A Movement in Search
of a Philosophy

Manuel DeLanda

Manuel DeLanda is Associate Professor of Architecture at Columbia University School of Architecture.
The hacker movement referred to by the term "open-source" has burst into public consciousness in the last few years due to its spectacular success in the production of reliable and robust software. Perhaps the most obvious symptom of this success is the fact that open-source software in several key areas (operating systems, server software) is the only serious alternative to the domination of the market by large corporations like Microsoft. Its paradigm of software production, collectively-created programs in a process where users are also (to different degrees) developers, has gone beyond the expectations of most analysts, and taken by surprise most corporate managers many of which (at corporations like IBM and SUN) are rapidly switching from proprietary standards to open systems.

The movement has also produced several authors who have tried to either give the movement an a priori moral philosophy, or alternatively, to distill from the actual practice of the thousands of hackers involved a pragmatic philosophy. Thus, when I say that this movement is still in search of philosophical foundations I do not mean to imply that it does not have a philosophy. It has in fact several but, in contrast to the high quality of its software products, the philosophies in question are shallow and brittle. The purpose of this essay is not, however, to criticize these philosophical ideas but, on the contrary, to show that their low quality is quite irrelevant to the success of the movement, a success which, as I just pointed out, has been measured in practice by the enormous difficulty involved in defeating entrenched commercial interests. In a nut shell, the moral of this essay is that what matters about the open-source movement is not so much the intentional actions of its main protagonists, actions which are informed by specific philosophies, but its unintended collective consequences.

The plan of the essay is as follows. I will begin with a few definitions of technical terms ("source code", "compiler", "operating system") which are necessary to follow the rest of the paper. I will then discuss a few of the ideas put forward by open-source philosophers (Richard Stallman, Eric Raymond) focusing not on their weaknesses but on their practical consequences. In particular, Stallman's achievements go beyond the creation of programs and involve the design of a contract (the GNU General Public License, or GPL) which has been arguably as crucial to the success of the movement as any piece of software. The spirit of the license is clearly informed by Stallman's moral philosophy but its unintended consequences go far beyond it. Similarly, Eric Raymond's attempts at an ethnography of the movement, and to distill "rules" which capture its dynamics, fall short of success but he has in addition provided good material to study those unintended consequences. Finally, I will introduce some ideas from the field of Transaction Cost economics (also known as Neo Institutionalist economics) which will prove useful in giving a more robust philosophical foundation to open-source practice. Needless to say, no attempt will be made to create a full-fledged philosophical account, not only because it would be premature to do so, but because the movement simply does not need one, and if such a philosophy did evolve it would have to follow a similar path than the software itself, that is, be the collective product of the users of that philosophy.

1. Definitions

Let me begin with a few definitions. First of all, the term hacker refers not to the cyber-vandals on which the media has focused so much attention (the correct term for those who illegally break into private networks is cracker) but to anyone who writes his or her own software. The term does imply (although I doubt it is part of its "meaning") that the software writer in question does not have a Computer Science degree, that is, it typically refers to self-taught craftsmen. Thus, the term carries the connotation that a software writer enjoys the creation of programs (as opposed to being motivated by professional duty or economic rewards) and that he or she has a strong respect for the values of craftsmanship (elegant solutions to a problem are admired in and of themselves).

Next, the term source code refers to one of the two main forms in which a computer program may exist. When a user buys a particular application from a commercial vendor, a word processor, for example, the program typically has a form which is next to unintelligible to human beings but perfect for a computer. It consists of long series of ones and zeroes which code for specific machine instructions. When that same program is being developed, on the other hand, machine language is not used as frequently as some other high-level language (such as C or Pascal) which is not only readable by humans, but which is also accompanied by comments which explain (to other humans) what each part of the program is intended to do. It is this human-oriented version which is referred to by the term "source code" and which, because of its intelligibility, is used to change or further develop a particular program. Once finished, the source code is converted into machine code by a special program called a compiler. It is this compiled version which is typically sold in stores, a fact that implies that the users of the program are not supposed to continue changing and improving it. (This could in principle be done, by "reverse engineering" the machine code, but in practice it is too hard to bother).

Finally, it is important to distinguish different kinds of software. Non programmers are familiar mostly with application programs: word processors, accounting spreadsheets, Internet browsers, graphic design tools and so forth. But to a hacker, it is the software which is used in the production of those applications that matters. I already mentioned one such program, the compiler, but there are several others: debuggers (which allow to track errors or "bugs"), program text editors, and several other production tools. Then there is what is perhaps the most important piece of software of them all, the operating system. Unlike applications, which are run to perform a particular task and then closed, an operating system is always running in the background (as long as the computer is turned on) linking all the different devices connected to the computer. (Input devices like the mouse, storage devices like the hard disk, display devices, like a LCD screen etc.) No application program, or for that matter, no production tool, can run without an operating system in the background with which the applications or tools must be compatible. The crucial importance of the operating system may be glimpsed from the fact that the Justice Department investigated Microsoft not so much because of its large size or dominant market share, but because it produces both operating systems (Windows) and applications. Controlling both the platform on which programs run as well as what runs on top of this platform gives Microsoft an unfair advantage over competitors who just create applications. Microsoft may, if it wants, delay the release of technical details on a new operating system, therefore acquiring an unfair advantage over its rivals who must wait to rewrite applications while Microsoft has as much time as it wants. (The Justice Department also prosecuted Microsoft for more obvious misuses of its market power, but I believe it was the joint ownership of operating system and applications that clinched the case.)

Now, to put all these terms together, the strength of the open-source movement lies in the fact that it has created alternative operating systems (such as Linux) and production tools (compilers, debuggers) as well as the fact that it distributes these alternative programs in its source form. In other words, the programs are distributed in a form that lends itself to further improvement and development by its users. The term "open-source" was coined to reflect this alternative conception of how software should be produced, an alternative paradigm which is at once evolutionary and collective. The other term by which the movement is known, "free software", also refers to this freedom to change, adapt and otherwise evolve a particular program, without the constraints usually associated with intellectual property rights. The program in question may in fact be sold commercially, so long as the source code and the rights to alter it in any
1. Richard Stallman, 'The Free Software Definition', philosophy/free-sw.html
form are always included. As the coiner of the term (Richard Stallman) puts it, the term "free" is used as in "free speech" not as in "free beer".1

2. Unintended Consequences

2. Peter Wayner, Free for All: How Linux and the Free Software Movement Undercut the High-Tech Giants, New York: HarperCollins, 2000; Open Source Initiative, 'History of the Open Source Initiative',
3. Oliver E. Williamson, 'Transaction Cost Economics and Organization Theory' in Oliver E. Williamson (ed), Organization Theory, New York: Oxford University Press, 1995, p211.
This is not the place to make a detailed history of the open-source movement. Several book-length accounts exist already, and there are many places in the Internet where summaries are offered.2 Instead, I would like to focus on two items which have been crucial to the success of the movement: the design of its license (more exactly, of one of its licenses, the General Public License, since there are alternatives) and the design of its production model (again, more exactly, of one of its models, the production model behind the creation of Linux). These two items belong to what Transaction Cost economists call "the institutional environment" and "the governance structures" of an economy.3

Let me begin by stating the problem which the General Public License (GPL from now on) is meant to address, that is, the problem of intellectual property rights. The textbook definition of the problem begins by distinguishing goods which can be consumed only by a given person (or persons), that is, goods which very consumption excludes others from consuming them, and goods that do not possess this property. Food is an example of the first type, a good which is "rivalrous in consumption", while ideas are an example of the second type: if someone consumes a song or a book, this act by itself does not exclude others from consuming the same song or book, particularly if technologies of duplication and distribution have made the costs of reproduction minimal. The economic problem of intellectual property is that when goods which are not rivalrous in consumption are made subject to property rights, the exclusion aspect of these rights generates social waste: given that additional copies of a given good may be generated and distributed at virtually no cost (this is particularly true of goods in digital form) excluding people from them means that wants will go unsatisfied, wants that could have been satisfied at very little cost to society. On the other hand, not making these goods subject to property rights means that those producing them will have no incentive to do so, particularly if the costs of production happen to be high. Thus the problem of intellectual property needs to be solved by a careful balancing of social costs and producer benefits, a balance which must be achieved case by case.

I will return below to the question of incentives to producers. Hackers tend to think that this is a question that does not apply to them since their work is motivated by love of craftsmanship, not to mention a deep hatred for Microsoft and similar corporations, but the issue is not one to be solved that easily. The other side of the question, the social costs of exclusion, on the other hand, is one which has received a lot of attention from hackers like Richard Stallman, creator of the GPL. The problem with Stallman's approach is that he over-moralizes the question. In his treatment, intellectual property rights become an "artificial" monopoly which interferes with "the users' natural right
4. Richard Stallman, 'The GNU Project', §2 The collapse of the community,
to copy".4 This takes him beyond the social costs of waste in non-rival goods to a condemnation of intellectual property as causing "psychosocial harm" in the sense of promoting divisiveness in society. In his words:

Suppose that both you and your neighbor would find it useful to run a certain program. In ethical concern for your neighbor, you should feel that proper handling of the situation will enable both of you to use it. A proposal to permit only one of you to use the program, while restraining the other, is divisive; neither you nor your neighbor should find it acceptable. Signing a typical license agreement means betraying your neighbor...People who make such choices feel internal psychological pressure to justify them, by downgrading the importance of helping one's neighbors - thus public spirit suffers. This is psychosocial harm associated with the material harm of discouraging use of the program.5

5. Richard Stallman, 'Why Software Should Be Free', §6 Damaging Social Cohesion, shouldbefree.html
I do not wish to go into a long discussion of the philosophical problems of Stallman's stance. Strategically, I have never thought it is a good idea to base one's philosophy on "universal moral principles", particularly when they involve the generalization of one's morality into everyone's morality. The very fact that many hackers reject this moral stance should warn us against its universality. And if the relatively small hacker community does not identify with these moral values, one wonders where Stallman gets the idea that he is defending "the prosperity and freedom of the public in general."6 The relative lack of importance of this moral stance, as opposed to more pragmatic considerations, to the open-source movement may be clearly perceived when one reads Stallman's justifications for pragmatic choices which apparently break with his iron-clad morality. While developing his first few software tools for the GNU project (GNU stands for "Gnu is Not Unix"), and before the development of the kernel of what would be the main operating system of the movement, Stallman had of necessity to use another operating system (UNIX). This is the kind of pragmatic constraint that should hardly bother anyone at a deep ethical level but for Stallman this needed special justification:

As the GNU project's reputation grew, people began offering to donate machines running UNIX to the project. These were very useful, because the easiest way to develop components of GNU was to do it on a UNIX system, and replace the components of that system one by one. But they raised an ethical issue: whether it was right for us to have a copy of UNIX at all... UNIX was (and is) proprietary software, and the GNU's project philosophy said that we should not use proprietary software. But, applying the same reasoning that leads to conclusion that violence in self-defense is justified, I concluded that it was legitimate to use a proprietary package when it was crucial for developing a free replacement that would help others stop using the proprietary package... But, even if this was justifiable evil, it was still an evil."7

7. Richard Stallman, 'The GNU Project', §14 Donated computers,
I said before that criticizing hacker's philosophies was not the point of this essay. Quotations like the one above make it too easy to dismiss the real achievements of these people. In particular, Stallman's deep belief in the moral value of "freedom" (and his equally strong stance on the evil of anything that constraints that freedom) guided him in the design of a license agreement (the GPL) which has had extremely positive effects on the movement. These effects may be said to be unintentional consequences in the sense that one can perfectly imagine some other hacker guided by more pragmatic considerations coming up with basically the same idea. These pragmatic concerns have less to do with the "evils of proprietary software" and more with the kind of environment conducive to the creation of good software (where "good" means "robust against crashes", a highly desirable quality particularly in operating systems and server software). I said before that distributing software in the form of source code allows users to stop being passive consumers and get actively involved in the evolution of a given product. The ability of freely changing and adapting a given piece of software, particularly production-level software (as opposed to end-user applications), allows the formation of development communities within which many of the inevitable errors (or "bugs") that are part and parcel of any complex program can be rapidly discovered and fixed. This community-based debugging results in software that can be conclusively shown to be more resilient against malfunction than commercially available programs.

This, however, immediately raises the question of free-raiders: what is going to stop a particular user (which may be an institution) from benefiting from this shared source code, alter it a bit, then close it (that is, compile it) and sell it as proprietary software? This is where the GPL comes in. The terms of the license agreement are cleverly designed to exclude free-raiders, by forcing everyone who uses previously open-source code into opening whatever contributions he or she makes. This effect is not achieved by abolishing intellectual property, each contributor owns the copyrights of whatever piece of code he or she has developed, but by altering the way in which the rights of exclusion are deployed. Exclusion, as I said before, is the main cause of social costs for non-rival goods, so deploying this power in a different way constitutes a novel solution to the problem. As law professor David McGowan has argued "Open-source software production is not about the absence or irrelevance of intellectual property rights. Open-source production instead rests on the elegant use of contractual terms to deploy those rights in a way that creates a social space devoted to producing
8. David McGowan, 'Legal Implications of Open-Source Software', University of Illinois Law Review, Vol. 2001, p103.
freely available and modifiable code....Open-source production, therefore does not take place within a true commons..."8 McGowan goes on to explain the details of this novel use of property rights:

The GNU GPL system rests on the assignment of property rights (copyright) in an author, who is then able to grant nonexclusive, transferable rights to community members, subject to limitations that enforce community tenets. This structure gives subsequent users of the copyrighted code the ability to pass along restrictions that embody open-source tenets, resulting in the dissemination of the tenets in proportion to the distribution of the code. The right to exclude is not abandoned; however, this model gives the rights-holder the ability to enforce those tenets through an infringement action if necessary."9 (my italics).

9. ibid. p147.
Thus, the originality of the GPL is that rather than actively exploiting the right to exclude, as it is done in conventional licenses, this right is held "in reserve as a method of enforcing adherence to the norms embodied in the license".10
10. ibid. p133.
In this way, the license becomes a legal instrument for community-building (preserving and propagating the norms of a once small community allowing it to grow and stabilize) in addition to its more immediate goals of keeping the software open and of serving as a means to allocate credit for particular contributions. (The GPL also mandates that the names of the creators of specific pieces do not be removed from any future release.) The very fact that the license acts as an "enforcement mechanism" for openness shows how far its function is from one of just promoting "freedom" (that is, Stallman's original intention). Indeed, when other hackers began coming up with alternative licenses (such as the BSD license for the versions of UNIX developed at the University of California at Berkeley) their creators argued these licenses, which did not force the user to share, were in fact more in line with the moral principle of "freedom" than the GPL. This attack on the GPL's lack of freedom is normally expressed by saying that the license is "like a virus", that it "contaminates" all the code produced downstream from an originally open-source piece of code.11
11. Peter Wayner, Free for All, Op. Cit, Chapter 8.
Although this characterization sounds insulting to Stallman, it is in fact devoid of any negative connotations if one accepts the role of the license in propagating and enforcing community norms.

Let me now move on to comment on the thoughts of the other hacker-philosopher of this movement, Eric Raymond. Unlike Stallman, Raymond does not have faith in the power of abstract, a-priori moral principles and prefers to distill his values from "ethnographic" studies of the actual practice of hackers. Even a casual examination reveals that loyalty to craft traditions (going back to the early 1960's) and pride of craftsmanship (or to phrase it negatively, a deep contempt for bad quality) are more important motivators of hacker behavior than the ethical duty to help one's neighbor. Raymond therefore espouses a more pragmatic, less moralistic, approach, and this has led him to concentrate on an examination of the practical conditions of success of open-source projects.

To begin with, while to an outside observer the idea of hundreds of people dispersed around the world working on incrementally improving a program may seem like anarchy, the actual development of specific projects (the Linux operating system, the FETCHMAIL email program, the APACHE server program and so on) is anything but anarchic. Each project has a leader (or committee of leaders) who has a final say on what improvements get included in the "official" version of the program. This unquestioned authority of project leaders is sometimes expressed by saying that they are "benevolent dictators", but this term is highly misleading and brings back the morality questions which the pragmatic approach was supposed to have discarded. A more appropriate description of the task of project leaders (other than their contributions as writers of code) is that their role is the creation of a community supporting a project. When commenting on the real achievements of the leader of the Linux project, Linus Torvalds, Raymond says that "Linus's cleverest and most consequential hack was not the construction of the Linux kernel itself [the core of the new operating system], but rather his invention of the Linux development model".12
12. Eric S Raymond, The Cathedral and the Bazaar, §3. The Importance of Having Users', community/cathedral/whitepaper_cathedral-3.html
This development model implied constantly releasing any new piece of code (so that interested users could immediately begin to work on it, thereby keeping them constantly motivated), delegating responsibility for specific areas to motivated users (making them co-developers), promoting cooperation through a variety of means, and being as self-effacing as possible to block any suspicion that credit for the work done would not be shared equally, or that decisions about the quality of a given piece of code would not be made objectively. This is how Raymond describes the new development model:

The history of UNIX should have prepared us for what we're learning from Linux (and what I've verified experimentally on a smaller scale by deliberately copying Linus's methods). That is, that while coding remains an essentially solitary activity, the really great hacks come from harnessing the attention and brainpower of entire communities. The developer who uses only his or her own brain in a closed project is going to fall behind the developer who knows how to create an open, evolutionary context in which feedback exploring design space, code contributions, bug-spotting, and other improvements come back from hundreds (perhaps thousands) of people. But the traditional UNIX world was prevented from pushing this approach to the ultimate by several factors. One was the legal constraints of various licenses, trade secrets, and commercial interests. Another (in hindsight) was that the Internet wasn't yet good enough.13

13. ibid, §10. The Social Context of Open-Source Software', community/cathedral/whitepaper_cathedral-10.html
The fact that Raymond must study these communities in action to distill the mostly unconscious norms that shape their dynamics; that the contribution of important factors (such as the Internet) can be discerned only in retrospect; and that Torvalds himself seems largely unconcerned with intentional planning, seems to confirm that much of the dynamics of the Linux project were unintended consequences. However, what are unintended consequences for a project at a particular point in his history may become intentionally built-in features for another project, or another phase of the original project, once we analyze with the benefit of hindsight the history of the process. This is, in fact, an important subject in the literature of Transaction Cost economics, which I will describe below.14
14. Oliver E. Williamson, Transaction Cost Economics and Organization Theory, Op. Cit. p216.
In Raymond's case, the lessons to be learned from unintended effects gravitate around the two related issues of how the legitimacy of a project leader is established and maintained, and how this legitimacy prevents a project from losing its identity by diverging (or forking) into a multiplicity of subprojects, each with its own leader. The dangers of forking cannot be underestimated. Indeed, one of Microsoft's main scare-tactics to lure developers and users away from open-source projects is to use the threat of forking: while WINDOWS is developed in a process where decision-making is strongly
15. Halloween Document I (an internal strategy memorandum on Microsoft's possible responses to the Linux/Open Source phenomenon. Annotated by Eric Raymond),
centralized, and hence may have a clear sense of purpose and long-term planning which guarantee it will keep its identity, an operating system developed through decentralized decision-making cannot guarantee developers of application programs that their investment in time and resources will pay off in the long run.15

Let me tackle each one of these two issues one at a time. The question of the legitimacy of project leaders (and hence of the projects themselves) has been analyzed by Raymond, though his analysis is muddled by talk of "ownership of a project", an expression which confuses questions of property rights with those of legitimization of a certain process of decision making by the leader (or maintainer) of a project. Raymond distinguishes three separate ways in which a project may become legitimate:

There are, in general, three ways to acquire ownership of an open-source project. One, the most obvious, is to found the project. When a project has had only one maintainer since its inception and the maintainer is still active, custom does not even permit a question as to who owns the project... The second way is to have ownership of the project handed to you by the previous owner (this is sometimes known as 'passing the baton'). It is significant that in the case of major projects, such transfers of control are generally announced with great fanfare. While it is unheard of for the open-source community at large to actually interfere in the owner's choice of succession, customary practice clearly incorporates a premise that public legitimacy is important. The third way of acquiring ownership of a project is to observe that it needs work and the owner has disappeared or lost interest. If you want to do this, it is your responsibility to make the effort to find the owner. If you don't succeed, then you may announce in a relevant place (such as a Usenet group dedicated to the application area) that the project appears to be orphaned, and that you are considering taking responsibility for it.16

16. Eric Raymond, Homesteading the Noosphere, §4 Ownership and Open Source', homesteading-4.html
Raymond compares these three ways of legitimizing leadership to the three ways in which land tenure may become legitimate in the tradition of Anglo-American common law, as systematized by John Locke (homesteading and laboring a piece of previously unowned land; title transfers; and the claiming of abandoned land). Although I am far from knowledgeable in the history of law, Locke's ideas seem to me to bear more on the question of the legitimacy, not the nature, of private ownership. But at any rate, it is clear that open-source leaders can only be said to own their projects in a metaphorical sense, and that the real issue is the source of legitimacy for their decisions.

Now, two challenges to that legitimacy may be mounted: the first is to fork the project, that is, to install a new leader who will now direct or maintain an alternative version of the program under development; the second is to add pieces of code which have not been approved by the project leader (these are known as "rogue patches"). Although forking is not always necessarily a bad thing (the BSD project has forked at least three times, but each variant has micro-specialized on a particular aspect, such as security or portability), I already suggested that it does have consequences on the developers of applications, who need to be reassured that an operating system will become a stable standard. Rogue patching, on the other hand, directly affects the central pragmatic goal of the open-source movement, the creation of programs that are robust to crashes, because without careful addition of patches tested and approved by a leader, there is no guarantee that a new piece of code will not introduce bugs, and that these will go unnoticed by other community members.

Raymond analyses the community norms which prevent forking and rogue patching from being widespread phenomena (hence endangering the integrity of the community) using the other component of the problem of intellectual property: incentive. While monetary incentives to produce do not seem to be a problem for self-motivated hackers, incentives not to destroy the legitimacy of a project are needed. These may be understood, he argues, if we picture these communities as involved in an economy of reputation. That is, as if what is being "exchanged" in these communities was not monetary values but less-tangible values such as peer-recognition of one's skills and contributions. In his words:

Forking projects is bad because it exposes pre-fork contributors to a reputation risk they can only control by being active in both child projects simultaneously after the fork....Distributing rogue patches (or worse, rogue binaries) exposes owners to an unfair reputation risk. Even if the official code is perfect, the owners will catch flak from bugs in the patches. Surreptitiously filing someone's name off a project is, in cultural context, one of the ultimate crimes. [Given that it directly attacks a source of reputation, one's place of merit in a production history]....All three of these taboo behaviors inflict harm on the open-source community as well as local harm on the victim(s). Implicitly they damage the entire community by decreasing each potential contributor's perceived likelihood that [his or her contributions] will be rewarded.17

17. ibid. Section 9.

3. Transaction Costs

Let me now attempt to link some of these ideas to the concepts developed within the New Institutionalist approach to economics. This is hardly an original undertaking as many commentators of the open-source movement use the concept of "transaction costs" to describe, for example, the role which the Internet has played as one of reducing "coordination costs". But rather than merely trying to specify the nature of the transaction costs involved I would like to discuss two concepts from this branch of economics which bear directly on the two aspects of the movement I just discussed: the GPL as an enforcement mechanism for community norms, an aspect that links it to the concept of "institutional environment", and the leadership system of open-source projects, an aspect which relates to the concept of "governance structures". The origin of transaction cost economics may be traced to the work of Ronald Coase who, among other things, emphasized the role of legal considerations in economics. When people exchange goods in a market, not only physical resources change hands but also rights of ownership, that is, the rights to use a given resource and to enjoy the benefits that may be derived from it. These legal background conditions were then "expanded beyond property rights to include contract laws, norms,
18. Oliver E. Williamson, Transaction Cost Economics and Organization Theory, Op. Cit. p210.
customs, conventions, and the like..."18 Collectively, these political, social and legal ground rules forming the basis not only for exchange, but also for production and distribution, are referred to as the "institutional environment" of an economy.

The coiner of the term, economist and economic historian Douglass North, believes that when market exchanges are conceived this way they can be shown to involve a host of "hidden" costs ranging from the energy and skill needed to ascertain the quality of a product, to the drawing of sales and employment contracts, to the enforcement of those contracts. In medieval markets, he argues, these transaction costs were minimal, and so were their enforcement characteristics: threats of mutual retaliation, ostracism, codes of conduct and other informal constraints sufficed to allow for a more or less smooth functioning of a market. But as the volume and scale of trade intensified (or as its character changed, as in the case of foreign, long-distance trade) new institutional norms and organizations were needed to regulate the flow of resources, ranging from standardized weights and measures, to the use of notarial records as evidence in merchant law courts. North's main point is that as medieval markets grew and complexified their transaction costs increased accordingly, and hence that without a set of institutional norms and organizations to keep these costs down the intensification
19. Douglass C. North, Institutions, Institutional Change and Economic Performance, New York: Cambridge University Press, 1995, pp120-131.
of trade in the West would have come to a halt. Economies of scale in trade and low-cost enforceability of contracts were, according to North, mutually stimulating19.

The other (and better known) New Institutionalist contribution is the idea that depending on the balance of different transaction costs different governance structures become appropriate (in terms of their relative efficiency) in an economy. As early as 1937, Ronald Coase convincingly argued that the traditional picture of a market, as a system in which without central control individual traders are collectively coordinated by the price mechanism, is only valid for a certain combination of transaction costs. For other combinations, firms (that is, more or less hierarchical institutional organizations) are a
20. Ronald H. Coase, 'The Nature of the Firm' in The Firm, the Market and the Law, Chicago: University of Chicago Press, 1988, p36.
more efficient mechanism of coordination. As he puts it, "the distinguishing mark of the firm is the supersession of the price mechanism."20 Coase goes on to argue that:

The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism. The most obvious cost of 'organizing' production through the price mechanism is that of discovering what the relevant prices are....The costs of negotiating and concluding a separate contract for each exchange transaction which takes place on a market must also be taken into account....It is true that contracts are not eliminated when there is a firm, but they are greatly reduced. A factor of production (or the owner thereof) does not have to make a series of contracts with the factors with whom he is co-operating within the firm, as would be necessary, of course, if this co-operation were a direct result of the working of the price mechanism. For these series of contracts is substituted one."21

21. ibid. pp38-39.
Firms are not, of course, all the same. In particular, they may differ in size and in the degree to which they possess market power. Coase also dreamt of giving the question of differences in size a more scientific treatment, arguing that the more transactions are conducted without the price mechanism, the larger a firm should get, up to the point where "the costs of organizing an extra transaction within the firm are equal to the costs involved in carrying out the transaction in the open market or the costs of organizing by another entrepreneur." 22
22. ibid. p42.
Since Coase first proposed these theses much work has been done in discovering transaction costs other than those he explicitly dealt with (information-gathering costs, contracting costs) and the list seems to still be growing. What this means is that, unlike the simple dichotomy of governance structures (markets coordinated by prices versus firms coordinated by commands) which results from including only a few transaction costs, the inclusion of a wider variety of costs leads to consider a host of hybrid structures between pure markets and pure hierarchies.23 (This is, in a sense,
23. Oliver E. Williamson, Transaction Cost Economics and Organization Theory. Op. Cit. p222.
implicit in Coase, given that he does distinguish between an economy ran by hundreds of small firms, and one ran by a handful of oligopolistic large corporations.)

In these terms, the contributions of the open-source movement which go beyond the production of software are: the creation of the GPL contract as a key component of the movement's institutional background; and the creation of a unique, hybrid governance structure, exemplified by the development model behind Linux. In both cases we are faced with experimental creations, that is, a license agreement designed to propagate community norms with very low enforceability costs, and a hybrid of centralized and decentralized decision-making elements with very low coordination costs. I call them both "experimental" not only because of their relative novelty, but also because the savings in transaction costs that they effect have not been fully tested in reality. I will return to this point in my conclusion, but before that I need to clarify the definition of markets as governance structures, given that confusion on this matter seems to prevail within the hacker community, or at least, in the published thoughts of its philosophers.

Eric Raymond, for example, hesitates between characterizing the Linux development model as a "bazaar" (which implies, of course, that he views it as having the decentralized structure of a market) or as a "gift culture". Although he does not explicitly acknowledge it, he is basically attempting to use the well-known classification of Karl
24. Karl Polanyi, 'Forms of Integration and Supporting Structure' in Harry Pearson (ed), The Livelyhood of Man: Studies in Social Discontinuity, New York: Academic Press, 1972, pp35-61.
25. Fernand Braudel, The Wheels of Commerce, New York: Harper and Row, 1983, pp225-228.
26. Eric Raymond, Homesteading the Noosphere. Op. Cit. Remarks in the last reference of the bibliography. homesteading-21.html
Polanyi who divided the different forms of social integration into the categories of "exchange" (that is, markets), "redistribution" (governmental hierarchies) and "gift" (reciprocity).24 This static classification has been severely criticized by contemporary economic historians who have realized that any such list of essentialist categories cannot do justice to the complexity and heterogeneity of economic reality and history.25 In Raymond's hands the essentialism becomes even worse since he argues that these three forms are hardwired in the human brain26, a strange claim by someone who clearly realizes that structures with non-reducible properties may emerge from interactions guided by local rules. As an antidote to this, let me quote Herbert Simon on the different conceptions of the market operating in today's economic thought:

In the literature of modern economics....there is not one market mechanism; there are two. The ideal market mechanism of general equilibrium theory is a dazzling piece of machinery that combines the optimizing choices of a host of substantively rational economic agents into a collective decision that is Pareto optimal for the society. [That is, results in an allocation of scarce resources which may not be modified without making someone worse off.] The pragmatic mechanism described by von Hayek is a much more modest (and believable) piece of equipment that strives for a measure of procedural rationality by tailoring decision-making tasks to computational capabilities and localized information. It makes no promises of optimization."27

27. Herbert A. Simon, The Sciences of the Artificial, Cambridge: MIT Press, 1994, p43.
The conception of the market prevalent in analyses of the open-source movement is basically the neo-classical version of Adam Smith's invisible hand (general equilibrium theory), where economic agents have optimizing rationality and perfect information about prices. This is clear in Raymond's use of expressions like "maximizing reputational returns". Simon, on the other hand, persuasively argues that human beings cannot reach optimal decisions, their bounded rationality (their limited computational resources) allowing them at most to reach satisfactory compromises. If decentralized markets are better than centralized hierarchies it is "because they avoid placing on a central planning mechanism a burden of calculation that such a mechanism, however well buttressed by the largest computers, cannot sustain. [Markets] conserve information and calculation by making it possible to assign decisions to the actors who are most likely to possess the information (most of it local in origin) that is relevant to those decisions."28 Needless to
28. ibid. p41.
29. Oliver E. Williamson, 'Chester Barnard and the Incipient Science of Organization' in Organization Theory. Op. Cit. pp185-190.
say, the conception of markets that is used in Transaction Cost economics is the von Hayek/Simon one, as it is clear from the fact that the first transaction cost mentioned by Coase is the costs of finding information about prices. But in addition to limited rationality, limited honesty (or the costs of opportunism) are also added.29

Now, when I claim that the governance structure behind the Linux project is a hybrid of market and hierarchy, it is the "informational" definition of markets that I have in mind. Clearly, in the Linux project prices do not play the role of transmitters of information (since no one gets compensated monetarily) but the definition of a "market-like structure" may be broadened to include other means of transmitting information. The key is the decentralized use of local information. Analyses of the dynamics of the project based on interviews with participants seem to confirm this point. There is, on one hand, a hierarchical component comprised by Linus Torvalds himself, and a group with a changing composition (including Alan Cox, Maddog Hall and 6 to 12 others) of his closest associates. This core group, however, is not formally defined and has no real power to compel obedience from those outside of it. The members of the core group do play a key informational job mediating between "Torvalds and the development community, providing an effective filter to reduce the [informational] load reaching Torvalds - effective to the very extent that, while Torvalds still insists that he reviews
30. Ko Kuwabara, Linux: A Bazaar at the Edge of Chaos, Chapter 3, issue5_3/kuwabara/index.html
every line of code he applies to the kernel, some people think that this is unnecessary... suggesting the general reliability of the decentralized development below Torvalds." 30

On the other hand, the power of the hundreds of people that do not belong to this core group lies precisely in the local information that they can bring to bear, information which can only be gathered by users of a program who know what is relevant to them. Like Simon's markets, these users are a "parallel computer", a vast geographically dispersed army of programmers working simultaneously (in parallel) finding bugs and, as Raymond puts it, collectively exploring the space of possible program designs.31
31. Eric Raymond, The Cathedral and the Bazaar, Section 6. cathedral-bazaar/cathedral-bazaar/
The possibility of tapping into this reservoir of resources without the aid of prices to convey information is usually explained by the existence of the Internet. Torvalds is given the credit for having been the first to exploit this latent capability but I think it is fair to say that he stumbled upon, rather than planned, this possibility. Hence my characterization of the emergent governance structure as an unintended consequence of intentional action.

To conclude this brief examination of the open-source movement I would like to emphasize how experimental its non-software contributions are. The GPL has not, to my knowledge, been tested in court, thus it is a piece of legal machinery which has demonstrated its power in practice but which may one day be challenged and show that it did not reduce enforceability costs after all. An important task for legal experts today is, I believe, to create imaginary scenarios where this challenge could be mounted and to invent new license designs which could avoid negative outcomes.32
32. David McGowan, Legal Implications of Open-Source Software, Op. Cit. pp148-159.
The development model, on the other hand, has proved itself worthy of certain production tasks (such as rapidly evolving a piece of pre-existing software) but it has yet to show that it can fulfill all the different needs of software production (including the initiation of brand new types of software). But even if the movement failed when confronted with any of these challenges, it would have already proved its worth by showing the potential gains of creatively experimenting with alternative institutional environments and governance structures. Even non-programmers have a lesson to learn from this daring institutional experimentation.

© Manuel DeLanda 2001