In the formative years of the industrial revolution it quickly became evident that economic progress depended upon substantial investments in public goods. The economy needed a growing supply of educated workers, so the government created public education. The expansion of trading relationships was made possible, in part, because traders could rely on the judicial system to mediate commercial disputes. Meanwhile, America’s continental network of roadways, railways and power grids helped create the dynamic continent-wide market that catapulted the US into a position of global economic leadership.
The logic remains the same today. Just as the industrial economy needed roads, sewers and public education, we need new kinds of digital public goods to drive innovation in today’s economy. Think open source software, public data, digital courseware, smart grids and the manifold scientific projects that taxpayer money is currently funding. All of these assets could be contributing a great deal more to entrepreneurship and innovation if we changed our mindsets about how best to manage them. Just ask Linus Torvalds, the creator of Linux.
In researching Macrowikinomics, Linus and I talked about the popular notion that open source software undermines the ability of software developers and software companies to make a living, to which Linus replied: “That’s like saying that public road works take away from the private commercial sector.” Even if public ownership of key aspects the transportation network forecloses opportunities for private profit, the gains to the rest of the economy make these losses look minuscule.
For Torvalds, Linux is like a 21C utility. It provides the basic infrastructure on which software developers can build applications and businesses. “It allows commercial entities to compete in areas that they really can add value to, and at the same time, they can take all the ‘basic stuff’ for granted,” he says.
“This is especially important in software,” he continues, “where proprietary source-code at the infrastructure level can actually make it much harder for other players to enter the market. So if anything, open source is what makes capitalism in software possible at all. Without open source, you’d have just a set of monopolies: effectively, economic feudalism.”
In fact, Torvalds finds it rather ironic that those favoring proprietary software would attack Linux as unfair. “At minimum they should accept it as fair competition. We don’t have proprietary lock-in, financial capital, government subsidies, distribution systems, or other advantages of private companies,” he says. “This is not socialism, it’s the opposite – it’s free enterprise.”
The lesson of economic history is that public goods really do matter. Vibrant and sustainable markets rest on robust common foundations: a shared infrastructure of rules, institutions, knowledge, standards, physical structures and technologies provided by a mix of public and private sector initiative. One reason why we don’t have more digital public goods like Linux today boils down to some fundamental misunderstandings about how real innovation occurs today. Lawmakers and other vested interests tend to see calls to further open up infrastructures for communication and collaboration, to enlarge the public domain, or to create a more balanced intellectual property system as inimical to economic prosperity. They say: what goes into “the commons” takes away from private enterprise.
But I would argue the reverse: without the commons there could be no private enterprise. Linux and other digital public goods do not decrease opportunities to create differentiated value; they increase them. It’s just a matter of thinking about value creation differently. One of the things you can get confused about in doing strategy, is losing sight of where real value comes from. If you are constantly creating new value then you have opportunities to harvest that value.
In other words, shared infrastructures that grow and evolve constantly force firms that contribute to them to grow and evolve constantly too. And so long as they add value, there will always be healthy profits.