Release 1.2 // August 22, 1994

This statement represents the cumulative wisdom and innovation of many dozens of people. It is based primarily on the thoughts of four "co-authors": Ms. Esther Dyson; Mr. George Gilder; Dr. George Keyworth; and Dr. Alvin Toffler. This release 1.2 has the final "imprimatur" of no one. In the spirit of the age: It is copyrighted solely for the purpose of preventing someone else from doing so. If you have it, you can use it any way you want. However, major passages are from works copyrighted individually by the authors, used here by permission; these will be duly acknowledged in release 2.0. It is a living document. Release 2.0 will be released in October 1994. We hope you'll use it is to tell us how to make it better. Do so by:

PREAMBLE

In a First Wave economy, land and farm labor are the main "factors of production." In a Second Wave economy, the land remains valuable while the "labor" becomes massified around machines and larger industries. In a Third Wave economy, the central resource -- a single word broadly encompassing data, information, images, symbols, culture, ideology, and values -- is actionable knowledge.

The industrial age is not fully over. In fact, classic Second Wave sectors (oil, steel, auto-production) have learned how to benefit from Third Wave technological breakthroughs -- just as the First Wave's agricultural productivity benefited exponentially from the Second Wave's farm- mechanization.

But the Third Wave, and the Knowledge Age it has opened, will not deliver on its potential unless it adds social and political dominance to its accelerating technological and economic strength. This means repealing Second Wave laws and retiring Second Wave attitudes. It also gives to leaders of the advanced democracies a special responsibility -- to facilitate, hasten, and explain the transition.

As humankind explores this new "electronic frontier" of knowledge, it must confront again the most profound questions of how to organize itself for the common good. The meaning of freedom, structures of self-government, definition of property, nature of competition, conditions for cooperation, sense of community and nature of progress will each be redefined for the Knowledge Age -- just as they were redefined for a new age of industry some 250 years ago.

What our 20th-century countrymen came to think of as the "American dream," and what resonant thinkers referred to as "the promise of American life" or "the American Idea," emerged from the turmoil of 19th-century industrialization. Now it's our turn: The knowledge revolution, and the Third Wave of historical change it powers, summon us to renew the dream and enhance the promise.

THE NATURE OF CYBERSPACE

More ecosystem than machine, cyberspace is a bioelectronic environment that is literally universal: It exists everywhere there are telephone wires, coaxial cables, fiber-optic lines or electromagnetic waves.

This environment is "inhabited" by knowledge, including incorrect ideas, existing in electronic form. It is connected to the physical environment by portals which allow people to see what's inside, to put knowledge in, to alter it, and to take knowledge out. Some of these portals are one-way (e.g. television receivers and television transmitters); others are two-way (e.g. telephones, computer modems).

Most of the knowledge in cyberspace lives the most temporary (or so we think) existence: Your voice, on a telephone wire or microwave, travels through space at the speed of light, reaches the ear of your listener, and is gone forever.

But people are increasingly building cyberspatial "warehouses" of data, knowledge, information and misinformation in digital form, the ones and zeros of binary computer code. The storehouses themselves display a physical form (discs, tapes, CD- ROMs) -- but what they contain is accessible only to those with the right kind of portal and the right kind of key.

The key is software, a special form of electronic knowledge that allows people to navigate through the cyberspace environment and make its contents understandable to the human senses in the form of written language, pictures and sound.

People are adding to cyberspace -- creating it, defining it, expanding it -- at a rate that is already explosive and getting faster. Faster computers, cheaper means of electronic storage, improved software and more capable communications channels (satellites, fiber-optic lines) -- each of these factors independently add to cyberspace. But the real explosion comes from the combination of all of them, working together in ways we still do not understand.

The bioelectronic frontier is an appropriate metaphor for what is happening in cyberspace, calling to mind as it does the spirit of invention and discovery that led ancient mariners to explore the world, generations of pioneers to tame the American continent and, more recently, to man's first exploration of outer space.

But the exploration of cyberspace brings both greater opportunity, and in some ways more difficult challenges, than any previous human adventure.

Cyberspace is the land of knowledge, and the exploration of that land can be a civilization's truest, highest calling. The opportunity is now before us to empower every person to pursue that calling in his or her own way.

The challenge is as daunting as the opportunity is great. The Third Wave has profound implications for the nature and meaning of property, of the marketplace, of community and of individual freedom. As it emerges, it shapes new codes of behavior that move each organism and institution -- family, neighborhood, church group, company, government, nation -- inexorably beyond standardization and centralization, as well as beyond the materialist's obsession with energy, money and control.

Turning the economics of mass-production inside out, new information technologies are driving the financial costs of diversity -- both product and personal -- down toward zero, "demassifying" our institutions and our culture. Accelerating demassification creates the potential for vastly increased human freedom.

It also spells the death of the central institutional paradigm of modern life, the bureaucratic organization. (Governments, including the American government, are the last great redoubt of bureaucratic power on the face of the planet, and for them the coming change will be profound and probably traumatic.)

In this context, the one metaphor that is perhaps least helpful in thinking about cyberspace is -- unhappily -- the one that has gained the most currency: The Information Superhighway. Can you imagine a phrase less descriptive of the nature of cyberspace, or more misleading in thinking about its implications? Consider the following set of polarities:

Information Superhighway / Cyberspace

Limited Matter / Unlimited Knowledge
Centralized / Decentralized
Moving on a grid / Moving in space
Government ownership / A vast array of ownerships
Bureaucracy / Empowerment
Efficient but not hospitable / Hospitable if you customize it
Withstand the elements / Flow, float and fine-tune
Unions and contractors / Associations and volunteers
Liberation from First Wave / Liberation from Second Wave
Culmination of Second Wave / Riding the Third Wave

The highway analogy is all wrong," explained Peter Huber in Forbes this spring, "for reasons rooted in basic economics. Solid things obey immutable laws of conservation -- what goes south on the highway must go back north, or you end up with a mountain of cars in Miami. By the same token, production and consumption must balance. The average Joe can consume only as much wheat as the average Jane can grow. Information is completely different. It can be replicated at almost no cost -- so every individual can (in theory) consume society's entire output. Rich and poor alike, we all run information deficits. We all take in more than we put out."

THE NATURE AND OWNERSHIP OF PROPERTY

The property that makes up cyberspace comes in several forms: Wires, coaxial cable, computers and other "hardware"; the electromagnetic spectrum; and "intellectual property" -- the knowledge that dwells in and defines cyberspace.

In each of these areas, two questions that must be answered. First, what does "ownership" mean? What is the nature of the property itself, and what does it mean to own it? Second, once we understand what ownership means, who is the owner? At the level of first principles, should ownership be public (i.e. government) or private (i.e. individuals)?

The answers to these two questions will set the basic terms upon which America and the world will enter the Third Wave. For the most part, however, these questions are not yet even being asked. Instead, at least in America, governments are attempting to take Second Wave concepts of property and ownership and apply them to the Third Wave. Or they are ignoring the problem altogether.

For example, a great deal of attention has been focused recently on the nature of "intellectual property" -- i.e. the fact that knowledge is what economists call a "public good," and thus requires special treatment in the form of copyright and patent protection.

Major changes in U.S. copyright and patent law during the past two decades have broadened these protections to incorporate "electronic property." In essence, these reforms have attempted to take a body of law that originated in the 15th century, with Gutenberg's invention of the printing press, and apply it to the electronically stored and transmitted knowledge of the Third Wave.

A more sophisticated approach starts with recognizing how the Third Wave has fundamentally altered the nature of knowledge as a "good," and that the operative effect is not technology per se (the shift from printed books to electronic storage and retrieval systems), but rather the shift from a mass- production, mass-media, mass-culture civilization to a demassified civilization.

The big change, in other words, is the demassification of actionable knowledge.

The dominant form of new knowledge in the Third Wave is perishable, transient, customized knowledge: The right information, combined with the right software and presentation, at precisely the right time. Unlike the mass knowledge of the Second Wave -- "public good" knowledge that was useful to everyone because most people's information needs were standardized -- Third Wave customized knowledge is by nature a private good.

If this analysis is correct, copyright and patent protection of knowledge (or at least many forms of it) may no longer be unnecessary. In fact, the marketplace may already be creating vehicles to compensate creators of customized knowledge outside the cumbersome copyright/patent process, as suggested last year by John Perry Barlow:

"One existing model for the future conveyance of intellectual property is real-time performance, a medium currently used only in theater, music, lectures, stand-up comedy and pedagogy. I believe the concept of performance will expand to include most of the information economy, from multi- casted soap operas to stock analysis. In these instances, commercial exchange will be more like ticket sales to a continuous show than the purchase of discrete bundles of that which is being shown. The other model, of course, is service. The entire professional class -- doctors, lawyers, consultants, architects, etc. -- are already being paid directly for their intellectual property. Who needs copyright when you're on a retainer?"

Copyright, patent and intellectual property represent only a few of the "rights" issues now at hand. Here are some of the others:

* Ownership of the electromagnetic spectrum, traditionally considered to be "public property," is now being "auctioned" by the Federal Communications Commission to private companies. Or is it? Is the very limited "bundle of rights" sold in those auctions really property, or more in the nature of a use permit -- the right to use a part of the spectrum for a limited time, for limited purposes? In either case, are the rights being auctioned defined in a way that makes technological sense?

* Ownership over the infrastructure of wires, coaxial cable and fiber-optic lines that are such prominent features in the geography of cyberspace is today much less clear than might be imagined. Regulation, especially price regulation, of this property can be tantamount to confiscation, as America's cable operators recently learned when the Federal government imposed price limits on them and effectively confiscated an estimated $___ billion of their net worth. (Whatever one's stance on the FCC's decision and the law behind it, there is no disagreeing with the proposition that one's ownership of a good is less meaningful when the government can step in, at will, and dramatically reduce its value.)

* The nature of capital in the Third Wave -- tangible capital as well as intangible -- is to depreciate in real value much faster than industrial-age capital -- driven, if nothing else, by Moore's Law, which states that the processing power of the microchip doubles at least every 18 months. Yet accounting and tax regulations still require property to be depreciated over periods as long as 30 years. The result is a heavy bias in favor of "heavy industry" and against nimble, fast-moving baby businesses.

Who will define the nature of cyberspace property rights, and how? How can we strike a balance between interoperable open systems and protection of property?

THE NATURE OF THE MARKETPLACE

These phenomena are altering the nature of the marketplace, not just for information technology but for all goods and materials, shipping and services. In cyberspace itself, market after market is being transformed by technological progress from a "natural monopoly" to one in which competition is the rule. Three recent examples:
* The market for "mail" has been made competitive by the development of fax machines and overnight delivery -- even though the "private express statutes" that technically grant the U.S. Postal Service a monopoly over mail delivery remain in place.
* During the past 20 years, the market for television has been transformed from one in which there were at most a few broadcast TV stations to one in which consumers can choose among broadcast, cable and satellite services.
* The market for local telephone services, until recently a monopoly based on twisted-pair copper cables, is rapidly being made competitive by the advent of wireless service and the entry of cable television into voice communication. In England, Mexico, New Zealand and a host of developing countries, government restrictions preventing such competition have already been removed and consumers actually have the freedom to choose.

The advent of new technology and new products creates the potential for dynamic competition -- competition between and among technologies and industries, each seeking to find the best way of serving customers' needs. Dynamic competition is different from static competition, in which many providers compete to sell essentially similar products at the lowest price.

Static competition is good, because it forces costs and prices to the lowest levels possible for a given product. Dynamic competition is better, because it allows competing technologies and new products to challenge the old ones and, if they really are better, to replace them. Static competition might lead to faster and stronger horses. Dynamic competition gives us the automobile.

Such dynamic competition -- the essence of what Austrian economist Joseph Schumpeter called "creative destruction" -- creates winners and losers on a massive scale. New technologies can render instantly obsolete billions of dollars of embedded infrastructure, accumulated over decades. The transformation of the U.S. computer industry since 1980 is a case in point.

In 1980, everyone knew who led in computer technology. Apart from the minicomputer boom, mainframe computers were the market, and America's dominance was largely based upon the position of a dominant vendor -- IBM, with over 50% world market-share.

Then the personal-computing industry exploded, leaving older-style big-business-focused computing with a stagnant, piece of a burgeoning total market. As IBM lost market-share, many people became convinced that America had lost the ability to compete. By the mid-1980s, such alarmism had reached from Washington all the way into the heart of Silicon Valley.

But the real story was the renaissance of American business and technological leadership. In the transition from mainframes to PCs, a vast new market was created. This market was characterized by dynamic competition consisting of easy access and low barriers to entry. Start-ups by the dozens took on the larger established companies -- and won.

After a decade of angst, the surprising outcome is that America is not only competitive internationally, but, by any measurable standard, America dominates the growth sectors in world economics -- telecommunications, microelectronics, computer networking (or "connected computing") and software systems and applications.

The reason for America's victory in the computer wars of the 1980s is that dynamic competition was allowed to occur, in an area so breakneck and pell- mell that government would've had a hard time controlling it even had it been paying attention. The challenge for policy in the 1990s is to permit, even encourage, dynamic competition in every aspect of the cyberspace marketplace.

THE NATURE OF FREEDOM

This idea -- central to our free society -- was the result of more than 150 years of intellectual and political ferment, from the Mayflower Compact to the U.S. Constitution, as explorers struggled to establish the terms under which they would tame a new frontier.

And as America continued to explore new frontiers - - from the Northwest Territory to the Oklahoma land-rush -- it consistently returned to this fundamental principle of rights, reaffirming, time after time, that power resides with the people.

Cyberspace is the latest American frontier. As this and other societies make ever deeper forays into it, the proposition that ownership of this frontier resides first with the people is central to achieving its true potential.

To some people, that statement will seem melodramatic. America, after all, remains a land of individual freedom, and this freedom clearly extends to cyberspace. How else to explain the uniquely American phenomenon of the hacker, who ignored every social pressure and violated every rule to develop a set of skills through an early and intense exposure to low-cost, ubiquitous computing.

Those skills eventually made him or her highly marketable, whether in developing applications- software or implementing networks. The hacker became a technician, an inventor and, in case after case, a creator of new wealth in the form of the baby businesses that have given America the lead in cyberspatial exploration and settlement.

It is hard to imagine hackers surviving, let alone thriving, in the more formalized and regulated democracies of Europe and Japan. In America, they've become vital for economic growth and trade leadership. Why? Because Americans still celebrate individuality over conformity, reward achievement over consensus and militantly protect the right to be different.

But the need to affirm the basic principles of freedom is real. Such an affirmation is needed in part because we are entering new territory, where there are as yet no rules -- just as there were no rules on the American continent in 1620, or in the Northwest Territory in 1787.

Centuries later, an affirmation of freedom -- by this document and similar efforts -- is needed for a second reason: We are at the end of a century dominated by the mass institutions of the industrial age. The industrial age encouraged conformity and relied on standardization. And the institutions of the day -- corporate and government bureaucracies, huge civilian and military administrations, schools of all types -- reflected these priorities. Individual liberty suffered -- sometimes only a little, sometimes a lot:
* In a Second Wave world, it might make sense for government to insist on the right to peer into every computer by requiring that each contain a special "clipper chip."
* In a Second Wave world, it might make sense for government to assume ownership over the broadcast spectrum and demand massive payments from citizens for the right to use it.
* In a Second Wave world, it might make sense for government to prohibit entrepreneurs from entering new markets and providing new services.
* And, in a Second Wave world, dominated by a few old-fashioned, one-way media "networks," it might even make sense for government to influence which political viewpoints would be carried over the airwaves.

All of these interventions might have made sense in a Second Wave world, where standardization dominated and where it was assumed that the scarcity of knowledge (plus a scarcity of telecommunications capacity) made bureaucracies and other elites better able to make decisions than the average person.

But, whether they made sense before or not, these and literally thousands of other infringements on individual rights now taken for granted make no sense at all in the Third Wave.

For a century, those who lean ideologically in favor of freedom have found themselves at war not only with their ideological opponents, but with a time in history when the value of conformity was at its peak. However desirable as an ideal, individual freedom often seemed impractical. The mass institutions of the Second Wave required us to give up freedom in order for the system to "work."

The coming of the Third Wave turns that equation inside-out. The complexity of Third Wave society is too great for any centrally planned bureaucracy to manage. Demassification, customization, individuality, freedom -- these are the keys to success for Third Wave civilization.