Free Software Is Bad For The Economy

People keep saying this. It's as if large companies making huge profits on cushy margins are the engine that drive the economy. If lots of people are getting lots of use out of a piece of software without paying a lot of money, surely the economy must be getting hurt. Where are the profits? But a good economy is one where lots of people are busy doing things that benefit other people. The economy of a region or nation or a planet is a measurement of the mood of the population. If the mood is good, people feel like working hard, a lot gets done and everyone benefits (some more than others of course). If the mood is bad, people don't work as hard, not much gets done and everyone suffers (some more than others of course).

One of the things that drives an economy is the availability of resources. Traditionally, there is a segment of the economy that thrives by making resources available to other parts of the economy. If some portion of that segment cannot or will not supply the needed resources, the economy starts to droop - just look at what happens when the energy sector has a hiccup. Some people mistakenly think that if these sectors don't make a profit it will harm the rest of the economy. This is not true. What matters to the overall economy is the amount of resources these sectors produce and the price at which they are produced. In fact, what's good for the companies in these sectors is generally bad for the rest of us. The more they can charge per unit of the resource they produce, the harder it is for the rest of the economy to get what it needs to do its stuff. The truth is that these companies provide a valuable service and they rightly get paid for it, but the less they get paid the faster the rest of us can go.

So what of FreeSoftware? Here is a resource that can be got at a very low price. In fact, after the price of entry has been met, a virtually unlimited amount can be had at almost no incremental charge. This is a good thing. There are factors that limit its goodness, and they should be examined to see if the harm is fatal, but at the surface at least the availability of FreeSoftware should benefit the economy in much the same way as the availability of capital does: it allows new companies and projects to be started at a low cost. This low cost represents a low risk of innovation and will result in new and better services provided at lower costs. This in turn will stimulate other parts of the economy leading to a steady improvement. This will continue until all of the value has been sucked out of the resource (that is FreeSoftware). You see, while the supply of FreeSoftware is virtually unlimited its value is not. This is the flaw. Software is valuable because it allows us to do things that we could not do before. Once the ability to do the new thing has been distributed to everyone, and everyone has taken what advantage of it they can, then there is no more value to be got from the software. So, while freedom is a factor that helps software stimulate the economy, it is not enough by itself. New, useful, software must constantly be produced.

So this is the situation: there is a sector of the economy that produces a resource that, if not artificially constrained, can stimulate the rest of the economy. However, if the rest of the economy takes advantage of this resource in the most efficient manner possible it will cause the sector that produces it to starve and the resource will become unavailable. It seems that what's wanted is a feedback mechanism that causes the economy as a whole to send just enough money into the sector that produces software to keep new software coming at a rate that can be sustainably assimilated. The software producers would then be financially motivated to produce software that is easily assimilated into the community and to provide channels of distribution that hasten assimilation. This would translate into high quality, relevant, software with good support.

So if we can answer the question of how to pay people for producing software without restricting how that software can be distributed we will know how FreeSoftwareCanBeGoodForTheEconomy?.

There is a fundamental flaw in the reasoning: software is not a resource like any other resource - it has special quirks attached to it. But before we go into that we must take notice that there is no free software. In many areas, for example, free Linux is a substantially more expensive proposition than Windows. So free software can't be bad because free software does not exist (at least it hasn't been invented yet, future might change this).

(Yes, but free software is free as speech too, so it's improvable by its users or by companies, and may allow new things and new business, which is good for economy. If a company uses just proprietary software, perhaps just from a single big company, its business has a knot around the neck...)

FaHayek? might say that so long as the laborers are willingly allocated their labor capital to FreeSoftware, it cannot help but be good for the economy. -- MarkAddleman

It seems that what's wanted is a feedback mechanism that causes the economy as a whole to send just enough money into the sector that produces software to keep new software coming at a rate that can be sustainably assimilated.

We already have this feedback mechanism: the free market.

Except for the Microsoft monopoly part.

[The Microsoft way is to keep new software coming at a rate that it must be continuously assimilated, thus reducing the effectiveness of any competitor looking to provide a comparable solution. One could argue that the rate MS produces new software is well above the rate it can be assimilated, thus generating residual business for people who need help keeping up.]

Microsoft's "monopoly" may be the strongest force driving the success of Linux.

Isn't a monopoly created by the people that purchase the software, though? Or does a monopoly exist only when it is enforced? This doesn't make sense, of course; otherwise, practically any system of standards could be said to cause a monopoly for the creating organization. Yes, the free market is the way that a capitalistic society exercises its right to freedom of choice, and thus freedom of monopoly. Free software exists in every plane, at least from a user's perspective, because even Microsoft's software is free to a user if it is pirated, a practice which I detest, myself. Perhaps the free in free software merely means that we are free to choose or not choose it as we will. And this freedom of choice aligns nicely with our economic system which thrives and even lives on competition. We aren't forced on an individual level to accept any alleged monopoly, but we sometimes feel we are due to the massive pressures of marketing and sales hype. Free software gives us an easy way to provide comparison. This easy part is what scares Microsoft and other corporations; they can't see that the value in free software is in usability to both programmer, the creator, and user, who should both use the software and yes, acquire what could be said to be unpurchased gain, but also add to the software uses which are specific to that individual or corporation, and thus add value to the community at large.

As long free in free software is like free in tax free, it cannot be bad for the economy. But when the government starts to force us to the use of free software, then the free should be read as in free fall.

Ask Bill if he would like to drive his costs down by 50%. The answer would be yes. Then free software is good because it makes money available for other things. This is how productivity increases every year. We work longer, for less, and look for cost savings.

A market can only efficiently organize the production of private (rivalrous, excludable) goods. Other mechanisms are required to efficiently organize the production of public (non-rivalrous, non-excludable) goods. When software, naturally non-rivalrous (leading to the free-as-in-beer aspect), is organized as a private good, there is a reduction in total benefit accruing from the good.

The reduction is known as market failure, is bad for society and is caused by the destruction of the externalities which would otherwise have arisen: with software, the benefits of wider usage, improved quality, and usefulness of source. These are the separations of the market institution.

However, if property rights are established in sympathy with the non-rivalrousness of the good with a non-exclusion mechanism (the free-as-in-speech aspect), full benefit of goods can be realized. At this point, software can be recognized as a PublicGood?. The problem this page perhaps refers to is that markets are well known to be unable to (Pereto) optimally provide public goods. This condition is characterized by the PrisonersDilemma, and results in less product as people attempt to easy-ride (free-as-in-ride).

PrisonersDilemma is resolved by overcoming the separations of the prisoners, which happens when the actors in the economy figure out how to improve their lots by some form of joint (or co-) operation.

In effect, actors can 'club' together and agree a certain level of provision, and investment, to rise above the situation where everybody tries to benefit only from others contributions. Often, simple tit-for-tat can sustain investment, and hence development.

Club subscription periods may be multiples of agile development iterations. Club members may steer according to their needs.

We always have this choice: do we organize the production of something within a market institution, or within an economic club. And at the some time we have a concern to establish and maintain the desirable forms of commonality and non-separation (knowledge, language, environment, health, transport, etc.) that would not exist were we to act as if markets naturally organize anything well other than private goods.

The above choice should reflect the nature of the product (private or public) and is clearly not conducted within a market. So who should decide, and where should they make this decision? Is this decision a private good, or a public good? Clearly public.

I wonder what might start to happen if such public policy were organized in a political marketplace...

Thanks, Wiki.

Once the ability to do the new thing has been distributed to everyone, and everyone has taken what advantage of it they can, then there is no more value to be got from the software.

This is why Microsoft introduced the licensing scheme that it has. That most of the bank I work for still runs on NT does not significantly adversly impact the profitability of the business. It is merely a computing substrate - and it has been capable of running the applications we require for a long time. Moving to XP means we can do some new whizzy things but its pretty much window dressing IMHO

Companies will never realise that GPL'ing your old software about a year after it begins to smell bad can actually make you richer and more famous by keeping you productive, as it has John Carmack, unless the people who lead such companies are as smart as John Carmack, which they probably arent. (Sorry, Bill and Steve.)

When Carmack is working, he works hard. When he is not, he takes a lengthy break. But he's also just letting people play around with stuff that he wrote several years ago, and seeing what they come up with.

Imagine being able to do that with (insert name of favorite proprietary company)'s software.