Market Failure

The downside of Free Software: Because it's free, the market doesn't work in the same way as for most commercial products. Some software, even the essential plumbing of the Internet on which we all depend, becomes an externality, and that makes it a problem.

What's an externality? It's a cost that you bear, or an advantage that you enjoy, that you haven't paid for. If a factory pollutes a river and the fishermen downstream find that their catch declines, that's an example of a negative externality affecting the fishermen.

The Free Software economy abounds with positive externalities, but the one that's got me thinking this month is GnuPG, the encryption software used by everyone and everything. It's fundamental to the Internet, in that Linux distros running 90-odd percent of the world's web servers use it to verify software updates. Without GnuPG, the Internet would need to come up with another way of keeping its servers up to date, which would cost money and effort. The money it saves – the trust it engenders – would be worth billions of dollars if only we could quantify it.

But, we can't count the benefits of GnuPG to the people who use it, and that means that nobody pays. That's forced the GnuPG team to start a crowdfunding campaign to raise enough money to pay for three full-time developers. It's crazy, and (after the Heartbleed SSL exploit, caused partly by underfunding of another crucial security tool) we should be worried.

Some companies, such as Red Hat, are making a massive success of Free Software. But for some projects, the market is failing. This is where a government would step in (in the case of the polluted river, with environmental protection laws). In the absence of such a supranational regulatory body for Free Software, however, it's up to us all to put our hand in our pocket and support GnuPG. Amazon, over to you.