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Aug 07, 2006

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Nate Custer

So the OLPC project and the Green Wifi project are both built on Linux and other free software projects.

What I find interesting is that these major new ways to build networks and major innovations in hardware platforms are coming without any profit motivation.

Michael Kruse

Good observation Nate. It is interesting that you brought this up because this topic just came up in another venue. I think I may do a post on this topic. (Maybe the following is it. *grin*)

The lack of profit motive relates only to the individual players involved. Profit figures integrally into the picture. Both OLPC and Green Wifi are “not-for-profit” corporations. Many think that “not-for-profits” corporations are unconcerned about profits. Not true. Every corporation, whether “for profit” or “not-for-profit,” has to take in more than it expends over time, otherwise it will it will die. The “for profit” or “not-for-profit” distinction refers to the individuals involved, not the corporation.

The difference between the two is that annual “profits” (excess revenue after expenditures) of “not-for-profit” corporations may not be distributed to individual members of the organization. If the corporation dissolves, the assets may not be distributed to individual members. The profits of the corporation stay with the corporation. The “not-for-profit” corporation, as a corporation, is a profit making enterprise.

In a for profit business, the person doing the purchasing is the one who receives the good or service. One of the most typical features of a “not-for-profit” is that they have two customers instead of one. First, they have the donors who give money to the organization to accomplish its mission. Second, they have the recipients of the goods and services they provide. The revenue is not coming from the ones who receive the goods or services.

Which of these is more desirable? When there are free markets, the profit making enterprise is directly accountable to the person making the purchase. If the customer does not like the service they receive, they take their business elsewhere. Displease enough customers and you are out of business. Even greedy people have to meet customer’s needs if they are going to stay around make all the money they covet.

The “not-for-profit” arrangement can lead to a disconnect between what the donors want and the customers want. In such instances, it is usually the donors who prevail. As the recipient, what is your recourse to the service provider who has no financially accountability to you? You are largely powerless and dependant.

While the free market is the preferred option, it is not always a possible option. OLPC and GW have identified people who could benefit immensely from the products but they no resources with which to purchase them. Those with resources in the marketplace have intervened on the poor’s behalf. They have organized a “profit” earning “not-for-profit” corporation to purchase goods and services on behalf of others. Where did these people get their resources? By earning and saving profits in a free market system. Without their profits there would be no OLPC or GW.

Finally, looking at this from the big picture, healthy, well educated, informed people with access to markets, expands the customer base for businesses. Integrating these folks into markets allows their prosperity level to rise to a point where they can make their own “for profit” buying decisions, and thus be able to hold goods and services providers accountable to their wants and needs.

To say that free market capitalism is the preferred option is not to say that there are not what economists call externalities or inefficiencies in the market. The “not-profit-corporation” is an immensely important tool in addressing issues like these. But the “not-for-profit” corporation could only effectively exist in a free market economy.

Michael Kruse

Hey Nate. On rereading your comment I thinkg I may have bypassed your main point. I was responding more to the overall project as opposed to this piece of it. It seems you were addressing the software "intellectual property" aspect. That is a whole other animal isn't it?

Nate Custer

Mike,

While your discussion of for profit and not-for-profit is interesting and good. I am not sure it directly applies in this context. The goal is the OLPC is that national goverments would purchase and pay for the laptop for kids in their countries. The folks at MIT, Redhat, AMD and others are working on this project, but there is not (as I understand it at least) a whole lot of direct donations to the OLPC project nor is there a lot of need for donations later.

In some senses this is a far less friction shaped kind of corporation.

I guess that is part of what I see: A project like this would not be possible without the dramatic creative commons of the Free Software stack. Software has become the more expensive side of selling a computer. A 100 dollar computer would not even be enought to pay for Windows XP, much less for a set of office programs, a full encylepdia, and the other tools built into the OLPC box.

The same is true of the green wifi project. Most of the hard engineering work was the software (linux).

The innovation is not brilliant or original it just required a bunch of building blocks to be in place to make possible. Those blocks came in place in no small part because of the free software folks.

Can you think of a way to use the current economic language to describe this story? If this is a not for profit group working in a basicly friction free atmosphere, i.e. the only input of funds is nations purchasing laptops and the only cost is the hardware which is paid in full by the nations. Does your two tier model work?

Michael Kruse

Nate, I think I would separate your question into two pieces. First there are the objectives that OLPC and GW are doing. Second the issue of the open source software.

You wrote:

“I am not sure it directly applies in this context. The goal is the OLPC is that national goverments would purchase and pay for the laptop for kids in their countries. The folks at MIT, Redhat, AMD and others are working on this project, but there is not (as I understand it at least) a whole lot of direct donations to the OLPC project nor is there a lot of need for donations later.”

Here is my reflection on this. Government entities, from an economic perspective, are much like “not for profits” (except they have guns and tanks. *grin*) The money a government entity receives is from a legislature and it is spent on someone else. The employees of the government entity are not to personally benefit from their activities (although we certainly know corruption exists.) We have the “two customer” model again where the one receiving the service is in a powerless position and cannot hold the service provider directly accountable. My point would be that the web of non-profit orgs., NGOs, and government agencies creates an environment where the consumer is powerless to affect product features, quality or service. For instance, you and I make a choice about using an open source technology like Linux or something like Windows. The recipient of the government services didn’t get to make that choice. You and I can agree that it is far better that they are getting a Linux system but that is our assessment and not theirs.

Now, having said all of that I am not in the least bit opposed to what is going on here. On the contrary. I highly commend it! Markets are not perfect and particularly when we are dealing with governments that have had corruption, controlled economies and a host of any other problems, it takes special investments and the application of appropriate technology to bring them into a prosperous state where government and not-for-profit assistance is unnecessary. It is not entirely altruistic. The computer industry has much to gain from world of computer literate people in rising prosperity.

There are going to be losers in a market economy of fallen human beings. Some lose because of poor decisions of their own and others through no fault of their own. In a virtuous free market society, these people will be the special focus of the beneficiaries of the economy. The aim is not just to redistribute resources to them but to restore them fully to participating and productive stewards of Gods created world. The critical point here is that the work of OLPC and GW is free market decision by virtuous people who have freely chosen to invest their resources in a specific way. That is one of the benefits of market economy is that virtuous members “leave the edge of their fields for the poor to glean” and make sure no one gets left behind. But the free market is what created the prosperity that enables them to have edges of fields to leave unharvested. However, the end game is for everyone to be harvesting their own fields and making their own crop decisions and eliminating the need to leave the edges of the field for the poor.

As to the open source questions, to me that gets into a whole can of worms that I am not sure I can adequately analyze here. I think we have to look at open source software as a piece of the larger computer industry rather than as a product called “software.” Person computer software is still a very new entity in the economy (20-25 years isn’t very long) and I am not convinced that software will prevail as an industry despite the efforts of Microsoft and others. Is software an infrastructure piece that is open to everyone (like traffic signals on a boulevard) or is it a discrete entity that can be owned and transferred (the car I am driving on the boulevard?) I am inclined to think the former is the wave of the future but then I thought the Royals would have a winning season. *grin*

I think the bigger picture is how software integrates with other elements of the computer industry. For instance, many computer printer manufacturers are in essence no longer marketing printers. They sell the printers at less than it costs to make them. Sometimes they give them away. Have they abandoned free market principles? Hardly. They have switched to marketing printer ink cartridges. The printer is a way to get you locked into buying cartridges which is where they make their money. Again, it is how one piece integrates with the market dynamics of the other elements involved in the industry. I am all for open source software.

I don’t know if this makes any sense but it is all my tired and feeble brain can manage this evening. *grin*

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