The Transaction Costs of Creating a Public

Has the Internet drastically reduced transaction costs as Paul Starr suggests? Let’s think about that. To an old print person like me, it seems that the drastic reduction has come in the variable costs of distribution and raw materials. Variable costs were like a tax on growth: double your readers, double the newsprint consumed. For electronic media, practically all of the costs are fixed, making growth virtually free.

When Ronald Coase introduced the concept of transaction costs in 1937, he was trying to understand why we need business firms with hierarchical, command-and-control structures. Without them, we could envision an environment in which every worker was a freelancer. But then each action that required cooperation would be subject to individual negotiation. Putting all these contacts in the structure of a firm minimizes that overhead.

The need to minimize transaction costs is also a reason that newspapers evolved toward natural monopoly. Buyers and sellers needed a single marketplace to make it easier for them to find each other.

Maybe we are starting to see Internet users organize themselves for the same reason. In its raw form, the Internet tends to increase transaction costs because the great volume of information makes it difficult for specific content creators and consumers to cut through the noise and find each other. Now a reputational hierarchy is forming where sites like Cato Unbound or the Huffington Post find ways to originate, aggregate, and organize content for particular publics.

Are they creating these publics or just responding to publics that already created themselves? The idea of shifting issue publics that form themselves in response to events can be traced to political scientist Philip Converse in 1964. Perhaps the Internet’s contribution is that it facilitates the formation of these issue publics, makes them more stable, and potentially more potent. It sounds like a researchable question.

Also from This Issue

Lead Essay

  • Not an Upgrade — an Upheaval by Clay Shirky

    In his lead essay, Clay Shirky argues that the old models of journalism are broken primarily because in today’s online environment, self-created publics can parse the news however they like. The biggest failure of journalism in the online age is the failure to reproduce the front page – the news that everyone saw together and first. Today, individuals who want specialized or even personalized news can get it instantly. Readership has become impossible to control.

    In this massive upheaval, one thing that may be at risk is the provision of “serious” journalism – news stories about the city council, or about events on the other side of the globe. These stories aren’t being subsidized anymore, as they had been in the past, by getting bundled in with coupons and stories about sports. To provide serious journalism, new forms of patronage may be necessary, and Shirky’s essay concludes with a brief look at some models that may work. Yet no upheaval of this magnitude is really predictable, and the future will probably surprise us all.

Response Essays

  • Some Patterns in the Chaos by Philip Meyer

    In his response essay, Philip Meyer argues that while newspapers may be in financial trouble, journalism is on the move. In particular, citizen journalism, done by individuals who may have other careers or life paths outside of full-time journalism, is a key trend for the future. Certification for these journalists – whether through reputation metrics or through a formal certification process – will become increasingly important. Evidence-based journalism, specialty niche journalism, and journalism done through philanthropic foundations are some of the other key trends that are accompanying the decline of the generalist newspapers that dominated the twentieth century. Evidence-based journalism is more open to ordinary citizens, who may not have the contacts of traditional newspaper reporters. Niche journalism had a hard time finding an outlet in the old days. And, although the prospect may be unsettling, philanthropy is increasingly an important source of funding for these projects.

  • The Public May Need to Subsidize Itself by Paul Starr

    Paul Starr agrees with much of Clay Shirky’s lead essay, but he is not optimistic about the power of the public to self-organize. He argues that law, politics, and the unequal fortunes of people in society will all influence the process, and that this means that if we want responsible public-service journalism, we will likely have to subsidize it in a viewpoint- and platform-neutral manner, perhaps with tax exemptions.

  • Abandon Old Strategies to Survive in a New Era by Steve Yelvington

    Steve Yelvington argues that much of the hype about the death of the newspaper business is simply the product of journalistic myopia, in two different forms: First, the news business as a whole made a series of bad business decisions that left it ill-prepared for the information age. And second, the effects of these decisions are all too apparent to reporters, who see them up close in their professional lives. Yet let’s be skeptical of the claim that the newspaper is dying, he says: We are in the middle of a very serious recession, and many other industries are also suffering. No one, however, suggests that we will stop banking, say, or driving cars. Tax breaks, subsidies, bailouts, and laws forbidding hyperlinks to copyrighted content are not only unnecessary – they are harmful, because they will prevent the news industry from developing the new strategies it desperately needs.

The Conversation