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  Manuel de Landa (New York)

> ABSTRACT: Manuel de Landa presented a paper on how computers in general and the the Internet in particular, will affect economics. Their impact on the discipline of economics, as well as their effects on traditional economies and their capacity to create novel economic spaces.
> BIOGRAPHY: Manuel De Landa was born in Mexico City in 1952 and has lived in Manhattan since 1975. He is the author of the books "War in the Age of Intelligent Machines" and "Phylum: a Thousand years on Nonlinear History". In the 70's he started as an independent filmmaker, showing his films in film clubs and museums around the world. In 1980, he acquired an industrial-grade computer and became a programmer and computer artist, writing his own software for several years. His philosophical essays have appeared in many journals and he currently lectures extensively in the United States and Europe on non-linear dynamics, theories of self-organization, artificial intelligence and artificial life.

> LINKS: @ MANUEL DELANDA web search @ Spanish version of an interview with Manuel DeLanda by Vibeke

Kl┐vstad and Hans Christian Arnseth published in MORGENBLADET at

> PAPER: "Markets, Antimarkets and Network Economics"
One hundred years ago, Western societies underwent a second Industrial Revolution, based on the the interaction of several technologies: electricity, the internal combustion engine, oil, steel and plastics. Although knowledge and information as inputs to production processes had already played a role in the first Industrial Revolution, it was the coming of electricity, and the creation of the first industrial research laboratories (such as the General Electric laboratory) that propelled knowledge to its position as the most important input to production. Information, of course, also plays key roles in other economic areas such as marketing and investment, and indeed, to the extent that a particular economy is truly driven by supply and demand, the information transmitted by prices has always played a central role. But regardless of the fact that knowledge has always been a key factor in the working of economies, electricity and the other innovations of the early twenty century greatly intensified its importance. And, of course, the explosive growth of computer networks in the last three decades is bound to intensify the flow of knowledge even more and this intensification will undoubtedly transform the nature of the economy in the next century.

It follows that a very important task for today s intellectuals is to create realistic scenarios of the world of twenty-first century economics. The problem is that, when we try to picture what the effects of the intensification of knowledge will be like, several obstacles stand in the way. The most important of these roadblocks is that intellectuals on the right, center and left sides of the political spectrum are all trying to predict what a twenty first century economy will be like on the basis of theories devised to explain the working of nineteenth century England. In other words, whether one is using the conceptual machinery of Adam Smith or of Karl Marx (or of any combination of the two), whether one sees in the recent commercialization of the Internet a new invisible hand that will magically benefit society, or whether one sees in this commercialization the commodification of the Net which will magically ruin society, one is still trying to understand what is a radically new phenomenon in terms of obsolete categories belonging to bankrupt systems of thought. It is time to go beyond both the invisible handers and the commodifiers and to attempt to construct a new economic theory that not only give us a clearer picture of the future, but almost as important, of the past, since it is impossible to know where we are going unless we know how we got where we are. Therefore, before exploring some of the characteristics of Internet economics I will need to give at least a brief sketch of what these new economic theories would be like. First of all, it is not as if we would need to manufacture a new theory out of thin air. Alternatives to the invisible handers and the commodifiers have existed in the past (such as the institutionalist school of the followers of Thorstein Veblen) and new theories are flourishing today, such as the neo-institutionalist school and the growing field of nonlinear economics. {1}

Also, economic historians like Fernand Braudel and his followers have given us a fantastically detailed account of the development of Western economies in the last eight hundred years, and this research has generated a wealth of empirical data which simply was not available to either Adam Smith or Karl Marx when they created their theories. Furthermore, as I will soon try to show, the new data contradicts many of the foundations of those two systems of thought. Finally, not just economists and economic historians will be involved in developing the new ideas we need, philosophers will also participate: in the last twenty years the discipline of the philosophy of economics (that is the philosophy of science applied to economics) has grown at a tremendous pace and is today and very active field of research.{2}

Here I only have space to discuss a few of the ideas that have been developed by economists, historians and philosophers, so I will select only those concepts that have a direct relevance to our discussion of the Internet. Perhaps the most dramatic new insight emerges from Fernand Braudel's history of capitalism. Unlike theorists from the left and the right who believe capitalism developed through several stages, first being competitive and subservient to market forces and only later, in the twentieth century, becoming monopolistic, Braudel has shown with a wealth of historical evidence that as far back as the thirteenth century, and in all the centuries in between, capitalism has always engaged in anti-competitive practices, manipulating demand and supply in a variety of ways. Whenever large fortunes were made in foreign trade, wholesale, finance or large scale industry and agriculture, market forces were not acting on their own, and in some cases not acting at all. In short what Braudel shows is that we must sharply differentiate between the dynamics generated by many interacting small producers and traders (where automatic coordination via prices does occur), from the dynamics of a few big bussinesses (or oligopolies, to use the technical term), in which prices are increasingly replaced by commands as coordinating mechanisms, and spontaneous allocation by the market replaced with rigid planning by a managerial hierarchy. What these new historical findings suggest is that all that has existed in the West since the fourteenth century, and even after the Industrial Revolution, is a heterogeneous collection of institutions, some governed by market dynamics and some others manipulating those dynamics, and not a homogeneous, society-wide capitalist system . In the words of Fernand Braudel: "We should not be too quick to assume that capitalism embraces the whole of western society, that it accounts for every stitch in the social fabric...that our societies are organized from top to bottom in a 'capitalist system'. On the contrary, ...there is a dialectic still very much alive between capitalism on one hand, and its antithesis, the 'non-capitalism' of the lower level on the other." {3}

And he adds that, indeed, capitalism was carried upward and onward on the shoulders of small shops and "the enormous creative powers of the market, of the lower storey of exchange...[This] lowest level, not being paralyzed by the size of its plant or organization, is the one readiest to adapt; it is the seed bed of inspiration, improvisation and even innovation, although its most brilliant discoveries sooner or later fall into the hands of the holders of capital. It was not the capitalists who brought about the first cotton revolution; all the new ideas came from enterprising small businesses." {4}

Several things follow from Braudel s distinction between market and capitalist institutions (or as he calls them antimarkets ). If markets and antimarkets have never been the same thing then both the invisible handers as well as the commodifiers are wrong, the former because spontaneous coordination by an invisible hand does not apply to big bussiness, and the latter because commodity fetishism does not apply to the products created by small bussiness but only to large hierarchical organizations capable of manipulating demand to create artificial needs. In other words, for people on the right and center of the political spectrum all monetary transactions, even if they involve large oligopolies or even monopolies, are considered market transactions. For the Marxist left, on the other hand, the very presence of money, regardless of whether it involves economic power or not, means that a social transaction has now been commodified and hence made part of capitalism. It is my belief that Braudel s empirical data forces on us to make a distinction which is not made by the left or the right: that between market and antimarket institutions. In fact, we can already see the kind of dogmatic responses that the lack of this distinction promotes on discussions in the Internet. As it became clear that digital cash and secure crypto-technology for credit card transactions were going to transform the Net into a place to do bussiness, some intellectuals became euphoric about the utopic potential of digital free enterprise, while others began to denounce the Internet as the latest expression of international capitalism or claim that the Net was becoming commodified and hence reabsorbed into the system. It is clear, however, that if we reject these two dogmatic positions, our evaluation of the economic impact of the Net (its potential for both decentralization and empowerment of the individual producer and for centralization of content production by a few large firms) will have to become more nuanced and based on more complex models of economic reality.

Beside the distinction between markets and antimarkets our models of network economics must take advantage of recent discoveries innonlinear science and theories of self-organization. Basically, these theories may be used to explain the emergence of wholes that are more than the sum of their parts. Real markets are, in a sense, such synergistic wholes since they emerge as a result of the unintended consequences of many independent decision makers. In this sense, markets are quite similar to ecosystems in many respects. The Internet itself is also one such self-organizedentity, despite its origins in the hands of military planners. One thing markets, ecosystems and decentralized networks have in common is that their synergistic properties emerge spontaneously out of the interactions among a variety of elements, plants and animals, sellers and buyers, or computer servers and clients. To understand the processes that lead to such emergent, synergistic wholes, we need to create new ways of modeling reality. In particular, instead of beginning at the top, at the level of the whole, and moving down by dissecting it into its constituent parts, we need to create models that proceed from the bottom up. For example, instead of creating a computer model of a market, ecosystem or computer network, by using a small set of mathematical functions (that capture the behavior of an idealized whole), we need to create virtual environments in which we can unleash a population of virtual animals and plants, buyers and sellers, or clients and servers, and then to let these creatures interact and allow the self-organized whole to emerge spontaneously. In this way the botom-up modeling strategy compensates for a weakness of the top-down strategy. Emergent properties are properties of the complex interactions between heterogeneous elements, but top-down analysis dissects and separates elements, that is, eliminates their original interactions, and then adds them back together. But this operation necessarily misses any property that is more than the sum of the parts. Hence analysis needs to be complemented with synthesis, as is done today, for example, in the discipline of Artificial Life and in the branches of Artificial Intelligence known as connectionism and animats. {5}

This switch in modelling strategy would have a significant impact on the shape of the new paradigm of economics that I mentioned before, the one that goes beyond the invisible hand and commodification. Instead of postulating a whole, a capitalist system, for instance, and then attempting to capture in some mathematical formulas its basic dynamics, we would unleash within a virtual enviroment a population of institutions, including virtual markets, antimarkets and bureocratic agencies. Only if we can generate from the interactions of these virtual institutions, something like a capitalist system, would we feel justified in postulating an entity like that. My guess is, like Braudel s in the quote above, that there is no such overall, homogeneous system, and that society is a much more heterogeneous collection of processes. Recognizing this heterogeneity may be crucial not only when thinking about network economics but, more generally, when analysing the oppressive aspects of today's economic system, that is, those aspects that we would want to change to make economic institutions more fair and less exploitatitive. We need to think of economic institutions as part of a larger institutional ecology, an ecology that must include, for example, military institutions. Only this way will we be able to locate the specific sources of certain forms of economic power, sources which would remain invisible if we simply thought of every aspect of our current situation as coming from free enterprise or from exploitative capitalism. In particular, many of the most oppressive aspects of industrial discipline and of the use of machines to control human workers in assembly line factories, were not originated by capitalists but by military engineers in eighteenth century French and nineteenth century American arsenals and armories. Without exageration, these and other military institutions created many of the techniques used to withdraw control of the production process from workers and then exported these techniques to civilian enterprises, typically antimarket organizations. {6}

Hence, not to include in our economic models processes occuring within this wider institutional ecology can make invisible the source of the very structures we must change to create a better society, and hence diminish our chances of ever dismantling those oppresive structures. After these introductory remarks let s now consider a few specific questions regarding the new knowledge-based economies that are taking form today. To begin with let's explore the question of the technological infrastructure of the Internet, first the computers that serve as its servers and clients and then the telephone, cable and radio technologies used to interconnect those servers and clients together. The question of the manufactury of computer hardware and software has many different interesting angles, not to mention a very close association with military institutions which have been involved in the development of computers from their inception. I have written about this military involvement in the past but today I would like to discuss a different issue, one related to our botton-up modelling of heterogeneous institutional ecologies. In particular, I would like to discuss two such ecologies with different mixtures of market and antimarket components: Silicon Valley and Route 128 in Boston. Both are industrial hinterlands involved in the production of hardware and software, and both are animated by intense flows of knowledge and information, partly due to their association with large technical universities, Stanford and MIT respectively. The two ecologies are very different, however, and this has made a difference in their performance. "Slicon Valley has a decentralized industrial system that is organized around regional networks. Like firms in Japan, and parts of Germany and Italy, Silicon Valley companies tend to draw on local knowledge and relationships to create new markets, products, and applications. These specialist firms compete intensely while at the same time learning from one another about changing markets and technologies. The region's dense social networks and open labor markets encourage experimentation and entrepeneurship. The boundaries within firms are porous, as are those between firms themselves and between firms and local institutions such as trade associations and universities." {7}

The growth of this region owed very little to large finantial flows from govermental and military institutions. Silicon Valley did not develop so much by the economies of scale typical of antimarkets, as by the benefits derived from an agglomeration of visionary engineers, specialist consultants and finantial entrepeneurs. Engineers moved often from one firm to another, developing loyalties to the craft and region's networks, not to the corporations. This constant migration, plus an unusual practice of information-sharing among the local producers, ensured that new formal and informal knowledge diffused rapidly through the entire region. Bussiness associations fostered collaboration between small and medium-sized companies. Risk-taking and innovation were prefered to stability and routinization. This, of course, does not mean that there were not large, routinized firms in Silicon Valley, only that they did not dominate the mix. Route 128, on the other hand, houses a completly different mixture of markets and anti-markets: "While Silicon Valley producers of the 1970's were embedded in, and inseparable from, intricate social and technical networks, the Route 128 region came to be dominated by a small number of highly self-sufficient corporations. Consonant with New England's two century old manufacturing tradition, Route 128 firms sought to preserve their independence by internalizing a wide range of activities. As a result, secrecy and corporate loyalty govern relations between firms and their customers, suppliers, and competitors, reinforcing a regional culture of stability and self-reliance. Corporate hierarchies ensured that authority remains centralized and information flows vertically. The boundaries between and within firms and between firms and local institutions thus remain far more distinct." {8}

The different dynamics of these two institutional ecologies illustrate one of the potential benefits which computer networks could bring to a new economy. Although the dynamics of Silicon Valley involved networks of different kinds (social, institutional, educational networks) which formed more or less spontaneoualy, networks like the Internet could help energize other industrial hinterlands around the world (including the third world) by making possible the interconnection of many small bussinesses, allowing them to compete with large national and international corporations which enjoy economies of scale. The industrial regions in question would not, of course, have to produce computer equipment: any product that is today manufactured in large, militarized assembly lines could be competitively created in a less oppressive enviroment by an networked agglomeration of small firms, as has happened, for instance, in the production of textiles in certain regions of Italy.

The other potential economic application of networks is related not to the effects of networks on traditional commerce and industry, but to the creation of a space on which to carry brand new commercial and industrial transactions. The Internet is today rapidly evolving into that space and the development of electronic cash and crypto-technology to perform secure and anonymous transactions will accelerate this trend. Much as a traditional economic systems may be seen as a means of allocating or distributing resources which are scarce, so scarcity is one of the factors that determines the nature of Net economics. The scarcity in question, however, is not of computer power or memory, both of which are becoming cheaper and more plentyful every day, but a scarcity of bandwidth, that is, of the capacity to transport information through the conduits or channels that link computers together.
Of the writers that have analysed the effects on Internet economics that a change from a world of scarce to one of plentyful bandwidth would have, no one has received more attention than George Gilder. Gilder's technical analyses are indeed quite interesting but their merits must be assessed against the background of my introductory remarks. In particular, Gilder is an extreme invisible-hander, that is, someone with a strong ideological commitment to nineteenth century economic ideas, ideas that as I said, are not even good to analyse the nineteenth century, let alone the new millenium. However, Gilder s right wing politics are so transparent that it is quite easy to separate them out form his concrete analyses of the technologies that could one day end the bandwidth scarcity.

To begin with, the current channels used by the Internet are owned by telephone companies, and the technology that runs those channels was designed to deal with bandwidth scarcity. That is, when bandwidth is expensive much of the infrastructure investment is on the switches that control the movement of analog or digital information through the conduits. Today, as Gilder argues, the telephone companies have replaced much of the old copper wire with optical fiber, vastly increasing the amounts of data that can flow through these channels. However, to take advantage of the huge bandwidth increase optical fiber makes possible we need to get rid of hardware switches (replacing them with control devices simulated by software) but this move is resisted by the telephone companies, since they are in the bussiness of selling services based on switches. A similar point applies to other potential channels for data, such as wireless transmission through the electromagnetic spectrum. Just like a switch-based technology evolved in a world of bandwidth scarcity, so our current broadcast technology grew to take advantage of the limited space in the radio portion of the spectrum. Today the technology exists to use higher-frequency portions of the spectrum, increasing bandwidth enormously, but the cellular telephone companies that should be rushing to take advantage of this are still caught in their scarcity-based paradigm. A system of optical fiber liberated from switches, a fibersphere as Gilder calls it, together with the use of the atmosphere at high-frequencies, could result in a world where bandwidth is so plentyful as to be virtually free. {9}

We may agree with these assessments because Gilder picked up from engineers, or from reading engineering books, the relevant knowledge of the potential of the new technologies . But when he switches to an analysis of the economic consequences of these developments, and even more, to his advice to policy-makers, Gilder's ideological baggage completly overrides his technological insights. There are two biases which an invisible-hander will bring to an analysis. First, the most obvious one, any intervention by the government is by definition evil, since it interferes with the invisible hand. Therefore one has to attack government regulations, even if they serve to break up monopolies thereby contributing to technological development, as was the case of the break-up of AT&T in 1984. The second bias is more dangerous because it is less visible: one divides society into public and a private sectors and then one applies the term market to the private firms regardless of their size, structure, and economic power.

This ideological maneuver is performed through several operations. First one uses the word competition as if it applied both to the anonymous competition between hundreds of small buyers and sellers in a real market (the only situation to which Adam Smith applied his invisible hand theory) as well as to the competition between oligopolies, say, General Motors, Ford and Chrysler. The problem is that, these two forms of competition are completly different, with the competition between oligopolies involving rivalry between opponents which must take each other's responses into account when planning a strategy. As economist John Keneth Galbraith has shown, oligopolies are structures as hierarchical as any government bureocracy, with as much centralized planning, and as little dependency on market dynamics. {10}

Unlike the small buyers and sellers in a real market, who are price-takers (that is, they buy and sell at prices that set themselves), oligopolies are price-makers, that is, they create prices by adding a mark-up to the costs of production. In short, when one confuses these two types of competition one fails to distinguish between markets and antimarkets.

The consequences of these two biases are very obvious. Oligopolies, and their power to absorbe smaller competitors though vertical and horizontal intergration, are eliminated from the picture, and the landscape now contains only markets and the government, with monopolies being now the only antimarket force left, but one that can be easily dismissed. Thus Gilder agrees that there are such thing as monopolies, like those of the Robber Barons of the nineteenth century, but the enourmous profits that these monopolists generate are seen as transitory, and therefore the menace they represent is dismissed as largely imaginary. Although Microsoft is today playing a similar role as the Robber Barons, according to Gilder its potential menace (and any government action againt it) should be dismissed. So what if Bill Gates has aquired a virtual monopoly on operating systems, a position of power that allows him to control the evolution of much of the software that runs on top of those operating systems?. No problem, says Gilder, in a world of bandwidth plenty, the paradigm of operating systems will change to one of distributed software in the Internet, and this by itself will end Microsoft's domination. This, of course, assumes that Microsoft using its enormous leverage cannot simply buy and internalize any company it needs in order to ensure its powerful presence in a networked economy. {11}

In short, the core of Gilder s ideological maneuver is to lump together small producers and oligopolies in one category, and to call that the market , and to focus exclusively on government regulation as the only real enemy, dismissing monopolies as chimerical. Applied to his theory of the Internet, this maneuver works like this. A world of bandwidth scarcity, like today s cable television, favours the creation of large companies that aquire control of both the channel and the contents flowing through those channels, and therefore gain monopoly rents. For example, TCI, a cable giant, also owns content-producing companies such as the Discovery Channel, Home Shopping Channel, TNT and so on. With bandwidth scarcity gone, argues Guilder, the rationale for owning both conduit and data is gone and this will benefit small producers of content. So here he seems to be siding with real, decentralized markets. But what are his policy recomendations to get to this decentralized world created by cheap bandwidth?. Well, the fastest way to get there is to allow the optical fiber infrastructure of the telephone companies to be combined with the final connections to homes owned by cable companies, even if this creates huge monopoly profits. (Remember that, after all, according to Gilder, this would be transitory.) So the government, who of course, opposess this merger between the telcos and the cable giants, is the enemy of the people, because its anti-trust regulations are preventing us from enjoying the benefits of a world with cheap bandwidth.
I could go on adding detail to this criticism, one that Gilder himself makes easy by offering such an obvious target. But we would be wrong to think that the only ones to be ideologically biased in this debate are right-wing invisible handers. Left-wing commodifiers are equally simplistic in their assessments, although perhaps disguising their methodological biases a little bit bettter. My conclusion is that neither side of the political spectrum can be trusted anymore in their economic analyses, and that a new economic theory, one that respects the lessons of economic history and that assimilates the insights from nonlinear dynamics and complexity theory, should be created. As I said in my introduction, the elements for this new theory are already here, not only from institutionalist economists and materialist historians, but from philosophers of economics that are now more than ever participating in dispelling the myths that have obscured our thought for so many centuries.

{1} Douglas C. North. Institutions, Institutional Change and Economic Performance. (New York: Cambridge University Press, 1990).
{2} Uskali Maki. Economics with Institutions: Agenda for Methodological Enquiry. And: Christian Knudsen. Modelling Rationality, Institutions and Processes in Economic Theory. Both in: Uskali Maki, Bo Gustafsson and Christian Knudsen eds.
Rationality, Institutions and Economic Methodology. (London: Routledge, 1993).
{3} Fernand Braudel. The Perspective of the World. (New York: Harper and Row, 1986), page 630
{4} ibid. 631
{5} Christopher G. Langton. Artificial Life. In Artificial Life. Christopher G. Langton ed. (Red Wood California: Addisson-Wesley, 1989).
{6} Merrit Roe Smith. Army Ordnance and the American System of Manufacturing , 1815-1861. And: Charles F. O Connell, Jr. The Corps of Engineers and the Rise of Modern Management, 1827-1856. Both in: Military Enterprise. Perspectives on the American Experience. Merrit Roe Smith, ed. (Cambridge Mass: MIT Press, 1987).
{7} Annalee Saxenian. Lessons from Silicon Valley. In Technology Review, Vol. 97, no. 5. page. 44
{8} ibid. p. 47
{9} George Gilder. The Fibersphere. And: The New Rule of Wireless. Both in Forber ASAP (#1 and 2)
{10} John Keneth Galbraith. The New Industrial State. (Boston: Houghton Mifflin,1978).
{11} George Gilder. Washington's Bogeymen. In Forbes ASAP #3@ 5CYBERCONF HOME PAGE