Fuentes lost

Someone has stolen my copy of Fuentes’ Terra Nostra.  Now why would _anyone_ do something like that.  I’d only left it on a coffee table for 5 minutes while walking across the hall to someone’s mailbox and now it’s gone.  Is this person compelled to steal 800 page fabulist texts that are left lying by their owners, too absorbed in Fuentes’ world to realize the dangers in this one.  Well now I have had these dangers realized and I feel confused.  Just when I’d found a book that I wanted to finish (unlike the 27 others I have on my nightstand) someone comes along and takes it.  Perhaps it was an omen, perhaps the moment I finish reading that copy of Terra Nostra, the world will come to an end and I will wake up from this dream that was purposed to drive me to the new world.  But if all I know is the dream…  Am I Borges?  Who is my saviour, the benevolent thief who permits me to linger.  If you’re reading this (as I’m sure you are my angel), I forgive you.  Now, if you’d only leave the book exactly where you found it by Friday, I won’t burn you at the stake.

Catskill dreams

I can’t say why I like it so much, but I’m positively in love with the movie Dirty Dancing.  It probably is as corny as the others say it is, but I’m not going to accept that anytime soon.  And tomorrow I’m going to watch Jennifer Grey again ;^)  It obviously has something to do with coming of age and all that jazz, but it has the traditional Indian movie routine as well: poor boy meets rich girl et al.  To think I really liked such things.  I mean Indian movies of course, nothing will ever touch Dirty Dancing as far as I’m concerned.  It’s madness, but it’s familiar madness.

The market for international long distance telephone services

The market for international long distance telephone services


Major Players and issues

The market for long distance telephone services is understandably complex. We are dealing with a large variety of telecommunication companies, various national and international regulatory agencies, a plethora of equipment manufacturers and developers, and a large and diverse consumer base.

In the United States itself we have to contend with long-distance service providers such as AT&T and MCI, local telephone access providers (the baby Bells, Competitive Access Providers, cellular service providers), virtual private networks and calling card companies among others. Most other countries have fewer players, often only one state-run or licensed telecommunication enterprise. What we are presented with is the semi-competitive US market, the largest in the world, and largely monopolisitic markets in other countries.

This paper is largely concerned with the way in which these markets function and in the manner in which these players interact with each other. The issues I will handle can be grouped into four sections:

  • Pricing structures for traditional service, an analysis of the effect of termination or accounting charges.
  • Competition amongst traditional service providers, comparisons between deregulated and regulated environments.
  • Competition from non-traditional markets such as calling cards, call-back services, local resale, Voice over Networks and virtual private networks.
  • Concluding remarks on future developments I anticipate in these markets.

Pricing long distance telephone calls

When attempting to evaluate a pricing mechanism for international calls one runs into problems almost immediately. Any survey of the market reveals that various competing providers have graded scales of rates which they charge their customer. Often a customer faces various options, or plans, with each of them containing a separate set of charges for each country called. Some of these plans have a flat fee per month that must be paid by the customer, others do not. Some plans apply to a limited set of numbers or particular countries, other plans apply to all calls a customer makes. Finally there are different rates for calls made during business hours and those made after business hours or on weekends.

The last discrepancy is perhaps easiest to explain. Each long-distance copany has a fixed capacity of lines, it would appear to be rational to price discriminate so that this scarce resource is used for the most-valued purposes when there is the greatest demand for it. Similarly, lower demand during weekends would generally lead to excess unutilized capacity unless consumers were offered lower prices during these periods.

The variety of plans are a little more difficult to evaluate since each of them operates under a different principle. One common factor appears to be the transaction costs the consumer faces while enrolling in one or the other plan. Consumers who do not invest in keeping abreast of the plans they are enrolled in and those the long distance service provider introduces would appear to face higher percieved transaction and discovery costs than consumers who do keep themselves well informed.

[charts of various plans offered by the companies]

We are not, however, immediately concerned with the retail costs of long distance calls. Rather, the assumption shall be that in the competitive environment faced by US long distance companies prices reflect costs. This would appear to be borne out by the similarity between the prices charged by the three largest long distance companies.

[Insert charts here, of costs etc.]

The long run average costs of service do not actually amount to very much, for most countries they average between 20-30% of the price paid by the consumer. The major component of long distance rates is the termination charge levied by the local telephone company in the foreign country. Since consumers in the US face substantially lower prices than their counterparts in other countries, their demand for telecommunication services is higher than that in other nations. There are undoubtedly other causitive factors as well, not least among them being the relative wealth of the US and greater access to telecommunication services (phones per user table?). The discrepancy in prices between various nations for what is essentially the same service (a call from the US to Poland is identical to a call from Poland to the US) is generally explained by the difference between the market in the US and that in other countries. In 1992, only 9 countries were found to have a competitive market for switched international telephone services, and a few others had different carriers for different routes, most of the remaining countries had only one telecommunications company which provided both local and long-distance services, in most cases this was a highly regulated enterprise, often owned in whole or in part by the government.

The monopoly power exercised by foreign telcos permits them to charge relatively higher rates than their US counterparts. Since business lost to US telcos is compensated by termination charges they recieve from the US, this would appear to be a win-win situation for the foreign telcos. This does not, however, translate into a socially desireable structure. Though it would appear on the surface that US consumers are paying for the operations of foreign telcos, the monopolies across the border do have negative effects in their own nations.

The most prominent of the negative effects must be the general inefficiency of a monopolistic enterprise. Waste thrives in an environment where the discipline of the market is not enforced. The actual cost of long distance voice communication is much lower than the charges levied by most providers in foriegn countries. Revenues from the long-distance services are used to subsidize other sectors of the telecommunications industry, or even totally unrelated state operations. Most often revenues are used to subsidize telecommunication services in rural areas. Though the value of a network increases with the number of people connected to it, these subsidies send inappropriate signals to consumers wishing to purchase long-distance services. This argument is particularly difficult to make when we note that a very large portion of the accounting rate settlements by US companies are made to telcos in developed countries with high teledensity.

As we shall see later in this paper, these attempts at maintaining such a structure is bound to fail as non-traditional voice communication begins to compete with traditional services. By tampering with the price structure, a system that over-prices long-distance communication affects the decisions made by a variety of its consumers. Such effects could include

  • Less than optimal usage of international voice services by local entreprenuers
  • Various informal arrangemenets to circumvent charges.
  • A competitive disadvantage for local traders who lack access to communication services.
  • Real resource losses as decisions are made taking the inaccurate charges into account, rather than long-run costs.

Monopolies, or “socially just pricing” of telecommuniction services, it would appear, affect many other aspects of the economy. In particular, entreprenuers who use international telecommunications services would find themselves at a competitive disadvantage when their only option for such services is a telecommunications monopoly. Competition in the telecom sector would have significant spill-over effects for various other industires.

Termination charges paid to foreign telcos are generally not a concern when evaluating the benefits of competition to the domestic consumer because foreign consumers typically pay much higher rates for similar service. Though US carriers do pay significant sums to foreign telcos for the final portion of an international call, foreign consumers often find themselves paying two to three times what US consumers pay. Since termination charges are effectively applied to the difference between incoming and outgoing traffic, foreign telcos cannot lower their rates without reducing revenue from accounting charges paid by US telcos. The result is not a transfer from US consumers to foreign telcos, but a much more significant transfer from foreign consumers to foreign telcos.

There are a variety of justifications for the bloated prices charged by foreign telcos for international service. One of the most common is an appeal to a form of tax on the “luxury” good that is international telephone services. The assumption is that international service is a “non-essential” commodity largely utilized by the upper class. Since most foreign telcos are state run enterprises, the government that supports such a price structure is effectively putting in place a tax on international telephone services. It is important to keep in mind that the opaque nature of such a tax makes it doubly valuable for the government. The costs of these taxes are effectively hidden in that they take the form of lost opportunities (to conduct business with persons in other countries or to speak to friends and relatives abroad), while the “benefits” are supposedly apparent. These take the form of “conservation” of a scarce luxury, subsidies to other areas of the telecom industry etc. The biased nature of cost-benefit analysis in this case may lead one to accept such a price structure since its true costs are unknown.

Most of the costs of these taxes result from the incorrect price signals sent to consumers. Consumers are not aware of the real resource cost of these services, and can only arrive at an estimate from the price they pay for them. When this price is inflated by government intervention, consumers use less of these services than they would otherwise do so. This reduced usage not only constitutes a direct utility loss (in real terms), but in the case of business transactions can have very far-reaching events. Even social conversations can have wide-ranging effects if they involve the movement of knowledge and information that would otherwise not be available. Lower levels of communication between one country and the rest of the world are, in an age where information is the most valuable commodity traded, liable to impoverish that country since their effect is most concentrated there.

A variety of justifications have been put forward to justify an activist stand by the UD govenrment towards foreign states unwilling to open up their telecom markets to US firms. Among these justifications are speculations on the cost of monopolistic telcos to US consumers, the spurt to the US telecom industry that would be a result of open telecom markets the world over. I would like to examine these propositions briefly [most notably those made in “The US stake in Competitive Global telecommunications”, by John Haring, Jeffrey H. Rohlfs and Harry M. Shooshan III; paper presented at 1994 Telecommunications Policy Research Conference and published in “Toward a Competitive Telecommunication Industry”, ed. Gerald W. Brock; Lawrence Erlbaum and Associates Inc., 1996].

The claim is that US consumers are paying for the operation of foreign telcos when they choose to make calls to a particular country. Since US operators generally have more outgoing minutes than incoming, they end up paying a significant amount in termination costs each year to a variety of operators in different countries.

[plug in table from DIRECTION OF TRAFFIC here]

For a number of foreign operators, this revenue forms a substantial portion of their total revenue from telecom operations. In fact, this revenue is considered so important in some nations that steps are taken to supress outgoing traffic. While realizing that the reason US consumers pay such inflated prices is the non-competitive structure of this market, I would suggest that we must also bear in mind that US consumers are comparatively much better off than users in other countries. For a comparable or worse level of service, foreign users often find themselves paying two to three times what US consumers pay for long distance calls. One of the solutions to this problem would be a revamping of the entire termination costs system. The largest cost to the operator is generally the cost of making the connection or switching the call, the actual duration of the call is not as important a determinant of cost. One suggestion is that this be taken into account for any future reciprocal agreement and termination costs be structured so that there is a large cost for the actual completion of the call (which is what one would expect from the term “termination cost”) and a smaller incrimental charge based on the duration of the call. This would permit a cost based price structure with the incrimental charge acting as a floating price to incorporate the use value of the service.

Though Haring et. al. do not suggest retaliation in the form of completely closing the US market to new entrants, they do suggest that US policy-makers push for more competitive foreign markets for US telcos. The argument is couched in the general vocabulary of “creating jobs” and “raising US GDP”. Haring et al do not point out that US telcos, as a result of operating in a highly competitive environment, are steadily outstripping foreign telcos in new technologies and efficiency. The fear that foreign telcos might be able to gain competitive advantages if permitted to operate in the US is largely unfounded. If, as Haring suggests, US telcos are much more efficient that foreign telcos used to operating as monopolies it is difficult to imagine a scenario where a foreign telco might be able to out-price a US telco. If foreign telcos do decide to use a combination of local resale and agressive marketing for limited service (i.e. service to their country alone), they may be able to provide service at lower cost by cutting into their revenues from termination charges US telcos would otherwise have paid. Such a situation would be unprofitable for the foreign telco and favourable for US consumers. Essentially, I do not see such a situation developing in the near future.

What I do expect is a steady increase in the technological abilities of telcos operating in competitive markets (i.e telcos in approximately 10 countries) which will stand them in good stead when the global telecom market finally does become competitive. Meanwhile, though US consumers are in subsidising the operations of foreign telcos (to a certain degree), their counterparts in non-competitive markets are in a worse position, where charges are 2 to 3 times as high. In both cases, these subsidies may have value to the consumer if they are being used to expand the local telephone network (the value of a network increases with the amount of people accessible through it).

Another factor to be taken into account is the presence of VANS (value added network service). VANS are private communication networks, most often utilizing dedicated lines, that are used by large corporations and consortiums to facilitate communication. The costs faced by corporations that operate VANS are typically much lower than those they would face if they used Public Telecommunication Operators (PTOs). This suggests that the system of accounting rates and over-priced long-distance services affects small and medium sized businesses, and residential consumers than it does the larger corporations. We shall see further how VANS combined with other ingenious communication structures might affect the future of competitive markets in global telecommunication.

A large portion of international traffic is between emigrants and their native country. Cultural factors influence calling patterns and we find that emigrants make more calls to friends and family in their home country than their friends and family do to them. This is partly a result of social factors which compell those away from home to initiate communication to those who are still there, but is also influenced by immigration patterns across the globe. Most immigration today is to the developed countries in the north-west, with immigrants coming from relatively poorer countries. The increase in living standards that accompanies such immigration obligates the immigrant to bear the costs of communication, if there is to be any voice communication at all. Similarly, these developed countries (most notably the US) often have a competitive telecommunication sector and prices tend to be lower. These factors together influence the flow of voice traffic so that its volume is greater in the direction of the native country than from it.

When we consider that a large number of people calling a particular country are recent emigrants, we can see that the accounting rate system and a monopolistic telecommunication sector is used to tax not only residents of the country itself, but its emigrant population as well. In essence the effect of these price structures is that emigrants (and in places like the middle east and asia these are often unskilled labourers) transfer a portionof their income to the governments of their native countries.

As can be seen from the discussion above, the market for switched international long distance telephone services is particularly convoluted and the presence of monopolies in various nations has wide ranging effects. The rest of this paper will examine the emergence of alternatives to switched service provided by PTOs and how this will change the telecommunications industry.

Competition from new markets

Increasingly, Public Telecommunication Operators (PTOs) operated switched long-distance services find themselves competing with a variety of other providers using different billing and service paradigms to provide international long-distance voice and data communication facilities.

A few services of particular note are:

  • VANS
  • Calling card facilities
  • Call-back programs
  • VON (Voice over Networks)
  • Roaming arrangements for cellular customers
  • Third party billing and collect calls
  • Local resale, call re-origination or direct calling

To understand the paradigm shifts PTOs are facing we need to examine each of these alternative services and their particular advantages and disadvantages.


VANS, or Value Added Network Services are communication networks operated by large multinational coporations and organizations to facilitate voice and data communication between their offices or members. Some examples of such networks are SWIFT (Society for Worldwide Interbank Financial Telecommunications), SITA (Société Internationale de Télécommunications Aéronautiquea), SABRE (Semi-Automated Business research Environment) IBM’s global network, General Electric’s Information Services, AT&T and Sprint, and Infonet, Concert and Unisource (each of them owned by a consortium of PTOs). Each of these networks serves as a web of communication protocols for its owners, and is used for different purposes. SABRE is the largest privately-owned network and serves airlines, hotels and travel agents wishing to make reservations, almost all the traffic on SABRE is data. AT&T, Sprint and IBM provide services to a variety of corporate customers, carrying both data and voice all over the world.

As telecommunication markets open, VANS operators will find themselves able to compete with PTOs to provide service to individuals. VANS have the requisite experience to operate large, distributed networks and can pose a formidable threat to PTOs that are unable to expand beyond their nation’s borders. VANS have also long provided their corporate customers with special network services and are capable of providing access tothe latest technology including ISDN (Integrated Services Data Network) and ATM (Asynchronous Transfer Mode) networks. If local resale is permitted in a particular country, it would be simple for a VANS subsidiary (or customer) to begin marketing a service that is the equivalent of a PTOs switched long distance service. In fact this is already the case in the US and UK with a plethora of small companies offering voice communication facilities to individuals over under-utilized networks. The opportunities for arbitrage are greater in a market with one PTO and inflated charges.

Calling Card Facilities

A large number of PTOs now offer their customers calling cards that can be used almost anywhere in the world to make a telephone call. In a telecommunications market with a monopoly in the international calling market, the savings to consumer using a calling card can be quite significant. Calling cards also provide the benefit of itemized billing at one address in one currency. Pre-paid calling cards are offered by a number of small operators as well. Calling cards tend to be used by travellers and tourists though they are increasingly being used by local consumers in countries with exceptionally high international rates.

A calling card call depending on the PTO maintaining the account can be accounted on either side of a bilateral termination charges agreement. Most often we find operators in competitive markets offering calling cards to their local clientele to be used in foreign markets. This will usually have the effect of raising a disparity in incoming and outgoing traffic.

Call-back programs

Call-back programs work in a variety of ways, but are generally similar in operation. A customer in one country calls a number in another country and generally waits for a period of time and then hangs up. An automated switch-board then calls-back the customer and she is presented with a foreign dial-tone. The consumer can then proceed to call a party assured that she will pay rates determined by the call-back operator, not the monopoly running switched international serivce for her local region.

Call-back operators have been much maligned by monopolistic PTOs whose markets they have cut into. In particular, the Phillipine government has gone to the length of banning all call-back services operated in other countries providing services to its residents. Such a response would be rather surprising if one operated from the reigning orthodoxy that monopolistic operators are largely unconcerned with their own markets, but rely heavily on accounting charges paid by foreign telcos. In this case it would appear that Phillipine telecom is concerned about the loss of business it is incurring. We can see why this is so. The local telco that charges twice or thrice as much as a foreign operator faces the following scenario when it finds its market being eroded by a foreign telco (whether it’s operation a call-reorigination, call-back, calling card or other service). It loses revenue from the localmarket, but receives an accounting charge for the added incoming calls (which may be a greater volume than the corresponding reduction in outgoing calls, since consumers face a lower price). The revenue from the accounting charge is bound to be less than the price charged by the foreign telco, which would translate into less than one half or one third of the local price (assuming local charges are 2 to 3 times as much as the foreign telco’s). Unless the local currency is heavily over-valued at the official exchange rate, ot the local government is facing a foreign exchange crisis, this situation is highly undesireable.

In addition, the local telco faces the cost of uncompleted calls to the call-back server, which would wear down switches. The largest component of the real resource cost of a telephone call is the cost of switching. In essence both telcos, foreign and local are bearing the cost of all these uncompleted calls, but the foreign telco may be able to recover them from the call-back operation, but thelocal telco will not be able to unless it charges for unanswered calls.


VON, or Voice over Networks is a relatively unexplored form of voice communication. It essentially envolves two computers connected to a large computer network (most often the Internet). If both computers are running VON software, their users can speak to each other over the Internet. Von software essentially waits for a pause in the speaker’s conversation, creates a data packet, compresses it and then sends it to the remote computer. The computer receiving the packet of data will then uncompress it and reconvert it to sound which is then sent over the computer’s speakers. Since the Internet uses high-speed dedicated lines to facilitate data transfers, it all but bypasses the PTO’s switched long distance service. A person using VOn software to communicate often pays only for the cost of a local call to her Internet Service Provider and operating the VON software. If the conversation is carried out during off-peak hours the delay is largely unnoticeable, though greater than over a dedicated voice line.

VON poses a threat to PTOs and all long distance service providers in general. It circumvents the entire long-distance telephone network, relying only on local calls. Since VON is such a formidable technology, it is not surprising to note that ACTA (America’s Carriers Telecommunication Association) recently filed a petition with the FCC (Federal Communications Commission) against software companies selling VON capable software. ACTA claims that the proliferation of VON software will jeapordize the Internet’s ability to carry ever-increasing amounts of data. ACTA’s petition further claims that the FCC has jurisdiction over the Internet and must, in the public interest, regulate Internet activities.

ACTA submits that it is not in the public interest to permit long distance service to be given away, depriving those who must maintain the telecommunications infrastructure of the revenue to do so, and nor is it in the public interest for these select telecommunications carriers to operate outside the regulatory requirements applicable to all other carriers.

From ACTA FCC PETITION, March 4, 1996 (http://www.von.org/actapet1.htm) It is quite interesting to note that it is ACTA, an association of PTOs and telephone equipment manufacturers that has put forward this petition rather than the Internet Service Providers (ISPs) whose services VON will supposedly jeapordize. Contrary to ACTA’s claims, VON service is not “given away”, it is purchased by consumers who wish to use it from ISPs willing to provide them such facilities. Similarly, contrary to ACTA’s claims, consumers do pay for local calls to their providers and are not in a position where they “incur no other charges for making local or long distance telephone calls to any other ‘Internet Phone’ user in the world (except for whatever the user already pays mothly to whomever provides them Internet access)”. In fact the average VON user will face a local charge when connecting to her ISP, often this is a flat fee independent of the duration of the call. The flat fee local calling rate is a pricing policy implimented by regioanl telephone companies unwilling to bill for local telephone calls by duration when the largest cost involved is the use of a switch, an operation performed once whenthe call is put in place. If the user is utilizing an ISDN or ATM network to connect to her service provider (ensuring higher speeds), she is paying for the duration of the call.

ACTA’s complaint is based on the premise that VON is equivalent to telephone service and therefore can be regulated by the FCC. This claim is problematic for a variety of reasons, among them are:

Software vs. service
The ACTA complaint is aimed at software authors, not Internet Service Providers. As such, software that facilitates voice communication is simply a tool or part of the equipment a person may use (rather like a telephone), though the FCC does have some jurisdiction over communication devices the role it is being asked to play here is that of a service regulatory agency and it is unclear as to what exactly the service is that the FCC might regulate.
Multiple uses of the Internet
The Internet is a packet switched network, in essence it is a set of protocols and communication links that transport data from one loation to another. Whether the data is text, voice, visual or a combination of these is largely irrelevant to the network (though it has different implications for network usage statistics). If the FCC does intend to regulate VONs, it will have a difficult task isolating “VON operators”. This is largely because there are no exclusive VON operators (as yet). VON capability is used by a small number of ISP customers as part of a larger package that involves the bundling together of many services.

There are a number of reasons why long-distance service providers would like to see VON software distributors regulated by the FCC. One of the most obvious reasons is the one laid out in the ACTA complaint, it seems “unfair” that telcos are regulated by the FCC, but a service that is essentially a substitute for long-distance voice communication remains unregulated. One of the motivations for such a feeling may be a result of the closed nature of the long-distance market. There are essentially a limited number of companies operating in the especially lucrative market of long-distance communication. Despite the series of deregulation in the US market, the market is largely limited to three companies providing comprehensive service (AT&T, MCI and Sprint) and a number of smaller firms providing long-distance service to a particular region or country. One of the reasons for such a structure is the termination cost regime that governs international voice communication. It is not possible for a small firm to negotiate agreements with a variety of local network operators in 200 odd countries around the world. The structure we see emerging is one where most consumers use the big three and a rather small set of consumers rely on smaller providers.

The situation is even worse in other countries, most of whom do not have more than one service provider. VONs bypass the entire problem of termination costs and exclusive arrangements with local operators in foreign countries. The ACTA suit is the first instance of its kind in the world but that is only because US consumers have access to technology consumers in other countries do not. As VON services become popular it is to be expected that telcos in other countries will respondin a similar manner, in some cases requests to regulate VON service will not have to pass through a government agency since the PTO itself is the regulatory agency.

There are a number of things to keep in mind when evaluating the response to VON from consumers and telcos. Perhaps the most important is the quality of service. Present VON technology permits discrete communication as VON software waits for the user to pause and then compresses and sends data over the network. Some improvements are to be expected in this technology, especially if special Internet protocols are created to facilitate “live” voice communication. It is doubtful whether communication via a packet switched network will ever be functionally equivalent to switched line service. Though there is little doubt that VON implies a more efficient use of current resources (at least as far as actual data lines between regions, either underwater cable or satellite, go) the greater efficiency is at the cost of a slight delay in reception due to the added time required to translate data packets into voice. One significant disadvantage is that VON capability requires investment in a computer, an initial capital expenditure that is significantly higher than that involved in the purchase of a telephone. In addition, telephone networks are pervasive, it will take a number of years before as many people have access to VON as the number who are reachable via the global telephone network.

On the other hand there are a number of advantages to using VON and computer networks in general. Certain VON software provides for encryption of voice communication. The most popular such product is PGPfone which uses the ‘Pretty Good Privacy’ encryption program to transfer data securely. PGP is generally acknowledged to be one of the most secure encryption software available to the general public (though its export outside the US constitutes a felony). It is easy to see how secure communication may be desireable for a number of consumers in countries with repressive regimes, or corporations concerned about industrial espionage. Another significant advantage of computer mediated communication is the possibility of integrating video and voice communication. Though the technology is in its infancy, it appears as if the tool for such communication will be a computer rather than a video phone, if only because a computer already ioncorporates most of the functionality a video-phone would have.

In essence, communication with VON is going to be restricted to a small subset of consumers for a number of years, as the technology is improved however, it will pose a severe competitive threat to all long-distance voice operators. VON then, is a new-comer to this market and since it is not operated by PTOs (unlike almost all the other services in this section), is generating some consternation amongst PTOs that are aware of the capabilities of this technology.

Perhaps those least concerned about the proliferation of VON technology are Internet Service Providers. This is most surprising since they are probably the group whose resources will be strained by a sudden increase in the use of VON software. In fact current pricing structures may have to be significantly overhauled if ISPs are to survive in a world where VON is popular.

Roaming arrangements for cellular customers

Cellular phone service providers have now begun to offer wide area services to their consumers to permit them to use their cellular phones in a number of cities and countries. In particular, in European cellular providers have adopted a common standard which would make wide area roaming arrangements technically feasible. Even within Europe huge disparities exist between long distance rates and opportunities exist for arbitrage. Cellular phone users in Denmark pay less than one third of what French cellular users pay (based on purchasing power parities). In a fully convertible currency market (which is what the European currencies are), it is possible for a French consumer to use a Danish cellular provider if she so wishes. The ECU (European Currency Unit) would make such transactions much easier.

Third party billing and collect calls

Third party billing and collect calls are generally made by visitors to a country though they are also utilized by calling partners in countries where there is a wide divergence in rates between the two markets and it is cheaper to place collect calls to one country than it is to direct dial a number there. This facility is rather like a call-backprogram except that it tends to be more expensive than an automated service like call-back. Short duration collect calls may be used to request the other party to place a call to the original caller, something which would serve to explain the increasing number of very short calls being made over international networks.

Call re-origination or direct calling

Call re-origination is a slightly more complex service that involves a foreign telcos operator and borders on local resale. A consumer in one country places a call to a local number which puts her in touch with the foreign telco’s operator who will then dial the number requested by the customer. The call is billed to the consumer, often at an offshore address. This service is most often used by travellers.

Local resale

Local resale is operated by corporations that lease long distance lines from PTOs and then resell this excess capacity to individual consumers. This is almost a pure case of arbitrage in the international voice communications market, yet it accounts for over 500 million dollars in revenue within the US alone. This service can be operated in any market where local interconnection is possible, but that is currently limited to a few OECD countires, primarily those with competitive long distance sectors.

The new markets and services detailed above work together to undermine the traditional switched service and its limitations. With cellular services it is possible for consumers to bypass regional telephone operators altogether since the necessity of a landline connection is removed. Wireless services like cellular provide an opportunity for operators to undercut the monopolies in place over regional communications and by conductionin long distance voice communications. Problems with these expectations arise when long distance communication services are restricted for reasons not related to preservation of an infrastructural monopoly and development, but when the rationales used involved such factors as national security and cultural independence.

Despite these cautions, it is clear that the plethora of services now available to any consumer of international long distance telephone services are slowly but surely eroding into the PTOs market and will bring about unforseen changes in this market.

Conclusion, expectations for the future

From the activity we are witnessing in the market for international long-distance communication services, it is apparent that we are going to see major changes in this market very soon. A variety of paradigm shifts are calling into question the current structure of the market, particularly the accounting rate system and the concept of calls being made from one country to another. As the number of international carriers increases, it will be difficult to maintain a revenue sharing agreement like the accounting rate system.

Even if the monopolies in place in a number of countries are not removed during the next few years, their PTOs will find themselves competing with a number of other service providers selling equivalent service but in variant forms. Even without access to switched lines in local exchanges a foreign telco may operate, large and small telcos the world over are finding ways in which to provide services to foreign consumers at highly competitive rates.

As these services multiply and their consumer base increases, we would expect to see dissatisfaction with the accounting rates regime and a flight from national carriers that overcharge their consumers. Without pushing for telecom trade agreements, telcos operating in competitive environments are liable to see markets open up all over the world. IT is in these nascent markets that their experience in providing international voice communication services will stand them in good stead. Telcos in competitive environments will find that they are more adept at handling emerging technologies than “national carriers” are. An analogy that can be applied to the airline industry as well.

For developing markets we can only predict the intensification of pressure to permit competition in long distance and cellular services. Both of these markets are opening up in a variety of countries as their national telcos find themselves unable to cope with the demand for new technologies and the infrastructure they require.

[This paper was my senior honors thesis, written in 1996]

Leave Now

It’s good to go to a different place, even if the place is only in your dreams.  But perhaps the most far-away places are those in our dreams. They are far away in time, they embrace another reality, another universe sometimes.  And they are real because they aren’t always what we want.  Did I really want to lull myself back into the volley-ball game at school, the court larger than it is now, larger than it had ever been and me watchng from the sidelines as I always did because I never could fathom or drive myself to play a competitive sport.  I did not get up, I slept for 16 hours without stopping and I think life is a competitive sport, do I really want to play it?


I feel as if I must do something.  The intensity of the impatientness tearing at my skin is painful.  I almost feel as if I must jump up in the warm oppressive classroom and declare the absurd, the pet-lover’s manifesto or the definitive guide to scatology, perhaps even the undying nature of true love.  Then, feeling spent, I wish to collapse and let inertia saturate me.  The moment I begin to prepare for the leap of faith that will re-define for the world my peculiar madness I am restrained by the loss of energy from contemplating the leap itself. My madness is the fear of baring the madness within.

Deep Space

I saw the Deep Space Nine episode where Jadzia-Dax meets the current host of the symbiont who’s former host was the wife of one of her symbiont’s prior hosts.  This is the best Deep Space Nine episode I’ve seen so far, it revives so many concepts I thought I’d given up.  Jadzia and Lenara’s kiss is the most perfect romantic scene I’ve ever seen on television (and perhaps second only to the butterfly scene in Arau’s “A walk in the clouds”).  And I believe in soul-mates again, but do we really need a literalization of the transmigration to believe in an ever-lasting love?  Even this quaalification won’t diminish my new-found naivete.  I believe.

You only lose if you’re attached.

Every so often I find myself feeling as if I’ve lost something.  I begin to search my pockets, checking on my keys, my wallet and the tokens I carry with me.  I’ve not lost anything over the past few days (except my spectacles, which I kept by my bed yesterday and can’t find today, I suspect I’ve been sleep-walking, something I’ve never done before), in fact I’ve carried things with me I shouldn’t have.  This is a sense of loss, but I can’t say what I’m to make of it, I may have partial explanations that rest on received conceptions of the self, but nothing firm.  Meanwhile I continue to search my pockets every so often.  It isn’t a part of me that’s missing, but an appendage I use to function in the world.

First Amendment Rights and the CDA

On February 8th, 1996 President Clinton signed into law the bill known as the Telecommunications Act of 1996, technically S. 652/H.R. 1555. Most of the 200 page bill deals with various amendments and changes to the Telecommunications Act of 1934, but stuck away around page 150 is the section called Title V “OBSCENITY AND VIOLENCE SUBTITLE A–OBSCENE, HARASSING, AND  WRONGFUL UTILIZATION OF TELECOMMUNICATIONS FACILITIES” and within it Sec. 507 “Clarification of current laws regarding communication of obscene materials through the use of computers.” People who have followed the fortunes of Senator Exon’s proposed amendment to the Telecommunications Act, will find this section familiar. In fact Sec. 507 is the Exon amendment duly altered twice after uproars that arose last year. When the Communications Decency Act, (CDA) was proposed last year, it’s incorporation into the then in progress Telecommunications Bill was approved in the Senate by a vote of 84 to 16. Packaged within the much larger Telecommunications Act, the CDA has been signed into law. Perhaps this says something about the reality of politics, yet it’s a little too late to bother about that. Right now we must evaluate the possible effects of this bill.

A number of organizations have already looked closely at the CDA. The American Civil Liberties Union, the Electronic Privacy Information Center and a number of other civil liberties organizations including the Electronic Frontier Foundation filed a case with the District Court of Eastern Pennsylvania claiming the CDA is unconstitutional. On February 15th, Judge Buckwalter granted a partial Temporary Restraining Order to the ACLU and other plaintiffs in the case stating the law was “unconstitutionally vague”. The TRO will not prevent the prosecution of persons who place or provide “indecent” material on a computer network where a minor can read or view it. Undoubtedly, this is an important decision, but the TRO leaves standing other sections of the Act. Amidst all the gloom, we have a little to be thankful for, the CDA in its present form does not make service providers fully responsible for the content transmitted over their networks. This is a change from previous versions of the CDA which sought to make all computer network operators liable for anything and everything transmitted over their wires, perhaps in the hope that this would spur “voluntary” censorship. Even in its present form, however, the CDA will only exempt a computer network operator from liability if she is unaware of the activities of her users and or has “taken in good faith reasonable, effective and appropriate actions under the circumstances to restrict or prevent access by minors”. In effect, the operator of a computer network is not afforded the same immunity granted to a local telephone operator. Before she is free from liability under this law, the computer network operator has to take the extra step of verifying a user’s age. The network access provider is not given the protection a common carrier is afforded though it is acknowledged that she may have no editorial control.

A large proportion of the confusion in free speech law seems to stem from the form the communication takes, not its function or content. For instance, the “indecency” clause cannot be applied to the print media and a court cannot indict a newspaper for publishing material that may be “indecent” or “patently offensive as measured by contemporary community standards”. Yet, if the same article is made available over a computer network and the on-line newspaper is accessible to minors, the content provider can be fined and imprisoned for up to two years. This sounds Orwellian, but it is the case across a broad variety of media, teletext is not granted the same First Amendment protection as a newspaper, a radio broadcast is subject to much more regulation than a book, and cable TV is treated very differently from broadcast television. Some aspects of these differences in regulation do appear reasonable and others seem quite unreasonable. In particular, it has often been suggested that the appropriate paradigm for the Internet is a library and not the broadcast media. Similarly it has been held that electronic mail be granted the same protections surface mail is.

Part of the problem seems to be the search for paradigms, trying to find analogies for the new media, see what form of old media is closest to the new. The problem is that the new media may use a telephone or television wire to facilitate communication, yet perform the exact same function as a print publication does. At times it almost seems as if the law treats the “freedom of the press” as exactly that, the freedom of printing presses and nothing else. Laws it seems, must be refashioned with the advent of every new technology.

Some of the controversy surrounds the nature of the content and the definition of “community standards”. The suit filed by the ACLU relied, in part, on affidavits provided by a number organizations disemination information about AIDS over computer networks. The providers of such health and safety information are concerned that some of their material may be “indecent” and a number of them stated they “did not understand what indecent or ‘patently offensive’ meant”. It would indeed be quite unreasonable to demand that such services require all users to identify themselves and verify their age. Not only would this be contrary to the nature of the service, which demands anonymity, it would be quite expensive to impliment. This is just one example of how the CDA might affect speech we would consider valuable to protect; other instances range from silencing a forum on breast cancer to hounding writers distributing drafts of works in progress over computer networks.

It is abundantly clear that the federal government and indeed the Supreme Court itself are prone to deal with electronic and paper communication in very different ways. In 1928 the Supreme Court held that warrantless wiretapping was not unconstitutional because “[t]here was no searching [and there] was no seizure”. Apparently the Fourth Amendment was not applicable in the case of wiretaps since “[t]he United States takes no such care of telegraph or telephone messages as of mailed sealed letters” (Olmstead v. United States, 277 US 438, 464 [1928]). Apparently, if it’s electronic, it’s fair game. In 1967 (Katz v. United States, 389 US 347 [1967]), the Court had changed its views and now held that the Fourth Amendment “protects people not places”, consequently warrantless wiretapping was made illegal. We must now consider with all seriousness whether the CDA and indeed the government’s response to Computer Mediated Communication in general is not simply a rerun of the wiretapping case. The US federal government’s position on encryption technology and content on the Net would suggest that it is. If we are about to enter another era of unreasonable legislation we must be aware that this legislation will dramatically influence the evolution of the new media and might even stifle its development altogether. This is a serious question and the exponential growth of Computer Mediated Communication leads me to believe that many people will be affected by government policies pertaining to CMC in the future. Those among us who have not had the opportunity to use the new media will find themselves absorbed in it in a few years, it is then that the effects of these laws will becomes completely apparent.

The CDA was proposed by a retiring senator who was shocked at some of the material he found available on the Internet. He decided the best way to express his concern about the digital environment his grand-daughter would be to pass a broad bill to illegalize all “indecency” on the Net. The generations that are going to be most affected by these new laws have had no say in the matter, decisions have been made on their behalf by people who know very little about the new medium. Sen. James Exon (D-Neb) knows little about Computer Mediated Communication, at 75 it is unlikely that he will live to see the long-term effects of the CDA. The former governor of Nebraska retires from the Senate this year, but unless the law is repealed, he will have left behind as a legacy the Communications Decency Act of 1996, something future generations will have to grapple with for many years to come.

The most intrusive section of the CDA has been restrained, for the time being, but the rest of the act is still law. How is one expected to posit “contemporary community standards” on a network that spans the entire globe? Does that concept have any meaning at all in such a context? Where does the line between the political and the personal lie? Is a declaration of one’s sexual orientation “indecent”? How is one to function as an adult in a world which is by default restricted to content appropriate for a child?

These are questions we must answer, and answer fast. Unless there is a discourse beyond the rather narrow circle of dedicated computer users, we might see the medium shackled as it tries to hobble its way into the next century. The future of computer networks concerns each and everyone of us, very intimately. Almost every aspect of our lives is linked, or will soon be linked, to the new communication technologies. The Communications Decency Act of 1996 will have ramifications for all of us, if not tomorrow, then definitely next year.

This article draws heavily on Robert Corn-Revere’s paper “Lost on the Infobahn: The need for a Coherent First Amendment Approach”, presented at the 1994 Telecommunications Policy Research Conference.

Further references can be found at Electronic Frontier Foundation ; American Civil Liberties Union ; Cato Institute A paper by Robert Corn-Revere, “New Age Comstockery: Exon vs the Internet” can be viewed at http://www.cato.org/pa232es.html

Borges’ Dream

One of the earliest promises of a large-scale computer network was that it would make the dream of a digital library possible.  It seems as if that vision is slowly, hesitantly coming alive.

Those of us who are interested in issues of literacy and access to knowledge have been closely following the growth of what are called E-text (Electronic Text) projects.  The broad aim of these projects is to translate information from traditional paper media to electronic media to make such texts available over global computer networks.  The benefits of such a “translation” are enormous, both for the scholar and the individual.

Perhaps the most important aspect of these projects is their ability to preserve fragile documents that might otherwise be lost.  Printed paper is subject to numerous hazards, is difficult to reproduce and eventually deteriorates.  An Electronic book, however, can be reproduced at the push of a button and is exceptionally cheap to store.  At $.50 per Megabyte of magnetic storage media, it costs only a dollar to store 1,000 pages of text.  Since it is easy to copy electronic-texts it becomes unnecessary to physically ship books through the post, one has only to send a copy of the original (a perfect copy, no possibility of a generation loss unlike photocopies) over a network to the person who is interested in the content.

None of these things are new, many people have been aware of them for decades, but we are seeing a proliferation of such libraries only at the present time.  This is partly due to the increasing importance of computer networks in our society and the technological advances made over the past few years.  As computers and networks become ubiquitous it is only a matter of time before a large part of the knowledge now contained in, and constrained by, the shelves in our libraries will become mobile.

In an electronic library one would not be told “the book has been checked out”.  At an electronic book-store no book can be sold-out, no book can be out of print.  Yet these possibilities force us to ask other questions, specifically ones related to copyright.  If it is possible to make a perfect copy of a book by pushing one button, how is one to enforce copyright laws.  This is an important question and it is being tackled by publishers the world over as they experiment with solutions like encrypting the text or making it viewable only with software that would not permit copying.  Solutions will be found by those who have the greatest incentive to develop them, namely publishers.

Most E-Text projects today concentrate on books that are no longer protected by copyright, i.e. they are under public domain.  So one can find the complete works of William Shakespeare, Aesop’s Fables or Adam Smith’s “The Wealth of Nations” in digital libraries across the globe. Most of these libraries do not charge users access fees, in a sense it is not worth doing so.  Managing a fee-structure would probably cost too much.  Since these projects are largely run by volunteers and with the assistance of donations, there is no desire to earn revenue from them. In any case, translating a book to E-text is so cheap that it is not necessary to charge for access.

There are a number of problems with the vision of large scale digital libraries.  It is uncertain whether many people will make the transition from reading books printed on paper to those on viewed on screen.  There are concerns that large amounts of time spent in front of antiquated computer screens may be harmful to the eyes.  With the present level of computer technology it’s difficult to see how you could curl up in bed with a electronic book.

A particular concern today is the accessibility of E-Texts.  Some E-Text projects store books in one format and others decide to present them in others.  It is possible that some books may not be accessible to certain people because they lack the software necessary to view them.  It is possible that certain formats that are popular today (HTML for instance) may not be around forever and we wonder what will happen to E-Texts stored in those formats.  Hopefully tools will develop that will permit translation between different formats.

Some of these concerns might be invalidated as technological advances are made, others may not.  It is difficult to imagine a world without paper books (though this might just save our forests), and I for one will hold on to every volume I own.  What is perhaps more likely is that this medium will compliment the traditional paper media.  It certainly has many advantages, it is cheaper, easier to transport and copy and increases access to rare and out of print books.  One point that is often not made is that electronic books are accessible to disabled persons (such as the blind) while the printed page may not be.  These are all significant advantages and I do expect to see many more electronic texts in the future.

But perhaps the factor that will convince most of us of its superiority is the fact that students might be able to read books on computers for far less than it would cost to buy them.

More information on Electronic Texts, and links to various digital libraries can be found at http://www.nyu.edu/pages/advocacy/info/etexts.html

Computer Advocacy @ NYU http://www.nyu.edu/pages/advocacy/

This post was originally published in the Washington Square News


Capitalism, Socialism and Democracy

Review of “Capitalism, Socialism and Democracy“, Joseph A. Schumpeter;
Harper Torchbooks, 1976; ISBN: 0061330086

The man of system… seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard.  He does not consider that the pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them; but that, in the great chessboard of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.  If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful.  If they are opposite or different, the game will go on miserably and the society must be at all times in the highest degree of disorder.

Adam Smith: The Theory of Moral Sentiments, Part 6, Chapter 2.

Schumpeter is of course aware of this argument and acknowledges its validity, yet the kind of society he conceives in “Capitalism, Socialism and Democracy” will not, he predicts, have to content with any such difficulties.  This is of course easily demonstrated in Schumpeter’s taxis.  The socialist engine is clearly much more conducive to promoting authoritarian discipline, and this is, for Schumpeter, one of its great merits.  Yet the valuation of a command economy is one of the many claims Schumpeter makes that are questionable.

Schumpeter goes to great pains to demonstrate to us the great efficiency of the capitalist system.  He is entirely convinced that Capitalism is the sole explanation for us being where we are.  With his characteristic candidness he dismisses all arguments that fail to bestow laurels on Capitalism.  Yet beginning from this conviction, Schumpeter goes on to indulge in a socio/psychological analysis and finally tells us that

“… the ever-rising standards of life and particularly the leisure that modern capitalism provides for the fully employed workman… well, there is no need for me to finish the sentence or to elaborate one of the tritest, oldest and most stodgy of all arguments which  unfortunately is but too true.  Secular improvement that is taken for granted and coupled with individual insecurity that is acutely resented is of course the best recipe for breeding social unrest.”[pg. 145]

So, beginning with an acute analysis of Marx and a piercing critique of Marxist economics, Schumpeter finally declares the Marxist prophecy to be true.

It would be quite futile to argue against any such theory, and to an extent the rest of this tract is formulated by this pivotal statement. Schumpeter has reconciled himself with the inevitability of an increasing demand for Socialism, and as he himself notes this is because “Political criticism cannot be met effectively by rational argument.”[pg. 144]  As the book progresses however, Schumpeter modifies his stance somewhat and we find various defences of Socialism that come rather unexpectedly after the first two sections of the book.  This may be simply an attempt by an eternal optimist to see a half-full glass where there is nothing at all, but this is the portion of this tract that needs to be looked at most closely.

If there is one thing Schumpeter cannot be accused of, it is lack of thoroughness.  He has challenged almost all, and answered many, criticisms of the socialist schema in this rather wide ranging book.  Yet there are a few that he has shrugged off rather flippantly and it is here that we must focus our attention.  Along with all the other dismissals that Schumpeter hands out to economists and social scientists of all persuasions, he has answered the Hayekian critique in a few sentences [185], and Mises’s reservations concerning the socialist order with equal brevity [172-3].  Schumpeter’s responses do not do justice to the Austrian critique.

Unanswered questions

Schumpeter details an elaborate plan involving vouchers and price-fixing which a socialist state could adopt in order to make distribution a “distinct operation” that “in logic at least, is completely severed from production.” [173]  Schumpeter then goes on to claim that though this separation may become a determining factor as far as the society’s attitudes are concerned, it is completely arbitrary from the economic standpoint.  By separating distribution and production, however, Schumpeter’s hypothetical socialist state is forced to find a replacement for the price system that will convey information regarding the market to those making production decisions.  The tool that is readily available is of course an efficient bureaucracy infused with an adequate amount of espirit de corps.  Schumpeter fails to realize however that a bureaucracy cannot but be less responsive than the price system.  Renouncing the market price system entails giving up the most effective information dispersal mechanism we have chanced upon.  Despite his claims to the contrary [185], this bureaucracy will not function as efficiently or rationally as the market does.  Again contrary to Schumpeter’s expectations, such a bureaucracy will not require less intelligent managers than a modern capitalist enterprise; at worst it would require omnipotent beings, and at best those with very different thinking capacities.  Schumpeter fails to tackle the problem of gathering particular information for such a bureaucracy to process, and with rather irritating confidence declares that certain macro-economic variables, and other production data would suffice.  With surprising naiivete, Schumpeter assures us that it would be possible to set up a system of incentives to ensure that the bureaucracy makes the right decisions.  Of course this only makes us ask the question of a higher authority, and in the socialist schema there is always a higher authority.  So we finally have to put this question to those on the top. What are your criteria for making decisions?  The answer can only be that there are no criteria, that there are no laws, no rules, that all decisions are made arbitrarily as the “needs of the moment” dictate.  So much is implied in the Mises-Hayek doctrine.

Of course it is rather easy to see where Schumpeter has derived his vision of the “socialist engine” as a big enterprise from.  After all it with St. Simon that the imagery of the “one workshop” originated [F. A. Hayek, The Counter-Revolution of Science, pg. 121].  (Curiously, this is the one figure Schumpeter fails to denegrate, treats with positive veneration [307] and goes to the lengths of adopting an apologetic tone.)  Yet Schumpeter can hardly, at this juncture, defend this concept solely on the basis of its origins and he does not.  Not
surprisingly, Schumpeter has another surprise in store for us.  In perfect harmony with the refined Marxist prophecy Schumpeter declares that the capitalist system has itself created an environment where individuals are being trained to accept the all-encompassing bureaucracy.  Big business becomes for Schumpeter, the progenitor of the state economy. Ignoring all the problems such a claim presents, (the promiscuity of small businesses in new and emerging technologies, the phenomenon of consultants to provide small enterprises with the expertise they lack, the re-emergence of the self-employed entrepreneur in all fields…) it is rather amusing that Schumpeter informs us, countering Marx, of the white collar workers resistance to socialization.  The driving force behind this almost unanimous clamour for the “socialization of the economy” is Schumpeter’s (and in his view society’s) thirst for stability.  Writing in the post-depression moment, Schumpeter has perhaps been greatly shaken by, what appears to him to be, the naturally catastrophic undulations of the capitalist structure.  So Schumpeter opts for a system that places direct control in the hands of a few authorities, and by his thinking, consequently involves less arbitrariness, more “rationality”, less “creative destruction” and more stability.  The irony of it all is that Schumpeter is forced to acknowledge the need for regular changes, or repairs, to be undertaken on the socialist engine and (considering the bureaucratic aversion towards change in the absence of a direct threat to its own survival) this can only increase the uncertainty and friction he wants so much to avoid.

Even if we do accept that socialism might provide us with more stability, it becomes necessary to ask: At what cost?  Interestingly, Schumpeter has reversed Mises’ argument somewhat and in a rather fiery response to Keynesian economics and other “half-way” socialist measures, condemns them as mere platitudes that will only serve to delay the inevitable socialization of society and must be opposed by all true socialists.

But the question remains; at what cost?  Quite candidly, Schumpeter acknowledges that democracy becomes dispensable in a socialist environment.  This argument is preceded by a rather incisive analysis of what democracy is commonly understood to be and its own inherent limitations.  Yet, after concluding with this analysis Schumpeter does acknowledge that any form of democracy is quite incompatible with full-fledged socialism.  Once we are done with destroying this cherished myth, Schumpeter goes on to applaud the virtues of the socialist engine embodied in its ability to “impose hardships” [210], “eradicate the bourgeois separation of powers”, “empower social admonishment” [215], “insert the stock of the bourgeois extraction into its proper place within that machine” [207].  Sadly, Schumpeter seems to have rationalized the loss of individual freedom this would entail.  Paradoxically, he appears to be very concerned about rights abuses in Russia, yet even this concern is qualified by an elaboration on the uniqueness of the Russian situation, in that Russia was not a fully-evolved capitalist economy on the eve of the Bolshevik revolution.  None of this detracts however, from the fact that Schumpeter does not protest the subjection of the individual in the interests of “society”.  Rather, he would go as far as to suggest that such subjection of the individual is rational and desireable in that it enables society to harness the abilities of each individual more effectively.  The validity of that claim is highly questionable.

Despite all the reservations one may have about the thesis presented in the book, it is almost impossible to refuse to acknowledge Schumpeter’s thoroughness.  This book is a quite comprehensive discourse on Socialism, and one can hardly accuse Schumpeter of setting his sights too low.  It must also be said that the book is a delight to read, if only to taste Schumpeter’s irreverence.

The piece was written in Fall 1995 as an assignment in Prof. Kirzner’s
course on the “Foundations of Capitalism”.

Occassionaly, I want to share something with the world.