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Laissez-faire Internetism (first appeared in InfoWorld)

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Bob Metcalfe has been predicting the imminent collapse of the Internet in these pages. Since your employer looks to you for technical expertise and advice, and since Dr. Metcalfe is a Recognized Industry Pundit (RIP), you’re probably worried about having recommended building that big Web site.
I’ve decided to offer a different perspective on the problem so you can trot out a second RIP to counter the effects of the first. (Also, if Dr. Metcalfe and I quibble in print you get to gripe about the incestuous nature of the press in Ed Foster’s gripe line, post items in our Forums on InfoWorld Electric (www.infoworld.com) and otherwise feed the liberal media conspiracy.)

Anyhow …the Internet scares people. Commonly described as an anarchic agglomeration of unplanned interconnections, it makes no sense to those who believe central planning is the key to quality.

Many of those same people, Dr. Metcalfe included, also say they believe in the power of laissez-faire capitalist economics. In other words, they believe in the power of Adam Smith’s “invisible hand” that uses market forces to regulate the interplay of independent agents.

From the perspective of general systems theory, this is nothing more than the use of negative feedback loops to create stable systems. (If you’re not familiar with the concept, it just means that inputs listen to outputs, adjusting themselves when the output drifts off course.)

Laissez-faire capitalism says shortages lead to higher prices which reduce demand, eliminating the shortage. Higher prices motivate an increase in production capacity, increasing supply which then reduces price, increasing demand. The result: A self-regulating system with no need for external controls.

Why does Dr. Metcalfe, who believes in this kind of self-regulation for the economy, not believe it will work for the Internet? After all, money comes in along with increased demand. Increased demand leads to supply shortages (poor response time). These shortages certainly can result in higher prices. They also can result in more companies getting into the business, and in existing Internet providers increasing the bandwidth they make available. It’s a pretty basic example of the very same kind of self-regulated economic system most cherished by the all-government-regulation-is-bad crowd.

This doesn’t mean the Internet won’t catastrophically fail this year. Laissez-faire capitalism breaks down in several different circumstances. Here are two:

Any time individuals or organizations compete for a common resource, market forces just plain don’t work.

This is called “First pigs to the trough.” It’s also known as the tragedy of the commons. In merry olde Englande, farmers grazed their cattle on public grazing land – the commons. After awhile, some farmers figured out the more cattle they grazed on public land the more they profited. When all farmers figured it out the cattle overgrazed the commons, ruining it.

Market forces don’t regulate use of a commons – market forces ruin it, leading to the need for external regulation by, for example, the government. Regulation isn’t always a bad thing, despite current political cant.

Another, very interesting way negative feedback loops (including pure free-enterprise economics) lead to unstable results comes from feedback delays. Bring up your spreadsheet and model the “logistic” equation (a very simple negative feedback system): v(t+1)=kv(t)*(1-v(t)). Plot it for a hundred values or so, starting with k=1.1 and v=.01. You’ll see a smooth s-shaped curve.

Change k. Between 2 and 3.5 the curve oscillates. From 3.5 to just over 4 it becomes chaotic, jumping around randomly. Somewhere between 4.01 and 4.001 it crashes to extinction. The lesson: Once feedback isn’t immediate, the value of a constant changes not just the scale of a system but its very nature. The results are unpredictable.

(You’ll find other fascinating tidbits like this in the excellent book, A Mathematician Reads the Newspaper by John Allen Paulos.)

So Dr. Metcalfe may be right – the Internet could turn out to be an unstable, chaotic system.

But I doubt it. I have more faith in free enterprise than that.

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