Prisoners of K Street

From the October/November issue of CEI UpDate

Recently I was talking with Roger Cochetti, VP of Network Solutions and experienced observer of the high tech scene. “The Internet is at a fork,” he said. “Over the next couple of years it could be confirmed in its existence as a free-market, free-wheeling, chaotic, fount of imaginative innovation and multiplying value. Or it could go down the road taken by broadcasting and telephone, becoming regulated, stodgy, hostile to technical progress, and lawyer-driven.”

These comments are serious. A couple of years ago, members of Congress boasted that they knew enough to keep their hands off the Internet. They must have lost some brain cells since, because in the current session over 400 bills were introduced to govern the Internet in one way or another. Congress is even adopting the device of sticking mandates into appropriations bills, without hearings or real thought. You want to require all schools and libraries that get federal funds to impose filtering? No problem–insert it into in an appropriations bill.

Government regulators, including antitrust regulators, have also recovered their nerve. They are evolving new schemes as rapidly as their word processors can spew them out and their emails can send them around for comment. At the state level, middlemen are fighting back hard against the efficiencies of on-line commerce, brandishing state legislatures like halberds.

Individual businesses are often full participants in this process. Each company thinks that it can out-maneuver its rivals, thus capturing some political edge, so it eggs on the regulators. The strategy does not work, and in the process of learning that it does not the company becomes a destroyer of its own real interests:

vWith so many players, most companies must lose. Even if a company wins today’s battle it is likely to lose tomorrow’s, leaving it no better off on balance.

vCompanies pay fortunes to Washington middlemen and fixers, who have a vested interest in bigger, more intrusive, and less predictable government.

vBusiness organizations can seriously cripple their internal processes, structures, and strategies in an effort to curry favor with ignorant regulators.

vFinally, the overall effect of multiple efforts at rent-seeking is to justify increasingly intrusive government interventions. (The Microsoft prosecution, for example, opened the gates to unending actions based on government whim, not law, economics, or principle. The current impositions on the AOL/Time Warner merger are one result.) The short-term gains turn out to be temporary, while the expansion of power is forever.

If the Internet is to remain free and vital, the members of the high tech community must become self-consciously aware that each of them separately and all of them collectively have an over-arching interest in defending the free market. This long-term imperative far outweighs any ephemeral advantage from winning a particular battle. As the old saw goes, the members of the community can hang together on this principle, or they can hang separately without it.

In an April 3, 1999, interview with The Economist, legendary investment guru Warren Buffet worried that politicians are waking up to the true monetary worth with which they are imbued by Washington’s influence over the economy. He foresaw that business people would be forced to devote increasing time and resources to dealing with the government, and, further, that this would create pressures toward plutocracy. The richest companies would buy the most political favors, which would produce more wealth, and so on, in a vicious cycle.

By definition, in such a politicized system most companies must be losers. A free market, in contrast, provides infinite niches for the energetic and innovative.

So the long-term interests of high tech businesses are clear. But will they learn? Will they stop their ears to the siren songs of statists, rent seekers, and Washington middlemen, who constantly push them to seek short-term advantage? Will they be able to pursue their true interest in living under a government that establishes general rules (and as few of them as possible), conforms to clear and identifiable principles, and entrusts our collective future to the genius and dynamism of people acting privately rather than to the whims of political actors?

The problem is of the variety called Prisoners Dilemma, the game theory concept used to describe a situation in which each player faces a choice of: (a) Cooperating with others; (b) Defecting and acting solely for itself. In the classic version, the pay-offs are such that both players inevitably defect, even though both would be better off if they cooperated.

Author William Poundstone, in his book Prisoner’s Dilemma, characterized the concept as “one of the great ideas of the twentieth century, simple enough for anyone to grasp and of fundamental importance.” He added that its lessons are “universal,” and that it “has great power for explaining why . . . human societies are organized as they are.”

Poundstone was right. Any observer of the Washington scene must be depressed by watching companies jockey for individual advantage–defecting, in game theory terms–when all would be better off if they cooperated in support of principle.

It is also depressing to be a fund raiser for a free market advocacy think tank, such as CEI or any of several others who will go nameless here. Corporations often focus on whether we were with them on some issue of short term advantage (and we often weren’t), not on whether we are promoting their true long-term interests.

There is hope, however. A gloomy outcome to Prisoner’s Dilemma is inevitable only when the participants will be involved with each other on a one-shot basis. When people know they will interact repeatedly over time, as in the real world, they can learn to cooperate. (This is the subject of a pair of fascinating books by Robert Axelrod, The Evolution of Cooperation and The Complexity of Cooperation.)

So one of the primary tasks of CEI and its fellows is to explain repeatedly the virtues of cooperation in defense of the free market. And it is the job of our fund raisers and friends to keep explaining to potential supporters that we represent their long term interest in turning the government into an honest game, and that we cannot do this if we support whatever short-term advantage they are pursuing at the moment.

We understand that as long as other companies pursue short-term advantage (“defect”), our potential supporters will, too. But there is a better way (“cooperate”), and as companies become more aware of the destructive nature of the game they are playing, and demonstrate their interest in seeking this better way, it will come within our grasp.