Home > Government intervention, Hayek, Market Solutions, Regulation > The Internet is Laissez-Faire

The Internet is Laissez-Faire


There are many reasons I believe that the internet is the best example of pure laissez-faire capitalism we have ever seen. The lack of Government meddling is the biggest of course. The internet has very low entry barriers in the developed world and therefore very very few monopolies. Any monopoly (if you can even call it that) that forms, like Google’s market share (which isn’t a true monopoly anyway) is formed because of consumer choice.

The latest Econtalk podcast is with Steve Meyer on the music industry. I think we can all agree that the internet revolutionized the music industry, breaking up big firms and made music more accessible at lower prices than before. As a result, the consumer has an enormous amount of variety to choose from. It’s a great podcast, and as with every Econtalk podcast, I recommend you listen to it.

I originally wrote this comment on the Econtalk comment section:

The Internet is a wondrous thing. The Internet as it stand right now is pure Laissez-Faire Capitalism, with no Government interference for the most part. (China can only censor content they can’t dictate content, yet.)
As a result of the pure market forces, consumers get more value for their money, prices come down as a result of fierce competition and consumers get enormous amount of variety. The music industry is a perfect example.

I totally agree with VA Classical Liberal; “The music industry and radio may be in trouble, but it’s their business model that’s broken. Not the future of music.”
Schumpeter told this story back in the 40’s, Creative Destruction. It’s Capitalism at it’s finest. Old businesses die out (record industry) and give rise to new businesses with consumers getting all the benefits.

I’m really surprised that there hasn’t been more articles or books on how the Internet and Pure Capitalism.

I received the typical pro-government response, that the internet requires government. (I’m paraphrasing, you can read it for yourself, but that is the basic assumption of the reply.) They claim that it’s ridiculous that the Invisible Hand of Adam Smith had anything to do with the internet. This was my reply.

“Are you absolutely certain that the government had a minimal role in establishing the networks”
Yes they did, the Internet concept and early internet was developed under DARPA, I’m sure this is what your eluding too. But, the explosion of the internet as a marketplace was and is completely private.
Who do you pay for your internet service? Do you pay the State or a Private company.
Who developed high speed internet, the State or Private companies?
What web site do you go to to shop, a State run site or a private company?
What do you use to buy music online, a State run site or private company?

But I think your missing my point. I’m not talking about the development of the internet, but the internet as a marketplace.
As a marketplace, there is virtually no government interference or regulation. Sure there is government checks on the brick and mortar companies like Google or Microsoft, but on the actual Net, there is none.

It’s pure Anarchy on the internet, but rules have emerged, which is very Hayekian. Sure there is fraud and abuse, but no more than in a system with Top-down government control.

Yet as a market, the internet requires an enormous amount innovation in order to stay profitable. Firms can’t relay on Government regulation for competitive advantage like they do in the real world.
For example, Itunes can’t rely on zoning laws or licensing restrictions to create a market, like they might be able to in the real world to keep out competition. I know for a fact that this happened in Vegas by UNLV, where Tower Records had tried to get the city to revoke the business license of a popular used cd store. It was big news in the college paper, because the used store, Big Bs, was really popular with the students. Of course now, only Big Bs remains, because like Meyer was talking about, they sell vinyl.

Competitive advantage comes solely through market innovation and consumer satisfaction. It’s about as close as we can get to perfect competition, that they teach in principles. Itunes has to provide what the consumers want and at a competitive price to stay profitable. It can’t rely on Government regulations to secure a market share.

That’s my overall point. In the absence of Government regulation and interference, the Internet has thrived and offered more innovation and consumer “happiness” than anything in the real world. Of course me being a free-market type, I see that consumer surplus as a result of no government interference.

Of course there is plenty more. The internet is the only true Free Trade zone on the planet. The only thing stopping someone in London from buying a shirt from a guy in Nigeria, are shipping costs. There are very few barriers to trade and as a result everyone is better off. I am much better off being able to buy things off Ebay or Amazon than having to go down to the local big box or even Mom/Pop store to buy my products. Prices are much cheaper and my choice is much greater. And guess what, those Mom/Pop stores are alive and well on the internet; Ebay and Amazon stores. They can compete with Wal-Mart on the internet, where they can’t in the real world. So really everyone is better off.

Government hate the internet because they can’t control it. They can’t tax it. Political groups love it because it can spread information they want to the masses. They hate it because they can’t censor information that don’t want to go out to the masses. MSM hates it because it exposes the MSM for what they are, biased. Again there are plenty of examples to go around.

Think about this, would we have ever known about the protests in Iran without Twitter? Would we have known how much of a fraud Obama is without the internet? In my view, the internet because of its laissez-faire and uncentralized nature is completely and diametrically opposed to Government. The internet is freedom, which is why Government all over the world want to regulate it. Government always see Freedom as dangerous. Which side do you want to be on?

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  1. yttik
    March 23, 2010 at 10:11

    Well I guess that makes me a big fan of laissez-faire capitalism then. I love the wild frontier that is the internet, in spite of it’s hazards. I also love farmers markets, swap meets, and people selling wares out of the back of their trucks. Micro economies. Over the last decade or so the local Gov has stepped in to regulate and monitor these things, seriously damaging our local economy and people’s ability to provide for themselves. This is rural area and there aren’t a lot of jobs so people learn to create their own. That’s become very difficult as the Gov clamps down more and more. To simply sell hand made jewelry off a TV tray now requires a 500 dollar venders permit.

    At one point the old printing presses were illegal. Communication is a powerful tool and in those days there was fear that if people could print flyers and leaflets, who knows what trouble they could cause. It’s hard to get a good revolution going when you have to hand copy all the subversive literature. Not much has changed since those days, the old fears about being unable to control what information people share is still alive and well today.

    • March 24, 2010 at 15:56

      Of course the Government does it because you obviously can’t protect yourself right? Your obviously not well enough informed to make those decisions for yourself, here let Big Brother help you out!

      Ha ha, The internet and subsequent computer industry is the most innovative industry in the world. The Internet and computer industry are probably the least regulated in the world. Correlation?

  2. April 1, 2010 at 10:32

    Political power is maintained at the gates of information.

    The first printing presses caused the 30 Years War of the Reformation by changing the religious thinking of huge masses of people.

    The gatekeepers lost – regrouped – and used their wealth to acquire the presses, then promote “copyright laws” to further protect their interests. Soon a handful of printing outlets produces all the books and it was their editors that decided “which books get printed”.

    The Internet bypasses the gatekeepers. They were too slow and ignorant about its power. But they are not stupid.

    The lesson of the printing press must be applied to the Internet as a warning.

    • April 2, 2010 at 05:18

      Oh yeah I agree 100%. Politicians are going to try and control the internet. One thing in favor of liberty is that soooo many people use it already, that any change will be resisted. It’s almost cultural at this point. That’s not to say that Governments can’t corrupt it though. They are already trying to.

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