as a nation
seem no longer sufficient — or even wrong?

The incoherence of political life is mirrored in disintegrating personalities.
Whether 100% covered by health plans or not, psychotherapists and gurus do a
land-office business, as people wander aimlessly amid competing therapies.
People slip into cults and covens or, alternatively, into a pathological
privatism, convinced that reality is absurd, insane or meaningless. “If things
are so good,” Forbes magazine asked recently, “why do we feel so bad?”

In part, this is why: Because we constitute the final generation of an old
civilization and, at the very same time, the first generation of a new one.
Much of our personal confusion and social disorientation is traceable to
conflict within us and within our political institutions — between the dying
Second Wave civilization and the emergent Third Wave civilization thundering in
to take its place.

Second Wave ideologues routinely lament the breakup of mass society. Rather than
seeing this enriched diversity as an opportunity for human development, they
attach it as “fragmentation” and “balkanization.” But to reconstitute democracy
in Third Wave terms, we need to jettison the frightening but false assumption
that more diversity automatically brings more tension and conflict in society.

Indeed, the exact reverse can be true: If 100 people all desperately want the
same brass ring, they may be forced to fight for it. On the other hand, if each
of the 100 has a different objective, it is far more rewarding for them to trade,
cooperate, and form symbiotic relationships. Given appropriate social
arrangements, diversity can make for a secure and stable civilization.

No one knows what the Third Wave communities of the future will look like, or
where “demassification” will ultimately lead.  It is clear, however, that
cyberspace will play an important role knitting together in the diverse
communities of tomorrow, facilitating the creation of “electronic neighborhoods”
bound together not by geography but by shared interests.

Socially, putting advanced computing power in the hands of entire populations
will alleviate pressure on highways, reduce air pollution, allow people to live
further away from crowded or dangerous urban areas, and expand family time.

The late Phil Salin (in Release 1.0 11/25/91) offered this perspective: “[B]y
2000, multiple cyberspaces will have emerged, diverse and increasingly rich.
Contrary to naive views, these cyberspaces will not all be the same, and they
will not all be open to the general public. The global network is a connected
‘platform’ for a collection of diverse communities, but only a loose,
heterogeneous community itself. Just as access to homes, offices, churches and
department stores is controlled by their owners or managers, most virtual
locations will exist as distinct places of private property.”

“But unlike the private property of today,” Salin continued, “the potential
variations on design and prevailing customs will explode, because many
variations can be implemented cheaply in software. And the ‘externalities’
associated with variations can drop; what happens in one cyberspace can be kept
from affecting other cyberspaces.”

“Cyberspaces” is a wonderful pluralistic word to open more minds to the Third
Wave’s civilizing potential. Rather than being a centrifugal force helping to
tear society apart, cyberspace can be one of the main forms of glue holding
together an increasingly free and diverse society.

The Role of Government

The current Administration has identified the right goal: Reinventing government
for the 21st Century.  To accomplish that goal is another matter, and for
reasons explained in the next and final section, it is not likely to be fully
accomplished in the immediate future.  This said, it is essential that we
understand what it really means to create a Third Wave government and begin the
process of transformation.

Eventually, the Third Wave will affect virtually everything government does.
The most pressing need, however, is to revamp the policies and programs that are
slowing the creation of cyberspace.  Second Wave programs for Second Wave
industries — the status quo for the status quo — will do little

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