Got ICT? The Digital Revolution as Productivity Fortifier

by on November 30, 2007 · 6 comments

I’d like to commend the new report from Rob Atkinson and ITIF, Boosting European Prosperity Through the Widespread Use of ICT. The report finds that information and communications technology (ICT) is essentially the vitamin D for supporting the kind of productivity growth that stimulates economic prosperity.

It prescribes 5 five healthy principles for European policymakers to promote greater ICT into their daily lives:

1. Integrate ICT into all industries instead of just focusing on replacing lower productivity industries;
2. Use tax incentives and tariff reductions to spark ICT investment;
3. Support early stage research in emerging ICT areas;
4. Encourage basic computer and Internet skills;
5. Dismantle laws and regulations that protect offline incumbents  from online competitors.

However, as it is Europe we’re dealing with here, let me caution policymakers against turning these principles into industrial policy–particularly #s 2, 3 and 4.

I can envision enterprising advocates pushing–through legislation and regulation–open source and open standards as the solution for creating incentives for greater ICT uptake. Not that there’s necessarily anything wrong with open source/standards. I just have a problem with using politicized, and not market, forces to advantage some business models over others. I’ve discussed this before in previous postings on the European Commission’s flawed study on promoting the use of Free / Libre / Open Source Software (FLOSS) in the European Union.

The cell phone industry serves as a good case study on the long-term innovative effects of prescribing a a universal technology standard.

The EU and U.S. took different approaches toward cellular phone standards that highlight the differences in creation of innovation. The U.S. government took a market approach and allowed wireless carriers to freely use non-interfering technologies within their licensed spectrum. The EU took a top-down approach when it required European carriers to adopt a GSM standard for all cellular spectrum. As a result, in the U.S. wireless carriers use multiple incompatible technologies, including CDMA, whereas GSM is the universal cellular system in the EU.

Mandating one particular technology has its benefits. It allows for greater penetration, as GSM has been the most popular standard worldwide due to its interoperability throughout the EU. In addition, both carriers and handset manufacturers can channel their resources and innovate around a single platform for add-on services and hardware devices.

However, there are also benefits to an approach that allows the market to determine the winning technology. Competition of standards enables a better standard (or standards) to evolve because they can better adapt to the unknown. Despite the fact that GSM has had the dominant penetration rate for voice cellular technology, the world’s most popular cellular standards for data are based on technology created in the United States.

Allowing for adaptability (or in this case, adoptability)—one of the key factors for innovation—may be one reason that the U.S. market gave birth to 3G high-speed wireless technologies. Government policies that restrict technology choice can create regulatory hurdles for adopting new technologies. Adaptability, and therefore innovation, can suffer.

Make no bones about it, it’d be a mistake to sour ICT investment, deployment and use with prescriptive mandates and preferences.

Previous post:

Next post: