The Intensifying Battle Over Public Goods vs. Club Goods

I believe there is a growing battle between those who would like to see many goods become public, and those who would like to keep them locked up. I think this battle will only intensify in the coming years as technology continues to accelerate. To explain what I mean, I’d like to go over a few quick terms from economics.

Economists often classify goods according to two major criteria: how rivalrous they are, and how excludable they are.

A good is rivalrous when consumption by one person excludes simultaneous consumption by another person. An example is a painting. If I have an original painting in my house, you cannot also have that same painting in your house.

In contrast, a non-rivalrous good is a good that multiple people can use simultaneously. An example is a recipe. If I cook using a particular recipe, that in no way prohibits you from using that same recipe in your own kitchen.

A good is excludable if it is possible to prevent people from accessing the good unless certain conditions have been met (such as payment). Again, an original painting is a convenient example. If I want to exclude you from accessing my painting, I can just keep it locked up in my private studio until someone pays me what I consider an appropriate amount.

In contrast, a non-excludable good cannot easily be withheld from other people. A classic example of a non-excludable good is a lighthouse. Any ship within sight of a lighthouse can benefit from the lighthouse’s presence. It is not easy to include some ships and exclude others.

Why does all this matter? Because I think one of the recent effects of technology has been that it is taking many types of goods and doing this with them:

The first example we are all familiar with is music. Music used to come in the form of rivalrous, excludable goods like CDs. But once music made the transition to digital form, it became both non-rivalrous, and non-excludable. Digital music is non-rivalrous because if I copy a song from my friend, neither of us has to give up anything. We now both have equal access to the same song. Likewise, digital music is non-excludable, because its distribution is very hard to control.

Non-rivalrous, non-excludable goods are called public goods. One might argue that these are the best kinds of goods since we can all enjoy them with equal opportunity and without competing with each other. Examples of other public goods include nice things like fresh air, knowledge, and national defense.

And yet, somewhat understandably, the response from the music industry (and other similarly affected industries) has been to try to do this:

In other words, affected industries have made an effort to take public goods and make them excludable. They typically strive to accomplish this using a combination of intellectual property law and digital rights management.

Goods which are excludable and yet non-rivalrous are sometimes called club goods. Club goods include golf courses, movie theaters, and cable television.

The act of turning a public good into a club good is not always easy, as the music industry has found out. There has been a great deal of natural resistance to the idea of taking something which could be publicly available, and instead locking it up so that it can only be accessed by members of a private club. And this is where the battle breaks out.

Now, as long as this only applies to a few goods like music, one might ask “Who cares?” The answer is that as technology progresses we are going to see a lot more goods get moved into the lower right corner of this chart. And consequently a lot more businesses are going to fight to move those goods back into the lower left.

For example, if household 3D printers become widely adopted, we are going to see a lot of physical objects like tools move into the lower right corner. Or imagine: if the new Watson software ends up being runnable on smart phones some day, we could see even a normally expensive good like medical diagnosis move into the lower right.

Now step back and ask yourself: do you want a critical good like medical diagnosis, something we all need, to be treated more like fresh air, or like a golf course? Which is the world you’d rather live in? One where useful goods are ubiquitous and free for all, or locked up and under elite control?

Already today we have the potential to make all of the world’s books free for everyone on the planet. Google already has the infrastructure lined up to accomplish this. And yet they are prohibited from doing so. Why? Because of the demands of a few people in the publishing industry. If enlightened aliens came to visit us, do you think they would believe we are making the correct choice in this matter?

Traditional economic theory argues that the market will under provide public goods; therefore these goods need government intervention (i.e. intellectual property) to encourage their production. As with technological unemployment, I believe this is another area where conventional economic theory has simply failed to keep up with technological change. Computers are dramatically lowering the cost of creating many goods, and as such, the additional help provided by government is less necessary. The wealth of free, useful content on the internet, most of it produced by complete amateurs, is testament to this reality.

True, there are some public goods like street lights which still require government funding or else they would not exist. But we are seeing a vast explosion of new public goods—digital music, digital video, blogs, free apps—that I do not believe are susceptible to this traditional argument. People are naturally inclined to create, and once they have powerful computers, they seem to do so, with or without a government-backed monopoly.

My biggest fear is we will continue losing key battles in the war between public goods and club goods, and that the stakes will only increase as time goes on. As I pointed out earlier, music is one thing, but as physical objects and important services begin to move into the category of digital non-rivalrous goods, this battle will only become more heated and more critical. I sincerely hope that various industries will fail in their mission to turn public goods back into club goods. While this might help profits in the short term, in the end we will all be worse off.

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