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Kim Dotcom's locker may be full, but the cupboard is bare

Reduce the value of creative work to the value of its storage? That's not smart

Internet Security Threat Report 2014

Comment Do you fancy your chances with Kim "Dotcom" Schmitz's new online file locker? It's staggeringly unoriginal in every respect - it's even called Mega, like his last one - but I'll propose we think about it in a new way. So I haven't come to mock the rotund self-promoter, but rather to talk about what might happen if its users were to throw themselves at the service to share copyrighted content.

In the background, Dotcom is fending off claims by the US authorities that he and other operators of his previous file-hosting site, Megaupload, were responsible for any copyright-infringed content uploaded to the site. He has always maintained his innocence. Dotcom told The Graun on Friday that Mega "was never set up with the intent to be some kind of piracy haven".

His new website - a cloud-based system that encrypts stored files - has several privacy features that Forbes has called "See No Evil, Store No Evil". But perhaps that should be "see no value, store no value".

First, a history lesson: Establishing that everything has value

One criticism of the monetarists during the Thatcher years was that they "knew the price of everything and the value of nothing". It's a magnificent phrase: a withering encapsulation of the view that value doesn't merely reside in a price. It also strongly implies that these individuals were guilty of philistinism.

This condemnation was a response to some radical changes. After many years in which the supremacy of technocratic planning had been unquestioned, Britain in the 1980s saw supply-side reforms introduced in many areas. These were intended to reveal a pricing signal. John Birt's Producer Choice at the BBC - which gave programme makers the power to buy services from outside the BBC - was one example, and internal markets at the NHS were another.

Enthusiasts for the changes argued that while the new systems coughed up occasional absurdities, the internal markets put a price on goods which ultimately allowed resources to be used more efficiently than a central planner could anticipate.

People responded to the pricing signal by thinking about how they used things. They began to use things more cleverly, and source alternate supplies, for example. The "value of nothing" was a response to the fact that "somethings" had a value beyond the immediate market price signal. For example, we might want to subsidise a good or service (like transport, or coal power) for a long-term benefit.

Now let's wind forward to today: Where the file-sharing sites are going wrong

Something quite remarkable emerges. Paul Sanders of music business Consolidated Independent and State51 is a savage but constructive critic of the music industry. We quote him with permission.

Of course Dotcom's Mega isn't original - Sanders points out - because storage company Wuala has used a similar business model for several years. Wuala is a personal file-sharing service bundled with LaCie hard drives. Originality is not the point. Look what all the "locker services" are actually doing:

"All these businesses do is take something digital and reduce the value of it to the value of storage. That's not particularly smart," he points out, with an analogy to illustrate:

Imagine, perhaps, a food market where everything cost a dollar a kilo. Suppliers would soon learn that they needed to produce at 50 cents, or find another way to do business.

Indeed, a market where food was flat-priced would soon be bereft of Blue Mountain coffee beans, and have lots and lots of turnips. The turnip producers would be delighted. But not for long.

"Consumers would have a feeding frenzy while the fun lasted. With music it might take another few years, but [these locker services have] nowhere else to go if [they set] out down this path."

Getting to people to pay for things is not the problem

The error that characterises so much copyright rhetoric emanating from the utopian camp is one of wishing away value, or pretending it doesn't exist. There are so many dubious, and at times outright bogus arguments here I won't dwell on them. There is little disagreement that if we abolished intellectual property tomorrow there would be a huge party - resulting in a welfare benefit. But not for long. Then the trouble would start.

The question is whether there is greater long-term benefit in realising the value that isn't being tapped: future economic growth from trading rights, and this is a question with only one answer.

People pay for what they like - and do so happily. They'll pay for any daft bit of convenience. Getting to people to pay for things is not the problem.

I am not aware of any study that shows anything to the contrary, that weakening or removing tradeable rights is good for the economy. (The UK's Intellectual Property Office attempted to do so last year but the report justifying the move was so paper-thin - the projected benefits have been subsequently revised down by 97 per cent, once real economists had a look at its sums). So the smart move is not to destroy value, to flatten it - but to try and innovate a bit to unlock it.

"Smart in this world is aggregating, organising, and then delivering compelling services on top of storage and metadata. This is something Kim Dotcom has denied himself the opportunity to attempt," says Sanders. "It's not game over for copyright as we need a tool to build contracts and incentives around in the added-value world."

Much of this is plain common sense, and something you already know. (An interesting side-argument is that 'white hat' companies such as Spotify similarly flatten and destroy value - which is why refuseniks like Black Keys and Adele don't put their music into the service.)

But here's the punchline. There's an irony here we should mention. Many of the same people who opposed the markets in the 1980s because they didn't value things, now argue that things shouldn't be valued at all.

Internet utopianism entails a rejection of economics, a compression of all value to a flat price which may be low, and is often zero. Such arguments are advanced with a quite bloody-minded insistence. Partly as a consequence, the digital economy today isn't much more advanced than Somalia's real economy. Perhaps these utopians are being philosophically consistent, in a sense: they didn't like markets then, and they don't like them now. But they've come to resemble what they most hated, philistines who reject value - and it's quite an ugly sight. ®

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