Edit: With regards to his choice of words: The Road to Serfdom, a Comic by Hayek: http://mises.org/books/TRTS/
I think that if a bunch of smart people went into a room, they could come out with a set of core principles that are in the best interests of users of cloud IT systems, but not necessarily in the interest of the service providers.
Example: Phone number portability. Before 1997, your phone number was immutably associated with your telephone company. That meant that you were stuck with cellular provider X unless you changed your number -- which is a big deal for many people. FCC regulations forced the carriers to allow portability... an act that cost them alot of money, but benefited the public good. So while government regulation can lead to extreme scenarios like a Maoist-style police state similar to what is described in the comic that you linked to, that isn't a likely scenario.
Government regulation applies to the government too. The absence of principles enshrined in law and regulation regarding police access to your data has resulted in police and prosecutors obtaining broad powers to access or mine your data through the judiciary.
For example if running a social network or email service etc required following a large rule book then we probably would not have Facebook and maybe not even gmail. We would all be using some clunky Microsoft or IBM solution that took years to add new features because they had to get it all past the regulators.
You don't want to get an angry phone call from a regulator because you put some weekend hack up on HN.
Are we better off with that than with a consensus-based DNS-like overlay? I don't mean to say that no government regulation can ever be beneficial but they're often heavy-handed and destroy alternatives, often before those can even emerge.
The US and many governments of Western Europe are supposed to be governments of the people. Why shouldn't the government work for the peoples interests?
It's not as if these are political science terms of art. Imagine experts in a field choosing to use a term normally used for measurement of bulk to describe the function of a system, or wasting their time categorizing interests into "special" and "not special" based on a fixed set of criteria. Political science is deeply boring, but it's not THAT boring.
In the U.S., companies will act out of their own selfish interests, but in theory the government can address the concerns of the citizens in areas the citizens don't have sufficient power themselves ("by the people, for the people", etc). If the government is focused on regulating the industry, the "serf" ownership model won't be transitive from the companies to the government. Hopefully the companies would act as a barrier and the government would never get them as direct minions.
But obviously the government could abuse this position. Then it's a question of which one would be the purest evil given the chance.
Thought experiment: imagine something that benefits the public but puts 100 politicians out of work. How likely is that to happen?
With a corporation you can withhold your support by refusing to buy their product. This can happen instantly with an internet boycott and is not limited to election cycles or $1 per person. With a government the process of opting out is much more laborious; short of moving out of the country, you have to pay their price as a package deal, regardless of whether you like with their product as a whole.
Not that I trust Bruce Schneier on this.
As they grow, our implicit trust in our Feudal lords, without any kind of Transparency in return is a dangerous thing.
This is also the case in other industries and none of the solutions are very attractive.
If what we are heading towards is a sci-fi future where every single device integrates seemlessly with everything else, can we do that with so many "kingdoms" not to mention the chaos of independent developers doing their own things.
I remember my joy at the rise of USB... finally no more rs232 problems with DTE vs DCE and 9pin vs 25pin and m vs f connectors... then we got multiple USB connectors. Even funnier we have "power only" usb cables for phone charging that don't have data wires and are visually indistinguishable from "full" cables. Eh... bring back my RS-232, usb isn't any better at all.
Partial screenshot - http://i.imgur.com/8kP0b.png
Mr. Schneier links to MobileScope in his story, a company making an app to help you track which applications are sending your data out.
If you go on their site and sign up to learn more, your confirmation screen proudly displays "Powered by Google Documents."