Friday, June 11, 2004

NEWS: Antitrust Smackdown

Wired 12.06: VIEW



Pat Mooney
Executive director, ETC Group
There have been 11 negative studies on nanotech's effect on health and the environment, and they're coming from DuPont and NASA and major universities, not from Greenpeace. Meanwhile, products with nanomaterials are slipping through FDA loopholes and making it to market without proper testing.

* Start

* Sun is just a pawn in Microsoft's game
* Linux's potty-mouthed programmers
* The 20-MHz running shoe
* The Great Egg of China
* Desperately seeking Sasquatch
* More »

* Play

* Inside Spielberg's Terminal
* Simball wizards and open sourcery
* Geeking out at Seattle's sci-fi museum
* Fetish: Technolust
* Test: Consumer reviews
* More »

* View

* The organization outsmarts the CEO
* Hot Seat: Time Warner's cable guy
* Sterling: How political purges will kill American science
* Lessig: Europe's swat at Microsoft hits us all
* More »

Kevin Ausman
Executive director for operations, Center for Biological and Environmental Nanotechnology, Rice University
It's always dangerous to take early studies and try to make generalizations. Nanotech is certainly not completely new or unnatural. Natural nanomaterials are released in the environment - through forest fires, volcanic eruptions, diesel exhaust. Once we figure out what's analogous to current systems, we'll find that we have already done a lot of the work of testing.

Christine Peterson
President, Foresight Institute
A huge number of new chemicals are produced every year, and 85 percent of those submitted to the EPA have no health data at all. But bringing the industry to a standstill is not the answer. The way to drive forward is to speed development of molecular manufacturing.


American companies are suffering from a personality crisis. They talk about the virtues of flattened hierarchies and bottom-up organizations, and they laud the genius of the market. But when it comes to what they actually do, companies prefer authoritarianism to democracy. Success, most corporations assume, depends on the efforts of a few superlative individuals. As a result, they treat their CEOs as superheroes, look on most of their employees as interchangeable drones, and remain fond of command-and-control strategies that wouldn't have been out of place in the Politburo. In doing so, firms are neglecting their most valuable resource: the collective intelligence of the organization as a whole.

Instead of looking to a single person for the right answers, companies need to recognize a simple truth: Under the right conditions, groups are smarter than the smartest person within them. We often think of groups and crowds as stupid, feckless, and dominated by the lowest common denominator. But take a look around. The crowd at a racing track does an uncannily good job of forecasting the outcome, better in fact than just about any single bettor can do. Horses that go off at 3-to-1 odds win a quarter of the time, horses that go off at 6-to-1 win a seventh of the time, and so on. Decision markets, like the Iowa Electronics Markets (which forecasts elections) and the Hollywood Stock Exchange (which predicts box office results), consistently outperform industry forecasts. Even the stock market, though it's subject to fads and manias, is near-impossible to beat over time.

By contrast, while it's clear that some CEOs are excellent leaders and managers, there's little evidence that individual executives are blessed with consistently good strategic foresight. In fact, in an extensive study of intelligent CEOs who made disastrous decisions, Dartmouth's Sydney Finkelstein writes, "CEOs should come with the same disclaimer as mutual funds: Past success is no guarantee of future success." Even when executives are smart, they have a hard time getting the information they need - at so many firms the flow of information is shaped by political infighting, sycophancy, and a confusion of status with knowledge. Hierarchies have certain virtues - efficiency and speed - as a way of executing decisions. But they're outmoded as a way of making decisions, and they're ill-suited to the complex strategic landscapes that most companies now inhabit. Firms need to aggregate the collective wisdom instead.

One intriguing method of doing this is to set up internal decision markets, which firms can use to produce forecasts of the future and evaluations of potential corporate strategies. Few companies have tried such markets. But the few examples we have suggest that they could be very useful. In the late 1990s, for instance, Hewlett-Packard experimented with artificial markets to forecast sales. Only 20 to 30 percent of employees participated, and each market ran for just a week, with people trading at lunch and in the evening. The market's results outperformed the company 75 percent of the time. Even more impressive was a recent experiment at e.Lilly, a division of Eli Lilly, which set up a market to test whether it was possible to distinguish between drug candidates likely to be approved by the FDA and those likely to be rejected. Realistic profiles and experimental data for six hypothetical drugs were devised by e.Lilly, three of which it knew would be approved and three rejected. When trading opened, the market - made up of a diverse mix of employees - quickly identified the winners, sending their prices soaring, while the losers' prices sank.

The evidence is clear: groups - whether top executives evaluating a potential acquisition or sales reps and engineers analyzing a new product - will consistently make better decisions than an individual. Companies have spent too long coddling the special few. It's time for them to start figuring out how they're going to tap the wisdom of the many.
James Surowiecki (jamessuro@aol.com) is The New Yorker's financial columnist and the author of The Wisdom of Crowds.

VIEW|hot seat

Cable TV is like a crappy pizza joint: You can order a small, medium, or large pie, but you can't design your own - and no slices. Put off by increasing cable TV fees, US senator John McCain aims to introduce legislation to force providers to offer an à la carte menu as a way to rein in monthly bills and expand subscribers' choices. We asked Time Warner Cable chair and CEO Glenn Britt to get in front of any regulation and give his customers the option now.

WIRED: You're already giving us video-on-demand and DVRs. Isn't à la carte cable TV the logical next step?
BRITT: À la carte is really a step backward - you would end up with a lot less choice, less diversity. People like having maximum choice. We carry many channels that appeal just to niche groups and minorities. It's by no means clear those could survive in an à la carte regime.

So those channels aren't really supported by the marketplace. If I could pay for just the channels I want, I'd be a lot more valuable to advertisers.
Cable isn't about having a few channels that appeal to everybody, it's about having a lot of channels that appeal to everybody. You may not watch C-Span every night, but it's good to know it's there.

Sure, good for C-Span and Time Warner. But as a consumer, I'd rather lower my bill by paying for only the channels I actually watch.
The myth is that if you pay $60 a month and get 100 channels, then you could buy 50 and cut your price in half. That isn't how the economics work; there are a lot of fixed costs. You'd most likely end up with people paying the same amount of money for fewer channels. It's analogous to a newspaper or magazine. Hardly anybody reads every article in the paper; you read selectively. But nobody says, "Gee, you should only buy the sports section if that's all you want."

Cable and satellite are in cutthroat mode. Couldn't à la carte be an opportunity for you to differentiate Time Warner Cable from its competitors?
If that's what people wanted, yes. But the assumption is wrong. Every time we've tried to offer more packages with fewer channels - more toward à la carte - consumers always went for the big packages. People actually like this service, which is why 90 percent of the homes in the country buy it.

- Lucas Graves


The Union of Concerned Scientists in a February report pointed out something the science press has known for years: The Bush administration has no respect for science. Ideologues prefer to make up the laws of nature as they go.

Presidential science adviser John Marburger complained that the UCS's account sounded like a "conspiracy theory report." That's because it is one. As the report amply documents, the Bush administration has systematically manipulated scientific inquiry into climate change, forest management, lead and mercury contamination, and a host of other issues. Even as Marburger addressed his critics, the administration purged two advocates of stem-cell research from the President's Council on Bioethics.

When politicians dictate science, government becomes entangled in its own deceptions, and eventually the social order decays in a compost of lies. Society, having abandoned the scientific method, loses its empirical referent, and truth becomes relative. This is a serious affliction known as Lysenkoism.

Trofim Lysenko was Joseph Stalin's top stooge in Soviet agricultural science, a field that was mercilessly politicized by fanatics. His specialty was inventing nutty schemes - things like stimulating the evolution of trees by overcrowding them to get them to cooperate, as though they were communist minions. This totalitarian huckster spent his whole career promising exciting results and bringing about only disaster. But the party never judged itself on results, so he always got a free pass.

Politics without objective, honest measurement of results is a deadly short circuit. It means living a life of sterile claptrap, lacquering over failure after intellectual failure with thickening layers of partisan abuse. Charlatans like Lysenko can't clarify serious, grown-up problems that they themselves don't understand.

State-sponsored pseudoscience always fails, but slowly, like a wheat field choked with weeds. (This is a particularly apt comparison, because Lysenko claimed that the weeds infesting Soviet wheat fields had evolved from the wheat itself.) It fails in predictable ways, and these are the very ways in which the Bush science policy is going to fail.

The rot begins to set in when honest local institutions, appalled by high-level misdeeds, denounce federal policy as corrupt and corrupting, just as the UCS has done. There will be much more of this: congressional investigations, high-minded committees. Government officials will temporize by getting scientists to "compromise" and "split the difference" between actual science and partisan jiggery-pokery. This will fail because science just isn't politics. You can't legislate that E=mc21¼2.

Before long, the damage will spread beyond our borders. International scientific bodies will treat American scientists as pariahs. This process has already begun in bioethics, meteorology, agriculture, nuclear science, and medicine, but doubts will spread to "American science" generally. (In Lysenko's heyday, when scientists abroad came across a halfway-decent Soviet scientist, they would charitably offer to publish his books offshore, then maybe help him defect to someplace where he could get serious work done.)

Meanwhile, gaps will open between research establishments in the US and other countries, much like the one that now yawns between American and Korean stem-cell producers. US science will come to have a stodgy, old-fashioned, commissar-style inability to think and act freely. Yankee initiative and ingenuity will bow to bulging pie-in-the-sky superprojects like unproven antimissile systems, hot-air broadband initiatives, and swashbuckling moon shots.

Eventually the whole vast bubble will burst of its own fairy-tale unreality. Few will be held accountable. The quackeries will be purged, forgotten, hushed up. Except, that is, for the lasting effect on the health, morale, and self-esteem of the American people.

Trofim Lysenko was a funny case. He had the authority to reduce a major scientific-research power to a dismal Burkina Faso with rockets; he left behind practically no scientific achievement or discovery. As a scientist, he was a nonentity, but his menace is universal. Wherever moral panic, hasty judgment, arrogance, fear, brutal partisan ignorance, slovenly standards of research, overcentralization of authority, conspiratorial policymaking, jingoism and xenophobia, and spin-centric travesties of disinformation can flourish, Lysenko's spirit will never die.
Email Bruce Sterling at bruces@well.com.


Microsoft will appeal its second significant antitrust defeat in June. This time, the loss is Europe. After the company failed to persuade regulators that its practices benefit consumers, the European Commission fined Microsoft $600 million, and imposed a series of restrictions that go far beyond those ordered by the US over three years ago.

It's no surprise that the company lost again. Much of the European case was a rerun of US v. Microsoft. Nor is it a surprise that the result is harsher. That's the nature of competition law in Europe. But this rerun with a kicker shows the profound harm that disharmonized antitrust law does to competition in general - and to Microsoft in particular. The kicker here goes one antitrust theory too far.

The EC charged Microsoft with tying Windows Media Player into its operating system. That makes it harder, the EC says, for similar media products (like RealAudio) to compete. The commission thus ordered Microsoft to offer two versions of Windows: one with the media player, and one without.

Tying was at the core of the US case as well. But the tying alleged by the US was different, at least in part, from that alleged by Europe. In the US lawsuit, the government proved that Microsoft was using its power to defend its Windows monopoly against OS competition. (Disclosure: I served as special master in the dispute, advising the government on the technological issues of the case until Microsoft got me removed in 1998.) By "integrating" Internet Explorer into Windows, the company made it harder for other browsers to compete. That was an antitrust problem because the other browsers were thought (at least by Microsoft) to be the first step toward a platform-independent network - if developers started coding for a non-Microsoft world, then the power of the company's OS monopoly would begin to erode.

Economists are increasingly skeptical about whether, in general, tying actually harms competition. The only clear case is when a monopoly ties a product to protect its market dominance - as the US proved Microsoft did. Yet that theory is subtly, and significantly, different from the EC's theory.

European regulators argue that Microsoft is tying its OS to an application (a media player) to ensure dominance in the application's market. If Windows Media Player is everywhere, then everyone will develop content to its standards only. That will tip media-content development to a single platform, the EC worries, and weaken competition in applications to develop and spread that content.

Maybe. But a media player is not an operating system. And while dominance in a particular market will certainly benefit the underlying OS, as long as the media app continues to be available on alternative operating systems, it doesn't further tilt a platform war. Admittedly, Microsoft was slow to maintain cross-platform compatibility, but versions of Windows Media Player are now available on platforms from Mac OS X to Solaris. Microsoft has also licensed the technology to the makers of other media players. This clearly promotes the use of Windows Media Player, but its popularity doesn't depend on Microsoft's OS monopoly.

The EC ruling shows that Microsoft continues to suffer the unending burden of a silly defense and an undeserved victory in the US case. Its Alice in Wonderland arguments eroded Redmond's credibility to anyone who knows anything about how software actually works. (Sophistry about whether it was possible to separate a browser from an OS might earn you a hearing in a federal court, but it earns you only contempt everywhere else.) And when the Bush Justice Department's subsequent actions effectively reversed the US district court ruling, it only strengthened the resolve of others to pick up where the US had left off.

Microsoft has tried to signal a break from its past. The EC decision shows it has not yet succeeded. Although there have been many changes at the company, many of us still believe it will use its power to protect itself against competition. And as the spread of Linux increasingly suggests that life without Microsoft is possible, the world will be even less concerned with imperfect justice in its response to a proven monopolist.

That's too bad - for competition, and for Microsoft. The burden of answering many conflicting masters is costly for any competitor. And if every Microsoft innovation launches an antitrust investigation, then innovation will move to companies that don't pay such a high price. Microsoft needs to solve its antitrust problems. Soon.
Email Lawrence Lessig at lawrence_lessig@wiredmag.com.


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