Openness is the Solution to the (Double) Subprime Crisis

As I listen to all this talk of lack of trust in the banking system, of inflated values ungrounded in any reality, of “opacity”, and of “contaminated” financial instruments, I realise I have heard all this before. In the world of software, as in the world of finance, there is contamination by overvalued, ungrounded offerings that have led to systemic mistrust, sapped the ability of the computer industry to create real value, and led it to squander vast amounts of time and money on the pursuit of the illusory, insubstantial wealth that is known as “intellectual property”.

I'm certainly not the first to note this. One of the best expositions of the frighteningly close parallels between the current subprime meltdown and the world of “subprime patents” comes from Alberto Barrionuevo, who is President of the FFII, and Founder and President of the Andalusian FLOSS Enterprises Association AndaLibre. As he has written:

In many countries, many regulations (financial controls) were removed and so the market was finally flooded by what any common person would denominate "fake money". The same fake money as the one created with a fake notes machine, but just that much more complex and nicely sold.

But equally, and curiously roughly matching in dates, it has happened in the patent system during the last ten to fifteen years mainly. The regulations have been raised time ago. To get a patent has become almost for free. No innovation effort is almost needed. No innovative step almost. No disclosing of technical knowledge is needed. No invention "as such" is needed, using the patent jargon words. Artificial complexity of the system has reached levels where only the experts bureaucrats working on it understand it. The innovation of the bureaucracy reigns. Real inventors, formerly experienced and brightly engineers, have been replaced by patent technocrats and patent trolls. Those same patent technocrats who indeed decide, with little or no political implication, the patent policy of some of the biggest economical sectors of the world.

As we have seen, patents are the last refuge of proprietary software companies, which are increasingly unable to compete on a level playing field with free software. Only by introducing artificial barriers in the form of nominal patents on mathematical algorithms – software – can they hope to hobble the otherwise superior open source offerings.

They are superior because they create real value – they have to, otherwise people will not use the code. Proprietary software, by virtue of the lock-in it imposes on users, can exact a kind of software rent through mandatory upgrades, whether or not there is any value in it for the customer (just think of the Vista fiasco).

Similarly, free software must track and respond to the market's needs; it if doesn't, someone will come along with a better solution that does, for example by forking the code. Again, the lock-in that lies at the heart of closed-source applications means that software houses can get away with ignoring market trends as long as the switching cost for customers remains above the expected benefit of making a jump to another offering (which is why Microsoft Office remains so entrenched despite a constant series of unwanted file format changes and often badly-received interface redesigns.)

The solution to the subprime patents problem is get rid of them, and to move from a business model based on code contamination and lawsuits (hello SCO) to one of code sharing and collaboration. There's no halfway house, because open source and software patents are inherently incompatible. But what's really interesting in this is that just as there are close similarities between the problems of subprime patents and subprime mortgages, so there may be important parallels between how we should deal with them.

Again, this is not a new idea. One of the innovative thinkers in this area is Umair Haque. Back in January he wrote with great prescience:

I think 2008 is going to be an important year - and it's important for us all to kick it off with more depth.

What's gonna happen in 2008? The macropocalypse.

It's not a credit crunch, or a liquidity crisis. Unfortunately, it's a lot deeper than most of us think.

Let me try and explain what's really going on here.

The real problem is that the firm - the corporation, as the fundamental institution of production - is deeply and irrevocably broken. It's DNA is in shock. The corporation we've created is a monster; a form of organization growing more pathological by the day.

Not content with predicting the recent financial meltdown, Haque has now gone on to offer a way forward:

For the last ten days - as I've been predicting for the last few years both here and at bubblegen - a fire has raged through the heart of the global economy.

Central banks and governments are throwing money at an economic superstructure rotting from the inside - but given the severity of the situation, that's like trying to put out a fire by throwing Molotov cocktails at it.

So what should we do - what can we do - about it? Here's my answer.

The macro crisis tells us that it's time to get serious about what we've been discussing for the last few months: building a better kind of business. So here's a five-step construction kit for tomorrow's revolutionaries.

You can read the full post to explore his ideas, but I think the following gives an idea of where Haque is heading:

the third, simplest, and most fundamental step in building next-generation businesses: understanding that next-generation businesses are built on new DNA, or new ways to organize and manage economic activities.

Think that sounds like science fiction? Think again. Here are just a few of the most radical new organizational and management techniques today's revolutionaries are already utilizing: open-source production, peer production, viral distribution, radical experimentation, connected consumption, and co-creation.

The links in the original post point to open approaches to creation and to business – Apache (GNU/Linux might have been a better choice here), Wikipedia etc. Haque's ideas are obviously radical, and unlikely to be taken up overnight, even by a desperate system in crisis. But the larger point is this: that open source is just the beginning. Openness holds the key to even larger problems than that of proprietary software and the “subprime” intellectual monopolies that lie at the heart of its “ economic superstructure rotting from the inside” as Haque so eloquently puts it.

Glyn Moody writes about openness at opendotdotdot.