Larry F. Martinez, Ph.D.

The Great Disruption:

From Cyberpolitics to Cyberwar

By Larry F. Martinez, Professor

Department of Political Science

California State University, Long Beach

DRAFT December 2015 – Not for Quote or Attribution Without Permission by the Author

ABOUT THIS BOOK SERIES

My journey to this book began with a big box under the Christmas tree. That brightly wrapped box my parents gave me at age 9 contained a “toy” crystal radio set and it changed my view of the universe and my life. After throwing a wire over the driveway and hooking it up to the extremely primitive crystal radio set, I was amazed to hear clearly through the single headphone AM superstation KFI and Vin Scully’s unmistakable voice announcing the LA Dodger baseball games. It was magic. Something I had put together myself out of a few wires, coils, and connectors now brought information out of the air. Desiring more magic, I began salvaging an ancient shortwave radio my grandparents once owned which allowed me to expand my range and to listen into the strongest shortwave broadcaster into the West Coast which just happened to be “Radio Havana Cuba.” So only a couple years after the Cuban Missile Crisis and nuclear attack drills in our classroom (“Duck and Cover!”) I requested a “QSL” reception confirmation from the embargoed island’s governmental broadcaster, which probably landed me into an FBI file as each month for years thereafter an envelope would arrive with a new program schedule. No matter, I was hooked.

This led to learning the Morse Code and electronic theory required to earn an amateur radio license by my 15th birthday. With a “matching fund” set up by my grandparents, my meager earnings flipping burgers was enough so that even I could buy a “build-it-yourself” Heathkit amateur radio station. It was also my window to outer space. The Heathkit allowed me to listen in to conversations be-tween teams of backyard astronomers who used amateur radio as the social networking “Facebook” of the 1960s to coordinate their telescope surveys of potential areas of interest on the moon for the Apollo lunar missions. The U.S. Federal Communications Commission (FCC) and the United Nation’s International Tele-communication Union (ITU) also become an important governmental presence regulating my passion.  These governmental agencies determined which radio frequencies my Heathkit transmitter could use as I sought to talk to other hams thou-sands of miles away sometimes on other continents. Even though the signals were often scratchy, the message was coming in loud and clear – the world was changing as information and communication technologies (ICTs) erased the barriers of time and distance between human societies.

1969 was a remarkable year. Not only did it mark the coming of age of the Aquarius generation in the masses of young people spontaneously forming a new com-munity at the Woodstock music festival, but just weeks before, Armstrong and Aldrin had made the first landing and television program from the moon, which was broadcast globally on the just-completed worldwide communication satellite network. Declared by some as one of the most important pictures ever taken, “Earthrise” recorded the Apollo astronauts’ view of the entirety of human civilization in the image of a brilliant blue and while earth rising above the alien horizon of the moon. 

A few years later, as I was searching for a doctoral dissertation topic to complete my Ph.D. in political science, I drew upon these experiences and images as inspiration to identify what was going to truly shape international relations for the next decades. In 1980, massive demonstrations against nuclear power in the U.S., Europe, and elsewhere seemed to point to a mainstream social science research endeavor examining how OPEC would fuel policy shifts to the seemingly unlimited atomic alternative. But after a frustrating set of forays peering into the European anti-nuclear movements, and now topic-less I boarded my KLM flight back to California.  It was at that moment when I picked up the KLM airline magazine (and not Sky Mall!) in the seat pocket that I read with increasing excitement an article about cable TV “pirates” in the Netherlands. Some ingenious social and political activists who knew something about telecommunications were able to take over their local cable TV networks after the government monopolist broadcaster had shut down for the night. With innovative programming they were not only gaining enthusiastic fans, but with their popularity they were becoming a real thorn in the side of the European governmental TV monopolists. It was pure disruption. A new information technology - Cable TV - was being exploited in unexpected and innovative ways by tech savvy users who had stumbled on a way to change the world. It was 1981, and IBM was about to bring out its own personal computer to compete with Jobs’ and Wozniak’s Apple II personal computer.  The outsiders are now running the show and I wanted in. I had a topic - Eureka!

From that moment, it was a short conceptual jump from the politics of international telecommunications to the topic of communications satellites and how the international community of nations was grappling with the policy dilemmas associated with regulating an intrinsically global information technology that defied governmental control. ICTs not only in the form of satellites, but also video-cassette recorders, personal computers, cell phones, and of course the Internet, are part of a larger tectonic shift that is altering the topography of human civilization for the 21st Century and beyond. This is truly a “great disruption,” on the scale of previous disruptions that profoundly changed the way human beings organized themselves on this planet. While we know a lot about previous “great disruptions,” such as the shift from hunter-gatherer bands to great agriculturally-based urban civilizations, or from agricultural societies into the industrial revolution, our view today is especially nuanced by both the speed of the transformation and the fact that the disruption is itself a revolution in the way in which a disruption would be noticed and measured – the way we gather, process and use information. A recent article talked about the unique role those of us born before 1985 now play.  We are the last generation to know the world before the Internet, but also the first to fully enter into our professional careers incorporating the online technologies. In sum, we are the last generation to speak both languages – the pre-Internet dis-course and the post-Internet tweets. This has happened before.

The last great disruption caused by a fundamental change in the way people dealt with information occurred about 500 years ago. Gutenberg’s development of movable type in 1451 tore down the cost barriers to printed information on a scale similar to today’s Internet revolution. Gutenberg’s presses made printed works much more affordable, bringing millions of new readers to flood the burgeoning publishing market. Incentivized literacy created mass audiences that were already seeking access to heretofore restricted knowledge by the time of Martin Luther’s posting of the 95 Theses in 1517 and his translation of the complete Latin-Greek Bible into colloquial German in 1534. While this earlier great disruption encompassed a time period considerably longer than our current great disruption now barely two decades since the deployment of the World Wide Web, many would point out that the transformations during these past two decades are just as profound and perhaps of even greater disruptive power than those culminating in the Protestant Reformation and the Westphalian System of that earlier era. My quest as a scholar and teacher is to bring these disparate disciplines of the social and technological sciences together into an accessible new worldview that explains so much of what is currently considered the “unexplainable” aspects of U.S. or world politics.

This series brings to the reader a new way of looking at human civilization through the lens of how ICTs are changing our view not only of society and politics, but perhaps even more importantly, our view of ourselves and our role as empowered citizens to realize our goals to make our planet sustainable and our later generations better off.  Welcome and please fasten your seatbelts as we explore “new worlds, new civilizations” in the vast online realm.

Book 1: The End of Government

ABSTRACT  

As confirmed by the 2012 presidential electoral cycle, information and communication technologies (ICTs) are transforming not only the politics of the United States economy, but perhaps, even more crucially, the economy of its political culture. In a systemic perspective, agricultural or industrial-era paradigms about government – societal relationships are Ptolemaic attempts to explain evolving orbital paths between government and society that today have more to do with “government as a business” than the conventional “business of government.”  To explain the unprecedented amounts of money awash and being transacted throughout the process of electoral and democratic governance requires a new logic for analyzing government’s relationship to the information society of the 21st Century. Political scientist Mancur Olson’s The Logic of Collective Action argued that a new paradigm to explain emerging 20th Century post-industrial pluralist systems of democratic governance was needed to refract otherwise opaque phenomena of interest group behavior and representation. Another political scientist’s book, Theodore Lowi’s The End of Liberalism, critically examined how interest group politics has usurped conventional governmental roles. Both of these seminal works reflected the growing awareness among social scientists that long-standing ways of studying democratic government’s relationship to society were increasingly out of synch with technology-driven systemic transformations.  I argue in this book that Economics Nobel Laureate Oliver Williamson’s transaction cost model provides a logic that can transform our understanding of the hidden dynamics driving democratic governance of an information society in the 21st Century.  Using the logic of transaction costs, Williamson’s analysis is uniquely suited for detecting and assessing the utility of information-based transaction costs in defining government’s institutions, roles and agency in a societal system now characterized more by information abundance rather than scarcity. Paradoxically, government, as an intrinsically information-intensive set of institutions and processes, is now itself falling victim to many of the same forces that are “eliminating the middleman” in so many economic sectors as information cost barriers fall. What will a “disintermediated” government look like?  This book seeks to answer that question.

ACKNOWLEDGMENTS

This chapter deepens and expands the analysis in a paper presented initially at the 2006 Western Political Science Conference, and which was subsequently adapted for publication as a book chapter entitled, “Commercialization of Democracy: The Rise of the Political Industrial Complex” (Martinez 2006). The author acknowledges the especially insightful and constructive comments made by research colleagues at the Center of Technology Assessment in Stuttgart, Germany, during his Fulbright Research Sabbatical in 1998-99. 

PROLOGUE

In 1969, the academic field of political science pivoted around one of those paradigm shifts that occur periodically when someone comes up with a new way of looking at the world that makes a lot more sense. In that year, the political scientist at Cornell University was Theodore Lowi and the book he wrote, The End of Liberalism, has had a lasting legacy in the ways in which the big questions in understanding governance are approached and answered. What Lowi argued was that Congress by the 1960s had become significantly less engaged in governance, i.e., directly addressing the nation’s problems through legislative solutions Congress itself initiated. According to Lowi, Congress had abdicated its role in governance, leaving it now instead up to the interest groups that had come in Lowi’s view to dominate the governmental process. As the quote from the book’s 1979 edition’s dust jacket points out:

"The main argument which Lowi develops through both editions is that the liberal state grew to its immense size and presence without self-examination and without recognizing that its pattern of growth had problematic consequences. Its engine of growth was delegation. The government expanded by responding to the demands of all major organized interests, by assuming responsibility for programs sought by those interests, and by assigning that responsibility to administrative agencies. Through the process of accommodation, the agencies became captives of the in-terest groups, a tendency Lowi describes as clientelism. This in turn led to the formulation of new policies which tightened the grip of interest groups on the machinery of government."

In short, Lowi’s argument was that interest groups, which in conventional “pluralist” views of democracy served as the transmission belts for passing on the demands by citizens into the machinery of government, had now become that very machinery. The means had become the end. Lowi’s explanation for why that was taking place placed most of the responsibility on the Congress’s decisions to delegate government’s tasks demanded by the interest groups to administrative agencies that were in turn easily “captured” by the groups they were supposedly de-signed to regulate.  The “end” of government bemoaned by Lowi was the dilution of its agency, or prerogative to act, through a hyperactive delegation of govern-mental authority into myriads of Great Society-created governmental entities and their joined-at-the-hip clientele interest groups. Of course, Lowi’s title is a pun, as it were on the word “end” as it pertains to the goal or “teleology” of government, and the actual termination of governmental authority. This book also enthusiastically picks up Lowi’s pun again and runs with it even further than Lowi could at his relatively early stage of the information revolution. What I am arguing throughout this book, is that the teleological interpretation of “End of Government” has now merged with its more or less literal meaning – government was there to fulfill the desires of its client groups; it has lost its distinctive form and function as an instrument for governance apart from its society. Government has begun to fuse with the society it is supposed to govern.

Of course, in 1969 or even 1979, Ted Lowi could not have even guessed at what lie in store for the United States and the for the rest of the world as computer technology and data networks explosively deployed in response to the public’s un-quenchable demand for information services instigated by now affordable person-al computer in the early 1980s. While Lowi’s book stands as a classic in the pantheon of paradigm-shifting academic works, its analysis falls short. A deeper, more pervasive, factor was beginning to drive these expansions of governmental clientelism than a mere desire to appease interest groups. The advent of electronic mass media reached a crescendo during the period of time Lowi was investigating, with the result that government was now exposed 24/7 to glare of television lights, reducing the costs of time delay and geographical distance nearly to zero for mil-lions of citizens. As the costs for individual citizens to access information about their government fell with the ubiquity of electronic media in every home, school and office, so rose the scrutiny to which government was exposed. 

The key point to this book relates to the role of ICTs. Lowi’s analysis seems to fall short for us today because it could not fully recognize nor appreciate how ICTs were already lowering the cost barriers for interest groups seeking access to the governmental process.  But in a larger sense, this is only part of the story in the second decade of the 21st Century, some five decades since the invention of the Internet in 1969. I call this our “Jerry McGuire” moment. There is an iconic scene in the 1996 film where the sport agent played by Tom Cruise is trying to keep his sports star client played by Cuba Gooding, Jr. During this negotiation over a phone call, the Cuba Gooding character presses his negotiation point with his agent by getting the Tom Cruise character to acknowledge verbally, loudly, and repeatedly, what this process is all about by them shouting in unison, “show me the money!” Increasingly, the process of democratic governance in the United States is experiencing its own Jerry McGuire moment as money floods into every nook and cranny of the electoral horserace drowning the institutions – political parties, nominating conventions, and campaigns – that used to represent the idea of governance in a climate changing flood of money.  We, as the supremely communicative and information-craving species of homo sapiens, are now writing a new story about how we intend to govern ourselves in an information abundant future where everyone, everywhere, has near complete access to all the information in the world. This book is that story.

INTRODUCTION

My research and earlier articles that prompted me to write this book began initially as a scholarly inquiry about how information and communication technologies (ICTs) were, by the late 20th Century, exerting a far-reaching influence on how post-industrial societies were evolving. Beginning with the first mass-produced micro-processors (“computers on a chip”) in the late-1960s, and accelerating with their deployment into the first affordable “personal” computers in the 1970s, information processing costs continue to decline, confirming “Moore’s Law,” a prediction that every 24 months will see a doubling of the component density on a chip whose cost will decline by half.[1] Named after Gordon Moore, one of the iconic founders of Intel Corporation, the pioneering innovator and manufacturer of Silicon Valley’s micro-processors, Moore’s Law underlines the characteristic synergism between information processing technology and its application into “smart” or “intelligent” devices. Quite literally, we are moving into an era already called by many observers as the “Internet of Things.” The result, quite simply, can only be described as “magic.”  We now talk to our phones, while our phones talk to us about where we parked the car and what we can expect in terms of traffic on our commute home. Advanced industrial societies are already deploying a growing myriad of such “intelligent” devices into the nooks and crannies of our marketplaces, homes, hospitals, and our public agencies and governmental institutions. My argument here is that democratic governance in an “information-intensive” society is evolving in new and sometimes unexpected directions.

Boiled down to its essence, I am arguing that the revolution in ICTs responsible for transforming our economy is also bulldozing a new topography for our political system. The distinctiveness of the political sphere in which government and the process of governance resided was underlined by the obvious contrasts between agricultural or industrial transactions taking place in society’s economic sphere as opposed to the information-intensive activities of the political-governmental. Politics has always been about information used to make policy decisions. Government is an information-intensive activity. That distinctiveness, however, began to erode as economic activities themselves began to evolve into more information-intensive manifestations prevalent in the service-based economy.  In sum, the more information-intensive the society, the greater the convergence between that society’s economic and political systems. In other words, the formerly distinct governmental sphere is being assimilated into the economic as that society itself evolves into information-intensive directions.  Whoa!  What does THAT mean?

But let’s strip the jargon and get right to the key question this book originally intended to answer, “why is there now so much [damn] money in politics?”[1] While this question is where I started my inquiry, it quite unexpectedly took me down into many different rabbit holes within a veritable Wonderland of logical and conceptual twists and turns. Getting beyond the cable TV talking heads to the core of the question about money in politics involves a whole lot more than just Supreme Court decisions and vaguely written congressional legislation. It has to do with the very stuff of what societies and their governments are made of – basically what we are talking about here is information itself and how it affects human behaviors.

To pose the argument slightly differently, if the Internet and other online information and communication technologies are fundamentally transforming the 21st Century’s economic marketplace, it would stand to reason that those same factors are also reshaping other elements of society, including, most significantly, how we in the advanced industrial democracies, govern ourselves.  The examples supporting an affirmative answer for the former are all around us, yet there appears to be a reluctance to recognize the latter, as if we do not want to admit that our system of democratic governance would be just as vulnerable to the forces unleashed by ICTs as the economic system has proven to be.  And yet, many of the changes we observe in post-Internet democratic governance elude explanation unless we analyze our political system using a theoretical framework utilizing tools of economic analysis. Otherwise, the massive amounts of money just don’t make political sense.

ICTs are transforming the economic marketplace of information societies.  Not so many years ago, we booked airline tickets through travel agents, who thrived, in essence, through an “information monopoly” they possessed about airline schedules and fares, an information monopoly created by, and maintained by high ICT transaction costs.  Quite simply, during the 1970s-80s, the cost of computers and network technology required to access the airline data was at a price point out of reach for average travelers.  But these costs plummeted in the 1990s with the emergence of mass-produced personal computers and online data services.  Today, millions of passengers routinely book flights directly with airlines through their Internet-connected computers and even mobile smartphones, while former travel agents are pursuing other careers.  How did this happen? While President Bill Clinton’s 1992 campaign motto “It’s the economy, stupid!” poignantly focused on the economic insecurity high in voters’ awareness, a more accurate phrasing of what was actually transpiring would be the less rollicking, “It’s disintermediation, stupid!”

So hang in there dear reader. What I am proposing here is in keeping with a growing literature of on the topics of societal change and future forecasting based on tried and true economic concepts, yes, like “supply and demand.”  If supply goes down, demand and the price for the less available good or service will go up. And the opposite, if demand goes down, the supply will go up as the now cheaper unsold widgets waste away in someone’s inventory. Economic thinking is actually part of just about everyone’s concept of how the world works. We can talk about the price of coffee going up or down with the size of each year’s harvest or whether Starbucks has figured out a new way to sell a coffee substitute.  Matchmakers and singles may be more concerned about the “marriage market” where each potential spouse considers their own “supply and demand” as compared to the competition for sought-after mates. A very successful book series, “Freakonomics” written by economists for a lay audience illustrates the insights that economic thinking can provide about a wide range of societal phenomena, not just those within conventional transaction-defined markets such as Amazon.com or Wall Street Stock Exchange.  For instance, one of the more controversial correlations brought forward in the “Freakonomics” books was where the authors pointed out the possible link between greater availability of abortions following the 1973 Roe v. Wade Supreme Court decision and the drop of crime some twenty years later.  If an unwanted pregnancy leads to less than optimal child rearing, the drop in 1990 crime rates may have some connection to abortion rates. But as every student in a statistics course hears, “correlation is NOT causation.” While the measurable data provides some tantalizing clues, the data itself does not demonstrate the one set of data (abortion rates) “causes” the other (drop in crime rates).  But that’s why social scientists were invented.

The correlation that I started off looking at was the great increase in money being raised and spent throughout our political process starting about the time that the so-called information and communication “revolution” began its great acceleration in the late-1960s.  Being a political scientist with a particular interest in these technologies, it just seemed too tight a correlation for there not to be some kind of a causal link between the two. But for the same reason the Freakonomics authors ran into a buzzsaw of controversy when they pointed out a possible causal connection between a medical procedure and crime rates, what I am looking at is a possible causality between a silicon-based technology and growing numbers of greenbacks in government. How do we test that?

Well, we start by examining up close both sides of this proposition before we take on the possible, or even better, probable explanations for this correlation of technology and money.  The first chapter looks at how information and communication technologies (ICTs) are deploying throughout society and how this deployment is bringing down the cost of information for a growing myriad of goods and services throughout our 21st Century world.  The second chapter examines the amount of money in the governmental sector and whether it has grown faster than the overall economy. The third chapter proposes what I think is the causal connection between the deployments of ICTs and the growth of money in government.  The fourth chapter then takes a look for the implications of this causal connection for the current trends we are seeing in our system of government and what they may mean for the future of democratic governance in information-intensive societies.  So let’s get started.

CHAPTER 1: HOW DECLINING COSTS BRINGS A REVOLUTION

Usually, revolutions are triggered by rising costs. What brings surging mobs into a revolutionary fervor has traditionally been steep rises in the prices of groceries or fuel. Many a president or prime minister regretted the day they approved suspending governmental subsidies for bread or gasoline. Overnight, in some countries, families on the scary edge between poverty and homelessness found that bread for their children had tripled or quadrupled in cost, while coal or oil for heating was likewise suddenly out of their wallet’s reach.  Such changes make people scared and angry and very willing to voice their discontent and to call for a new government more responsive to their needs.  The revolution we are going to talk about is a more nefarious affair since prices in this upheaval go in the opposite direction, but the effects are perhaps even more far-reaching as they strike to the heart of society’s structure itself.

 A “New” Focus on “Old” ICTs as

Historical Factors of Transformative Societal Change

  The transformative effect of information upon societal and governmental systems has long fascinated, perplexed and surprised both participants and scholars of human governance.  While it is axiomatic to declare that “information is power,” it is quite another mental leap to critically analyze or predict how changes in the cost and accessibility of information will affect the structuration and/or functioning of highly complex political systems.  Indeed, according to historian Elizabeth Eisenstein, the role of information as a factor of societal and political change has been largely neglected.   However, over the past four decades the steady infusion of ICTs so-called “post-industrial” societies has also compelled a re-examination of societal transformations.  The emergence of the “information society” of the late 20th Centuryhas (somewhat paradoxically) prompted scholars in a variety of social science disciplines to go back to re-examine previous eras of transformative systemic change for lurking factors of information causality.  They have not come back empty-handed.

Within the highly lucrative mainstream “academic” media, Jared Diamond’s bestseller, Guns, Germs, and Steel, postulates about the role of information and the emergence of institutionalized governance.   Diamond argues that an information technology, in this case, an institutionalized writing system (cuneiform clay tablets), used to record the ownership of grain stocks in the ancient cities of the Tigris-Euphrates valley, was the precursor to establishment of the first governmental institutions which were primarily used to inventory and police granaries.   In a similar fashion, Time Magazine’s December 31, 1999 special millennial edition highlighting the 10 most notable persons of the second millennium, picked the German goldsmith Johann Gutenberg as “Person of the [15th] Century.”   Gutenberg was the first European to develop and commercialize the information technology of movable typeface printing to radically lower the costs and increase the Church’s profits from sales of indulgences.  The ramifications of this ICT is hard to overestimate, as historian Kai-Wing Chow writes:

The invention of the movable type printing press in Europe in the mid-fifteenth century has been hailed as the key agent in bringing about or facilitating all major intellectual, political, and religious movements - the Renaissance, the scientific revolution, the Reformation, the Enlightenment, the French Revolution, and the diffusion of the modern nation-state.  For historians of European printing, the triumph of modern Europe driven by these powerful forces of intellectual and cultural change was evidence for the superiority of the Gutenberg movable-type printing press as a technology of communication and an agent of progress.           

Irving Fang’s book, Communications Revolutions, outlines the process of how Gutenberg’s innovation reduced publishing prices, resulting in rising literacy and readership in the populations.  Growing demand prompted more authors to write in the vernacular on an increasingly diverse range of topics effectively ending the information monopoly of the Church in Rome, and setting in motion a communications and political revolution (Fang, 1997) that transformed feudal Catholic Europe into a system of increasingly secular nation-states codified in the 1648 Westphalian Treaty System (Gray, 1999).  Conversely, factors inhibiting the full deployment of the printing press and the subsequent reduction in information costs are seen as roadblocks to societal, scientific and economic development.  The failure of printing press technology to similarly revolutionize the Chinese or Arab societies is viewed by some scholars as a factor explaining the scientific stagnation and isolation of those formerly leading societies from the scientific and industrial revolutions in Europe that propelled that region to world dominance in the centuries following Gutenberg’s information innovation.

“Disintermediation” Defined

The tear down of the travel agents’ information monopolies described brief above occurred through a process designated by an overly complicated looking word, “disintermediation.” Let’s quickly deconstruct “disintermediation” so that it loses any appearance of being some kind of snarky economic jargon. Focus on the “intermediation” part of the term. In any economic transaction, there are “intermediate” stages or persons involved in carrying out aspects of the transaction at a particular stage. So, to go back to the travel agent we mentioned above, the transaction to buy airline tickets used to require going to your neighborhood travel agent who would serve as the “inter-mediator” between you and the airline. You needed to know which airlines flew at what times and prices between the geographical points of your planned trip. You also need to know if seats were available, if you could get a window or aisle seat, and whether travel your partner(s) could be seated next to you or in the same row. By the early 1960s, computers had begun to replace the manual reservation systems that were literally on notecards. But computer terminals were extremely expensive, so only travel agents with computer terminals subsidized by the airlines were able to spread those technology costs among the many clients they served as inter-mediators earning fees from both customers and airlines for their services.

With the advent of networked personal computers in the late 1980s, the cost of accessing the airlines’ reservations systems began to fall. Airlines realized that with the right software, any of their customers could find out the same information about flights as any travel agent, and with a credit card, the banking system could facilitate the purchase without involving the cost of paying for the “inter-mediary” travel agent facilitating the transaction between airline and customer. Today, millions of airline tickets are sold directly between the airline and the passengers. The “dis” part of the word is the removal of those travel agent “intermediates” from the economic transaction. So, to put it as succinctly as possible, “disintermediation” is the elimination of the “middleman.”

But let’s not give up on the travel agents quite yet.  Obviously, there are many, many successful travel agents who have managed to survive even though they are buying far fewer airline tickets for clients than their predecessors of the pre-Internet era.  Why are they still in business?  Thus we come to the theory of the firm.

Suffice it to say at this stage in our analysis, to point out that the firm exists when it makes economic sense for it to transact its goods and services. In other words, the travel agent’s expertise developed over many thousands of clients’ itineraries means an acquired efficiency in transacting a complicated vacation itinerary that the client finds to be in their own self-interest to pay the agent for instead of doing it (perhaps for the first and only time) themselves to those destinations. Could the travel handle all the arrangements themselves – of course.  But how much would it cost in terms of the traveler’s time? And how much research would the traveler have to conduct to figure out which hotels were the best for the money, which cruise ships offered the most enjoyable ports-of-call, and what kinds of discounts might be available if one could negotiate the entire trip as a package? So while travel agents are not selling many individual airline tickets these days, they are selling a lot of package travel deals involving multiple means of transport (airline, ship, train, transfers, etc.,) lodging, and tours. Could the individual traveler do the same – not as efficiently, and that’s why it makes sense for travelers with complicated itineraries to use an agent.

The theory of why firms exist covers wide swaths of the economy and societal functions. Another example is building a house. Could an individual build their own house? Certainly, but how long would it take and how much would it cost? Instead of DIY (doing it yourself), it makes sense in terms of economic efficiency to hire a general contractor who sub-contracts out to the skilled workers and craftsmen they know to buy the materials and to construct the component parts of a home, and to do it far more efficiently than what an individual could accomplish on their own.  Similarly, why does a university exist?

Let’s explore this concept of disintermediation for its power to explain a wide range of economic, social and political phenomena that underlie the revolution in governance we are witnessing today.

The Economics of Disintermediation

Economics and social theorist Jeremy Rifkin’s 2014 book, The Zero Marginal Cost Society: The Internet Of Things, The Collaborative Commons, and The Eclipse Of Capitalism (Palgrave Macmillan, 2014), is really a book about disintermediation. Expanding on his prophetic 1995 book, The End of Work, Rifkin examines how declining information costs, reflected in increasingly capable robots on the assembly line, and now smart “expert” computer systems, are eliminating the “middleman” and millions of jobs. At first it was the assembly line worker whose job fell victim to the inexorable efficiencies of assembly line robots who never have sick children at home; robots that can be almost instantly re-programmed to carry out a new set of repetitive tasks without boredom nor wage demands.  In 1995, I toured a “cutting-edge” Toyota car assembly line near Nagoya, Japan, where one could see up close how the human workers were literally “riding the robots” in ergonomically-designed seats and harnesses that allowed them to perform the diminishing list of assembly tasks the robots were not yet capable of carrying out.  Okay, this is manufacturing and rationalization of the assembly process has had a long history, beginning with Henry Ford’s revolutionary innovations with the Model T’s production process, culminating in today’s situation where increasingly smart robots now perform the tasks once carried out by millions of manufacturing sector workers.  But doesn’t this process of manufacturing disintermediation stop at the factory door?

No, it doesn’t.  Manufacturing is a very physical process dealing with very real objects and tools.  In the same way, agriculture is also a very physical process that involves soil, water, seeds, sunshine, and harvesting. What is remarkable is that both of these wealth-creating sectors that have been part of human society for thousands of years, are becoming increasingly information intensive. In other words, economic evolution is tightly bound with technological innovation and this inevitably stems from the infusion of information.

How Societies Evolve (with apologies to Jared Diamond)

In the beginning, as bio-anthropologist Jared Diamond’s paradigm-setting book Guns, Germs and Steel (1997) sets out, human beings lived for the most part in small migratory groups that followed their seasonal or mobile food supply, whether bison, bass, or blueberries. Over many thousands of years, some of these groups discovered that selective growing of the grasses (wheat, barley, etc.) or seed pods (fruit) they encountered could bring about replicable genetic modifications with significantly more energy and protein content to the human consumer. As Diamond points out, our ancient ancestors also found ways to store many of these genetically selected grains and fruits for long periods, thereby making it possible for a group of humans to more nutritiously “stay put” and farm rather than traipse after dinner.  Thus began the “great disruption” of antiquity between hunter-gatherer groups and the increasingly sedentary and urbanized human agricultural societies.  The hunter was, so to speak, “disintermediated,” as it was now possible with farming to feed animals for consumption directly, without having to hire the hunters to hunt them.  Agriculture took away the economic basis for the hunter middleman.

Photo 1 - One of the last nomadic peoples, the horsemen of Central Asia. Photo by the author, Kazakhstan, 2010.

As Diamond points out, the storage of grains for later consumption required a means for keeping track of who owned the now sizeable stocks of stored grain, requiring the use of memory-aiding marks on wet clay left over from pot making served to record ownership (cuneiform tablets). Alphabets thusly were born and eventually became the means for establishing comprehensive sets of symbols that could represent the entire range of a language’s spoken words.  These symbols were systematically standardized into the disruptive information technology of antiquity – written languages.  

Guns, Germs, and Steel argues that written languages developed over long periods of time by Indo-European peoples made it possible for those societies to more efficiently transfer ideas and knowledge about agriculture and societal management of resources from one generation to the next.  Greek and Roman expertise became all the more accessible and affordable in the wake of Gutenberg’s development of movable type face printing in 1451, coinciding and accelerating the explosion of new knowledge and investigation during the eras of imperial exploration and colonization along with the Renaissance’s scientific revolution in the 15th and 16th centuries.  In sum, as Diamond illustrates in his book, the Incas were numerically superior in their encounter with the brutal conquistador Francisco Pizarro in Peru, but completely overwhelmed by Pizarro’s ability to gather intelligence about the Incas through written accounts and his society’s ability to more quickly innovate with firearms technologies. The Incas communicated through a system of knotted strings relayed by courageous runners transporting their messages over steep Andean slopes.

The jump from the agricultural-based society where the vast majority of people are engaged in crops and livestock to the industry-based society where the bulk of wealth and livelihoods is generated in manufacturing was also accomplished by elimination of the agricultural middleman.  Innovations in farm technologies such as more efficient plows, cotton gins, and harvesting equipment meant that fewer farmers could raise more crops and make more money that much larger numbers of earlier, less productive generations.  Pushed off the farms by technological and chemical fertilizer innovations in the 18th and 19th centuries, these legions of disintermediated farming families trooped into the cities and took up employment manufacturing in factories the implements demanded by the now wealthier famers.

The story of course does not stop here.  By the latter half of the 20th Century, the advanced industrial societies were characterized by very small segments of their populations (< 10%) engaged in agriculture, and well over half of the population employed in the industrial sectors of manufacturing, steel, and energy production. The challenge though for the industrial sector firms was how to differentiate their products from those of their many competitors in what were highly saturated markets. For example, a potential car buyer in Europe, Japan, or North America in the last decades of the 20th Century would have literally scores of similar vehicle models to choose from.  If you are a car manufacturer, how do you differentiate your product so that your four-door family sedan is demanded more than your all-too-similar competitors?

While it’s costly and cumbersome to innovate quickly the actual bending of metal on an assembly line, it’s really quite straightforward to nimbly differentiate an automotive product through advertising or service warranties. Both are information intensive, advertising through the plethora of mass electronic media of the late-20th Century, or extended service warranties now affordable to offer through the much more precise robotic manufacturing process that made cars much more reliable.  Now, market battles determining winners and losers in the manufacturing were being fought between innovators in the rapidly growing service sector. Cars are basically commodities, requiring fewer and fewer workers to make one, as Rifkin points out in his 1995 book.  Instead, college graduates in the latter-half of the 20th Century migrated like Mad Men into the service sector’s advertising and marketing firms.

Today, over half of the American workforce is engaged in the service sector. Less than 2% are farmers, and the share of the workforce employed in the Rust Belt manufacturing industries is disappearing - like the once mighty “Motown” of Detroit. Now though we see a repeat of the commodification of service sector products that we witnessed earlier with car manufacturing.  Mass media advertising on broadcast TV and radio along with automobile service warranties are themselves becoming commodities, while the competition to differentiate services gains momentum but in increasingly information-intensive settings.  Thus we witness with the deployment of the Internet’s World Wide Web in the 1990s, the race to differentiate services through the collection of even more information that allows the precise profiling of users and the individualized targeting of advertising into new online settings such as Facebook, Google, and YouTube.

Figure 1 Societal Evolution

So here we are, midway through the second decade of the 21st Century, squarely in the transition stage from a services economy to an information economy.  The other stages of course do not disappear, but they diminish as a share of the workforce and the wealth that they create. Today, the winners and losers of the battle for economic survival are fighting it out in the information sector to differentiate their services products that differentiated their industrial manufactures, which also determines the agricultural winners and losers.  For example, in 1999, while on a Fulbright research sabbatical in Stuttgart, Germany, I enrolled in a wine tasting course at the city’s community college (Volkshochschule –VHS). It was a real eye-opener, as we spent the first evening’s class learning how to clean glasses and our hands properly so that when we raised a glass in front of our nose, that our ofactory senses would not be compromised by a dishwasher detergent or cheap scented hand soap. We were also let into a little wine industry secret: most people buy a bottle of wine based on whether or not the design and colors of a bottle’s etiquette appealed to their visual aesthetic rather than expected taste or smell.  In fact, most wine drinkers reportedly when blindfolded cannot taste the difference between a red or white wine according to our wine instructor.  Advertising is a service that designs bottle labels, but anyone perusing the wine aisles even in the most mundane supermarkets these days knows how many bottles are out there – a real challenge for any vintner!  So what to do?  Use information to differentiate your product.  Besides the aesthetic of the bottle’s label, what prompts consumers to choose one wine over another?  Word of mouth, and especially from people you know. So where is wine marketing moving – off the crowded supermarket shelves to the social networking platform, such as Facebook or Twitter.  Clicking on “like” sends your endorsement to all your Facebook friends, a highly treasured word of mouth endorsement that may be nearly costless to the firm seeking to advertise their product.  Oh, and by the way, by clicking on “like” for a wine, your other parameters about your societal status and propensity to buy a certain kind of car, house, clothes, and food, that you voluntarily clicked on for Facebook, are also aggregated by “big data” profilers who sell this information to other firms seeking similar potential customer populations.   To summarize, we are an “information society” because whoever is most skillful in manipulating information will economically survive in the services, industrial, and agricultural marketplaces. My argument is that this is also true for political survival.

Disintermediation, then, is a powerful force for change. Fueled by competitive market incentives to differentiate an otherwise commoditized product, disintermediation has brought about increases in quality, reductions in price, and expansions in variety as producers strive to survive. What is striking about this long-range view of societal evolution, is how this effort always moves in the direction of more information as the key factor of change.  Whether from hunter-gather to agricultural, or from industrial to services stages of evolution, the next stage embodied a much higher level of information.  Today, the battle for domination of the world marketplace is one of information about information. The world’s greatest minds and technological innovators are engaged in a struggle of epic proportions over the tiniest of things – the movements of bits – ones and zeros – represented by the presence or absence of massless electrons. Spurred by declining costs of massive supercomputers, the race is on to see which firms will most effectively use their brains to tackle the challenge of “Big Data,” the development of algorithms that determine whose customer data is going to be commoditized and whose profiling data will differentiate to determine that they will be a winner and not a data loser.

And no, it doesn’t stop here.  In fact, one could claim the process is only now gaining momentum as we enter the newest phase of societal evolution – by delving into the human brain itself.  In 2013, President Obama announced that the United States, having mapped the human genome less than 13 years before, would now map the human brain itself.  In other words, the world of the information society’s “Big Data” determination of economic winners and losers, will in the future evolve into a bio-information stage where information and how the human brain receives, processes, and stores it, will differentiate products and societal processes of the future.  This is already a major concern for military establishments, as evidenced in the Aviation Week and Space Technology article, “Brain Trust: Improving human-machine interaction crucial as systems become more complex and automated,” (AWST, August 11/18, 2014, pp. 45-47). While this article focuses on the neurotechnology that will allow electroencephalography (EEG) sensors on a pilot’s head to monitor his or her brain’s ability to fly a highly automated aircraft through combat areas or even to land (witness the Asiana Airlines Boeing 777 crash landing at San Francisco Airport on July 6, 2013) midday at a major international airport, the consumer applications are already making inroads into the commercial world marketplace. Wearable devices will measure heart rate, skin temperature, and blood sugar and merge this data into a person’s smartphone and social networking sites. Imagine what an advertiser could learn if wearer upon viewing an advertisement also provided real-time biometric feedback about his or her bodily reaction? Or to take it another way, imagine being able to incapacitate a foe through the transmission of a particular thought or emotion into the brains of your opponent’s soldiers or civilians?  Advertising or propaganda or education are processes for imparting thoughts and thinking processes into the brains of the recipients; imagine being able to do this directly, without the costly and time-consuming middleman of the TV broadcast, person-to-person conversation, or school?  This is disintermediation on the molecular level.

Disintermediation in politics as well as economics

We observe disintermediation wherever declining information transaction costs eliminate the economic rationale for the middleman. This is an almost ubiquitous process, resulting in daily transformations of wide swaths of our increasingly information-intensive economic sectors such as music, newspapers, television, and banking, to name a few in addition to the travel industry.  What I am asking here is whether ICT disintermediation operates also as a transformative factor for the process of democratic governance as it has been shown to do for these other information-intensive business activities.  The answer in short is “yes.”  But, as stated above, the implications are far-reaching.

So, how is the political system, i.e., the process of legislating, voting, lobbying, campaigns and elections, or what we commonly call the process of “democratic governance,” evolving in the online 21st Century? I argue that democratic governance is evolving in ways that are increasingly synchronous with the disintermediating evolution of the online economic marketplace. In fact, more than occurring merely synchronously, the political and economic co-evolution is actually co-mingled as the “transaction cost” wall between the democratic governance and the economic system erodes to the declining information cost assault of ICT disintermediation. Just as the travel agent has been “dis-intermediated” out of a job, so too must political parties fear for their future relevance as the “middlemen” between government and voters.  Or, are political parties doomed to the scrapheap of history, as the hereditary House of Lords or the Pope’s “infallible” role as God’s middleman?  The answer lies in the way in which democratic governance evolves in the new political marketplace of the information age.  I am arguing in this book that the best crystal ball is one that peers forward through the same lens that explains why we are less likely to book flights through travel agents, or buy music on CDs, or get our news from a “dead tree” newspaper – the lens of disintermediation – or, to boil it down to its distilled deepest essence - the central role played by information transaction costs.  The Internet revolution was chiefly about how advances in computer technology and networking brought down the price of information access to a cost point where one in 12 humans on earth has a Facebook account.  To cut to the chase, I argue that democratic governance is not only going to look a lot like the information economy of the 21st Century, it’s also going to be part of, or perhaps even worse, it will be indistinguishable from the market. Once again to paraphrase Lowi’s “End of Liberalism” discussed in the prologue, it’s the “End of Government” as we once knew it.

CHAPTER 2: “SO DAMN MUCH MONEY”

There has always been money in politics and government.  Governments, after all, were invented precisely to “coin money” and to regulate the value of a medium of exchange.  Diamond’s book, Guns, Germs, and Steel, postulates that governments were created by sedentary agricultural societies of antiquity as a cost-saving mechanism to enable a more efficient means of protecting grain stores from theft using a community-provided police force financed through taxes rather than separate “private” security protection paid individually.  Reduced transaction costs was perhaps one of the strongest arguments for a government-provided security force we call a policy department some 30 centuries later.

CHAPTER 3: THE CAUSALITY OF DECLINING INFORMATION COSTS

This chapter is the crux of the analysis. Why is there more money in the governmental process today than before the ICT revolution took hold? 

Defining the Argument

“Democratic governance” is the process of connecting government to society through electoral campaigns, lobbying, polling-profiling, and other public relations and information dissemination means and media.  Democratic governance is crucial for the public’s ability to hold government and officials accountable, as well as for the government’s ability to regulate activities and markets and to enforce laws. 

Commencing with the information technology revolution of the 1960s, two trends continue to transform the process of democratic governance in the United States and, to a growing extent, other highly industrialized democracies: (1) the accelerating deployment of increasingly pervasive and powerful information and communication technologies (ICT) infrastructures with concomitant declining information distribution costs, and, (2) the expansive market growth of democratic governance as measured in terms of revenues raised and spent for lobbying, electoral campaigns and governance-focused public relations. Recent electoral cycles in the United States and, above all, the online fund-raising prowess of the 2008 Barack Obama presidential campaign, serve to vividly confirm how each trend paradoxicallyreinforces the other, resulting in a surprisingly synergistic relationship that marks the emergence of highly monetized sectors of democratic governance not only in the United States, but also in other highly industrialized (i.e., ICT-intensive) democracies during the coming decades.  In short, the paradox of more money chasing declining costs prompts this article’s advocacy for a new logic or paradigm to explain whether governance of an information society “requires” a commercialized democracy.

A cursory examination of the two trends is instructive.  It is hard to exaggerate the speed and effect of the information revolution upon American society and political culture.  A short digression to a historically-based film illustrates the startling contrast between the perceptions of information access formed during the childhoods of the Baby Boomer generation and those of today’s “Millennials,” the texting online generation who know only a world of “information abundance” (Bimber, 2003).  Set in a small Appalachian mining town of the late 1950s, the film October Skypainted this contrast in bold strokes as it tells a heartwarming story of working class high school students, who, supported and encouraged by their terminally-ill physics teacher, surmounted many challenges in their science project quest to build and test a rocket.  One of the biggest was the lack of books about rocket physics and engineering in their rural town’s school or public library.  Today’s high school students watching the film would scoff at such problems, and wonder, “why didn’t they just “Google” for the information?”  Rockets today are launching from an alien world.  According to the International Telecommunication Union (ITU), in 2008, over four billion cell phones were in use across all habitable areas of this planet.   In terms of cell phone ubiquity and ability to communicate with any of four billion cell phone users and businesses, perhaps at no other time in history is the truism from a fictional movie figure, Buckaroo Banzai, more relevant: “No matter where you go, there you are.”   Of course, in the information age this translates to, “no matter where you go, there’s the market.”

The second trend notes parallel expansions in speed and effect as measured by the explosive overall market growth of the democratic governance sector with revenues raised and spent for lobbying, electoral campaigns and governance-focused public relations.  Lobbying as a market sector did far better than the overall US economy following 9/11.  Between 2000 and 2004, while the post-9/11 federal budget grew from $1.79 to $2.29 trillion, an increase of some 21%, the number of registered lobbyists more than doubled in that same time period from 16,342 to 34,785, with revenues increasing from $1.6 to $2.1 billion, a 25% growth rate.  The US economy as a whole from 2000 to 2004 grew from $9.8 to $11.6 trillion (constant 2000 dollars), a 4.5% growth rate.   The 2008 presidential electoral campaigns raised and spent more than $1.8 billion, one billion more than 2004, and $1.2 billion more than in 2000.  Governance-focused public relations, conducted chiefly by corporations and non-profits, but also increasingly by transportation and pharmaceutical sector corporations, spent more billions.  Again we are faced with the question, why the massive revenue expansion of democratic governance?                               

The high information costs that historically isolated many cultures, markets, institutions, and organizations are falling in cadence with the growing global deployment of ICTs.  The multi-billion dollar music industry organized since the 1980s around the profitable compact disc is rapidly disappearing, in effect mirroring parallel changes in the travel industry, financial services, real estate, and political organizations and institutions.  Political parties, once a prime source of candidate and issue information, are suffering declining memberships, just as labor unions, and network nightly news shows reach shrinking memberships and audiences.  But there’s the rub; declining voter turnout, declining competitiveness in congressional and legislative elections is occurring against a backdrop of massive influxes of money.  As confirmed by the 2008 electoral cycle, if one were evaluating the numbers about the revenues generated by the American democratic process of elections and governance as a business report, the economic bottomline looks rosy indeed.  At the same time, voter turnout in the 2008 general election did not exceed turnout in the early 1960s, and actually declined in some regions.   Such is the conceptual disconnect between conventional thinking about American democracy and its evolution in an information-saturated environment. To paraphrase Einstein’s observation about nuclear weapons and human civilization, information abundance is changing everything, save our thinking; and the “peril” posed by the concomitant commercialization of democratic governance requires fundamental re-thinking of the governmental – societal relationship.

Application of transaction costs’ core logic underlying the governmental - societal relationships reveals power configurations manifesting themselves as “information monopolies.”   Using analytical lenses focusing on transaction costs, the boundaries and sizes of such information monopolies become visible, creating a topographic map of societal, economic and political power.  The higher the information transaction costs, the more protected and powerful the entity.   In an information society, control over access (i.e., ability to determine transaction costs) to information and its dissemination is a key factor shaping configurations of societal and governmental power.  Topographies of these power configurations increasingly coincide with cost contours of information access and dissemination allowing the possessor to control prices of one or both.  For example, the revenue declines in the recorded music and newspaper industries stand as stark examples of eroding transaction costs and resulting dispersion of revenues.  Learning from those examples, cable TV and telephone network providers of Internet access are attempting to re-establish their information monopolies through legislation thwarting “net neutrality.”  Such “information monopolies” may rise, fall or shift with advances in technology or with policy shifts in regulatory regimes (i.e., copyright or security classifications).  As deployment of more efficient and powerful information and communication technologies (ICTs) fundamentally shifts costs of accessing and disseminating information downward, transaction costs defining information monopolies will increasingly define the far-reaching effects of “information abundance” upon the viability of democratic governance of the information society. 

CHAPTER 4: THE RAMIFICATIONS OF THE DISINTERMEDIATION OF POLITICS AND GOVERNMENT

1.     Commercialization of the First Amendment

2.     Shift from a Demand-driven to Supply-driven Democratic Pluralism

3.     Ideological polarization of the electorate

4.     Fragmentation of political will

[1] Source: http://en.wikipedia.org/wiki/Moore's_law (accessed September 12, 2014).

[1] Readers are urged to consult Robert G. Kaiser’s book, So Damn Much Money: The Triumph of Lobbying and the Corrosion of American Government, Random, 2009.