Lecture Series: The Worldwide Communications Revolution: The Export of the American Idea

Click here for Reed Hundt's Powerpoint presentation.

About the speaker: Reed E. Hundt is a senior advisor on information industries to McKinsey & Company, Inc., a worldwide management consulting firm. From 1993 to 1997, Hundt served as Chairman of the Federal Communications Commission (FCC), where he played a pivotal role in the dramatic growth of the information sector in the U.S. economy, the implementation of the historic Telecommunications Act of 1996, the negotiation of the World Trade Organization Telecommunications Agreement and the extension of Internet access in America?s public schools. Prior to his position as Chairman of the FCC, Hundt was a partner in the Washington, DC office of Latham & Watkins, a national and international law firm. Hundt is the author of the book You Say You Want a Revolution: A Story of Information Age Politics, recently published by Yale University Press. He is a board member of seven companies and has received numerous public service awards.

Rapporteur's Report

On January 25, 2001, the Project on the Information Revolution and World Politics hosted a lecture by Reed Hundt, former Chairman of the Federal Communications Commission, on "The Worldwide Communications Revolution: The Export of the American Idea." Hundt?s talk focused not only on the implications of the information revolution for global economic growth and general quality of life, but also on what he believed to be the important role that government can play in advancing or hindering its potentially positive impact. The "American idea" in telecommunications policy is the pro-competitive, pro-innovative government stance that has fueled record-setting growth during the past decade, and Hundt recommended similar policies for countries around the world seeking to harness the economic potential of information and communication technologies (ICTs).

Hundt began his talk with a proposition: "In terms of global growth?there is nothing else as important as the way that information technology spreads around the globe." In the United States, he argued, the information revolution has transformed the traditional dynamics of the economy, producing a "new economy" where ICTs increase productivity and make possible more rapid rates of sustained economic growth. Entrepreneurial ventures and dot-com startups may be the most visible face of this new economy, but as Alan Greenspan recently stated, "There is?little of a truly old economy left. Virtually every part of our economic structure is?affected by the newer institutions." Indeed, Hundt argued that the reason for the dramatic macroeconomic impact of the information revolution is that the entrepreneurial ventures of the information revolution have exported productivity gains to all other sectors of the American economy. "As we keep on this particular path," he stated, "it appears that allegedly old economy companies are continuing to invest in new economy tools at a rate that means that we?re going to avoid recession."

Although the economic impact of the information revolution may be most visible in the American economy, information and communication technologies are an important engine of growth around the world. Brazil, for instance, witnessed a dramatic 24% compound annual growth rate in its ICT sector between 1997 and 2001. ICT growth explains Brazil?s recent economic success, said Hundt, and he credited the country?s American-inspired, pro-competitive telecommunications policies with facilitating its economic growth. But the global implications of ICT growth extend beyond the economic sphere as well. Hundt argued that "it is critical to avoid global recessions because there is an absolute correlation?between global wealth creation and global harmony." China?s growth, he maintained, depends entirely upon the engine of information and communication technologies. If China doesn?t continue upon a growth path for the next decade there will be no way to deal with the environmental and security threats that arise.

The information revolution has great potential to transform economies and societies, but its impacts are as dependent on government policy as they are on technological innovation. "Technology creates potential," said Hundt. "Economics is the way that potential is translated through markets into some actuality. But culture or politics is what shapes the markets, what shapes the outcome. If you pick the wrong political system, it can thwart economics or alter the outcome in markets, and if you do that, then you can completely frustrate the potential of technology from ever being realized."

In the United States during the 1990s, technological innovations and sound macro- and microeconomic policies produced a dynamic information sector that drove dramatic growth and productivity gains in the economy as a whole. The technology story begins with a massive installed base of personal computers; advances in fiber optics during the 1980s; and continuous innovation in microprocessing, where the processing power of a chip has doubled every 18 months according to Moore?s Law. In 1991 and 1993, respectively, the World Wide Web and graphical browser were invented, laying the technological foundations for the explosion of e-commerce. But macroeconomic policy played an important role in facilitating the impact of these technologies. Alan Greenspan and Robert Rubin agreed upon a policy of generating economic surpluses; likewise, politicians from Ross Perot to Newt Gingrich to Bill Clinton all contributed to a consensus in favor of deficit elimination.

Similarly, microeconomic policy in the information sector played a crucial role in the economic impact of the Internet. Legal and regulatory reform (exemplified by the 1996 Telecommunications Act) and a pro-competitive telecommunications policy led to increased investment in ICTs and greater fulfillment of consumer demand. Specifically, telecommunications companies were exempted from traditional subsidization schemes, leading to low, cost-based pricing. Incumbents were also forced to share their local networks, promoting entry by attackers. As a result, the cost of Internet access was driven lower in the United States than anywhere else in the world, and Internet penetration and data traffic soared. The information sector now constitutes one-eighth of the economy as a whole and one-third of its overall growth, and it has contributed more than half of the acceleration in productivity growth in the second half of the 1990s.

The next frontiers for the Internet are broadband and wireless. Here again, government policy will largely determine the economic and societal impact of technological innovation. "In my view," said Hundt, "broadband is?[about] whether we do or don?t write the policies that cause roundabout 70-80 million homes to have 1-2 megabits per second." If broadband policy is handled well, it will lead to one-half trillion dollars in investment over the period of its deployment. Hundt argued that "that kind of wave of investment would absolutely guarantee another huge chunk of years of economic growth in the United States? Sometime in the 2007-2008 time period, it?s perfectly plausible that people would say, ?you know, we?ve had 14 straight years of economic growth, quarter after quarter?how long can this continue? It looks like we?re setting a new record.?"

Competition policy is also critical for the growth of the wireless data market. Hundt maintained that wireless will be the biggest path to the Internet in the United States if we promote competitive markets, allocate sufficient spectrum, and promote spectrum flexibility. Already, the U.S. wireless market features robust competition, with an average of 4.7 carriers and very low prices on a global scale. But Europe has allocated more spectrum for wireless communications, and the United States runs the risk of being eclipsed in this field if it does not address this discrepancy. If Europe is more advanced in its wireless policies, argued Hundt, European companies will buy up American companies and dominate the market. This is not necessarily bad if it comes as a result of vigorous competition, but if poor policies cause America to lag in the wireless market, it represents a hampering of the competitive dynamic, which is bad for everyone. In the long run, he said, these types of policy mistakes can add up and spill outside the sector, with serious political, economic, and social consequences for the nation as whole.

In sum, Hundt cast the policy decisions to be made by the next administration as a choice between investment, balanced budgets, and open markets on the one hand, and consolidation, tax cuts, and deregulation on the other. In particular, deregulation has become something of a buzzword around Washington, but Hundt argued that its impact on the telecommunications market is less positive than in other areas. "In Washington, deregulation means to tolerate consolidation and to eliminate the rules that were written to promote opportunity for innovators." These decisions matter, Hundt maintained, because the wealth gap remains large in the U.S. and has widened around the world, and the information revolution has the potential to make a real difference in the lives of many of the world?s poor.

Following his presentation, Hundt addressed several questions from the audience. One person raised the issue of anti-Americanism, asking whether the world is as open to the "American idea" as Hundt implied. Hundt responded that the path to economic success was the same in every country, whether or not that country accepted American values. "The story of all happy economies is the same," he said, "and the story of all unhappy economies is different." Japan, for instance, struggled during the 1990s because of its ICT policies; when things began to go wrong with the economy, anti-American sentiment grew. The solution to its problems, he insisted, is still the same: break up the monopoly of Nippon Telegraph and Telephone (NTT) and encourage competition and innovation in the telecommunications sector.

Other members of the audience focused on the future of the FCC under newly installed chairman Michael Powell. In general, Hundt painted a rosy picture of the new Chairman?s prospects. Powell has been an FCC commissioner for 3 years already, longer than any other chairman. He is well connected in the White House, he has good relations with Congress, and he understands the workings of government agencies with which the FCC must interact. The challenges he will face during his tenure will be significant, but Hundt expressed confidence that Powell would be well prepared for the task.

Report prepared by Taylor Boas.