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date: 06 April 2020

(p. 31) Introduction

(p. 31) Introduction

This part of the handbook focuses on the economic and policy dimensions of the convergence of telephony, television, computing, and the Internet. By mapping out the dynamics of the new economy, it assesses the changing roles of national and international regulation, and evaluates how deeply the new economy entails far‐reaching paradigmatic change.

The phrase ‘change of paradigm’ has been used to describe the changes associated with information and communication technologies (ICTs). In Chapter 2, Freeman explains the technological and economic factors that have contributed to those changes. He examines the origins and definition of the paradigm concept, the formation and collapse of the Internet Bubble, and the reality of, and myths about, the consequences of rapid ICT innovation. Freeman pays particular attention to the conjectured decline of institutions such as large firms and nation states.

In Chapter 3, Melody examines characteristics of new knowledge economies with a view towards understanding their implications for market development and for government policy and regulation. In his view what is new about new knowledge economies is not the central role assumed by information in generating economic value, but instead the institutional structures for creating and using information in the modern economy. Melody looks at network access, intellectual property rights, and the growing importance of human capital. He highlights the contributions of ICT‐based services to productivity improvements, and studies trends on the emergence of network oligopolies. Against this background Melody suggests how the new knowledge economy might achieve yet greater efficiency and inclusiveness.

Lazonick, in Chapter 4, looks at ‘offshoring’—the large‐scale movement of jobs overseas in general and in ICT in particular. He shows how the initial search for low‐wage labour to perform low‐skill work changed into a search for low‐wage labour to perform high‐skill work. Those pressures were incipient from as early as the 1970s, as ever greater price competition emerged globally and indigenous high‐skilled engineers assumed increasingly significant roles in offshored locations. Lazonick focuses on the history of East Asian inward and outward migration—on South Korea, Malaysia, and India in particular—and on policy measures in education and employment undertaken in those countries to retain highly skilled workers.

In Chapter 5, Draca, Sadun, and Van Reenen summarize the literature on the productivity impact of ICTs. They point out that this work shows that the ‘Solow Paradox’—the apparent absence of an impact of ICT on productivity—has disappeared. The resolution of the paradox is not particularly subtle: Solow's statement in the late 1980s on seeing computers everywhere except in the productivity (p. 32) statistics simply had its hypothesis incorrectly stated. No one could have seen computers everywhere since, until about the same time that the productivity numbers picked up, computers constituted only a small part of any nation's capital stock. Both growth accounting and econometric evidence now suggest an important role for ICTs in productivity. The authors discuss empirical estimates showing a much larger impact of ICT on productivity than expected and suggest that ‘organizational capital’ might account for this impact.

Chapters 6 and 7 focus on economic aspects of the Internet. In Chapter 6, David discusses how some of the main approaches to the ‘economics of the Internet’ have drawn on features common to broader categories of economic activity and public policy. He argues that much of this is not especially helpful; what is crucial, instead, is how this new Internet infrastructure differs from earlier systems of connection‐oriented communications. David describes how many current recommendations for regulating the Internet might jeopardize its social value and vitiate its role as a platform for innovation. Such recommendations have emerged from two distinct sources: first, research attempting inappropriately to impose policy lessons gleaned elsewhere onto what might be a truly new communication system; and second, private interests seeking to re‐engineer the infrastructure of the Internet to improve its commercial exploitation, but then disrupting its unique and valuable public‐good operations. David argues that public policy needs to take into account such dangers if the Internet is to serve its proper socially beneficial task. At the same time, David points to what economists need to understand better about these emerging technologies, for their likely massive significance in determining the shape of future economic performance.

In Chapter 7, Greenstein and Prince analyse Internet diffusion across the US, with an eye to understanding the persistent ‘digital divide’—unequal availability and use of the Internet. They compare Internet adoption with repeat and first‐time purchases of personal computers, highlighting how these have different determinants. They examine the historical and geographical evolution of Internet usage within an economic theory of diffusion, that is, by clarifying the costs and benefits on both the demand and supply sides. In doing this they provide insight into the Internet's physical presence based on economics‐based measurement techniques. They also raise questions about how the finer details on evolving, emerging technologies might affect the future relation between physical geography and the Internet: these are important questions on which, necessarily, we have as yet very little empirical evidence.

In Chapter 8, Steinmueller concludes this theme in the handbook with an explanation of how the exploitation of technological and market opportunities in the ICT industries has produced changes in market supply and demand that regulate or channel the rate and direction of industrial growth. He focuses on the way ICT innovations integrate with existing and other newly emerging technologies through standardization. Finally, he examines the underlying economic (p. 33) processes that influence the new economy's emerging industrial structure and the resulting consequences for policy. This chapter shares with David's Chapter 6 two important messages. First, observers will probably miss the critical features and key implications of ICTs when they seek to shoehorn the economic analysis of ICTs into previously understood, but likely inappropriate, categories. Secondly, for future economic development and policy formulation, the stake involved in getting our understanding of ICTs right is enormous.