A Magna Carta for the knowledge age.

by:  Dyson, Esther;  Gilder, George;  Keyworth, Jay;  Toffler,
             Alvin
New Perspectives Quarterly, Fall 1994 v11 n4 p26(12)

COPYRIGHT Center for the Study of Democratic Institutions 1994

While the global outerclass might be struggling to find food in the
coming decades, the advanced societies are already beginning to set the
rules for the post-scarcity information civilization.

In this section, four of the most farsighted thinkers of the Third Wave
outline the new horizons of rights and freedoms for the knowledge age.

THIS STATEMENT REPRESENTS THE CUMULATIVE WISDOM AND INNOVATION OF MANY
DOZENS OF PEOPLE. IT IS BASED PRIMARILY ON THE THOUGHTS OF FOUR
CO-AUTHORS: ESTHER DYSON, GEORGE GILDER, GEORGE KEYWORTH AND ALVIN
TOFFLER. IN THE SPIRIT OF THE AGE:

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I.

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 phrase 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
agricultural productivity benefited exponentially from the Second Wave
farm-mechanization.

But the Third Wave, and the Knowledge Age it has opened, will not
realize 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
demands of 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 is our turn: The knowledge revolution and the
Third Wave of historical change 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 percent 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: k 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 is 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 outerspace.

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 civilizations 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 vs. Cyberspace

Limited Matter vs. Unlimited Knowledge

Centralized vs. Decentralized

Moving on a grid vs. Moving in space

Government ownership vs. A vast array of ownerships

Bureaucracy vs. Empowerment

Efficient but not hospitable vs. Hospitable if you customize it

Withstand the elements vs. Flow, float and fine-tune

Unions and contractors vs. Associations and volunteers

Liberation from First Wave vs. Liberation from Second Wave

Culmination of Second Wave vs. Riding the Third Wave

"The highway analog 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. 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 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 US 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 and customized: 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 necessary. In
fact, the marketplace may already be creating vehicles to compensate
creators of customized knowledge outside the cumbersome copyright/patent
process, as suggested 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 a 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. But is it public property? 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, co-axial 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 Americas cable operators recently learned when the
Federal government imposed price limits on them and effectively
confiscated billions 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 its depreciation 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 US 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 US 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 Americas
dominance was largely based upon the position of a dominant vendor --
IBM, with over 50 percent of 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 Americas 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.

II.

THE NATURE OF FREEDOM

Overseas friends of America sometimes point out that the US 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 US 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 dearly
extends to cyberspace. How rise 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 on
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. 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,
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 the 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 attack 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
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 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."

Cyberspace 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

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 damage in the short run. It is efforts of governments
to apply Second Wave modus operandi to the fast-moving, decentralized
creatures of the Third Wave that is the real threat to progress. Indeed,
if there is to be an industrial policy for the knowledge age it should
focus on removing barriers to competition and massively deregulating the
fast-growing telecommunications and computing industries.

One further point should be made at the outset: Government should be as
strong and as big as it needs to be to accomplish its central functions
effectively and efficiently. The reality is that a Third Wave government
will be vastly smaller (perhaps by 50 percent or more) than the current
one -- this is an inevitable implication of the transition from the
centralized power structures of the industrial age to the dispersed,
decentralized institutions of the Third. But smaller government does not
imply weak government; nor does arguing for smaller government require
being against government for narrowly ideological reasons.

Indeed, the transition from the Second Wave to the Third Wave will
require a level of government activity not seen since the New Deal. Here
are five proposals to back up the point.

I. The Path to Interactive Multimedia Access.

The Jeffersonian Vision offered by Mitch Kapor and Jerry Berman has
propelled the Electronic Frontier Foundations (EFF) campaign for an open
platform telecom architecture:

"The amount of electronic material the superhighway can carry is
dizzying, compared to the relatively narrow range of broadcast TV and
the limited number of cable channels. Properly constructed and
regulated, it could be open to all who wish to speak, publish and
communicate. None of the interactive services will be possible, however,
if we have an eight-lane data superhighway rushing into every home and
only a narrow footpath coming back out. Instead of settling for a
multimedia version of the same entertainment that is increasingly
dissatisfying on today's TV, we need a superhighway that encourages the
production and distribution of a broader, more diverse range of
programming."

The question is: What role should government play in bringing this
vision to reality? But also: Will incentives for the openly-accessible
national multimedia network envisioned by EFF harm the rights of those
now constructing thousands of non-open local area networks?

These days, interactive multimedia is the daily servant only of
avant-garde firms and other elites. But the same thing could have been
said about word-processors 12 years ago, or phone-line networks six
years ago. Today we have, in effect, universal access to personal
computing -- which no political coalition ever subsidized or "planned."
And Americas networking menu is in a hyper-growth phase. Whereas the
accessing software cost $50 two years ago, today the same companies hand
it out free -- to get more people on-line.

This egalitarian explosion has occurred in large measure became
government has stayed out of these markets, letting personal computing
take over while mainframes rot (almost literally) in warehouses, and
allowing (no doubt more by omission than commission) computer networks
to grow, free of the kinds of regulatory restraints that affect phones,
broadcast and cable.

All of which leaves reducing barriers to entry and innovation as the
only effective near-term path to universal access. In fact, it can be
argued that a near-term national interactive multimedia network is
impossible unless regulators permit much greater collaboration between
the cable industry and phone companies. The latter's huge fiber
resources (nine times as extensive as industry fiber and rising rapidly)
could be joined with the huge asset of 57 million broadband links (i.e.
into homes now receiving cable-TV service) to produce a new kind of
national network -- multimedia, interactive and (as costs fall)
increasingly accessible to Americans of modest means.

That is why obstructing such collaboration -- in the cause of forcing a
competition between the cable and phone industries -- is socially
elitist. To the extent it prevents collaboration between the cable
industry and the phone companies, present federal policy actually
thwarts the administration's own goals of access and empowerment.

The other major effect of prohibiting the manifest destiny of cable
preserves the broadcast (or narrowband) television model. In fact,
stopping an interactive multimedia network perpetuates control by system
owners and operators.

When the federal government prohibits the interconnection of conduits,
it creates a world of bandwidth scarcity, where the owner of the conduit
not only can but must control access to it. Thus the owner of the
conduit also shapes the content. It really doesn't matter who the owner
is. Bandwidth scarcity will require the managers of the network to
determine the video programming on it. The answer is true bandwith
abundance.

Since cable is everywhere, particularly within cities, that would allow
a closing of the gap between the knowledge rich and knowledge poor.
Cable's broadband "pipes" already touch almost two-thirds of American
households (and are easily accessible to another one-fourth).The phone
companies have broadband fiber. A hybrid network -- coax plus fiber --
is the best means to the next generation of cyberspace expansion. What
if this choice is blocked?

In that case, what might be called cyberspace democracy will be confined
to the computer industry, where it will arise from the Internet over the
years, led by corporate and suburban/exurban interests. While not a
technological calamity, this might be a social perversion equivalent to
what Japan Inc. did to its middle and lower classes for decades: Make
them pay 50 percent more for the same quality vehicles that were
gobbling up export markets.

Here's the parallel: If Washington forces the phone companies and cable
operators to develop supplementary and duplicative networks, most other
advanced industrial countries will attain cyberspace democracy -- via an
interactive multimedia open platform -- before America does, despite
this nation's technological dominance.

Not only that, but the long-time alliance of East Coast broadcasters and
Hollywood glitterati will have a new lease on life: If their one-way
video empires win new protection, millions of Americans will be deprived
of the tools to help build a new interactive multimedia culture.

A contrived competition between phone companies and cable operators will
not deliver the two-way, multimedia and more civilized telesociety Kapor
and Berman sketch. Nor is it enough to simply get the government out of
the way. Real issues of antitrust must be addressed, and no sensible
framework exists today for addressing them. Creating the conditions for
universal access to interactive multimedia will require a fundamental
rethinking of government policy.

2. Promoting Dynamic Competition.

Technological progress is turning the telecommunications marketplace
from one characterized by economies of scale and natural monopolies into
a prototypical competitive market. The challenge for government is to
encourage this shift -- to create the circumstances under which new
competitors and new technologies will challenge the natural monopolies
of the past.

Price-and-entry regulation makes sense for natural monopolies. The
tradeoff is a straightforward one: The monopolist submits to price
regulation by the state, in return for an exclusive franchise on the
market.

But what happens when it becomes economically desirable to have more
than one provider in a market? The continuation of regulation under
these circumstances stops progress in its tracks. It prevents new
entrants from introducing new technologies and new products, while
depriving the regulated monopolist of any incentive to do so on its own.

Price-and-entry regulation, in short, is the antithesis of dynamic
competition.

The alternative to regulation is antitrust. Antitrust law is designed to
prevent the acts and practices that can lead to the creation of new
monopolies, or harm consumers by forcing up prices, limiting access to
competing products or reducing service quality. Antitrust law is the
means by which America has, for over 120 years, fostered competition in
markets where many providers can and should compete.

The market for telecommunications services -- telephone, cable,
satellite, wireless -- is now such a market. The implication of this
simple fact is also simple, and price/entry regulation of
telecommunications services -- by state and local governments as well as
the Federal government -- should therefore be replaced by antitrust law
as rapidly as possible.

This transition will not be simple, and it should not be instantaneous.
If antitrust is to he seriously applied to telecommunications, some
government agencies (e.g. the Justice Department's Antitrust Division)
will need new types of expertise. And investors in regulated monopolies
should be permitted time to re-evaluate their investments given the
changing nature of the legal conditions in which these firms will
operate -- a luxury not afforded the cable industry in recent years.

This said, two additional points are important. First, delaying
implementation is different from delaying enactment. The latter should
be immediate, even if the former is not. Secondly, there should be no
half steps. Moving from a regulated environment to a competitive one is
-- to borrow a cliche -- like changing from driving on the left side of
the road to driving on the right: You cannot do it gradually.

3. Defining and Assigning Property Rights.

In 1964, libertarian icon Ayn Rand wrote:

"It is the proper task of government to protect individual rights and,
as part of it, formulate the laws by which these rights are to be
implemented and adjudicated. It is the government's responsibility to
define the application of individual rights to a given sphere of
activity -- to define (i.e. to identify), not create, invent, donate, or
expropriate. The question of defining the application of property rights
has arisen frequently, in the wake of oil rights, vertical space rights,
etc. In most cases, the American government has been guided by the
proper principle: It sought to protect all the individual rights
involved, not to abrogate them."

Defining property rights in cyberspace is perhaps the single most urgent
and important task for government information policy. Doing so will be a
complex task, and each key area -- the electromagnetic spectrum,
intellectual property, cyberspace itself (including the right to
privacy) -- involves unique challenges. The important points here are:

First, this is a central task of government. A Third Wave government
will understand the importance and urgency of this undertaking and begin
seriously to address it; to fail to do so is to perpetuate the politics
and policy of the Second Wave.

Second, the key principle of ownership by the people -- private
ownership -- should govern every deliberation. Government does not own
cyberspace, the people do.

Third, clarity is essential. Ambiguous property rights are an invitation
to litigation, channeling energy into courtrooms that serve no customers
and create no wealth. From patent and copyright systems for software, to
challenges over the ownership and use of spectrum, the present system is
failing in this simple regard.

The source of America's historic economic success can, in case after
case, be traced to our wisdom in creating and allocating clear,
enforceable property rights. The creation and exploration of cyberspace
requires that wisdom be recalled and reaffirmed.

4. Creating Pro-Third-Wave Tax and Accounting Rules.

We need a whole set of new ways of accounting, both at the level of the
enterprise, and of the economy.

GDP and other popular numbers do nothing to clarify the magic and muscle
of information technology. The government has not been very good at
measuring service-sector output, and almost all institutions are
incredibly bad at measuring the productivity of information. Economists
are stuck with a set of tools designed during, or as a result of, the
1930s. So they have been measuring less and less important variables
with greater and greater precision.

At the level of the enterprise, obsolete accounting procedures cause us
to systematically overvalue physical assets (i.e. property) and
undervalue human-resource assets and intellectual assets. So, if you are
an inspired young entrepreneur looking to start a software company, or a
service company of some kind, and it is heavily information-intensive,
you will have a harder time raising capital than the guy next door who
wants to put in a set of beat-up old machines to participate in a
topped-out industry.

On the tax side, the same thing is true. The tax code always reflects
the varying lobbying pressures brought to bear on government. And the
existing tax code was brought into being by traditional manufacturing
enterprises and the allied forces that arose during the assembly line's
heyday.

The computer industry correctly complains that half its product is
depreciated in six months or less -- yet it cannot depreciate it for tax
purposes. The US semiconductor industry faces five-year depreciation
timetables for products that have three-year lives (in contrast to
Japan, where chipmakers can write off their fabrication plants in one
year). Overall, the tax advantage remains with the long, rather than the
short, product life-cycle, even though the latter is where all design
and manufacturing are trending.

It is vital that accounting and tax policies -- both those promulgated
by private-sector regulators like the Financial Accounting Standards
Board and those promulgated by the government at the IRS and elsewhere
-- start to reflect the shortened capital life-cycles of the Knowledge
Age, and the increasing role of intangible capital as wealth.

5. Creating a Third Wave Government.

Going beyond cyberspace policy per se, government must remake itself and
redefine its relationship to the society at large. No single set of
policy changes can create a future-friendly government. But there are
some yardsticks we can apply to policy proposals. Among them:

Is it based on the factory model, i.e. on standardization, routine and
mass-production? If so, it is a Second Wave policy. Third Wave policies
encourage uniqueness.

Does it centralize control? Second Wave policies centralize power in
bureaucratic institutions; Third Wave policies work to spread power --
to empower those closest to the decision.

Does it encourage geographic concentration? Second Wave policies
encourage people to congregate physically; Third Wave policies permit
people to work at home, and to live wherever they choose.

Is it based on the idea of mass culture -- of everyone watching the same
sitcoms on television -- or does it permit, even encourage, diversity
within a broad framework of shared values? Third Wave policies will help
transform diversity from a threat into an array of opportunities.

A serious effort to apply these tests to every area of government
activity -- from the defense and intelligence community to health care
and education-would ultimately produce a complete transformation of
government as we know it.

III.

GRASPING THE FUTURE

The conflict between Second Wave and Third Wave groupings is the central
political tension cutting through our society today. The more basic
political question is not who controls the last days of industrial
society, but who shapes the new civilization rapidly rising to replace
it. Who, in other words, will shape the nature of cyberspace and its
impact on our lives and institutions?

Living on the edge of the Third Wave, we are witnessing a battle not so
much over the nature of the future -- for the Third Wave will arrive --
but over the nature of the transition.

On one side of this battle are the partisans of the industrial past. On
the other are growing millions who recognize that the world's most
urgent problems can no longer be resolved within the massified
frameworks we have inherited.

The Third Wave sector includes not only high-flying computer and
electronics firms and biotech start-ups; it embraces advanced,
information-driven manufacturing in every industry. It includes the
increasingly data-drenched services -- finance, software, entertainment,
the media, advanced communications, medical services, consulting,
training and learning. The people in this sector will soon be the
dominant constituency in American politics.

And all of those confront a set of constituencies made frightened and
defensive by their mainly Second Wave habits and locales:
Command-and-control regulators, elected officials, political
opinion-molders, philosophers mired in materialism, traditional interest
groups, some broadcasters and newspapers -- and every major institution
(including corporations) that believes its future is best served by
preserving the past.

For the time being, the entrenched powers of the Second Wave dominate
Washington and the statehouses -- a fact nowhere more apparent than in
the 1991 infrastructure bill: Over $100 billion for steel and cement,
versus one lone billion for electronic infrastructure. Putting aside the
question of whether the government should be building electronic
infrastructure in the first place, the allocation of funding in that
bill shows the Second Wave swamping the Third.

Only one political struggle so far contradicts the landscape offered in
this document, but it is a big one: Passage of the North American Free
Trade Agreement last November. This contest carried both sides beyond
partisanship, beyond regionalism, and--after one climactic debate on
CNN--beyond personality. The pro-NAFTA coalition opted to serve the
opportunity instead of the problem, and the future as opposed to the
past. That's why it constitutes a standout model for the likely
development of a Third Wave political dialectic.

But a mass movement for cyberspace is still hard to see. Unlike the
masses during the industrial age, this rising Third Wave constituency is
highly diverse. Like the economic sectors it serves, it is
demassified--composed of individuals who prize their differences. This
very heterogeneity contributes to its lack of political awareness. It is
far harder to unify than the masses of the past.

Yet there are key themes on which this constituency-to-come can agree.
To start with, liberation from Second Wave rules, regulations, taxes and
laws laid in place to serve the smokestack barons and bureaucrats of the
past. Next, of course, must come the creation of a new civilization,
founded in the eternal truths of the American Idea.

It is time to embrace these challenges, to grasp the future and pull
ourselves forward. If we do so, we will indeed renew the American Dream
and enhance the promise of American life.