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Tuesday, April 18, 2000
In its fourth session, the study group turned to the impact of the information revolution on the global economy. William Drake began the discussion by noting that, unlike many other topics, the economic impact of information and communication technologies (ICTs) has been the subject of much scholarship over the years. For example, there is a well-established tradition of work concerning new ICT’s impact on the strategies and operation of firms and the functioning of particular markets. There is also a looser literature on the macro-level effects—the notion that we are transitioning to something that can properly be called a global information economy with qualitatively unique properties. In addition, there is an enormous and long-standing literature on international policy issues in the ICT sector, including the regulatory and trade aspects of telecommunications, the Internet, mass media, and other systems and services; and a growing body of work on the cross-sectoral policy aspects of Internet issues like taxation, intellectual property, and electronic commerce. Similarly, many governments around the world have long pursued policies of varying adequacies on some of these fronts, especially with respect to governance and competitiveness in the ICT sector.
Nevertheless, Drake argued, significant gaps still remain in our understanding of many issues, perhaps because ICT specialists have generally conducted their scholarly and policy debates in isolation from the foreign policy community. Hence, it would be useful to discuss what we see as the principal overarching trends in an information-based global economy and to identify which of these may be most salient for world politics.
Drake then posed two questions for the group’s consideration. The first concerned the much-discussed "new economy." Beginning in the early 1960s, some analysts argued that the merger of computers and telecommunications (or telematics) and their incorporation of microelectronics was redefining the organization and functioning of firms and markets, and that the cumulative effect of these micro-level changes would be a macro-level shift to a qualitatively new social formation that was variously conceptualized as an "information," "knowledge," "networked," "services," or "post-industrial" economy. These days, we frequently hear invoked the paradigm of a "new economy," whose unique dynamics mandate minimal government intervention and allow for some combination of greater productivity, faster growth without inflation, different business models and valuation of assets, and the prospect of general prosperity uninterrupted by downturns and recessions. Despite (or perhaps because of) being analytically looser than previous concepts, the new economy paradigm has enjoyed much greater currency in business, government, and press circles than its predecessors. How well, Drake asked, does this new paradigm capture the impact of the information revolution on national and global economies?
The second question dealt with the global digital divide. In the early 1980s, there was an international debate about the urgent need for concerted multilateral action to address the disparities in telecommunications networks and services between rich and poor countries. There now exists a similar debate about the "global digital divide," which is often characterized as being about North-South inequalities in access to information infrastructure, especially the Internet. What relevant lessons did we learn from the first go-around, Drake asked, and are there grounds for believing that greater progress will be achieved this time? More generally, are we asking the right questions and focusing on the right issues? To attenuate the global digital divide and otherwise enhance the prospects of poor countries in the global information economy, what are the most important steps that should be taken by governments of the industrialized countries; governments of the developing countries and emerging economies; intergovernmental organizations; the international business community; and non-governmental organizations?
On the topic of the "new economy," participants first addressed the question of what, if anything, was fundamentally new about this much-discussed phenomenon. Several group members felt that the information revolution marked an economic change on par with the industrial revolution, and that a new paradigm was necessary to understand the emerging dynamics of the information age. In support of this argument, they pointed to fundamental macroeconomic changes, such as increased productivity and new business models. Cisco Systems, for instance, contracts out most of its production work, much of it cross-border, so that the firm itself only handles management. Some proponents of the new economy paradigm emphasized a divergence between the new economy and the old, manifesting itself in stock market values and the relative growth rates of bricks-and-mortar vs. high-tech firms. Others saw the change more as a transformation of the economy as a whole. One participant argued that we are used to measuring change with bounded, closed categories, but that in reality the dynamics of the new economy suffuses everything.
Other participants felt that "new economy" was an unsuitable concept to capture the economic impact of the information revolution. One argued that the new economy paradigm has been rendered meaningless because it seeks to lump too many changes together into one category. Some preferred such terms as the digital or information economy, which imply change without wholesale transformation to a fundamentally new state. Another participant said that she was struck by our perceived need to reconceptualize every time we notice change. Older economic literature has much to say about transaction costs, economic geography, institutional change, and other phenomena relevant to our information-age economy, yet we still feel compelled to invent a totally new paradigm.
One issue that arose frequently in discussion of the new economy was the question of measurement. Many participants believed that we are ill-equipped to analyze economic transformation because our traditional metrics do not capture the full economic impact of the information revolution. We have long had trouble measuring the value of trade in services, for instance, and now economists struggle to accurately represent information-age productivity. One participant claimed economic policymakers are aware of the shortcomings of their metrics and may move to a better set of tools in the future. Another suggested that states should take a lesson from firms, which have had less difficulty analyzing their revenue streams in the new economy. Others disagreed strongly with this point, however, invoking the recent example of MicroStrategy, whose market value nose-dived after it was forced to revise the way it reported profits.
Defining the new economy is a significant exercise because, as one participant noted, how we visualize the economy shapes what policies we choose to pursue. By way of example, several group members pointed to Europe, where adherence to the new economy paradigm has been less widespread than in the United States. The European Union, one participant noted, wants to apply its value-added tax to e-commerce in Europe, expecting that firms outside of Europe will voluntarily comply with these regulations. While Europe may be skeptical that there is anything new about the new economy, governments can also evince too strong a belief in fundamental economic transformation. One participant drew a historical analogy to the colonization of Africa in the 19th century, when European powers raced against their neighbors to grab unclaimed chunks of land. The fervor with which some governments have embraced the hype of the new economy, he argued, may create another similarly unsustainable model.
One the second topic of discussion, the global digital divide, one participant argued that while the debate tends to focus on disparities in connectivity and access to technology, the real question concerns the consequences of disparities in access to information. This perspective means that one must consider more than just technology; education, language, social structures, etc. all determine the extent to which people will profit from the information revolution. By necessity, therefore, strategies and solutions must go beyond merely increasing access to technology in developing countries. Other participants agreed that technology was not a panacea, although one noted that the relationship between access to technology and "soft" social variables makes it hard to determine which problem should be addressed first. The digital divide presents a sort of Catch-22, he argued: we cannot throw technology at a society without educating people on its uses, but we increasingly need technology in place to provide a quality education.
Several participants focused on private sector initiatives that help bridge the global digital divide. One argued that technology could allow developing countries to circumvent restrictive policies in cases where inept governance hinders advancement. Citing the experience of Grameen Phone in Bangladesh, a profitable enterprise that provides cellular telephone service to poor villages through microcredit schemes, he claimed that the plummeting cost of technology and new modes of operation allow entrepreneurs to offer market-based solutions which advance development goals, empower individuals, and bypass government regulations. Other participants concurred with the potential for private sector solutions, but several argued that the best outcomes could be achieved by working with government rather than circumventing it. Along these lines, one participant suggested that the United States offer tax credits to companies addressing the digital divide, both nationally and internationally.
Participants offered several ideas on both U.S. and developing country government strategies for bridging the global digital divide. All seemed to agree that government initiatives should focus not only on increasing connectivity but on creating uses and content that are relevant in a local setting. Before fully accepting the Internet, one participant argued, people in developing countries need to feel a sense of ownership of the medium. Local language and cultural content is necessary if the developing world is to feel that the Internet serves its needs and does not function simply as a conduit for American cultural imperialism. Another participant noted that the U.S. government’s strategy for bridging the national digital divide seeks to adapt technology to the needs of the unconnected, rather than adapting them to the technology.
Government regulation of the telecommunication industry is also a major determining factor in the global digital divide. One participant lauded efforts by some developing countries to liberalize their telecommunication industries, but argued that most governments still try to direct the information revolution and control its pace, policies that often exacerbate the digital divide within the country.
To conclude, the group addressed the role of multilateral institutions in bridging the global digital divide. One participant noted the important role of organizations such as the WTO in recommending telecommunication liberalization to developing countries. Another argued, however, that developing countries are beginning to stand up for their own specific interests in multilateral institutions, and that industrialized countries must get used to having more players at the policy-making table. New ideas are being proposed in multilateral fora that are much more complex than North-South concerns of the past, and we are struggling to find the right multilateral policy for a rapidly changing world. In the meantime, he argued, we cannot recoil with horror and return to our comfortable domestic environment every time developing countries mention regulation of the Internet. The challenges of the global digital divide and governance of the information revolution may eventually require a multilateral solution along the lines of the Bretton Woods system—an outcome that we may find forced upon us if we do not accept it ourselves.
Rapporteur’s Report prepared by Taylor Boas