Will information goods undermine capitalism?

Information goods are goods whose value derives not from physical characteristics but from the information they convey. In many cases they can simply be copied or downloaded without any cost to speak of (apart from the time spent doing this). Moreover, there is no obvious upper limit as far the volume or quantity of these goods is concerned. They are intrinsically non-scarce or non-rivalrous and, also, ‘non-destructible’ – unlike a physical good.

For instance, by accessing a piece of music on YouTube or an article via Google, you are not denying anyone else the possibility of doing the same. This may very well not be true of a physical good. If I take the last loaf of bread off the supermarket shelf you will, sadly, have to go without at least until the next delivery.

A further characteristic of information goods is that while they have very low or zero marginal costs, their fixed or amortised development costs tend to be particularly high. This cost structure is rather different from the traditional cost structure pertaining to physical goods and, thus, calls for a somewhat different pricing strategy.

Given the non-rivalrous nature of information goods, their zero marginal costs, and the technical ease of capturing or pirating such goods (perhaps in contravention of copyright law), an internet-based business might decide that the most pragmatic thing to do would be to simply abandon the idea of charging for the information goods or service it makes available to its customers. However, while it costs you nothing to have a Facebook page or use the Google search engine this does not mean these commercial entities don’t generate enormous revenues (and profits) for themselves in some other way. In fact, both these entities currently make billions of dollars in profits and even more in revenue. Primarily their revenues derive from advertising (and the copious use of algorithms to more effectively target individual users to benefit their advertisers) though there is also a growing secondary source of revenue in the form of various ‘virtual goods’ or Cloud-based services.

The point is that unless a business like Google was able to make a profit under capitalism it would simply not exist. You and I would not then be able to use its search machine. Being able to freely make use of this facility is contingent upon Google making a profit in the first instance.

As a matter of fact, making this facility free to its users is actually a rather clever way of generating a massive revenue flow through advertising and thus securing a handsome profit into the bargain. People using this facility are a captive audience as far as the advertisers are concerned with adverts being tailored via algorithms, as mentioned, to our own particular tastes and online viewing habits. How many of us would even consider using a Google search engine if we had to pay for it? One suspects only a miniscule fraction of its current users.

Dominated by Big Tech
It is not difficult to see why this kind of commercial activity based on the provision of information goods has come to be absolutely dominated by a tiny handful of very large corporations that have nearly all become household names in their own right. These corporations have the wherewithal to afford the very high development costs incurred. They have the economic clout and reach to shape the industry to suit themselves. For advertisers too, the large size of these corporations has distinct advantages; it provides a platform that enables them to cast their net much more widely – and efficiently – than would otherwise be the case.

Of course, not all information goods are free to the public. Far from it. Internet-based corporations, like Meta (Facebook) and Alphabet (Google), may be able to provide a free service to the public but only because they can cover the enormous, fixed costs all this involves, and make a profit, by making an even larger sum of money primarily in the form of advertising revenue.

However, in the case of other internet-based businesses we see a somewhat different model in place. The information goods and services they provide are not free but are commodified. This is apparent in the case of paywall sites for some online journals or newspapers or else, streaming services like Netflix or Disney. Still other internet-based businesses such as Amazon are engaged in the retailing and distribution of actual physical goods and thus depart even more from the conventional cost structure of businesses purely concerned with the distribution of information goods and services.

However, regardless of the kind of business we are talking about or the type of good it is peddling, the bottom line for any business in a capitalist economy is the need to make a profit. There is no such thing as a free lunch in capitalism. Somebody somewhere ends up having to pay the bill.

Developments like artificial intelligence, the internet of things, robotics and even 3D printing and desktop manufacturing are revolutionising the costs of doing business and shifting the emphasis from tangible to intangible assets. Physical goods are, so to speak, increasingly taking on or incorporating more and more of the qualities or aspects of information goods even though they obviously can never transcend their essential status as physical goods. Or to put it in a nutshell – you can´t have software without the hardware that goes with it

For this reason (and others) information goods are not, and can never be, free in some absolutist sense in a capitalist society as might be inferred from the fact that they – or some of them – can be downloaded effortlessly and without cost to your computer screen; they come with a price (even when the price is not necessarily paid by the consumer but the advertiser in this case).

Too easily beguiled
Some are too easily beguiled by the notion that we are moving, or already have moved, into something called an ‘information-based’ economy. It is the very nature of such an economy, they imagine, stemming from the intrinsic nature of information goods themselves, that has somehow supposedly changed the basic rules of the game, so to speak.

Tom Stonier, for instance, argued in The Wealth of Information: A Profile of the Post-Industrial Economy (1983) that:

‘Whereas material transactions can lead to competition, information transactions are much more likely to lead to cooperation. Information is a resource which can be truly shared’.

Superficially, this sounds all very plausible. One thinks of the crucial role of R&D in industry. A lot of the work of scientists involves collaborating with other scientists and sharing information through peer-reviewed journals and so on. This comes across as all very cooperative and civilised, indeed. Being a ‘non-rivalrous good’, information can be universally shared at virtually no cost. No nasty competition is required.

Its very abundance, goes the argument, means that an information good fundamentally breaks with the logic of the market itself. ‘Plenty’ undermines the rationale for attaching a price tag to a product and, thus, the idea of exclusively owning this product – in this case an information good. Insofar as a price tag is still attached to such a product this can only be explained, it is argued, by the fact that the provider is seeking to perversely, and quite unnecessarily, exclude others from freely using it. The motive of the provider is simply one of self-gain to be achieved by such means as patents and copyrights. In other words, they are asserting an unjustifiable monopolistic hold over the product in question in an age of potential plenty.

Indeed, this, it is sometimes suggested, is precisely why ‘late-stage capitalism’ is today dominated by the existence of virtual monopolies – or, more precisely, oligopolies. Prices are no longer explicable in the conventional terms of supply and demand. Rather they are imposed by diktat by the price makers – namely, those industrial giants striving to enlarge their share of the market in which they operate – to the detriment of price takers, the consuming public.

The basic idea that information technology is – allegedly – more and more bent on subverting the rationale for a market system is a recurring theme in books like Leigh Phillips and Michal Rozworski´s The People’s Republic of Walmart: How the World’s Biggest Corporations are Laying the Foundation for Socialism (2019). Capitalism, according to them, is being progressively hollowed out from within and what remains of it is but a brittle shell that seeks to needlessly confine and imprison the new life forms it has given birth to. These represent its arch nemesis: in particular, information technology.

Such technology, goes the argument, by enabling the application of so- called ‘centralised planning’ within the corporation and, by extension, the suspension of market principles – has the potential to transform society along ‘socialist’ lines or at least, provides us with a model of what such a future society would look like. This in itself is a questionable proposition in some ways, but it is also one that seems fundamentally at odds with the pre-eminent role of big corporations today in promoting market imperialism and commodity fetishism.

We should be more cautious in our assessment of the potential impact of information technology and not get too carried away with fanciful notions of the imminent arrival of what has been dubbed ‘fully automated luxury communism’ (FALC). There is no reason to think that information technology or the enhanced role of information as a factor of production, will somehow in and of itself pose some kind of existential threat to capitalism.

This should be obvious from the standpoint of capitalist businesses. The idea that they would somehow resign themselves to economic suicide seems inherently implausible. Under capitalism, generally speaking, technological innovations tend not to be taken up and developed by businesses if there is no prospect of making a profit by doing so.


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