The five Layer TCP/IP Model

TCP/IP model

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The five-layer TCP/IP model
5. Application layer

DHCP · DNS · FTP · Gopher · HTTP · IMAP4 · IRC · NNTP · XMPP · POP3 · SIP · SMTP · SNMP · SSH · TELNET · RPC · RTCP · RTSP · TLS · SDP · SOAP · GTP · STUN · NTP · (more)
4. Transport layer
TCP · UDP · DCCP · SCTP · RTP · RSVP · IGMP · (more)
3. Network/Internet layer
IP (IPv4 · IPv6) · OSPF · IS-IS · BGP · IPsec · ARP · RARP · RIP · ICMP · ICMPv6 · (more)
2. Data link layer
802.11 (WLAN) · 802.16 · Wi-Fi · WiMAX · ATM · DTM · Token ring · Ethernet · FDDI · Frame Relay · GPRS · EVDO · HSPA · HDLC · PPP · PPTP · L2TP · ISDN · (more)
1. Physical layer
Ethernet physical layer · Modems · PLC · SONET/SDH · G.709 · Optical fiber · Coaxial cable · Twisted pair · (more)

The TCP/IP model or Internet reference model, sometimes called the DoD model (DoD, Department of Defense) ARPANET reference model, is a layered abstract description for communications and computer network protocol design. It was created in the 1970s by DARPA for use in developing the Internet's protocols, and the structure of the Internet is still closely reflected by the TCP/IP model.

The original TCP/IP reference model consists of 4 layers, but has according to some authors evolved into a 5-layer model, where the lowest layer (the network access layer) is split into a physical layer and a datalink layer. However, no IETF standards-track document has accepted a five-layer model, probably since physical layer and data link layer protocols are not standardized by IETF. IETF documents deprecate strict layering of all sorts. Given the lack of acceptance of the five-layer model by the body with technical responsibility for the protocol suite, it is not unreasonable to regard five-layer presentations as teaching aids, making it possible to talk about non-IETF protocols at the physical layer.

This model was developed before the OSI Reference Model, and the Internet Engineering Task Force (IETF), which is responsible for the model and protocols developed under it, has never felt obligated to be compliant with OSI. While the basic OSI model is widely used in teaching, OSI, as presented as a seven-layer model, does not reflect real-world protocol architecture (RFC 1122) as used in the dominant Internet environment.

An updated IETF architectural document [1] even contains a section entitled: "Layering Considered Harmful". Emphasizing layering as the key driver of architecture is not a feature of the TCP/IP model, but rather of OSI. Much confusion comes from attempts to force OSI-like layering onto an architecture that minimizes their use.

Contents

Key Architectural Principles

An early architectural document, RFC 1122, emphasizes architectural principles over layering[2].

  1. End-to-End Principle: This principle has evolved over time. Its original expression put the maintenance of state and overall intelligence at the edges, and assumed the Internet that connected the edges retained no state and concentrated on speed and simplicity. Real-world needs for firewalls, network address translators, web content caches and the like have forced changes in this Principle. [3]
  2. Robustness Principle: "Be liberal in what you accept, and conservative in what you send. Software on other hosts may contain deficiencies that make it unwise to exploit legal but obscure protocol features".

Even when layer is examined, the assorted architectural documents -- there is no single architectural model such as ISO 7498, the OSI Reference Model -- have fewer, less rigidly defined layers than the commonly referenced OSI model, and thus provides an easier fit for real-world protocols. In point of fact, one frequently referenced document does not contain a stack of layers. The lack of emphasis on layering is a strong difference between the IETF and OSI approaches. It only refers to the existence of the "internetworking layer" and generally to "upper layers"; this document was intended as a 1996 "snapshot" of the architecture: "The Internet and its architecture have grown in evolutionary fashion from modest beginnings, rather than from a Grand Plan. While this process of evolution is one of the main reasons for the technology's success, it nevertheless seems useful to record a snapshot of the current principles of the Internet architecture."

No document officially specifies the model, another reason to deemphasize the emphasis on layering. Different names are given to the layers by different documents, and different numbers of layers are shown by different documents.

There are versions of this model with four layers and with five[citation needed] layers. RFC 1122 on Host Requirements makes general reference to layering, but refers to many other architectural principles not emphasizing layering. It loosely defines a four-layer version, with the layers having names, not numbers, as

  • Process Layer or Application Layer: this is where the "higher level" protocols such as SMTP, FTP, SSH, HTTP, etc. operate.
  • Host-To-Host (Transport) Layer: this is where flow-control and connection protocols exist, such as TCP. This layer deals with opening and maintaining connections, ensuring that packets are in fact received.
  • Internet or Internetworking Layer: this layer defines IP addresses, with many routing schemes for navigating packets from one IP address to another.
  • Network Access Layer: this layer describes both the protocols (i.e., the OSI Data Link Layer) used to mediate access to shared media, and the physical protocols and technologies necessary for communications from individual hosts to a medium.

The Internet protocol suite (and corresponding protocol stack), and its layering model, were in use before the OSI model was established. Since then, the TCP/IP model has been compared with the OSI model numerous times in books and classrooms. In a popular textbook, which is a secondary source,[4] but not primary IETF specifications, the model has evolved into a five-layer version that splits the network access layer into a Physical layer and a Network Access layer, corresponding to the physical layer and data link layer of the OSI model. The Internet or Internetworking layer corresponds to the OSI Network layer.

Layers in the TCP/IP model

IP suite stack showing the physical network connection of two hosts via two routers and the corresponding layers used at each hop. The dotted line represents a virtual connection.
IP suite stack showing the physical network connection of two hosts via two routers and the corresponding layers used at each hop. The dotted line represents a virtual connection.
Sample encapsulation of data within a UDP datagram within an IP packet
Sample encapsulation of data within a UDP datagram within an IP packet

The layers near the top are logically closer to the user application (as opposed to the human user), while those near the bottom are logically closer to the physical transmission of the data. Viewing layers as providing or consuming a service is a method of abstraction to isolate upper layer protocols from the nitty gritty detail of transmitting bits over, say, Ethernet and collision detection, while the lower layers avoid having to know the details of each and every application and its protocol.

This abstraction also allows upper layers to provide services that the lower layers cannot, or choose not to, provide. Again, the original OSI Reference Model was extended to include connectionless services (OSIRM CL).[5] For example, IP is not designed to be reliable and is a best effort delivery protocol. This means that all transport layers must choose whether or not to provide reliability and to what degree. UDP provides data integrity (via a checksum) but does not guarantee delivery; TCP provides both data integrity and delivery guarantee (by retransmitting until the receiver receives the packet).

This model lacks the formalism of the OSI Reference Model and associated documents, but the IETF does not use a formal model and does not consider this a limitation, as in the comment by David D. Clark, "We don't believe in kings, presidents, or voting. We believe in rough consensus and running code." Criticisms of this model, which have been made with respect to the OSI Reference Model, often do not consider ISO's later extensions to that model.

  1. For multiaccess links with their own addressing systems (e.g. Ethernet) an address mapping protocol is needed. Such protocols can be considered to be below IP but above the existing link system. While the IETF does not use the terminology, this is a subnetwork dependent convergence facility according to an extension to the OSI model, the Internal Organization of the Network Layer (IONL) [6].
  2. ICMP & IGMP operate on top of IP but do not transport data like UDP or TCP. Again, this functionality exists as layer management extensions to the OSI model, in its Management Framework (OSIRM MF) [7]
  3. The SSL/TLS library operates above the transport layer (utilizes TCP) but below application protocols. Again, there was no intention, on the part of the designers of these protocols, to comply with OSI architecture.
  4. The link is treated like a black box here. This is fine for discussing IP (since the whole point of IP is it will run over virtually anything). The IETF explicitly does not intend to discuss transmission systems, which is a less academic but practical alternative to the OSI Reference Model.

OSI and TCP/IP Layering Differences

The three top layers in the OSI model - the application layer, the presentation layer and the session layer - usually are lumped into one layer in the TCP/IP model. While some pure OSI protocol applications, such as X.400, also lumped them together, there is no requirement that a TCP/IP protocol stack needs to be monolithic above the transport layer. For example, the Network File System (NFS) application protocol runs over the eXternal Data Representation (XDR) presentation protocol, which, in turn, runs over a protocol with session layer functionality, Remote Procedure Call (RPC). RPC provides reliable record transmission, so it can run safely over the best-effort User Datagram Protocol (UDP) transport.

The session layer roughly corresponds to the Telnet virtual terminal functionality, which is part of text based protocols such as HTTP and SMTP TCP/IP model application layer protocols. It also corresponds to TCP and UDP port numbering, which is considered as part of the transport layer in the TCP/IP model. The presentation layer has similarities to the MIME standard, which also is used in HTTP and SMTP.

Since the IETF protocol development effort is not concerned with strict layering, some of its protocols may not appear to fit cleanly into the OSI model. These conflicts, however, are more frequent when one only looks at the original OSI model, ISO 7498, without looking at the annexes to this model (e.g., ISO 7498/4 Management Framework), or the ISO 8648 Internal Organization of the Network Layer (IONL). When the IONL and Management Framework documents are considered, the ICMP and IGMP are neatly defined as layer management protocols for the network layer. In like manner, the IONL provides a structure for "subnetwork dependent convergence facilities" such as ARP and RARP.

IETF protocols can be applied recursively, as demonstrated by tunneling protocols such as Generic Routing Encapsulation (GRE). While basic OSI documents do not consider tunneling, there is some concept of tunneling in yet another extension to the OSI architecture, specifically the transport layer gateways within the International Standardized Profile framework [8]. The associated OSI development effort, however, has been abandoned given the real-world adoption of TCP/IP protocols.

7 Application ECHO, ENRP, FTP, Gopher, HTTP, NFS, RTSP, SIP, SMTP, SNMP, SSH, Telnet, Whois, XMPP
6 Presentation XDR, ASN.1, SMB, AFP, NCP
5 Session ASAP, TLS, SSL, ISO 8327 / CCITT X.225, RPC, NetBIOS, ASP
4 Transport TCP, UDP, RTP, SCTP, SPX, ATP, IL
3 Network IP, ICMP, IGMP, IPX, OSPF, RIP, IGRP, EIGRP, ARP, RARP, X.25
2 Data Link Ethernet, Token ring, HDLC, Frame relay, ISDN, ATM, 802.11 WiFi, FDDI, PPP
1 Physical 10BASE-T, 100BASE-T, 1000BASE-T, SONET/SDH, G.709, T-carrier/E-carrier, various 802.11 physical layers

The layers

The following is a description of each layer in the IP suite stack.

5. Application layer

The application layer is used by most programs for network communication. Data is passed from the program in an application-specific format, then encapsulated into a transport layer protocol.

Since the IP stack has no layers between the application and transport layers, the application layer must include any protocols that act like the OSI's presentation and session layer protocols. This is usually done through libraries.

Data sent over the network is passed into the application layer where it is encapsulated into the application layer protocol. From there, the data is passed down into the lower layer protocol of the transport layer.

The two most common lower layer protocols are TCP and UDP. Common servers have specific ports assigned to them (HTTP has port 80; FTP has port 21; etc.) while clients use ephemeral ports.

Routers and switches do not utilize this layer but bandwidth throttling applications do, as with the Resource Reservation Protocol (RSVP).

4.Transport layer

The transport layer's responsibilities include end-to-end message transfer capabilities independent of the underlying network, along with error control, fragmentation and flow control. End to end message transmission or connecting applications at the transport layer can be categorized as either:

  1. connection-oriented e.g. TCP
  2. connectionless e.g UDP

The transport layer can be thought of literally as a transport mechanism e.g. a vehicle whose responsibility is to make sure that its contents (passengers/goods) reach its destination safely and soundly, unless a higher or lower layer is responsible for safe delivery.

The transport layer provides this service of connecting applications together through the use of ports. Since IP provides only a best effort delivery, the transport layer is the first layer of the TCP/IP stack to offer reliability. Note that IP can run over a reliable data link protocol such as the High-Level Data Link Control (HDLC). Protocols above transport, such as RPC, also can provide reliability.

For example, TCP is a connection-oriented protocol that addresses numerous reliability issues to provide a reliable byte stream:

  • data arrives in-order
  • data has minimal error (i.e correctness)
  • duplicate data is discarded
  • lost/discarded packets are resent
  • includes traffic congestion control

The newer SCTP is also a "reliable", connection-oriented, transport mechanism. It is Message-stream-oriented — not byte-stream-oriented like TCP — and provides multiple streams multiplexed over a single connection. It also provides multi-homing support, in which a connection end can be represented by multiple IP addresses (representing multiple physical interfaces), such that if one fails, the connection is not interrupted. It was developed initially for telephony applications (to transport SS7 over IP), but can also be used for other applications.

UDP is a connectionless datagram protocol. Like IP, it is a best effort or "unreliable" protocol. Reliability is addressed through error detection using a weak checksum algorithm. UDP is typically used for applications such as streaming media (audio, video, Voice over IP etc) where on-time arrival is more important than reliability, or for simple query/response applications like DNS lookups, where the overhead of setting up a reliable connection is disproportionately large.

Both TCP and UDP are used to carry a number of higher-level applications. The applications at any given network address are distinguished by their TCP or UDP port. By convention certain well known ports are associated with specific applications. (See List of TCP and UDP port numbers.)

RTP is a datagram protocol that is designed for real-time data such as streaming audio and video.

3. Network layer

As originally defined, the Network layer solves the problem of getting packets across a single network. Examples of such protocols are X.25, and the ARPANET's Host/IMP Protocol.

With the advent of the concept of internetworking, additional functionality was added to this layer, namely getting data from the source network to the destination network. This generally involves routing the packet across a network of networks, known as an internetwork or (lower-case) internet.[9]

In the Internet protocol suite, IP performs the basic task of getting packets of data from source to destination. IP can carry data for a number of different upper layer protocols; these protocols are each identified by a unique protocol number: ICMP and IGMP are protocols 1 and 2, respectively.

Some of the protocols carried by IP, such as ICMP (used to transmit diagnostic information about IP transmission) and IGMP (used to manage IP Multicast data) are layered on top of IP but perform internetwork layer functions, illustrating an incompatibility between the Internet and the IP stack and OSI model. All routing protocols, such as OSPF, and RIP are also part of the network layer. What makes them part of the network layer is that their payload is totally concerned with management of the network layer. The particular encapsulation of that payload is irrelevant for layering purposes.

2. Data link layer

The link layer, which is the method used to move packets from the network layer on two different hosts, is not really part of the Internet protocol suite, because IP can run over a variety of different link layers. The processes of transmitting packets on a given link layer and receiving packets from a given link layer can be controlled both in the software device driver for the network card, as well as on firmware or specialist chipsets. These will perform data link functions such as adding a packet header to prepare it for transmission, then actually transmit the frame over a physical medium.

For Internet access over a dial-up modem, IP packets are usually transmitted using PPP. For broadband Internet access such as ADSL or cable modems, PPPoE is often used. On a local wired network, Ethernet is usually used, and on local wireless networks, IEEE 802.11 is usually used. For wide-area networks, either PPP over T-carrier or E-carrier lines, Frame relay, ATM, or packet over SONET/SDH (POS) are often used.

The link layer can also be the layer where packets are intercepted to be sent over a virtual private network. When this is done, the link layer data is considered the application data and proceeds back down the IP stack for actual transmission. On the receiving end, the data goes up the IP stack twice (once for routing and the second time for the VPN).

The link layer can also be considered to include the physical layer, which is made up of the actual physical network components (hubs, repeaters, fiber optic cable, coaxial cable, network cards, Host Bus Adapter cards and the associated network connectors: RJ-45, BNC, etc), and the low level specifications for the signals (voltage levels, frequencies, etc).

1. Physical layer

The Physical layer is responsible for encoding and transmission of data over network communications media. It operates with data in the form of bits that are sent from the Physical layer of the sending (source) device and received at the Physical layer of the destination device.

Ethernet, Token Ring, SCSI, hubs, repeaters, cables and connectors are standard network devices that function at the Physical layer. The Physical layer is also considered the domain of many hardware-related network design issues, such as LAN and WAN topology and wireless technology.

Hardware and software implementation

Normally the application programmers are in charge of layer 5 protocols (the application layer), while the layer 3 and 4 protocols are services provided by the TCP/IP stack in the operating system. Microcontroller firmware in the network adapter typically handle layer 2 issues, supported by a driver software in the operational system. Non-programmable analog and digital electronics are normally in charge of the physical layer, typically using a application-specific integrated circuit (ASIC) chipset for each radio interface or other physical standard.

However, hardware or software implementation is not stated in the protocols or the layered reference model. High-performance routers are to a large extent based on fast non-programmable digital electronics, carrying out layer 3 switching. In modern modems and wireless equipment, the physical layer may partly be implemented using programmable DSP processors or software radio (soft radio) programmable chipsets, allowing the chip to be reused in several alternative standards and radio interfaces instead of separate circuits for each standard, and facilitating. The Apple Geoport concept was an example of CPU software implementation of the physical layer, making it possible to emulate some modem standards.

See also

References

  1. ^ Some Internet Architectural Guidelines and Philosophy,RFC 3439, R. Bush & D. Meyer, December 2002
  2. ^ Architectural Principles of the Internet, RFC 1958, B. Carpenter, June 1996
  3. ^ Rethinking the design of the Internet: The end to end arguments vs. the brave new world,D. Clark & M. Blumenthal, August 2000
  4. ^ [1] The Internet Protocol Journal Book Review: Internetworking with TCP/IP (Vol. 1): Principles, Protocols, and Architectures, Douglas E. Comer, ISBN 0-13-018380-6, Prentice Hall, 2000.
  5. ^ [ OSI: Reference Model Addendum 1: Connectionless-mode Transmission,ISO7498/AD1],ISO7498/AD1, May 1986
  6. ^ Internal Organization of the Network Layer, ISO 8648
  7. ^ Open Systems Interconnection -- Basic Reference Model -- Part 4: Management framework,ISO 7498/4
  8. ^ Framework and taxonomy of International Standardized Profiles, ISO 10000, October 1998
  9. ^ IP Packet Structure

Posted by zaene at 12/07/2007 11:16:00 PM 0 comments

Corporate power blesses, not oppresses, the American people

Why should so many Americans resent and distrust the very institutions that make possible our productivity, pleasure and opportunities? Given the fact that major corporations provide virtually every one of the commodities and comforts we consume, it makes no sense to feel hostile and contemptuous of the corporate organization of the contemporary economy.

As I write these words – and as you read them –we all rely on the products of major companies with increasingly far flung and international operations. Leave aside for a moment the obvious example of the complex combination of brilliantly designed computer hardware and software that allows me to transfer my thoughts to a word processor and broadcast them to the world. I’m also relying on a light fixture above my desk and the bulb to illuminate it and the electricity to drive it, on the books stacked on the filing cabinet behind me, printed and distributed and transported across the country, on the paper and the pens that allowed the scribbled notes and, very significantly, on the ceramic mug filled with steaming coffee based on beans brought from far corners of the globe, then roasted and packaged and finally brewed in the wonderfully efficient coffee maker beneath our kitchen sink. Though “corporation” has become a dirty word to many Americans, successful corporations made possible each of these wonders and blessings and amplifications of our personal power. Without those engines of economic energy, we’d retreat to darkness and frustration and the dead ends of poverty.



The late Nobel Prize-winning economist Milton Friedman used to hold up a common pencil and to ask his students at the University of Chicago to consider the labor and resources that made it possible. At one point, timber workers cut the trees sawmill workers shaped into usable milled wood, while miners drew the graphite from the earth, and others smelted and shaped it into the thin but durable pencil, then encased in the octagonal rod of wood, in turn painted and varnished and stamped, with a milled metal tip (also mined and processed and stamped) connecting it to a pink and functional eraser relying on gum from remote jungles. This miracle of technology and cooperation, in other words, relies on literally hundreds (if not thousands) of workers in different corners of the earth, but then, ultimately, makes its way into your hand at the shockingly, insanely, irrationally low price of --- about ten cents. Consider the amazing efficiency that brings you this versatile and remarkably efficient common writing implement that you take for granted every day. This deceptively simple pencil costs the typical American less than 20 seconds of his time at work. For higher income toilers, you can earn yourself a pencil for a mere second of your effort.

And yet we commonly curse the very rise of corporate power and productivity that puts such wonders into our hands. “Enlightened” commentators, politicians, academics, activists and malcontents of both left and right never tire of deriding for-profit companies as some parasitic alien life form that devours honest toil, crushes creativity, pollutes the environment, and steals power from ordinary Americans.

A few undeniable truths about corporate power in the United States can liberate every day citizens and the society at large from such sour and ungrateful folly.

1) FROM THE DAYS OF EARLIEST SETTLEMENT, AMERICA EMERGED FROM RISK-TAKING AND PROFIT-MAKING CORPORATIONS. The famous colonies at Jamestown, Plymouth and Massachusetts Bay (not to mention Walter Raleigh’s similarly celebrated and tragically unsuccessful settlement of Roanoke) depended on British investors who put up the considerable capital to fund the expensive business of sending “venturers” across the Ocean. Of course, some of these sponsors shared religious ideals with some of the settlers, but they all fervently cherished the (often frustrated) hope of earning a handsome return on their risky investments. Meanwhile, other corporations like the Hudson Bay Company and the British East India Company also played an outside (and sometimes heroic) role in exploring a wilderness continent and establishing a British presence in the New World.

2) THE REVOLUTION RESISTED GOVERNMENT INTERFERENCE WITH FREE MARKETS, NOT THE POWER OF BIG BUSINESS. The Stamp Act Protests, the Boston Tea Party and other Colonial challenges to British authority aimed their wrath (and occasional property destruction) not at the traders or merchants who brought their products to New England, but against the government officials who insisted on telling the colonists what they could buy and how much they must pay. In the Declaration of Independence, Thomas Jefferson specifically condemned the king for “imposing taxes on us without our consent” and for sending his tax collectors to interfere with commerce: “He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our People, and eat out their substance.” Any contemporary American who’s faced an IRS audit can relate directly to Jefferson’s complaint. The Declaration also attacked King George for his protectionist export-import policy and “for cutting off our Trade with all parts of the world.” The Founding Fathers never embraced anti-business attitudes because most of them were themselves ambitious and successful entrepreneurs. George Washington and John Hancock may have been the two richest men in the colonies – with Washington one of the largest land-holders (who loved speculating on frontier real estate) and Hancock the owner of America’s most formidable fleet of merchant ships. At the Constitutional Convention in 1787, when the Founders laid out the powers of the new Congress and Government in Article 1, section 8, all of the first 8 provisions concern setting up an economic system (“power to lay and collect taxes,” “to establish…uniform laws on the subject of bankruptcies,” “to coin money,” and so forth) before the document finally gets around to such relatively trivial matters as setting up courts and raising an army.

3) THE FAMOUS DEPRADATIONS OF THE SO-CALLED “ROBBER BARONS” INVOLVED GOVERNMENTAL, NOT BUSINESS, ABUSES. In his indispensable 1986 book “The Myth of the Robber Barons,” Burton W. Folsom of the University of Pittsburgh makes the important distinction between “political entrepreneurs” and “market entrepreneurs” who played very different roles in the development of the new nation and its economy. The political entrepreneurs WHO manipulated their insider influence relied upon sweetheart deals and special concessions and monopoly power granted by government, rather than their own efficiency and competitive advantages. At the same time, market entrepreneurs (like James J. Hill of the Great Northern Railroad) refused to entangle themselves with the political process and built their much more successful and durable corporations without favoritism from bureaucrats or officeholders. As Folsom writes of the emerging and crucial steamship industry: “Political entrepreneurship often led to price-fixing, technological stagnation, and the bribing of competitors and politicians. The market entrepreneurs were the innovators and rate-cutters. They had to be to survive against subsidized opponents.” Significantly, all of the most significant economic reform movements from the Jeffersonians at the turn of the nineteenth century up through the Progressives at the turn of twentieth, sought to disentangle government from its involvement in the free market, not to impose to new bureaucratic controls. As the great historian Forrest McDonald of the University of Alabama wrote: “The Jacksonian Democrats engaged in a great deal of anti-business rhetoric, but the results of their policies were to remove or reduce governmental interference into private economic activity, and thus to free market entrepreneurs to go about their creative work. The entire nation grew wealthy as a consequence.”

4) THE ERAS OF GREATEST CORPORATE INFLUENCE WEREN’T NIGHTMARISH PERIODS OF OPPRESSION AND RETREAT, BUT RATHER GOLDEN EPOCHS OF PROSPERITY, PROGRESS AND GROWING AMERICAN POWER. While historians and other intellectuals invariably deride the “Gilded Age” following the War Between the States, no generation in world history achieved comparable progress in rapidly raising standards of living, absorbing and assimilating unprecedented waves of immigration, settling the remotest frontier and building a dozen new states and scores of glittering new cities, while establishing the United States for the first time as a world power of the first rank. As the editors of American Heritage Magazine wrote in the introduction to their book, “The Confident Years,” about US life from 1865 to 1914: “It was a period of exuberant growth, in population, industry and world prestige. As the twentieth century opened, American political pundits were convinced that the nation was on an ascending spiral of progress that could end only in something approaching perfection. Even those who saw the inequity between the bright world of privilege and the gray fact of poverty were quite sure that a time was very near when no one would go cold or hungry of ill clothed. These were indeed the Confident Years.” An era of rampant capitalist power, in other words, that saw the emergence of giant corporations that touched the lives of every American, corresponded with the most dynamic and dazzling achievements in our history. Other eras associated with big business also brought unparalleled blessings of peace and prosperity to the nation at large and virtually all of its citizens – such as the 1920’s, where President Coolidge produced snickers from cognoscenti by saying “the business of America is business,” or the 1950’s, when Defense Secretary Charlie Wilson declared (not unreasonably) that “what’s good for General Motors is good for America.”

5) THE RISE OF BIG BUSINESS NEVER IMPOVERISHED AND ALWAYS ENHANCED THE LIVING STANDARDS OF ORDINARY WORKING AMERICANS. In their 1998 book, “The History of the American Economy” Gary Walton and Hugh Rockoff summarize the progress of the working class. From 1820 to 1860, wages grew at a 1.6% annual rate, while the purchasing power of an average worker’s paycheck went up between 60 [SPACE] and 90 percent (depending on the region of the country). Between 1860 and 1890 (that genuinely gilded age) real wages (adjusted for inflation) increased by a staggering 50% in America. The average work week shortened at the same time, so that the real earnings of the Average American worker increased more like 60 percent in just thirty years. As Thomas J. DiLorenzo points out in his illuminating book “How Capitalism Saved America,”: “Capitalism improves the quality of life for the working class not just because it leads to improved wages but also because it produces new, better and cheaper goods…When Henry Ford first started selling automobiles only the relatively wealthy could afford them, but soon enough working-class families were buying his cars.” The efficiency and productivity made possible by corporate organization gave typical Americans a range of choices and an economic power unimaginable for prior generations. As Federal Reserve Board economists Michael Cox and Richard Allen made clear: “A nineteenth century millionaire couldn’t grab a cold drink from the refrigerator. He couldn’t hop into a smooth-riding automobile for a 70-mile-an-hour trip down an interstate highway to the mountains or seashore. He couldn’t call up news, movies, music and sporting events by simply touching the remote control’s buttons. He couldn’t jet north to Toronto, south to Cancun, east to Boston or west to San Francisco in just a few hours. He couldn’t transmit documents to Europe, Asia, or anyplace else in seconds.

He couldn’t run over to the mall to buy auto-focus cameras, computer games, mountain bikes, or movies on videotape. He couldn’t escape the summer heat in air conditioned comfort. He couldn’t check into a hospital for a coronary bypass to cure a failing heart, get a shot of penicillin to ward off infection, or even take aspirin to relieve a headache.” In this context, jeremiads about the “horrifying” gap between rich and poor miss the point that poor people in America’s 21st century enjoy options and privileges that the wealthy couldn’t claim a hundred years ago. Far from oppressing the working class, the corporate system brought about a vast improvement in purchasing power for all Americans. The 1999 book “Myths of Rich and Poor” by Michael Cox and Richard Alm indicates that a worker in 1900 worked two hours and forty minutes to earn the cost of a three point chicken; in 1999, a mere 24 minutes of toil could buy him the bird. If anything, the growth in rewards for working only accelerated in the last fifty years. In 1950, typical workers put in more than two hours to afford 100 kilowatts of electricity; by 1999, the cost had dropped to fourteen minutes. A three minute coast-to-coast phone call cost 104 minutes of labor in 1950, but by 1999 that was down to two minutes (and it’s no doubt even less today).

6) THE INDUSTRIALIZATION THAT DRIVES PROSPERITY RESCUES RATHER THAN ENSLAVES THE WORKERS IT EMPLOYS. Adam Smith, who defined capitalism more than 200 years ago in “The Wealth of Nations,” described the essence of the system as a series of mutually beneficial agreements: “Give me that which you want, and you shall have this which you want.” This captures the essential fairness and decency of the free-market system, which relies on voluntary associations that enrich both parties. Concerning the process of industrialization, which saw millions of workers engaged in powering the mighty, productive engines of major corporations, the great economic Ludwig van Mises (cited by DiLorenzo) trenchantly observed: “The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them. Low as these wage rates were, they were nonetheless much more than these paupers could earn in any other field open to them. It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation.” The same process applies to newly opened factories throughout the developing world today, despite the efforts by “anti-globalist” and “anti-corporate” activists in the United States to obliterate the only jobs that keep suffering millions from a return to misery and destitution.

7) CORPORATIONS DON’T DESERVE BLAME FOR “PUTTING PROFITS OVER PEOPLE,” SINCE PROFITS INEVITABLY BENEFIT PEOPLE. Corporations don’t exist in order to provide welfare for workers, or cheap products for consumers, but rather to earn profits for investors and operators. If they succeed in earning such profits they can provide more jobs at higher pay, and better products at lower cost. If a company fails at bringing in those profits it will shed jobs and provide fewer products – ultimately going out of business altogether. The idea that laborers or customers somehow benefit if a corporation feels squeezed, or facing shrinking profits, remains one of the profoundly illogical legacies of discredited Marxism. In the free market system, the boss Peter can’t benefit long term at the expense of his employee, Paul. They either prosper together or fail together. Increased profitability brings increases in capital that allow increases in productivity – directly and simultaneously rewarding management and labor (not to mention the public at large). Political demagogues who rail against “immoral” or “obscene” profits need courses in remedial economics. For a corporation, only a lack of profitability counts as immoral and going out of business represents the ultimate obscenity.

8) THERE’S NO LOGICAL REASON TO FAVOR SMALL BUSINESSES OVER BIG BUSINESS. A recent Wall Street Journal poll showed that the public felt more approval of “small business” than of “big corporations” by a ratio of more than three to one. This makes little sense, since virtually every “big business” started out as a small operation before success brought growth, and virtually every small business dreams of getting bigger one day. Not far from my home stands the original Starbucks Coffee stand (still operating) at Seattle’s Pike Place Market: an unprepossessing shop that couldn’t accommodate more than twenty customers at a time. Did that quaint operation do a better job providing coffee to its patrons than today’s multi-billion dollar, globe-straddling colossus? Any coffee connoisseur can certify that one of the major improvements in American life over the past twenty years involves the now universal availability of strong, delicious, gourmet coffee (and innumerable exotic derivatives), as opposed to the watery, flavorless blandness of the old-fashioned “cup of Joe.” Could any sane observer honestly believe that a small business could do a better job than big international companies in providing us with the automobiles and computers and cell phones and medical supplies that do so much to enrich our lives?

9) CORRUPTION IS MORE OF A PROBLEM FOR BIG GOVERNMENT THAN BIG CORPORATIONS. Since the beginning of the 21st Century a series of tawdry and hugely destructive corporate scandals (Enron, Tyco, WorldCom, many more) led the commentariat to conclude that business ethics had been hopelessly compromised and we needed to turn to government for redemption and purification. This assumption ignores the long history of hideous corruption in every endeavor of flawed humanity – including religion, education, charities and, most spectacularly, government itself. Giving government greater power over corporations increases rather than reduces the likelihood of corruption, since so many of the prior business scandals involved existing entanglements of bureaucracy with the free market. When political office holders decide winners and losers in the business world, the temptations for bribery and favoritism become more acute, not less so. Moreover, the public enjoys greater and swifter recourse against an abusive or inefficient corporation than it does against an abusive or inefficient government. The customer can always decline to patronize a business, a product or a service he dislikes, but with a dysfunctional government you’re stuck till the next election – or long after that, in this era of entrenched and immovable bureaucratic power. A determined individual can escape the reach of even the most ubiquitous corporation (yes, even our Seattle neighbors at Microsoft) but the only way to choose for yourself a different national government is to flee the country. Yes, corporate power frequently corrupts government, and government power even more frequently corrupts and warps corporations, but the best way to avoid this mutually destructive influence is to bring about less bureaucratic involvement in the free market, not to insist on more.

Despite all the shortcomings and silliness, bureaucratic bungling and bankruptcies, foreclosures and failures, conniving and corruption, the big corporations that inevitably emerge in free and fair markets continue to perform remarkably well in terms of giving the public what it wants and needs. Our daily lives bear wondrous witness to the amazing achievements and efficiencies of the system. Any honest examination of the past and the present must lead to the conclusion that major corporations in their appropriate pursuit of profit will continue to bless, not oppress, the people of the United States.

Posted by zaene at 12/07/2007 11:04:00 PM 2 comments

Why should so many Americans resent and distrust the very institutions that make possible our productivity, pleasure and opportunities? Given the fact that major corporations provide virtually every one of the commodities and comforts we consume, it makes no sense to feel hostile and contemptuous of the corporate organization of the contemporary economy.

As I write these words – and as you read them –we all rely on the products of major companies with increasingly far flung and international operations. Leave aside for a moment the obvious example of the complex combination of brilliantly designed computer hardware and software that allows me to transfer my thoughts to a word processor and broadcast them to the world. I’m also relying on a light fixture above my desk and the bulb to illuminate it and the electricity to drive it, on the books stacked on the filing cabinet behind me, printed and distributed and transported across the country, on the paper and the pens that allowed the scribbled notes and, very significantly, on the ceramic mug filled with steaming coffee based on beans brought from far corners of the globe, then roasted and packaged and finally brewed in the wonderfully efficient coffee maker beneath our kitchen sink. Though “corporation” has become a dirty word to many Americans, successful corporations made possible each of these wonders and blessings and amplifications of our personal power. Without those engines of economic energy, we’d retreat to darkness and frustration and the dead ends of poverty.

The late Nobel Prize-winning economist Milton Friedman used to hold up a common pencil and to ask his students at the University of Chicago to consider the labor and resources that made it possible. At one point, timber workers cut the trees sawmill workers shaped into usable milled wood, while miners drew the graphite from the earth, and others smelted and shaped it into the thin but durable pencil, then encased in the octagonal rod of wood, in turn painted and varnished and stamped, with a milled metal tip (also mined and processed and stamped) connecting it to a pink and functional eraser relying on gum from remote jungles. This miracle of technology and cooperation, in other words, relies on literally hundreds (if not thousands) of workers in different corners of the earth, but then, ultimately, makes its way into your hand at the shockingly, insanely, irrationally low price of --- about ten cents. Consider the amazing efficiency that brings you this versatile and remarkably efficient common writing implement that you take for granted every day. This deceptively simple pencil costs the typical American less than 20 seconds of his time at work. For higher income toilers, you can earn yourself a pencil for a mere second of your effort.

And yet we commonly curse the very rise of corporate power and productivity that puts such wonders into our hands. “Enlightened” commentators, politicians, academics, activists and malcontents of both left and right never tire of deriding for-profit companies as some parasitic alien life form that devours honest toil, crushes creativity, pollutes the environment, and steals power from ordinary Americans.

A few undeniable truths about corporate power in the United States can liberate every day citizens and the society at large from such sour and ungrateful folly.

1) FROM THE DAYS OF EARLIEST SETTLEMENT, AMERICA EMERGED FROM RISK-TAKING AND PROFIT-MAKING CORPORATIONS. The famous colonies at Jamestown, Plymouth and Massachusetts Bay (not to mention Walter Raleigh’s similarly celebrated and tragically unsuccessful settlement of Roanoke) depended on British investors who put up the considerable capital to fund the expensive business of sending “venturers” across the Ocean. Of course, some of these sponsors shared religious ideals with some of the settlers, but they all fervently cherished the (often frustrated) hope of earning a handsome return on their risky investments. Meanwhile, other corporations like the Hudson Bay Company and the British East India Company also played an outside (and sometimes heroic) role in exploring a wilderness continent and establishing a British presence in the New World.

2) THE REVOLUTION RESISTED GOVERNMENT INTERFERENCE WITH FREE MARKETS, NOT THE POWER OF BIG BUSINESS. The Stamp Act Protests, the Boston Tea Party and other Colonial challenges to British authority aimed their wrath (and occasional property destruction) not at the traders or merchants who brought their products to New England, but against the government officials who insisted on telling the colonists what they could buy and how much they must pay. In the Declaration of Independence, Thomas Jefferson specifically condemned the king for “imposing taxes on us without our consent” and for sending his tax collectors to interfere with commerce: “He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our People, and eat out their substance.” Any contemporary American who’s faced an IRS audit can relate directly to Jefferson’s complaint. The Declaration also attacked King George for his protectionist export-import policy and “for cutting off our Trade with all parts of the world.” The Founding Fathers never embraced anti-business attitudes because most of them were themselves ambitious and successful entrepreneurs. George Washington and John Hancock may have been the two richest men in the colonies – with Washington one of the largest land-holders (who loved speculating on frontier real estate) and Hancock the owner of America’s most formidable fleet of merchant ships. At the Constitutional Convention in 1787, when the Founders laid out the powers of the new Congress and Government in Article 1, section 8, all of the first 8 provisions concern setting up an economic system (“power to lay and collect taxes,” “to establish…uniform laws on the subject of bankruptcies,” “to coin money,” and so forth) before the document finally gets around to such relatively trivial matters as setting up courts and raising an army.

3) THE FAMOUS DEPRADATIONS OF THE SO-CALLED “ROBBER BARONS” INVOLVED GOVERNMENTAL, NOT BUSINESS, ABUSES. In his indispensable 1986 book “The Myth of the Robber Barons,” Burton W. Folsom of the University of Pittsburgh makes the important distinction between “political entrepreneurs” and “market entrepreneurs” who played very different roles in the development of the new nation and its economy. The political entrepreneurs WHO manipulated their insider influence relied upon sweetheart deals and special concessions and monopoly power granted by government, rather than their own efficiency and competitive advantages. At the same time, market entrepreneurs (like James J. Hill of the Great Northern Railroad) refused to entangle themselves with the political process and built their much more successful and durable corporations without favoritism from bureaucrats or officeholders. As Folsom writes of the emerging and crucial steamship industry: “Political entrepreneurship often led to price-fixing, technological stagnation, and the bribing of competitors and politicians. The market entrepreneurs were the innovators and rate-cutters. They had to be to survive against subsidized opponents.” Significantly, all of the most significant economic reform movements from the Jeffersonians at the turn of the nineteenth century up through the Progressives at the turn of twentieth, sought to disentangle government from its involvement in the free market, not to impose to new bureaucratic controls. As the great historian Forrest McDonald of the University of Alabama wrote: “The Jacksonian Democrats engaged in a great deal of anti-business rhetoric, but the results of their policies were to remove or reduce governmental interference into private economic activity, and thus to free market entrepreneurs to go about their creative work. The entire nation grew wealthy as a consequence.”

4) THE ERAS OF GREATEST CORPORATE INFLUENCE WEREN’T NIGHTMARISH PERIODS OF OPPRESSION AND RETREAT, BUT RATHER GOLDEN EPOCHS OF PROSPERITY, PROGRESS AND GROWING AMERICAN POWER. While historians and other intellectuals invariably deride the “Gilded Age” following the War Between the States, no generation in world history achieved comparable progress in rapidly raising standards of living, absorbing and assimilating unprecedented waves of immigration, settling the remotest frontier and building a dozen new states and scores of glittering new cities, while establishing the United States for the first time as a world power of the first rank. As the editors of American Heritage Magazine wrote in the introduction to their book, “The Confident Years,” about US life from 1865 to 1914: “It was a period of exuberant growth, in population, industry and world prestige. As the twentieth century opened, American political pundits were convinced that the nation was on an ascending spiral of progress that could end only in something approaching perfection. Even those who saw the inequity between the bright world of privilege and the gray fact of poverty were quite sure that a time was very near when no one would go cold or hungry of ill clothed. These were indeed the Confident Years.” An era of rampant capitalist power, in other words, that saw the emergence of giant corporations that touched the lives of every American, corresponded with the most dynamic and dazzling achievements in our history. Other eras associated with big business also brought unparalleled blessings of peace and prosperity to the nation at large and virtually all of its citizens – such as the 1920’s, where President Coolidge produced snickers from cognoscenti by saying “the business of America is business,” or the 1950’s, when Defense Secretary Charlie Wilson declared (not unreasonably) that “what’s good for General Motors is good for America.”

5) THE RISE OF BIG BUSINESS NEVER IMPOVERISHED AND ALWAYS ENHANCED THE LIVING STANDARDS OF ORDINARY WORKING AMERICANS. In their 1998 book, “The History of the American Economy” Gary Walton and Hugh Rockoff summarize the progress of the working class. From 1820 to 1860, wages grew at a 1.6% annual rate, while the purchasing power of an average worker’s paycheck went up between 60 [SPACE] and 90 percent (depending on the region of the country). Between 1860 and 1890 (that genuinely gilded age) real wages (adjusted for inflation) increased by a staggering 50% in America. The average work week shortened at the same time, so that the real earnings of the Average American worker increased more like 60 percent in just thirty years. As Thomas J. DiLorenzo points out in his illuminating book “How Capitalism Saved America,”: “Capitalism improves the quality of life for the working class not just because it leads to improved wages but also because it produces new, better and cheaper goods…When Henry Ford first started selling automobiles only the relatively wealthy could afford them, but soon enough working-class families were buying his cars.” The efficiency and productivity made possible by corporate organization gave typical Americans a range of choices and an economic power unimaginable for prior generations. As Federal Reserve Board economists Michael Cox and Richard Allen made clear: “A nineteenth century millionaire couldn’t grab a cold drink from the refrigerator. He couldn’t hop into a smooth-riding automobile for a 70-mile-an-hour trip down an interstate highway to the mountains or seashore. He couldn’t call up news, movies, music and sporting events by simply touching the remote control’s buttons. He couldn’t jet north to Toronto, south to Cancun, east to Boston or west to San Francisco in just a few hours. He couldn’t transmit documents to Europe, Asia, or anyplace else in seconds.

He couldn’t run over to the mall to buy auto-focus cameras, computer games, mountain bikes, or movies on videotape. He couldn’t escape the summer heat in air conditioned comfort. He couldn’t check into a hospital for a coronary bypass to cure a failing heart, get a shot of penicillin to ward off infection, or even take aspirin to relieve a headache.” In this context, jeremiads about the “horrifying” gap between rich and poor miss the point that poor people in America’s 21st century enjoy options and privileges that the wealthy couldn’t claim a hundred years ago. Far from oppressing the working class, the corporate system brought about a vast improvement in purchasing power for all Americans. The 1999 book “Myths of Rich and Poor” by Michael Cox and Richard Alm indicates that a worker in 1900 worked two hours and forty minutes to earn the cost of a three point chicken; in 1999, a mere 24 minutes of toil could buy him the bird. If anything, the growth in rewards for working only accelerated in the last fifty years. In 1950, typical workers put in more than two hours to afford 100 kilowatts of electricity; by 1999, the cost had dropped to fourteen minutes. A three minute coast-to-coast phone call cost 104 minutes of labor in 1950, but by 1999 that was down to two minutes (and it’s no doubt even less today).

6) THE INDUSTRIALIZATION THAT DRIVES PROSPERITY RESCUES RATHER THAN ENSLAVES THE WORKERS IT EMPLOYS. Adam Smith, who defined capitalism more than 200 years ago in “The Wealth of Nations,” described the essence of the system as a series of mutually beneficial agreements: “Give me that which you want, and you shall have this which you want.” This captures the essential fairness and decency of the free-market system, which relies on voluntary associations that enrich both parties. Concerning the process of industrialization, which saw millions of workers engaged in powering the mighty, productive engines of major corporations, the great economic Ludwig van Mises (cited by DiLorenzo) trenchantly observed: “The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them. Low as these wage rates were, they were nonetheless much more than these paupers could earn in any other field open to them. It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation.” The same process applies to newly opened factories throughout the developing world today, despite the efforts by “anti-globalist” and “anti-corporate” activists in the United States to obliterate the only jobs that keep suffering millions from a return to misery and destitution.

7) CORPORATIONS DON’T DESERVE BLAME FOR “PUTTING PROFITS OVER PEOPLE,” SINCE PROFITS INEVITABLY BENEFIT PEOPLE. Corporations don’t exist in order to provide welfare for workers, or cheap products for consumers, but rather to earn profits for investors and operators. If they succeed in earning such profits they can provide more jobs at higher pay, and better products at lower cost. If a company fails at bringing in those profits it will shed jobs and provide fewer products – ultimately going out of business altogether. The idea that laborers or customers somehow benefit if a corporation feels squeezed, or facing shrinking profits, remains one of the profoundly illogical legacies of discredited Marxism. In the free market system, the boss Peter can’t benefit long term at the expense of his employee, Paul. They either prosper together or fail together. Increased profitability brings increases in capital that allow increases in productivity – directly and simultaneously rewarding management and labor (not to mention the public at large). Political demagogues who rail against “immoral” or “obscene” profits need courses in remedial economics. For a corporation, only a lack of profitability counts as immoral and going out of business represents the ultimate obscenity.

8) THERE’S NO LOGICAL REASON TO FAVOR SMALL BUSINESSES OVER BIG BUSINESS. A recent Wall Street Journal poll showed that the public felt more approval of “small business” than of “big corporations” by a ratio of more than three to one. This makes little sense, since virtually every “big business” started out as a small operation before success brought growth, and virtually every small business dreams of getting bigger one day. Not far from my home stands the original Starbucks Coffee stand (still operating) at Seattle’s Pike Place Market: an unprepossessing shop that couldn’t accommodate more than twenty customers at a time. Did that quaint operation do a better job providing coffee to its patrons than today’s multi-billion dollar, globe-straddling colossus? Any coffee connoisseur can certify that one of the major improvements in American life over the past twenty years involves the now universal availability of strong, delicious, gourmet coffee (and innumerable exotic derivatives), as opposed to the watery, flavorless blandness of the old-fashioned “cup of Joe.” Could any sane observer honestly believe that a small business could do a better job than big international companies in providing us with the automobiles and computers and cell phones and medical supplies that do so much to enrich our lives?

9) CORRUPTION IS MORE OF A PROBLEM FOR BIG GOVERNMENT THAN BIG CORPORATIONS. Since the beginning of the 21st Century a series of tawdry and hugely destructive corporate scandals (Enron, Tyco, WorldCom, many more) led the commentariat to conclude that business ethics had been hopelessly compromised and we needed to turn to government for redemption and purification. This assumption ignores the long history of hideous corruption in every endeavor of flawed humanity – including religion, education, charities and, most spectacularly, government itself. Giving government greater power over corporations increases rather than reduces the likelihood of corruption, since so many of the prior business scandals involved existing entanglements of bureaucracy with the free market. When political office holders decide winners and losers in the business world, the temptations for bribery and favoritism become more acute, not less so. Moreover, the public enjoys greater and swifter recourse against an abusive or inefficient corporation than it does against an abusive or inefficient government. The customer can always decline to patronize a business, a product or a service he dislikes, but with a dysfunctional government you’re stuck till the next election – or long after that, in this era of entrenched and immovable bureaucratic power. A determined individual can escape the reach of even the most ubiquitous corporation (yes, even our Seattle neighbors at Microsoft) but the only way to choose for yourself a different national government is to flee the country. Yes, corporate power frequently corrupts government, and government power even more frequently corrupts and warps corporations, but the best way to avoid this mutually destructive influence is to bring about less bureaucratic involvement in the free market, not to insist on more.

Despite all the shortcomings and silliness, bureaucratic bungling and bankruptcies, foreclosures and failures, conniving and corruption, the big corporations that inevitably emerge in free and fair markets continue to perform remarkably well in terms of giving the public what it wants and needs. Our daily lives bear wondrous witness to the amazing achievements and efficiencies of the system. Any honest examination of the past and the present must lead to the conclusion that major corporations in their appropriate pursuit of profit will continue to bless, not oppress, the people of the United States.

Posted by zaene at 12/07/2007 10:56:00 PM 0 comments

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