The Visible Hand?, by Brian L. Frye

by Guest Blogger — Tuesday, Oct. 8, 2019

Adam Smith famously observed that self-interest serves the public interest, because markets act as “an invisible hand to promote an end which was no part of his intention.” To which Finley Peter Dunne offered a rather less sanguine response: “A lie with a purpose is one of the worst kind, and the most profitable.” In any case, standard-setting organizations are a unique and idiosyncratic example of the invisible hand made visible, if anyone cared to look. Professional organizations that assume the authority to regulate commerce in its minutest detail, they touch every aspect of our lives, even though we rarely realize it.

In their excellent book, Engineering Rules: Global Standard Setting Since 1880, JoAnne Yates and Craig N. Murphy provide an engaging and exhaustive history of standard-setting organizations, from their earliest modern incarnation to the present. They trace that history back to the professionalization of engineering in the late 19th century, and describe the evolution of professional standard-setting organizations in relation to the development of technology and expansion of international trade.

Yates and Murphy frequently note the astonishingly utopian ambitions of standard-setting organizations, with the implicit recognition that those ambitions were not always realized. While standard-setting hasn’t produced the world peace its evangelists imagine – yet! – at least it made products safer, production cheaper, and commerce immeasurably more efficient in every way. No small feat.

Ultimately, the story of standard-setting organizations is a story of transaction costs. It’s economic dogma that markets reduce transaction costs by reducing information costs and forcing producers to compete to satisfy consumer demands. Except, of course, when they don’t. For so many reasons, markets can fail to maximize efficiency. One of those reasons is the inability of producers to agree on technical standards, whether out of self-interest or mere intransigence. In theory, the government can solve those market failures by imposing standards via regulation. But more often than not, the government doesn’t know what standards to impose, and doesn’t even know who to ask. Even worse, governments may have incentives not to agree on standards, in order to protect domestic producers.

Thankfully, standard-setting organizations can solve both market and government failures. As non-profit, transnational, membership organizations, they can break stalemates among producers, reduce information costs by relying on the expertise of their membership, and discourage protectionist standards. In theory, anyway. In practice, their many successes are balanced by their many failures. But why do standard-setting organizations sometimes succeed so spectacularly, and sometimes fail so miserably?

Yates and Murphy provide a rich and detailed account of those successes and failures, which suggests a range of different explanations, perhaps contingent on time and circumstance. While their book encompasses the entire history of modern standards, they focus on particular representative examples, which help explain why standard-setting organizations were able to solve some problems, but not others.

Most notably, they emphasize the importance of personality to success. On their telling, the person responsible for managing the process of reaching consensus on a standard is critical to whether consensus is achieved. A self-effacing, deferential personality seems to predict success, while an assertive, contentious personality predicts failure.

It’s a plausible story, confirmed by events, and it’s hard to argue with history. But I wonder about causality. Did the personality cause the outcome, or did the circumstances choose the personality? Or rather, would functional standard-setting organizations form and choose effective leaders, if the commercial, institutional, and political will to reach consensus didn’t already exist? Counterfactuals are hard to assess, but it is intriguing that consensus seems relatively easy to reach in good times and hard to reach in bad ones.

Additionally, as an “intellectual property” scholar, I found its relatively minor role in the standardization story rather surprising. On several occasions, Yates and Murphy observe that patent ownership affected standardization debates, and reflect on how standard-setting organizations tried to avoid patents and resolve conflicts. And I couldn’t help but wonder whether patents weren’t at least an element of the other “private interests” that so often seemed to make standard-setting more difficult.

A couple of incidents caught my attention. In the debate over the standardization of shipping containers, certain patents became an issue, but the patent owner ultimately relented. On its face, a win for the utopian goals of standardization! And yet, the patent owner was already a dominant player in the industry, and stood to gain enormously from standardization. What happens when a patent owner is a minor player, with a bigger stake in its patent than the industry? Surely that was at issue in the internet standardization debates, in which the wild proliferation of software patents made open-source standards the obviously more efficient choice.

And what about copyright? Yates and Murphy note that standard-setting organizations traditionally sold their standards publications to industry participants as a way of supporting their standard-setting activities. But they don’t discuss the cost of those publications, which is often substantial. Many people object to standard-setting organizations selling standards with the effective or actual force of law for a substantial sum, on the grounds that the law should be freely available to everyone. While Emily Bremer has convincingly argued that there are good reasons to think that the sale of standards publications is justified and efficient, it is an important debate that goes to the heart of the role of standard-setting organizations. If they are effectively making public policy, what kind of transparency do they owe the public? And in particular, what about members of the public who see themselves as stakeholders, even if the organization does not?

In any case, this book is an immensely valuable contribution to the literature on standardization and the history of technology. In particular, its extensive use of primary source documents provides a richness of detail and perspective that I found fascinating and provocative. It’s an important reminder that many of the most important decisions affecting our lives are made well outside the public eye, by people who usually mean well, but may not always appreciate all of the consequences of their decisions.

 

Brian L. Frye is the Spears-Gilbert Associate Professor of Law at the University of Kentucky College of Law.

This post is part of a symposium reviewing JoAnne Yates and Craig N. Murphy‘s Engineering Rules: Global Standard Setting since 1880 (John Hopkins University Press). Previous posts in the symposium can be viewed here.

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