Net Neutrality? There's No Such Thing.
Now to the more important error in the net-neutrality argument: it disguises a normative claim as a factual one. Normativity means saying what something ought to be; factuality, on the other hand, is an assessment of things as they are. Why is this second error so troublesome? Saying that the internet is a public good because it should be one is a normative claim, even a political program. It takes a desired end state while disregarding all factors that might influence it—in this case, the private nature of the web, the individual incentives to invest and, most importantly, the business cases that maintain service levels and quality. Think of it this way: in physics, the earth’s gravity generates friction and that might be problem. Many physical experiments and applications would work much better if there was no friction. But just assuming that there is none is not a formula for success. Good physics has to deal with gravity, in the same way that good economics has to deal with the nature of private property.
But in this case, the web being a system of private goods is the good news. Private interests built the net in the first place, and they will continue to expand and make it better. In the case of the internet, private property is the motor of innovation. There is no net without private investment; understanding this also means getting the economics of the internet right. There are no websites without agents spending money on them. There is no content without its development envisaging some sort of monetary return. And there is no infrastructure without a for-profit business model at its base.
From the private nature of the internet, it necessarily follows that the infrastructure provider can use those principles for managing the web as they see fit. Indeed, the net is as valuable as its management, and management is never neutral. All businesses are by necessity non-neutral. How would restaurants manage if they were neutral? Instead, they choose their customers by the cuisine they offer, by their price range, by allowing for reservations and setting aside tables for preferred customers. Financial-services providers have specialized products according to clients’ profiles—for example age, risk propensity, financial goals or experience. Non-neutrality in these and other business models increases profits and customers’ welfare. In fact, managerial non-neutrality is very often the core of value added.
Why should it be different with the web? In order for the system to work, internet providers will have to discriminate according to traffic, data usage, data package and, yes, special agreements, reciprocity contracts and the like. This is what makes the net usable in the first place. If there were no active management, the internet would be congested with pornography and drug traffic taking up most of its space. Thanks to non-neutral management, important (messages, health, financial) and entertaining (music, games) data packages have a measure of priority. Keep in mind: management is always discretionary, but management of goods is rules-based discretion. While the web’s providers have a right to non-neutrality as they deem fit, they will bear users’ response to their non-neutral policies. The clearer they are, the better they will be rewarded by customers.
Getting It Right
“Net neutrality” is not even a romantic dream. It is a series of mistakes flanked by misconceptions. Putting it into practice jeopardizes the web, making it slow, lowering its service levels and finally delaying all investment cycles. The internet is a bundle of private goods. Business models are behind every offer in the web, and especially at the base of its infrastructure. And business models are there for profit. In order to make profits, infrastructure providers must be able to manage the traffic. And management is by necessity non-neutral. But this is good news, since it is the rule-based discretionary management of the web that makes it usable in the first place. Accepting non-neutrality is simply good economics. And it is win-win for all involved, especially users.
The internet is a bundle of privately owned and privately run businesses. And it is only successful and helpful to all people if it continues so.
Henrique Schneider is chief economist of the Swiss Federation of Small and Medium Enterprises.
Image: Part of the new Dutch petascale national supercomputer, “Cartesius.” Flickr/Dennis van Zuijlekom