Secular stag­na­tion for free

Financial Mirror (Cyprus) - - FRONT PAGE -

charge for them.

Broad­cast ra­dio and tele­vi­sion were the first to con­front this prob­lem, be­cause they could not pre­vent those with a re­ceiver from get­ting the sig­nal. They had to de­velop an ad­ver­tis­ing-based model, mak­ing it pos­si­ble for oth­ers to pay for the benefits re­ceived by the con­sumer. This is sup­pos­edly what makes Google so prof­itable, though I have trou­ble be­liev­ing that the enor­mous benefits I re­ceive as an as­sid­u­ous and happy user are paid for by my rather in­fre­quent In­ter­net pur­chases.

So we live in a world where much of the progress that new tech­nol­ogy per­mits is embodied in prod­ucts that must be given away for free. A some­what hap­haz­ard sub-set of po­ten­tial prod­ucts can, with the right busi­ness model, be prof­itable – say, through ad­ver­tis­ing or by sell­ing the in­for­ma­tion that they pas­sively col­lect from users.

But many oth­ers, like Wikipedia and public ra­dio, have trou­ble mak­ing ends meet. Free prod­ucts also de­press the value of close sub­sti­tutes. While it may re­quire charg­ing $100 per ticket to re­cover the costs of a $1 mln theater play, some film­mak­ers can make money on a $200 mln film by sell­ing $10 tick­ets to con­sumers who are un­will­ing to wait a few weeks un­til their ca­ble TV provider of­fers it.

The e-book men­tioned above, which prompted this col­umn, is avail­able to you, the reader, for free (as is this col­umn). No won­der so many peo­ple have trou­ble mak­ing ends meet. But the Cen­ter for Eco­nomic Pol­icy Re­search, which pub­lished the e-book, and Project Syn­di­cate, which dis­trib­utes this col­umn, are both (at least to some ex­tent) donor-funded.

This may not be a co­in­ci­dence. To har­ness the pos­si­bil­i­ties of new tech­nol­ogy, we may need non-mar­ket forms of pay­ment for valu­able con­tri­bu­tions. The tra­di­tional cap­i­tal­ist model may have made Bill Gates rich, but his foun­da­tion now fi­nances valu­able tech­no­log­i­cal break­throughs in un­prof­itable ways. As with neg­a­tive real in­ter­est rates, but in a more tar­geted and ef­fi­cient man­ner, we may have to pay to make valu­able in­vest­ments hap­pen.

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