Cyberspace Inc and the Robber Baron Age

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-------------------------------------------------------------- ** This may be posted in entirety, for non-commercial use**

To appear in: INFORMATION SOCIETY, Vol 12(2) Edited by: Mark Poster <mposter@benfranklin.hnet.UCI.EDU> See WWW: --------------------------------------------------------------

Cyberspace Inc and the Robber Baron Age, an analysis of PFF's "Magna Carta"

Copyright 1995 by Information Society

Richard K. Moore August 19, 1995

Reference: Cyberspace and the American Dream: A Magna Carta for the Knowledge Age Release 1.2 // August 22, 1994

The manifesto "Cyberspace and the American Dream: A Magna Carta for the Knowledge Age", published by the Progress and Freedom Foundation (PFF), is a document of considerable significance. Its very title reveals much about its intent. Its promoters -- both alleged and concealed -- are indicative of its propagandistic mission. Its contents have accurately prophesied the legislative agenda and rhetoric which have unfolded subsequent to the manifesto's publication.

Given the powerful telecommunications interests behind PFF -- and the close ties of that organization to Speaker Newt Gingrich -- a detailed analysis of the manifesto can provide insight into what may (unfortunately) be the most likely scenario for the future of cyberspace.

* * *

The title invites direct comparison with the original Magna Carta, which is defined in The Cassell Concise English Dictionary as follows:

Magna Carta - The Great Charter of English liberties, sealed by King John on 15 June, 1215

With due respect to Cassell's, this is a misleading definition. The Magna Carta did not grant liberties generally to "the English", but rather devolved powers and privileges exclusively to an elite aristocracy. As shall be shown in this article, PFF's "Magna Carta" is similarly misleading: much of its rhetoric seems to imply a concern with individual liberties, but its substance would devolve power and privilege exclusively to the biggest corporate players in the telecommunications industry.

Just as the Magna Carta supported the power of the Nobles -- with each to have autocratic power in his own domain -- so PFF's manifesto supports the power of communications monopolies -- with each to have unregulated control over its own cyberspace fiefdom. Rather than being a charter of liberties, the manifesto promotes a regime of robber barons in cyberspace.

Instead of an infrastructure for public communications -- like the current Internet, or the American highway system -- cyberspace would be developed as a corporate owned monopoly -- priced at whatever the traffic will bear. Instead of providing a "space" in which citizens are free to speak and associate (like Internet), cyberspace would become a profit-machine and propaganda channel for media conglomerates. PFF's manifesto is a formula for neo-feudalism in the "Knowledge Age" -- it is a charter for what could aptly be dubbed "Cyberspace Inc".

* * *

The ultimate promoters of the manifesto are concealed. Its introduction claims:

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.

The implication would seem to be that enlightened individuals spontaneously composed the manifesto, in the interests, presumably, of progress and freedom. The true authorship is uncertain. According to Mark Stahlman of New Media Associates, a scheduled speaker at an upcoming PFF conference:

The 'author' of this rambling camel-of-a-report is Frank Gregorsky. He's a journalist working for PFF who does their newsletter. None of the listed contributors actually did any work directly on the document. That's why it's simply *not* coherent. [posted to on Sun, 5 Feb 1995]

The "coherence" of the manifesto will be discussed in some detail below. As for the authorship, it would appear that PFF itself must be considered the source of the manifesto.

PFF turns out to be a typical industry-front organization. Characterized by Mr. Stahlman as "Newt's 'think tank'", PFF is funded by a panoply of corporate sponsors. The February 6, 1995 issue of The Nation carries an article by David Corn, entitled "CyberNewt". Here's an excerpt;

There is nothing particularly futuristic about the funding sources behind the P.F.F. and its conference. Telecommunications firms subsidize the group: AT&T, BellSouth, Turner Broadcasting System, Cox Cable Communications. Other donors to the P.F.F.'s $1.9 million bank account include conservative foundations, Wired magazine, high-tech firms, military contractors, and drug companies (another foundation passion is attacking the Food and Drug Administration).

When Senator Phil Gramm spoke at the [PFF] conference luncheon, the tables closest to the podium were reserved for corporate benefactors: Eli Lilly, Seagram's, Phillip Morris, S.B.C. Communications (formerly Southwestern Bell) ...

Brock N. Meeks published an article in Inter@ctive Week, dated April 28, 1995, entitled "Freedom Foundation Faces Scrutiny". These brief excerpts from the article outline Mr. Meeks' understanding of how PFF funds are used, and how it seeks to hide its link to Mr. Gingrich:

...Among I@W's findings:

* PFF spent $483,000 to underwrite a college course taught by Gingrich. ...

* PFF spent $148,000 to underwrite The Progress Report, Gingrich's weekly cable talk show carried on his own National Empowerment Television. ...

The PFF links to Gingrich and his own political action committee, called GOPAC, have drawn the interest of the Ethics Committee and the IRS, which is "reevaluating" PFF's nonprofit status, according to an IRS source.

The PFF link to Gingrich's rising political currency has proved lucrative. From March 1993 to March 1994 the group raised $611,000. During the remainder of 1994, when it became clear that the Republicans stood a good chance to capture both the House and the Senate for the first time in 40 years, an additional $1.07 million poured into PFF coffers, according to its financial records. ...

The latest PFF tax returns do not make any link to GOPAC or Gingrich. Any such linking would violate IRS tax exemption rules. However, Eisenach is on record acknowledging that he did the basic groundwork of setting up PFF while running GOPAC.

The money trail apparently goes from media/telecommunications conglomerates, to PFF, and finally to Mr. Gingrich's projects, which seem to be heavily focused on propaganda ventures. Small wonder that PFF's manifesto, and Mr. Gingrich's legislative agenda, promote excessive deregulation of the telecommunications industry, and pave the way for monopolistic control. Evidently the Lords of Cyberspace Inc are to include the likes of AT&T, BellSouth, Turner Broadcasting System, and Cox Cable Communications. Mr. Gingrich's famous pledges to "empower the individual" and "provide laptops for ghetto dwellers" should be seen for what they are: a shallow populist veneer covering a corporate-pandering agenda.

* * *

The text of PFF's manifesto is an artful piece of propaganda. Clouded in cyber-jargon, illogical in its flow of argument, and disjoint in its presentation -- it does superficially appear to be a "rambling camel-of-a-report", as Mr. Stahlman observes. But beneath the deceptive rhetoric -- if one digs patiently -- there can indeed be found a coherent set of proposals for the commercial exploitation of cyberspace.

The rhetoric is grandiose. It talks about the original American experience, characterized as daring pioneers conquering a new land -- based on the principles of individual initiative and freedom. Cyberspace is described as a similar frontier, and a rallying cry is raised to reaffirm freedom for the individual -- especially from government control. The preservation of the American heritage itself, the manifesto argues, hangs in the balance: freedom for the individual in cyberspace must be protected!

But the manifesto makes no mention whatever of protections for _individual_ freedoms. There's no discussion, for example, of guaranteeing freedom of expression or of protecting privacy. In addition, there's no discussion of preserving the viability of Internet mailing lists and bulletin boards -- which have proven to be cyberspace's equivalent of "freedom of association" and "freedom of the press".

What the manifesto does discuss -- at great length -- is the protection of freedoms for _telecommunications & media conglomerates_: freedom to form monopolies, freedom to set arbitrary price rates and structures, freedom to control content, and freedom from fair taxation, through special accounting procedures. This is a formula which harks back to the robber-baron capitalism of the late nineteenth century, when railroad, oil, and steel monopolies ran roughshod over America's economy and political system.

Hence the rhetoric of PFF's manifesto is aimed at accomplishing a clear propaganda mission. It aims to stir up sentiment for freedom of the individual, and then to deftly shift the ground under the manifesto's audience. The pro-freedom sentiment is subtly transferred from the _individual_ to the _corporation_, not explicitly, but by deceptive turns of phrase. "The corporation" is subtly equated to the "the individual", so that "deregulation of conglomerates" _seems_ to be synonymous with "freedom for the individual".

Implementation of the manifesto's agenda would not lead to individual freedom at all. It would lead to subjugation of the individual by corporate media monopolies. The right to access services, the price of the services, the definition of what services would be provided, the content of "news" and entertainment -- these would all be decided entirely by media conglomerates, based on their business interests and political agendas. Neither individuals nor their elected representatives would have any say over how cyberspace is to be developed or used, under PFF's charter for Cyberspace Inc.

Most of the remainder of this article is devoted to examining representative excerpts of the manifesto text, in order to substantiate and illustrate the summary analysis above. At the end there's a brief discussion of the relationship between the manifesto and the current legislative agenda in Washington.

* * *

In its Preamble, the manifesto sets forth its grandiose characterization of cyberspace as the next frontier of the American Dream:

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.

In the first section, "The Nature of Cyberspace", the emphasis on cyberspace as a delivery media for information products is introduced:

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.

As is typical throughout the manifesto, the substance is hidden within fluff rhetoric. The operative phrases in this paragraph, confirmed by the rest of the manifesto, are "land of knowledge" and "exploration". Cyberspace is to be primarily a source of "knowledge" -- meaning commercial media products -- and the role of the _consumer_ will be to "explore" it -- meaning to navigate the purchasing options.

This first section also introduces the theme that government is inconsistent with cyberspace pioneering:

[Cyberspace] 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.)

As you might expect, nowhere does the manifesto acknowledge that Internet was established due to government initiative and sponsorship. And interestingly enough, the word "Internet" occurs only twice in the manifesto, and the Internet precedent is seldom cited as a source of models for how cyberspace might evolve. Also, the authors are evidently blind to the possibility that _corporations_ might be "redoubts bureaucratic power".

The next section, "The Nature and Ownership of Property", introduces a number of complex topics regarding ownership of hardware infrastructure, intellectual property, and the electromagnetic spectrum. This section also introduces the issue of pricing regulation, and touches on preferential taxation.

The main propaganda theme, intentionally confusing the individual with corporations, is introduced at this point:

At the level of first principles, should ownership be public (i.e. government) or private (i.e. individuals)?

The hook is set here, favoring private over government ownership -- in the name of the individual. But in all that follows, it is the corporation that is granted privileges, not the individual. As part of the same deceptive dichotomy, "public/government" is everywhere equated to central bureaucracy, with no acknowledgement that any kind of regulation could ever be useful, nor that any kind of public agency, even if highly decentralized, could possibly be beneficial. And there is no hint that individuals might ever need to be protected from corporations, or that government might play some role in such protection.

The ownership of hardware infrastructure is mentioned, but not discussed. It is patently obvious, evidently, to both the authors and the presumed readers, that this level of infrastructure is to be privately owned. State operated telecommunications systems are so far beyond the pale as to be unimaginable. Again the precedent of Internet (until very recently supported by a public backbone network) is conspicuously absent from the manifesto.

The discussion of intellectual property is interesting, and appears to have some merit. Patents and copyrights are described as being a "public good" approach to intellectual property, outdated and cumbersome in the age of cyberspace:

Third Wave customized knowledge is by nature a private good.

The manifesto's favored approach to intellectual property is described in a quotation from John Perry Barlow:

"One existing model for the future conveyance of intellectual property is real-time performance... In these instances, commercial exchange will be more like ticket sales to a continuous show... The other model, of course, is service... Who needs copyright when you're on a retainer?"

Apparently the model is that authors would sell their services or their rights to a commercial distributor, who would then charge the consumer on a "pay per view" basis.

Dealing with copyrights in electronic media has indeed proven to be a thorny problem. Journalists have complained about not being remunerated by electronic republishing services; rap musicians have allegedly "sampled" previous material without payment; copyrighted articles are forwarded around Internet on a free basis. New mechanisms are needed, and the private sector _is_ likely to be a creative source of solutions, such as metering technologies.

This model makes no mention of royalties. Many authors would prefer royalties, based on distributor revenues, rather than being forced to sell their services or works on a fixed-price basis. This is a time-honored practice in pre-electronic media, and a fully accountable and enforceable royalty scheme would be a desirable part of any cyberspace solution for intellectual property.

With regard to ownership of the electromagnetic spectrum, ominous questions are raised, but a specific agenda is not developed. Existing channel auctioning practices are criticized as being too limiting. Perhaps PFF's corporate backers are seeking outright permanent ownership of this presumably public resource:

...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?...

Thus far, the manifesto has "established" that private ownership of infrastructure, intellectual property, and the electromagnetic spectrum should be strengthened and extended, with the root justification hanging on the thin thread of deception equating corporation with individual. Next, the specter of evil regulation is raised:

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... 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.

Thus the manifesto proposes that every aspect of cyberspace is to be corporate owned, and that no price regulation should be imposed. If adequate measures were taken to insure healthy competition, this formula _might_ serve the public welfare. But the monopoly proposals, to be discussed further on, make this a dangerous formula indeed. Note above the use of the phrase "one's ownership", reinforcing the confusion of individual and corporate identity. Notice also, there was no discussion of the consumer complaints that led to the regulation, nor of the immense profits that the cable operators continue to reap subsequent to the "confiscation".

Next is raised the issue of property depreciation. The precedent of microchips is used to claim that cyberspace investments should be depreciated rapidly. Current capital depreciation practices are denigrated:

...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.

The comparison with microchips and small entrepreneurial ventures is patently absurd. Cyberspace Inc is aiming to consolidate ownership of existing infrastructures, and to deploy new cable, fiber, and coax. These are long-range hardware investments by big players, and the above argument for accelerated depreciation make no sense. Such inappropriate tax treatment would amount to yet another giveaway to rich corporations, at the expense of the oft-touted individual. Perhaps small, risk-taking, nimble companies _should_ enjoy more rapid depreciation, but not these corporate giants, aiming as they are to exploit already proven technologies .

In the next section, "The Nature of the Marketplace", the principle of "dynamic competition" is discussed. The principle is very simple, essentially that new kinds of products should be allowed to capture markets from outmoded products, just as the automobile replaced the horse and buggy. The manifesto attempts to present the idea as if it were a major breakthrough in economic theory. It then issues a rallying cry for bold new directions:

The challenge for policy in the 1990s is to permit, even encourage, dynamic competition in every aspect of the cyberspace marketplace.

What the manifesto fails to mention is that the American communications industry is already experiencing _dramatic_ dynamic competition. Cable, cellular, satellite, telephone, and broadcast modalities are increasingly overlapping, evolving, competing, shifting markets around, and bringing down prices. By a strange twist of logic, as we shall see later, the _concept_ of dynamic competition will be used as an argument for increased monopoly control over markets -- for reducing the _actual_ dynamic competition that is working so well today.

The next section, "The Nature of Freedom", develops several threads. It presents a revisionist version of U.S. and Internet history; it continues the blurring of individual and corporate interests; it continues the demonization of government; it restates the corporate goal of gaining outright ownership of the electromagnetic spectrum; it hints at the monopolist agenda.

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.

Broadcast license fees (hardly massive, by the way) are paid by corporate broadcasters, not citizens. Having laid its propaganda groundwork, the manifesto now freely interchanges individualist and corporate terms with Orwellian impunity. By an incredible stretch of doublethink, handing over the public airwaves to corporate ownership is to be a victory for the individual!

In a Second Wave world, it might make sense for government to prohibit entrepreneurs from entering new markets and providing new services.

In a single sweeping revisionist fantasy, America's remarkable record of supporting innovative entrepreneurs vanishes from history! And the manifesto would have us swallow the premise that billion-dollar telecommunications and media giants are poor, struggling entrepreneurs.

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."

In yet another revisionist fantasy, America's world-famous history of freedom is discounted. And once again individual freedom is praised, as if that had some connection to the corporate agenda being espoused.

The next section, "The Essence of Community", proclaims the notion of distributed communities -- long common on Internet -- as if they were a bold new idea:

No one knows what the Third Wave communities of the future will look like... It is clear, however, that cyberspace will play an important role knitting together in the diverse communities of tomorrow, facilitating the creation of "electronic neighborhoods" bound together not by geography but by shared interests.

Why does "no one know"? Why aren't Internet lists and newsgroups cited as living prototypes for distributed communities of the future? Such frequent and glaring omission of the Internet precedent is disturbing. Just as the American pioneer (so often praised by the manifesto) saw the New World (falsely) as a virgin land ready for exploitation, so the manifesto seems to see cyberspace as an empty frontier, yet to be explored and developed. Are the "natives" of this frontier -- today's extensive Internet culture -- to be similarly decimated and pushed onto bleak reservations? Just as the Magna Carta metaphor reveals much about the manifesto's robber-baron objectives, perhaps the darker implications of the pioneering metaphor should be taken seriously as well.

Given the monopoly-priced environment proposed by the manifesto (in the next section), the kind of informal, citizen-oriented virtual communities popular on Internet are highly unlikely to be viable. PFF's notion of distributed communities (called "cyberspaces") seems to resemble today's internal corporate networks, as described in a quote from Phil Salin:

"...Contrary to naive views, these cyberspaces will not all be the same, and they will not all be open to the general public. The global network is a connected 'platform' for a collection of diverse communities, but only a loose, heterogeneous community itself. Just as access to homes, offices, churches and department stores is controlled by their owners or managers, most virtual locations will exist as distinct places of private property."

Those groups which can afford to pay the monopolist prices -- such as corporations and well-funded associations -- can enjoy the benefits which today are affordable to millions of individuals and groups. Perhaps nowhere else in the manifesto is the pro-individualist rhetoric so clearly revealed to be the lie that it is. Instead of promoting individual freedom in cyberspace, existing freedoms and privileges are likely to be taken away. The ominous precedent implicit in the "pioneer" metaphor threatens to recur as cyberspace is cleared for commercial development.

The next section, "The Role of Government", re-iterates previously stated corporate objectives -- no price regulation, corporate ownership of spectra, new definition of intellectual property, favored tax treatment -- and proclaims a new objective: enabling total monopoly control over communications markets.

Much is made of the distinction between one-way and two-way communications, the implication apparently being that phone companies are better prepared to develop cyberspace than cable operators:

"...None of the interactive services will be possible, however, if we have an eight-lane data superhighway rushing into every home and only a narrow footpath coming back out..."

The claim is made that the multimedia future depends on greater collaboration between phone and cable companies: can be argued that a near-term national interactive multimedia network is impossible unless regulators permit much greater collaboration between the cable industry and phone companies. ...That is why obstructing such collaboration -- in the cause of forcing a competition between the cable and phone industries -- is socially elitist.

Next, it is claimed that dynamic competition requires that regulated-monopoly mechanisms (which govern today's RBOCs and cable companies) should be abolished. Price and entry regulation are to be replaced by new anti-trust law:

Antitrust law is the means by which America has...fostered competition in markets where many providers can and should compete. ...The market for telecommunications services -- telephone, cable, satellite, wireless -- is now such a market. ...price/entry regulation of telecommunications services... should therefore be replaced by antitrust law as rapidly as possible.

The obvious likely consequences of such an agenda are conspicuously not discussed by the manifesto. If entry regulation is removed, and phone/cable collaboration is encouraged, then the obvious alternatives for collaboration would be interconnection, joint venture, and acquisition. Given the multi-billion dollar capital reserves of the phone companies, the best business opportunity would presumably be for phone companies to simply acquire cable companies, thus establishing total monopolies over wires coming into the home.

Anti-trust law would be largely irrelevant to this scenario. To begin with, anti-trust enforcement seems to be a thing of the past -- especially with the Republican radicals in Congress. More important, perhaps, is the current anti-trust stance toward the RBOCs: partitioning them into separate turfs seems to be the most that anti-trust enforcers demand. Within their turfs, they're allowed be as monopolistic as they can get by with.

If price-regulation is removed, then we would be left with _totally_ unregulated telecommunications monopolies in each RBOC region -- controlling phone, television, multimedia, and messaging services, and charging whatever the traffic will bear. Hence the appropriateness of this article's title: "Cyberspace Inc and the Robber Baron Age". America's total communications infrastructure would be divided into feudal fiefdoms, and the economic regime would resemble the railroad cartels of the nineteenth century.

All the manifesto's rhetoric about individual freedom and dynamic competition is deception -- the agenda is totally anti-competitive, anti-individual, and anti-free-enterprise. A century's progress in achieving dynamic, competitive, and diverse communications industries -- based on appropriate and non-stifling regulation -- would be thrown out the window all at once.

The final section of the manifesto, "Grasping The Future", is mostly devoted to reiterating the grandiose rhetorical visions of the mythical "Third Wave". The phrase "grasping the future" is an apt conclusion to the manifesto: the conglomerates behind PFF are indeed grasping at the future with both hands, ready to pocket monopolistic windfall profits, presumably enhanced by favored tax advantages.

* * *

Despite the strongly adversarial attitude this article has taken toward the "Magna Carta", not all of the points made in that manifesto are considered by this author to be wrong-headed. Creative initiatives to the problems posed by cyberspace are indeed needed, and the manifesto offers some constructive ideas in that regard. A pay-per-view model of intellectual property may have merit -- if original authors are fairly and accountably compensated, and if non-commercial material is also accommodated at reasonable cost. Close collaboration among existing installed bases of coax, cable, and satellite may be desirable -- if appropriately regulated with respect to price and common-carrier status. And new paradigms and visions for understanding the meaning of communications in the "information age" are needed -- but with more honesty about the metaphors to be embraced and how they actually map onto cyberspace realities.

What _is_ highly objectionable in the manifesto is the deceptive manipulation of libertarian/individualist sentiment, the ignoring of the Internet precedent and the lessons to be learned from that, the absence of provisions for freedom of communication and privacy for individuals, the discounting of the proven constructive role for appropriate regulation, and the disguised corporate power-grab inherent in the proposed package of polices.

This is not the place to analyze or even enumerate the plethora of competing legislative proposals currently before Congress regarding telecommunications. Suffice it to say that the agenda promulgated by the "Magna Carta" is finding widespread expression in that legislation. This fact -- along with the manifesto's close connection to the communications industry and to Speaker Gingrich -- indicates that the "Magna Carta" should be taken very seriously, as regards both its agenda, and the kind of rhetoric and deception employed. The "Magna Carta" provides a rare insight into the threat facing America's future from corporate power grabbers, and simplifies the task of seeing through the propaganda smokescreen being employed by legislators and industry spokespeople.

Richard K. Moore Wexford, Ireland Co-leader: CPSR Campaign for Cyber Rights --------------------------------------------------------------

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