An Economic Theory of the Commons

Why are city streets and sidewalks critical to the success of Main Street businesses? Why has the Internet proven to be such a powerful stimulus to the economy? And what about all the social, civic and personal benefits that flow from these resources? Economics tends to ignore the actual value of free expression, neighborliness and informal sharing, but shouldn’t our public policies recognize these genres of non-market ?value? as worthwhile in their own right?

These are the sorts of questions that are addressed in a wonderful new law review article by Brett Frischmann, a professor at Loyola University Chicago School of Law. His essay, “ An Economic Theory of Infrastructure and Commons Management,” (89 Minnesota Law Review 4, April 2005) is a substantial contribution to the literature of the commons, especially non-depletable commons such as telecommunications networks, information and culture.

At 113 pages and 408 footnotes, Frischmann’s piece requires a bit of a commitment to read, at least for the layperson. But diligent readers are rewarded with a rigorous, clear-headed explanation of the economic and social benefits of commons-based infrastructures. Such infrastructures consist of such obvious things as highways, the Internet, telephone networks, schools and sewers, but also other fundamental resources such as the environment.

The basic problem with relying on markets to allocate access to common assets, Frischmann explains, is that

…the market mechanism exhibits a bias for outputs that generate observable and appropriable returns at the expense of outputs that generate positive externalities [public benefits that cannot be captured by market players]. This is not surprising because the whole point of relying on property rights and the market is to enable private appropriation and discourage externalities. The problem with relying on the market is that potential positive externalities may remain unrealized if they cannot be easily valued and appropriated by those that produce them, even though society as a whole may be better off if those potential externalities were actually produced.

“Positive externalities” are precisely those “goods” that benefit all of us, as commoners – clean air, access to information, an open Internet, functioning ecosystems. Yet neoclassical economics and the laws based on it generally discount or ignore these types of value; they assume that monetized forms of individual property are the only important types of value worth maximizing.

By looking at “infrastructure” through the lens of the commons, however, we can begin to appreciate the positive, non-market externalities that a resource actually generates – and begin to design public policies to protect these benefits on their own merits. For example, a lake is not just a source of water that can be owned or sold, Frischmann notes. A lake is also a resource that enables all sorts of fish and wildlife to flourish as part of an intact ecosystem. It is also a part of our social environment that inspires “artwork, literature, memories and culture.” The market, however, has trouble assigning a proper value to these non-market externalities.

Frischmann’s argument is focused on treating the infrastructure of telecommunications networks as a commons. This is an important theoretical contribution because it fills a gaping hole in economic theory, which presumes that there are only two serious choices for managing the Internet – private markets or government control. Frischmann shows how the Internet creates value as a commons – and the value created is not just conventional economic value (goods and services sold in the market), but all sorts of social, cultural and personal value that market theory can’t begin to appreciate (easy communication with one’s family and friends, casual sharing and dialogue with strangers, etc.)

By rescuing non-market value from the theoretical oblivion to which economists have consigned it, Frischmann gives us a compelling policy argument for maintaining the Internet’s open, end-to-end architecture. Professor Lawrence Lessig weighs in at the end of Frischmann’s piece with a brief reply, offering some useful elaborations and quibbles with the general analysis. Thanks, Brett, for a nourishing new economic theory of commons infrastructure!

Originally published by David Bollier at Onthecommons.org under a Creative Commons Attribution license.