June 2003 Archives

It was 100 years ago today that George Orwell was born, making it a good time to reconsider his dystopian vision, especially his assertion that technology would become a tool for totalitarian rulers to monitor and control citizens.

In his famous novel 1984, Orwell imagined a world where the "telescreen," controlled by the "Ministry of Love," fed people propaganda and spied on them. The telescreen was able to transmit images and sounds, something very much like a computer equipped with a camera, except that there was no keyboard -- only the government could control the technology. In a post 9/11 world where government interest in new technologies has exploded, the possibility of Orwell's scenario worries observers ranging from the American Conservative Union to the ACLU.

One technology that elicits this fear is remote face scanning that can identify people. This is particularly worrisome if combined with the Pentagon's proposed "Terrorism Information Awareness" (TIA) system, formerly called "Total Information Awareness." The idea behind TIA is to create a government-controlled database that would track all individual data from cradle to grave in an effort to predict who among us is a terrorist.

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Tomorrow marks 100 years since George Orwell's birth, making it a good time to re-think some of his ideas. A good book to read in this respect is Why Orwell Matters by Christopher Hitchens. It's a fast read and has lots of interesting info. Most people have read Orwell's 1984 and Animal Farm, but there's a lot more about him to discover. Orwell's real name was Eric Blair and he was a leftist. His political views are interesting given that the right tends to invoke warnings of Orwellian-type government power more often than the left.

Here's a piece about pay-for music services, how they are getting better, and how that affects politics.

This flabbergasts me--the Europeans want to impose a "right to reply" on virtually all forms of media. From Declan McCullagh's column:

The Council of Europe--an influential quasi-governmental body that drafts conventions and treaties--is meeting on Monday to finalize a proposal that veers in exactly the opposite direction. (It boasts 45 member states in Europe, with the United States, Canada, Japan and Mexico participating as non-voting members. Its budget is about $200 million a year, paid for by member governments.)

The all-but-final proposal draft says that Internet news organizations, individual Web sites, moderated mailing lists and even Web logs (or "blogs"), must offer a "right of reply" to those who have been criticized by a person or organization.

Not only do the Europeans not "get" the Internet, they don't "get" individual liberty. Does this mean that if I say something disparaging against Saddam Hussein that the onus is on me to prove that someone claiming to be Saddam Hussein and demanding a right to reply is in fact not who he says he is? If this were law in America I suppose the NAACP be forced to publish David Duke's views on their web site if they said somehting disparaging about the former KKK leader. Imagine having the state dictate who you should allow to pontificate on your own blog!

You can read the proposal in all of its absurdity here. It was a European, Winston Churchill, who said it best: "There are always some people around who are content to remain neutral as between the fire brigade and the fire."

Vinod Khosla articulates why he is in favor of requiring the expensing of options in this piece in the Merc. (And see this post followed by Artie Wu's excellent comment here.) Khosla spells it out:

If you believe as I do that innovation comes from small companies, that risk taking with breakthrough ideas should be nurtured, that investment in new entrepreneurial ventures is a good thing, that the entrepreneurial energy that has fueled America's growth and is the lifeblood of Silicon Valley is to be encouraged, then we should require expensing of stock options.

The best talent will have incentives to move to the small venture backed companies. They will be better staffed to overcome the almost herculean challenges they face from the big established, usually cash rich, players. Their odds will be better and the playing field a little more level.

The Doerr v. Khosla disagreement (see background on this issue and Doerr's take from one of my earlier posts here) proves one thing: reasonable people can disagree. Smart people on both sides predict wildly different outcomes if FASB requires expensing of stock options: Doerr thinks it will hurt the valley, Khosla thinks it will help the valley, and many valley economists think it will have a negligible effect (according to Stanford economists I’ve discussed this with) while others such as James Glassman think the effect will be catastrophic.

I’ll admit that I’m not smart enough to be able to predict what will happen, and I would guess that given the amount of disagreement there is no real way of knowing whether the intended and unintended consequences will occur as predicted and whether the result will be a net positive or net negative. So in these instances I revert to core principles: is centralization good or bad? It would be wonderful to believe that every company can be judged on an even playing field—and that uniform, rigid accounting standards are needed to enable investors to compare apples to apples. But the world doesn’t work this way, and there are apples, oranges, pears and more out there, and trying to squeeze them into one set of standards just creates mush. You simply cannot put all of the information about a company into one statistic, such as earnings, and trying to do so glorifies simplification over truth.

Khosla may in fact be right in his calculation that mandatory expensing will favor entrepreneurs. I’m all in favor of helping entrepreneurs but also have to admit that using government to afford entrepreneurs a special advantage rubs my libertarian sensibilities the wrong way. The argument can persuasively be made that these are needed counterweights to the plethora of benefits big companies enjoy, but these types of arms races—a tax credit here for their special deduction there—almost always produce more dysfunctional systems in which governments, not entrepreneurs, investors, customers, and “the market,” are in the position to pick the winners.

Also, see Andrew Anker's take on VentureBlog.

It looks like the recall of Grey Davis may in fact become a reality (see this piece on SFGate from the AP.) Is this a good thing? See my post below making the case that the continuing movement towards more popular democracy and away from representational democracy is not always a good thing--and in fact the source of many of the problems with our political system today. Why it would be satisfying from my perspective to remove Davis who has been an unmitigated disaster, this precedent will remove some of the integrity of our elections and create a moral hazard: we will be less careful in making our choices in the real elections if we feel like we have an "undo" feature--as with our word processors. It was upsetting to Republicans, and justly so, when the Democracts substituted Lautenberg for Torricelli at the last moment because they realized they were going to lose. We have to hold our politicians accountable in elections--and ourselves accountable for the choices we make in those elections. With the increased possibility of getting booted from office politicians will follow the polls even more closely--and their principles will be more expendable. While it would be great to see Davis go, and if given the opportunity I will vote against him again, this is moving our democracy in the wrong direction.

A fascinating perspective that i have never heard on the options expensing issue. Is it pro-entrepreneur to require the expensing of options? Vinod khosla thinks so. All the more fascinating because Vinod's partner, John Doerr, is the primary advocate against expensing. Compare this to James Glassman's POV.

Mark Pincus has an interesting idea he’s calling eParty. Mark and I chatted about it in late April and I grumpily challenged some of his assumptions (for some reason I was in a bad mood that day—sorry Mark). Specifically while I was supportive of the idea of empowering individuals and making the system more democratic, I questioned whether people feel as disenfranchised as Mark seems to think they do. Well I now believe that I was wrong—on both counts.

I think people are feeling underrepresented and less and less connected to the political process. However, I think the solution is less democracy, not more.

Now I know what you are thinking—that’s absurd on the face of it. Many readers may actually feel that there is no such thing as too much democracy—but I will wager that if you read this I can convince you that indeed such a thing does exist (though I may not be able to convince you that we in fact are at that point.)

The reason for my latest epiphany is that I just finished Fareed Zakaria’s impressive new book, “The Future of Freedom: Illiberal democracy at home and abroad.” It truly is a must read for anyone focusing on these issues.

It's important to be clear about what I mean by "democracy." We often use the word to describe modern, liberal systems of governance in general but I am specifically referring to the democratic aspect of democracy, which is to say how much people are directly involved in the political system. More democracy means more popular democracy—more voting—while less democracy means more representational democracy.

Zakaria lays it out very well. What's most important is liberalism—and freedom—not just democracy. There are countless examples of illiberal democracies (look at Russia, Peru, Venezuela) and more liberal autocracies (consider Singapore). Democracy by itself, without liberal constitutionalism, a legal system, a middle class, economic freedom, and other components, is often not sustainable. In fact, Zakaria makes a persuasive case that the key issue is sequence. The goal is certainly to bring democracy to the world, but democracies tend to stick only when they are installed after many of these other systems are in place. In fact, Zakaria claims that only when a country is above a certain per capita GDP will democracy last. Poorer countries should instead focus on liberal constitutionalism—protecting individual rights—and developing legal and commercial systems. Otherwise, without constitutional protections and a healthy economy, democratic demagogues can too easily manipulate fragile systems—leading often to one person, one vote, one time. Remember: Hitler was elected.

When poor countries without liberal systems in place try to democratize before liberalizing they often fail—as with Ghana, Tanzania, and Kenya. There have been countless dictators that got their start by being elected. Heck, Saddam Hussein was elected by 99% of the vote! On the other hand, countries such as South Korea, Taiwan, Thailand, Malaysia, and Chile, all functioning democracies today, were liberalized under autocratic regimes—with democracy following these reforms, not leading them.

Obviously this has implications for places like Iraq and Afghanistan. It may be wise to liberalize, commercialize, and THEN democratize.

But what about America? Well let’s look at what works and what doesn’t work. The most respected public institutions in the country are the Supreme Court, the Fed, and the military—no one is elected to any of these bodies. The least respected is usually Congress—an elected body, of course.

Should the courts be more democratic? Scott Peterson is guilty, right? We all know is so why don’t we just vote on sending him to jail—rather than leaving it up to an unelected legal system? This is a democratic but illiberal idea. The Bill of Rights, while liberal, is in a sense anti-democratic because it prohibits our elected representatives from doing certain things. "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances." Even if the people demand it, Congress can’t prohibit free speech. The Bill of Rights is in this sense a constraint on democracy—in favor of freedom and liberalism—while at the same time being a fundamental prerequisite of a successful democracy.

A pure democracy would mean no courts, no congressmen, no president, no constitution and majority rules on everything--there is clearly such a thing as too much democracy. The question is, are we at the point?

The more democratic an institution is, the more it is subject to the whims and short term passions of the populace. With some distance, leaders can plan for the long term. Alan Greenspan can afford to be unpopular in the short term if he delivers in the long term. Often short term pain is needed to accomplish long term results. When was the last time a congressman sacrificed pleasing his constituency in the short term for a higher purpose?

I think when people want "more democracy" this because they feel "special interests" and corporations have all the power—while the "people" do not. That may be true—but it is not necessarily the case that the problem is not enough democracy: it may in fact be the other way around.

Most people believe that the vested interests have been gaining power in the last few decades. Is it a coincidence that since the 1960s our system has become increasingly democratic and open? Congress, which used to conduct much of its business behind closed doors, is now out in the open—and often on TV. The parties which used to select candidates in smoke filled rooms are now simply fundraising vehicles. Ballot initiatives have grown in use—a cop out for many representatives and a sop to the "people." Campaign finance reform laws have restricted the ability for big players to focus their funds. The system is not less democratic in form, only in function. Those that believe we need more democracy to counteract the special interests will have to explain why more democracy over the past decades has produced just the opposite effect.

The truth is that we will always have concentrations of power. Clay Shirky reminded us of that recently. But with more representational democracy the power centers are known and explicit—and the democratic aristocrats tended to have a sense of societal obligation. But with excess democracy the power centers aren’t eliminated—they just move. And often they move to places that are harder to detect and harder to control. When a candidate for congress must raise a huge amount of money and can only raise it $1,000 at a time, he will spend less of his time leading and much of his time fundraising—and those experts that know how to fundraise will find themselves in new positions of power.

Will a working eParty focused on issues, with politicians snapping two whenever there is a wave of emotional popular sentiment around a particular topic, result in a better democracy? I fear not.

I believe a better approach would be to focus on people--political leaders. Support them, advise them, help get them elected, and hold them accountable next election, but don't micromanage them. Let them represent us by using principles, not polls.

Ultimately I believe that excess influence of vested interests is a problem--but my solution is not to engage in a special interests arms race, with special issue-by-issue interests, whether by corporations or grass roots organizations, continuing to play more and more direct roles in governance, but rather to limit the scope of government, thereby depriving it of the ability to pick winners and losers in the first place.

A journal of technology & society.

James Glassman does an excellent job at making the case against the madatory expensing of stock options in this congressional testimony.

Part of the case is the important point that GAAP earnings aren't the end-all be-all when it comes to important financial data with which to value a company. This gets at one key reason why the Sarbanes Oxley law was so flawed--as discussed by Peter Wallison in the Wall Street Journal and in this AEI paper.

A couple of years ago I had a silly idea for a marketing ploy: advertising space was going for a premium (ahh, those were the days) and there was one "space" that was being totally underutilized: the signs held by the homeless. Those things are probably read as frequently as many billboards and that marketing space is worth something. And hey, the people holding them usually are looking for money--so there was an opportunity for someone to bridge the gap, and possibly help people who are looking for money "earn" it rather than beg for it. The idea is simple: pay people to hold a sign advertising something and pay them what they would otherwise get begging.

Now this wasn't a serious idea and is probably in bad taste and raises some difficult questions (such as what are these people using the money for--answer for many is self-destructive drug habits), so I was fascinated to see that a pizza joint in Portland has tried this out. Already there is criticism--some along the lines that I mentioned above. But one of the weakest arguments against: exploitation--and the pizza shop owner is, apparently, already being investigated.

This is probably as clear cut a case as any: is no job really better than an "exploitative" job? Is there such thing in a free country as "exploiting" someone for not paying him a "fair" wage? After all, people are free to say no. Many believe so and favor a minimum wage, among other "protections." But list almost always in these discussions is a balanced discussion of the tradeoffs. If the pizza owner is forced to pay a "fair" wage, he will undoubtedly choose to forget the whole venture--and homeless people who apparently of their own free will have chosen this activity will be denied a meager opportunity. Is that "fair"? The trade off for wage laws is that there are necessarily fewer jobs--and so it is inevitable that those at the lowest end of the economic spectrum are the ones that suffer--rather than benefit. Look at the unemployment that wage laws have wreaked in several "old" European countries--among many others--for examples.

Exploitation is in the eye of the beholder--if people want lower paying jobs rather than no job, shouldn't that be their choice? Higher income workers have that ability--and can move down on the income level when times are tough and jobs are scarcer--why shouldn't lower income workers have that flexibility?

At the core this debate usually comes down to the issue of paternalism: can people make their own decisions as to what's in their best interest or does the state have to "protect" them (from themselves--that is their own inclination to choose something, such as working for a low wage, that the state doesn't believe they should choose.) There are many paternalists out there--and on some issues I can have paternalist tendancies--and I've found that it is very hard to argue with people who simply believe that the state knows better than the people it represents--it's almost an article of faith. But at the very least it is irresponsible to ignore the trade offs we make--if not explicitly then implicitly--when exersizing paternalism. In the instance of wage laws the paternalist is not just refusing to allow people to work under a certain wage floor but he is reducing the number of jobs available. So be a paternalist if you must but be clear about what you are forcing on people: you may be raising the incomes of some, but you are costing others their jobs. You aren't just choosing who to help, you are choosing at the same time to hurt others. Who are you to make that choice?