In Part I of this two part series, I explained what Digital Socialism is and some of the reasons it has arisen.

In Part II today, I’ll discuss why Digital Socialism creates a Tyranny of the Consumer and why this benefits no one.

The Problems with Digital Socialism

I agree with Milton Friedman that as an economic system, socialism is doomed to failure (the same thing might, in fact, be said about capitalist economies based on fiat currencies but that’s an entirely different subject). Yet the overriding ideal of economic socialism – egalitarian distribution of wealth amongst those whose labor creates it – is a noble (if still naive) one.

Digital socialism, on the other hand, lacks such nobility.

There is nothing egalitarian to be found in the notion that the producers of creative works should cede their right to determine how those works are reproduced and distributed to consumers who are usually not directly involved in the production of those works.

This notion is, in fact, ethically despicable because it takes rights away from those whose who labor and invest and effectively grants greater rights to those who do not labor and who do not invest.

In this sense, digital socialism is actually a corruption of the socialist ideal and is therefore more accurately described as a Tyranny of the Consumer.

The Hypocrisy of The Tyranny of the Consumer

Perhaps the greatest irony (and hypocrisy) in this discussion is that both consumers and the “digital elites” who lead the call for a Tyranny of the Consumer fail to acknowledge that they have benefitted immensely from intellectual property rights.

Ask yourself two questions:

  • How many consumers are employed by companies that in some way profit from intellectual property?
     
  • How many of the “techies” who advocate the abolition of intellectual property rights made their money from IP-laden technology companies?

The answer to both questions – a lot.

Take a technology company like Google, for instance, which employs more than 20,000 people. It has built its fortunes on the back of superior intellectual property. Yet Google’s stance vis-à-vis the intellectual property of other entities – from newspapers to media companies – has more often than not been one of disrespect or indifference.

Its actions have often denied to those entities the same rights that it expects. After all, Google, through YouTube, has no problem infringing on the exclusive rights of reproduction and distribution that are granted to copyright holders but if a Google employee were to distribute the source code for Google’s search engine, Google would most certainly be in court asking for immediate injunctive relief.

This, of course, highlights the irrationality of the tyranny of the consumer because in so many cases of intellectual property infringement, we are actually stealing from ourselves.

Even for those who would argue that they receive no direct financial benefit from intellectual property, it is hard to dispute the notion that the infringement of a copyright holder’s rights in a popular song, for instance, does have a negative impact because it takes away the incentive for the producers of those works to continue producing them.

I will note again the words of Adam Smith in The Wealth of Nations:

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

Conclusion

Many digital socialists argue that times have changed and that consumers are now in control. They further argue that today’s technologies force us to redefine our beliefs about intellectual property and force the owners of intellectual property to change the way they do business.

Michael Arrington, for instance, loves to proclaim that the cost of music is headed to $0 and essentially warns record labels are going to die if they don’t find a way to make money offering their music to consumers for free.

Of course, Milton Friedman was right when he repeatedly reminded us that “There is no so such thing as a free lunch.” The lunch Arrington wants for free is to be subsidized by advertisers, live performances, merchandise, etc. Just about everyone except the majority of individuals who consume music.

The problem with this is that there’s no guarantee that advertising and other “ancillary” revenue streams are enough to provide an optimum business model for the producers of music. Consumers may like getting lunch at a Michelin 3-star restaurant for free but if someone else is only footing the bill for the bottle of wine, record labels are left trying to do the impossible – run a profitable business by buying everyone a five-course meal.

It’s worth pointing out that the “content wants to be free” philosophy hasn’t worked out too well for the vast majority of Web 2.0 companies that have popularized it in recent times. Many will soon be gone as economic reality once again defeats our latest bout of irrational exuberance.

The bottom line is that not every product can be effectively subsidized by someone other than the consumer of that product. Few business models are as easily scaled (and as elegant) as the original business model – I provide a product or service, you provide something of value (i.e. money, gold, etc.) in exchange for it.

Digital socialists often talk about the “free market” but the truth is that a market in which everything is “free” because it will otherwise be stolen anyway is not a “free market.” If intellectual property owners are forced to adopt less-than-optimum business models, not because consumers “vote with their wallets” but because they steal, we run the risk of driving them out of business.

Some may ask, “Who cares?

But as the global economy crumbles and trillions of dollars of wealth have disappeared before our eyes in just a matter of weeks, it’s worth considering that the Tyranny of the Consumer is also responsible for a massive destruction of wealth.

After all, the debate over intellectual property rights isn’t just about free MP3s and the Daily Show on YouTube. It stretches to every corner of our global economy. From pharmaceuticals to fashion, semiconductors to books, the assault on intellectual property rights that occurs when we steal and counterfeit is in reality an attack on one some of most of the global economy’s most important wealth creators.

Some estimate that piracy and counterfeiting, for instance, suck $200-250b out of the United States economy each year along with 750,000 jobs. 80m counterfeit DVDs were sold in the UK alone last year.

All told, somewhere between 5 and 8 percent of all global commerce is estimated to be the result of piracy and counterfeiting.

In my opinion, you cannot separate the massive commercial assault on intellectual property with the more recent massive consumer assault on intellectual property. They are part of the same beast and the impact both have is very real and very damaging.

There is no doubt that the technological advances of the past several decades have made the enforcement of intellectual property rights more difficult. Thanks to the internet, it is far easier for the average consumers to share and download music, movies and software without regard to the rights of the owners of that intellectual property.

To be sure, intellectual property owners will need to exercise a hefty dose of pragmatism in dealing with this. But we should not confuse the new world technology has created with the cause of this problem.

This is a moral issue that forces us to consider our core beliefs.

In my opinion, the Tyranny of the Consumer goes against beliefs as to what constitutes property that were developed over hundreds of years and that have not only created substantial wealth but have advanced society in many ways.

By advocating for a Tyranny of the Consumer, “digital socialists” are really advocating that we bite one of the hands that feeds us.