I communicate using technology daily, and I must admit that until I read The Master Switch, I never considered how information industries have evolved and shaped our country during the twentieth century. How did we move from my grandmother listening to FDR on the radio in 1933 to skyping with me at college in 2011? According to Tim Wu, this has been made possible because these industries have moved through The Cycle, which is “powered by disruptive innovations that upend once thriving industries, bankrupt dominant powers, and change the world” (20). Wu supports this idea with a particular claim about the inevitability and the importance of creative destruction that I found to be the extremely compelling: “Creative destruction is the essential fact about capitalism. It is what every capitalist concern has got to live in” (28).
Wu supports his claim in favor of creative destruction through examples in the telephone and radio industries. In the telephone industry, America’s greatest and longest-lasting communications monopoly, AT&T, thrived from the early 1900s until the break-up of the Bell Empire in 1984 and the emergence of a new competitor. It was the upstart firm, MCI, with its microwave transmission technology that creatively destroyed AT&T’s monopoly of telephony. Why is creative destruction and competition healthy for our economy? According to Wu, one corporate entity should not be responsible for the economic well being of the American people because “monopoly presumes a prescience that humans are seldom capable of” (111). It is disruptive innovators, not the monopolists, who guard the general economic good. Wu supports creative destruction and competition because it “revolutionizes industries and ultimately multiplies productivity and value” (195).
How did creative destruction revolutionize the radio industry? With the introduction of the television. However, as I discuss in an earlier post, the marketing of television was delayed twenty years from its invention because of the efforts of monopolist David Sarnoff with the FCC acting as his accomplice. Interestingly, Wu points out that this was not the only example of our government assisting monopolies, and therefore disrupting The Cycle and delaying creative destruction. The same was true for AT&T. During most of the 20th century, AT&T operated as the “most lucrative monopoly in history” (160) with the blessing of the government. Although in 1913 AT&T signed the Kingsbury Commitment to allow independent operators to use its long-distance lines, the government was merely helping forestall openness, competition, and the break-up of AT&T. Wu believes that the government has the power to bless or destroy monopoly power and therefore influence the timing of creative destruction.
Although I do NOT support the existence of monopolies, and as a consumer I am grateful for creative disruption and competition in our economy, I can sympathize with some of the arguments (albeit with difficulty) of monopoly supporters. These supporters argue, “a federal breakup is an act of aggression and arguably punishes success” (161). In addition, it may in the short-term hurt consumers. For example, in the aftermath of the AT&T break-up, consumers noticed a drop-off in service quality. In The Master Switch, Wu admits, “the ‘competitive’ industries that replaced imperial monopolies were often not as effective as their predecessors, failing to deliver even the fail-safe benefit of competition: lower prices” (161). Even though Wu strives for balance, as he concludes his book with his proposal of “The Separations Principle,” which states that a conglomerate should not own companies in all three content, communications and electronic industries, he acknowledges that monopolies can provide seamless service, efficiency, high-quality content and sometimes even lower prices.
In part five of The Master Switch, Wu moves to the Internet and the current battle between Apple and Google and warns that closed, restrictive systems might lead to a new monopoly with fewer choices for the consumer. Given what has happened to information industries in this country over the last century, why should we believe otherwise? Ironically, AT&T is now the exclusive partner of Apple, which is a closed information system, whereas Google is an open system. In terms of how a closed information system works, Steve Jobs, co-founder of Apple said that, “‘We figure out what we want. And I think we’re pretty good at having the right discipline to think through whether a lot of people are going to want it, too. That’s what we get paid to do’” (297). Apple believes they identify and fulfill popular desires; however, regardless of the success of the iPod, iPad or iPhone, Apple does not satisfy every consumer’s need. In contrast, Google proposes a world with more choice because according to Eric Schmidt, former CEO of Google, “people prefer choice, freedom, and openness” (297). In addition, Tom Conlon of Popular Science believes that, “once we replace the personal computer with a closed-platform device such as the iPad, we replace freedom, choice, and the free market with oppression, censorship and monopoly” (293). The bottom line is that we need an open system in which Apple products are not the consumer’s only available purchase and Wu would like to see the government make sure that this does not happen under his Separations Principle. However, even if a monopoly of the Internet was to take place, if we believe in The Cycle, competitors will eventually emerge because history has shown that creative destruction is inevitable.
Creative destruction, fueled by innovation, is the driving force behind Wu’s idea of The Cycle, and leads to the rise and fall of information empires. Without creative destruction and competition, the consumer and the economy suffer. Like Wu, I believe in The Cycle as “it goes without saying that economic vitality – innovation, growth, and opportunity – depends on the freedom of the economic system to rise and fall, crash and burn” (301). What I wonder is how will I be communicating with my grandmother five years from now? Will we see the emergence of a new technology by then, or will we still be skyping?
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