Publishing in the twilight of the printed word: Why hasn't the Internet produced more economic growth?

by John MacBeath Watkins

The pundits are trying to work out why the Internet has failed to produce much economic growth. What do you think, should we tell them?

Most of the analysis I've read has skimmed over the obvious fact that much of what the Internet has done is turn paid work into work that isn't paid. Economics is about the economy -- not about our quality of life in general, but about the economic part of it.  When something is taken out of the economic sphere, it is no longer reflected in economic statistics. And if economics is what you're talking about, those are the statistics that matter.

For most of the 20th century, the music industry was growing and more and more people were making more and more money out of it. People showed that they were willing to pay for music, and the industry was, to put it bluntly, rather rapacious in its pricing.

But computers can provide exact copies of information at almost no cost. And preventing people from pirating such information has proven nearly impossible. As a result, the recording industry has been hit pretty hard, employing fewer people and paying them less.

Newspapers, consistently profitable for the entire 20th century as long as they had a bit of turf of their own, are another area where work that used to be paid for is now consumed largely for free. In addition, newspapers have been disaggregated -- their classified ads, once a profitable part of the business, have largely gone to Craig's List. Their stories appear for free on the Drudge Report and elsewhere. Clicks are nothing like as profitable as subscriptions.

As a result, the nation now employs at least 25% fewer journalists than it did in 2001. This is not just the industry getting more efficient, it is less work being done. Fewer newspapers have bureaus in state capitols or our national capitol, so less information about the way government affects their readers is being gathered and written. When less is written about how politics affects localities and the gap is filled by partisan bloggers, our politics become less regional and more partisan.

If the ability of computers to more efficiently copy and distribute information were simply making the news industry more efficient, that would be a tragedy for pressmen laid off, balanced by the benefit to the consumer of news. If less news is gathered, that's a tragedy for society as a whole. It is also, in economic terms, not exactly a contributor to economic growth. Yes, the consumer benefits by getting news for free, but what is free is by definition not economically valuable. Unlike the "creative destruction" described by Joseph Shumpeter when resources go from a loss-making business that fails to a business better able to make use of resources, this is the destructive destruction of taking economic activity completely out of the economic realm.

The book publishing industry has dragged its feet on getting into the e-book business for this very reason, but technology is overtaking them now. E-book pirating is already a problem in Japan, where there are businesses that will scan your physical book into an e-book for you. This forces the publishers' hand, because if they don't provide an e-book, someone will, but they must be aware that iTunes hasn't eliminated people downloading music for free. It's given people who want their music in MP3 format the opportunity to be honest, but it certainly hasn't eliminated pirating.

The Internet has provided some new kinds of businesses an opportunity to grow, but given how much formerly economic activity is now outside the economic realm, can we really be surprised that it hasn't made the economy as a whole grow more?

More on publishing in the twilight of the printed word: 


  1. Excellent points! My only real question would be -- this being America -- there clearly has to be a profit being made or the whole thing would have been abandoned faster than the first electric car. So, who's making the money?

  2. What's being abandoned are the activities that are no longer profitable. The benefit is going to pirates, of course, in the music biz, and free riders in the news biz. Somehow being a free rider sounds more like motorcycle gangs than pirates, but they are pretty much the same folks with different technologies.

    Anyway, if all your customers are free riders, where's the fun in hiring people and investing money?

  3. Or did you mean the Internet would have been abandoned? It's making some money, but disrupting other kinds of businesses without providing an alternative source of jobs and revenues. Thing is, once you've got the digital copy out of the lantern, there's no putting it back in, so you're stuck with selling digital copies that are easy to pirate. Craig's List makes money, but nothing like as much as newspapers did by selling classifieds, and it has disrupted the model for newspapers. If gathering news doesn't pay, the activity of news gathering will be abandoned. I wouldn't mind throwing it on the ash heap of history if it weren't for the fact that our model of government and society sort of depends on there being a news business.

  4. Valid points all, but I was suggesting perhaps a wider picture. What disappears with this kind of cultural transformation -- think of the coming of tv killing the movie studios, etc. -- can look like a democratization of the culture, but the reality is usually just a shift of money and influence from one set of investor-pirates to another, or from one pocket to another, and ultimately, a strengthening of the kleptocrats power. Meanwhile, thousands thrown out of honest work, unions destroyed, small business and community structures undermined, so that every gain of generations has to be retaken.

  5. Not, however, the effect the Internet has had. Television moved the serial movie from the studio to the living room, but didn't take it out of the economic sphere. Instead of shifting economic activity form one medium to another, it destroyed the value held by some investors, the jobs held by some workers, while not replacing them with new jobs. Of course, outside the music and news business it has created some jobs and some value, but I do wonder if it has created as much value as it has destroyed.

  6. A situation that might be analogous to the publisher who must provide an e-book because the book is being pirated would be block busting.

    In the 1960s a Realtor would sell one house on a block in a white neighborhood to a black family, on the theory that the whites would flee, and all the houses on the block would sell, so the Realtor would get the commissions.

    Even if you were fine with a black family on the block, you would be well advised to sell, because the neighborhood would soon be redlined by the banks, and no one could get a loan to buy the house, and you have to charge a lot less for a cash sale.

    Because Realtors relied on commissions rather than appreciation for their income, they could make money by destroying value. This is part of why I think market liberals fall into the just-world fallacy: It's possible for markets to be structured in such a way as to reward destroying value.


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