Original URL: http://www.theregister.co.uk/2011/11/03/google_review_hargreaves_explains/

The Google Review, explained...

Immense wealth awaits. Email Ian Hargreaves with bank details, statute book

By Andrew Orlowski

Posted in Government, 3rd November 2011 10:03 GMT

Now we know why what was widely called the "Google Review" into intellectual property came to the conclusions it did. And we have it from the horse's mouth: not Google, but Professor Ian Hargreaves and his team at the IPO, who "guided" him.

If you recall, a year ago the Prime Minister David Cameron revealed that the Google founders that they could never have founded Google in the UK, because of its copyright law. Even Google could never substantiate the quote, or provide a citation. Rather than getting a public inquiry, and shaming, of a foreign corporation for misleading our PM so badly – Google got the government to explore how the law could be altered... to benefit companies like Google.

So the review began with a mistake, and its guiding philosophical idea was a naive, simplified, and fantastical version of the world. This set the tone for what followed.

Hargreaves came across as wry and likeable, as he always does, but his words revealed the bien pensant view of the internet, its potential, and its commercial challenges.

Ian Hargreaves

"Politicians are afraid to address [copyright] because of fear of damaging the entirely legitimate and desirable wishes of musicians and other creators to have a fair level of protection, so they can make a return on their own work. I do disagree how this machinery has spread, and become an undesirable regulatory restraint on the internet [our emphasis] and the internet's effects on the economy.

He continued:

"That is a very, very big risk for an advanced knowledge economy like the UK to run. In my view we can't afford to run it. It's urgent; the government has to take the action I have recommended it take".

The sky was falling, he'd felt a piece of it land on his head. And he hammered home this urgency in his conclusion, in case you missed it:

"The digital revolution is not one-third complete, based on the penetration of the internet around the world. If we don't 'Get with the Pace', we will pay a significant economic price."

There are several flaws to this approach.

The graph below illustrates the recent commercial fortunes of two technology companies. One of these has negotiated with incumbents and innovated to establish platforms that create new markets. It didn't lobby for the rules to be changed. It worked with what rules there were. It created an explosion of economic value.

Fortune favours the brave: not the lobbyists

The other company, by contrast, lobbies intensively for the rules to change (one of the recipients of its cash shared the stage with Hargreaves), so its costs can be lowered. It's why we were here. The first is Apple, and the second is Google.

Now, what this shows that there is more than one approach to dealing with incumbents and the legal and regulatory status quo. The empirical data here clearly tells us that platform creation within the rules is not only possible, but actually far more lucrative than the slightly sleazy backroom business of lobbying for the rules to be changed. It also demolishes the "pace" argument – which is an appeal to the Precautionary Principle: that if we don't do something drastic very soon, we'll face a far greater cost. (See Iraq, WMDs). By creating markets for digital content, Apple ran counter to the perceived wisdom of internet gurus that people would never pay for it. Newspapers have followed suit with paywalls, with some success. Apple killed Free.

Hargreaves' view of internet growth is based on one particular view of the world – and it happens to be one one that isn't very good at producing growth. Hargreaves is evidently a decent and intelligent man, he is just basing his judgments on a view of the world that is Utopian, and feels very dated. This leads to the other problem, which is that his argument is based on exceptionalism, and makes demands of groups that it shouldn't.

Viewed sociologically, the argument is that one group needs to become weaker, just so another can prosper. History shows that time and again, technological innovation allows many parties to prosper – no technology content market has yet done otherwise, or removed rights. If I was an internet guru, I would call this the Orlowski Principle, and Tweet it like mad. But it's actually the way good policy is conducted since the Enlightenment.

Yet for some reason, Google prefers to seek to change the rules rather than create new markets. Your speculation on why they adopt this approach might be is as good as mine.

This Google isn't working

Google isn't very good at consumer products, as the late Steve Jobs told Larry Page, but it should be able to do large scale platforms. Maybe it isn't very good at doing the negotiations – with finance and creative industries – needed to push this through. Maybe all of its best ideas are invisible. Maybe it doesn't do ideas. Maybe it's innately fearful and conservative – as large record companies were for years, clinging to the CD, and failing to create digital markets or physical replacements.

Google is still a one-club golfer, and that club, its advertising brokerage, doesn't really begin to unlock the potential value – as Apple's content store has shown. Whatever the reason(s) may be, academics such as Hargreaves seem not to have really taken these developments on board: they appear only too keen to endorse Google's view as the one true way of achieving growth.

For Hargreaves, the internet creates such a unique, singular moment of historical anxiety, we can suspend traditional ideas of fairness. It shouldn't make us deaf, though.

The rest

I'll compress the rest of the discussion to the most emblematic highlights.

Hargreaves was sharing this Guardian panel with Culture Minister Ed Vaizey; Jeff Lynn of new lobby group Coadec (Coalition for a Digital Economy), sponsored by Google and speaking on behalf of Shoreditch Roundabout web startups; Feargal Sharkey of UK Music; and IP academic Professor Tom Hoehn.

It would be unfair to point out that the former Undertones singer, with his radio engineering background, was by the far the most technical member of the panel – the only one, I would bet, who knows an Amp from a Volt. The respective degrees of the others are PPE (x2), English Literature, and Law (x2). The moderator boasts a PhD in "the social psychology of relationships in online communities".

Sharkey shredded the economic justification for the Hargreaves Review, prepared by the IPO. This wasn't hard; it's possibly the most amateurish document a government department has ever produced. We've highlighted one of the nuttier claims, based on apparent ignorance of UK law, that copyright makes hardware manufacturers liable for infringement. The Sony precedent set in the 1980s ensures they are not liable for infringement. Sharkey mentioned Psion – which thought about introducing the first iPod long before Apple, but didn't. It made that decision because of risk and capital, not because of copyright.

Another claim is that British comedy would blossom if parody was exempted from copyright: the Lady Goo Goo case was cited. But that's a trademark, not a copyright case.

Professor Hoehn

I shared a panel with Jeff Lynn recently. Here he offered this interesting insight: "A lot of us are scarred by the 10 years [major record label] didn't embrace digital. We still watch very warily. We have a right to be scarred, and a right to be a bit wary."

One subject seemed to be beyond contention, for no panelist dared challenge it. This is the idea that the web startups of Silicon Roundabout, those web calendar companies and SEOs, those site-scrapers and mentoring meetup organisers, all those Web2.0mediasluts, represent the future of UK economic growth. This may be hilarious to you – and it's a ripe subject for sniggers up and down the IT sector – but that's not the way the political class sees it.

"It's about government getting behind hi-tech startups, and sending the message that we want those businesses to start here," said Vaizey. An admirable sentiment, but have you seen what Shoreditch startups are really doing, Ed?

Something interesting happens when you show people the Apple vs Google comparison in the chart above. They start to think differently about received wisdoms, about wealth creation on the net. What seemed impossible, now seems plausible. They realise that Google may not be generously sharing a Druid-like insight into the future, but protecting an old and conservative "business model."

This week a lot of the political and media classes are absorbing the Steve Jobs biography on their Kindles and iPads. Jobs' insights on creating markets, by playing by the rules, and based on strong property rights, are hard to miss. Attempts to rewrite the rules so one class wins and one class loses, or to suit one particular corporation, will be seen in this new perspective. ®

[Very usefully, The Guardian recorded the whole thing. It's over here.]

Bootnote

After the recording finished, the legal academic Professor Hoehn upbraided me. He was shaking with rage. I'd pointed out in a question that the stage was hosting several lobbyists, and he was one of them. "Lobbying – I do TEACHING! ... develop theories," he said, before meandering into some blather about "business models", a favourite phrase of academics who've never depended on the market for their primary income.

In fact, of all the recommendations in the Hargreaves Report, just one involves increased public spending: a transfer of taxpayer's cash to a specific sociological group. It calls for increased funding for ... legal academics. As Hargreaves was making this recommendation, he was also chairing a committee to decide what these funds should be for. Sometimes, your resolve to fight cynicism can falter momentarily, such is the onslaught of self-interest, and special pleading.