How Privatization and Competition Freed the Web and Made the Modern World Possible

The historical importance of the National Science Foundation's decision to surrender control of the internet

By Milton Mueller, writing for Reason. He reviews How the Internet Became Commercial: Innovation, Privatization, and the Birth of a New Network, by Shane Greenstein, Princeton University Press, 488 pages, $35. Milton Mueller is a professor in the School of Public Policy at the Georgia Institute of Technology in Atlanta. Excerpts:

"One of the book's most welcome strands is its exploration of the ways privatization and commercialization allowed the internet to reach more people and pushed it to generate valuable new services and capabilities at a large scale. Greenstein correctly anchors the web's rise in a global shift toward privatizing and demonopolizing telecommunications and information services around the world. Too often, the accomplishments of market-driven growth and innovation—and the public policies that facilitated them—are taken for granted (or ignored) while attention becomes fixated on how to control, regulate, surveil, or even block e-commerce. Calls for control come from left and right, and can involve the rhetoric of fighting big corporations, protecting national security, protecting children, ameliorating inequality, or resisting U.S. hegemony. All overlook the extent to which the internet capabilities we take for granted rely on market forces and globalized exchange.

The main message that emerges from Greenstein's story is the importance of decentralized decision making. Competition is important, he argues, not simply because it leads to lower prices but because it fosters a "diversity of innovative viewpoints"—a wide range of business models and technical platforms—that ultimately lead to more innovation and better services. While this often leads him to Hayekian conclusions, Greenstein also believes that antitrust can foster this diversity. From the AT&T breakup to the Microsoft browser wars to WorldCom's attempts at consolidating ownership of telecom infrastructure, he argues that antitrust interventions (and the threat of them) helped maintain healthy levels of decentralized decision making.

There are some gaps in this argument, particularly with regard to the Microsoft case. Greenstein documents Microsoft's aggressive actions to crowd Netscape out of the Windows platform, and he convincingly argues that Bill Gates' company limited consumers' options at the time. But his narrative overlooks three things.

First, Netscape's failure was partly attributable to the inferiority of its product. By late 1997, its software was bloated and crash-prone and was beginning to alienate many users. Second, even among those who loathed Microsoft, most of the remedies bruited by the 2000 antitrust actions, such as splitting the company into separate operating system and applications firms, did not seem likely to increase competition much but did threaten to raise compatibility issues. Third, and most important, it's clear that Google later succeeded at what Netscape was trying to do: create an alternative platform to Windows with a broad range of functionalities. You might argue that Google succeeded because a chastened Microsoft was no longer willing to use the same aggressive tactics. But you could also argue that Google was simply a successful innovator and that its ability to leverage its search dominance to create a new platform could not have been stopped.

Greenstein emphasizes the role of NSF funding in the rise of both the internet itself and businesses like Google, but he also makes it clear to any would-be industrial policy advocates that the NSF did not intend to build particular businesses or industries. One of the NSF's greatest successes, indeed, was to know when to pass off control of the internet backbone to the private sector, and to do so in a way that (despite some stumbling) led to a self-sustaining, growing, and innovation-friendly internet infrastructure. He also attacks the myth, especially popular in Europe and Asia, that "governments can financially support technological development for cheap." In the United States, he notes, "the cost of the internet or its future economic benefits did not shape the aspirations of the government. The NSF invested in developing Internet technologies to meet its agency mission, not with the intent of producing large economic gains."

"the abandonment of the monopoly paradigm in telecommunications took place all over the world during the same period, and freer trade in both equipment and telecom services had an important impact on the internet's diffusion and innovative potential. A 1988 change in the International Telecommunication Regulations that liberalized international leased line usage, the 1994 North American Free Trade Agreement, and a 1996 World Trade Organization agreement on basic telecommunications services laid many of the foundations for the global commercialization of the internet, but they are not even mentioned in the book."