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SpectralShifts Blog 
Thursday, November 23 2017

tldr; both sides wrong in the net neutrality debate.  we need to look at networks and interworking differently.  otherwise digital and wealth divides will continue and worse. a new way of understanding networks and network theory is called equilibrism.

The term “net neutrality” is a contrivance at best and a farcical notion at worst. That’s why both sides can be seen as right and wrong in the debate. Net neutrality was invented in the early 2000s to account for the loss of equal access (which was the basis for how the internet really started) and the failure to address critical interconnection issues in the Telecom Act of 1996 across converging ecosystems of voice, video and data on wired and wireless networks.

The reality is that networks are multi-layered (horizontal) and multi-boundaried (vertical) systems. Supply and demand issues in this framework need to be cleared across all of these demarcation points. Sounds complex. It is complex (see here for illustration). Furthermore imbalance in one area exerts pressure in another. Now add to that concept of a single network an element of “inter-networking” and the complexity grows exponentially. The inability for net neutrality to be applied consistently across the framework(s) is its biggest weakness.

That's the technology and economic perspective.

Now let’s look at the socio-economic and political perspective. Networks are fundamental to everything around and within us; both physical and mental models. They explain markets, theory of the firm, all of our laws, social interaction, even the biology and chemistry of our bodies and the physical laws that govern the universe. Networks reduce risk for the individual actors/elements of the network. And networks exhibit the same tendencies, be they one-way or two-way; real-time or store and forward.

These tendencies include value that grows geometrically by the number and nature of transactions/participants and gets captured at the core and top of this framework that is the network, while costs grow more or less linearly (albeit with marginal differences) and are mostly borne at the bottom and edge. The costs can be physical (as in a telecom or cable network) or virtual (as in a social media network, where the cost is higher anxiety or loss of privacy, etc..). To be sustainable and generative*, networks need some conveyance of value from the core and top to the costs at the bottom and edge. I refer to this as equilibrism. Others call it universal service. There is a difference.

(*-If we don’t have some type of equilibrism the tendency in all networks is towards monopoly or oligopoly; which is basically what we see under neo-liberalism and early forms of capitalism before trust-busters and Keynesian policies.)

To understand the difference between universal service and equilibrism into this “natural law of networks” we have to throw in two other immutable, natural outcomes evident everywhere, namely pareto and standard distributions. The former easily show the geometric (or outsized) value capture referred to above. Standard distributions (bell curves) reflect extreme differences in supply and demand at the margin. Once we factor both of these in, we find that networks can never completely tend toward full centralization or full decentralization and be sustainable. So the result is constant push/pull of tradeoffs horizontally in the framework (between core and edge) facilitated by tradeoffs vertically (between upper and lower layers).  

For example, a switch in layer 3 offsets the cost and complexity of layers 1 and 2 (total mesh vs star). This applies to distance and density and how the upper layers of the stack affect the lower layers. For a given set of demand, supply can either be centralized or distributed (ie cloud vs openfog or MEC; or centralized payment systems like Visa vs blockchain). A lot of people making the case for fully distributed or for fully centralized systems seemingly do not understand these horizontal and vertical tradeoffs.

The bottom-line: a network (or series of internetworks) that is fully centralized or decentralized is unsustainable and a network (internetworks) where there is no value/cost (re)balancing is also unsustainable. Much of what we are seeing in today’s centralized or monopolistic “internet” and the resulting call for decentralization (blockchain/crypto) is evidence of these conclusions. The confusion or misunderstanding lies in the fact that the network is nothing without its components or actors, and the individual actors are nothing without the network. Which is more important? Both.

Now add back in the “inter-networking” piece and it seems that no simple answer, like net neutrality, solves how we make networks and ecosystems sustainable; especially when supply depreciates rapidly and costs are in near constant state of (relative or absolute) decline and demand is infinite and infinitely diverse. These parameters have always been around (we call them technology and market differentiation/specialization), but they’ve become very apparent in the last 50 years with the advent of the computers and digital networked ecosystems that dominate all aspects of our lives. Early signs abound since the first digital network (the telegraph) was invented**, but we just haven’t realized it until now with a monopolized internet at global scale; albeit one that was intended to be free and open and is anything but. So, there exists NO accepted economic theory explaining or providing the answer to the problems of monopoly information networks that have been debated for well over 100 years when Theodore Vail promised “One Policy, One System, Universal Service” and the US government officially blessed information monopolies.

(** — digital impacts arguably began with the telegraph 170 years ago and their impact on goods and people, e.g. railroads, and stock markets, e.g. the ticker tape. The velocity of information increased geometrically. Wealth and information access divides became enormous by the late 1800s.)

"Equilibrism" may be THE answer that provides a means towards insuring universal access in competitive digital networked ecosystem. Equilibrism holds that settlements across and between the boundaries and layers are critical and that greater network effects occur the more interconnected the networks are down towards the bottom and edges of the ecosytems. Settlements serve two primary functions. First they are price signals. As such they provide incentives and disincentives between actors (remember the standard distribution between all the marginal actors referred to above?). Second they provide a mechanism for value conveyance between those who capture the value and those who bear the costs (remember the pareto distribution above?). In the informational stackas we’ve illustrated it, settlements exist north-south (between app and infrastructure layers) and east-west (between actors/networks). But a lack of these settlements has resulted in extreme misshaping of both the pareto optimum and normal distribution.

We find very little academic work around settlements*** and, in particular, the proper level for achieving sustainability and generativity. The internet is a “settlement free” model and therefore lacks incentives/disincentives and in the process makes risk one sided. Also without settlements, a receiving party cannot subsidize the sender (say goodbye to 800 like services which scaled the competitive voice WAN in the 1980s and 90s and paved the way for the internet to scale). Lastly, and much more importantly than the recent concerns over security, privacy and demagoguery, the internet does not facilitate universal service.

(*** — academic work around “network effects” on the other hand has seen a surge over the last 40 years since the concept was derived at Bell Labs in 1974 from an economist studying the failure of the famous Picturephone from 1963. Of course a lot of this academic work is flawed (and limited) without an understanding of the role of settlements.)

Unlike the winner takes all model (the monopoly outcomes referred to above), equilibrism points to a new win/win model where supply and demand are cleared much more efficiently and the ecosystems are more sustainable and generative. So where universal service is seen as a “taking” or tax on those who have and giving to those who don’t and addressing only portions of the above 2 curves, equilibrism is fundamentally about “giving” to those who have albeit slightly less than those who don’t. Simply put equilibrism is at work when the larger actor pays a slightly higher settlement than the smaller actor, but in return the larger actor will still get a relatively larger benefit due to network effects. Think of it in gravity terms between 2 masses. 

We are somehow brainwashed into thinking winner takes all is a natural outcome. In fact it is not. Nature is about balance and evolution; a constant state of disequilibria striving for equilibrium. It’s not survival of the fittest; it’s about survival of the most adaptable. Almost invariably adaptation comes from the smaller actor or new entrant into the ecosystem. And that ultimately is what drives sustainability and advancement; not unfettered winner takes all competition. Change should be embraced, not rejected, because it is constantly occurring in nature. That’s how we need to begin to think about all our socio-economic and political institutions. This will take time, since it cuts against what we believe to be true since the dawn of mankind. If you don’t think so, take a refresher course in Plato’s Republic.

If we don’t change our thinking and approach, at best digital and wealth divides will continue and we’ll convulse from within. At worst, outside forces, like technology (AI), other living organisms (contagions) and matter (climate change) will work against us in favor of balance. That’s just natural.

Related Reading:

Why Tech is Evil, NYT

Silicon Valley's erasing our individuality

Neoliberalism's ideology problem

Posted by: Michael Elling AT 05:30 am   |  Permalink   |  0 Comments  |  Email
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