Chapter 5 - Emerging Technologies and Public Policy: Lessons from the Internet

In chapter 5 Gerald Faulhaber takes us through what role government can play in spread and adoption of emerging technologies. While many people feel that government intervention has negative effects, which at times it does, Faulhaber shows the good that it can play in the development and integration of these technologies.

There are 7 ways, given in chapter 5, that government can incorporate itself into the development of emerging technologies (in order from least to most intervention by the government):

Institutional Infrastructure – public and legal institutions that encourage or discourage innovation (universities)
Research Infrastructure – government laboratories for basic research in physics, electronics, microbiology, software and other fundamental disciplines that few firms invest in because of their non-appropriable nature
Military Technology – direct government funded technology research for military use
Government Directives – programs and initiatives set by the government to encourage or protect the commercial exploitation of technologies
Standard Setting – typically standards for technology are set by the market; however at times the government has to step in to set standards to ensure technology definitions are uniform, such as for HD TV
Government Regulation – government organizations such as the FDA must approve products
Government Subsidies – when the government subsidize a “winner” in the competitive emerging technology market

The author follows the Internet from the creation and early years from 1969-1993, to the high growth years of 1994-present to possible future deployment of broadband networks. However, the lessons from the creation, spread and eventual privatization of the Internet are where we, as managers, can learn from past experiences. These lessons help clarify what the government can do, how it can do it, what effects these actions have and what we can do, as managers of technology, to position our firms the best we can. The following 10 lessons are given in chapter 5 and implications for managers to go along with each:

1) Government can play a powerful role in shaping the development of a new technology in its earliest research stage
Implication. Managers should monitor research in their respective fields by reading trade journals and watching innovations coming out of research labs and universities, etc.
2) As a government withdraws its support, those that have been benefiting from the support meet the withdrawal with strong resistance (eg. Shifting of the Internet to a for-profit model, met with resistance from those early users that used it for free)
Implication. Managers benefiting from government support should lobby hard for continued subsidies. If you are not receiving benefits from the government support, you should position your firm as a safe haven for those that are about to lose their government support
3) Government as coordinator can help manage the transition from public to private.
Implication. Lobby hard and smart to put you and your firm in a position of lasting competitive advantage
4) Public concern about the affect of new technologies on social mores may lead to demands for political solutions to limit these impacts (eg. Sexually explicit or hate group materials that are accessible to children on the Internet)
Implication. Look at possible externalities of emerging technologies and see where, when and how you can act either offensively or defensively to capitalize on the implications early
5) Emerging technologies have legal and political repercussions that emerge from disruptions created by the way business is done with the new technology (eg. Copyright issues, security issues and even national security issues and the Internet)
Implication. Managers need to anticipate disruptions in how corporations and markets do business with the emerging technology and find ways to influence any political responses taken as well as any opportunities that may present themselves
6) A new technology which is highly valued by all may lead to demands for “universal service”, which would likely result in some form of government intervention (eg. Telephone and cable services and the infrastructure that goes with them)
Implication. Demands for “universal service” can lead to the creation of a monopoly by the government, especially for technologies that require expensive infrastructure
7) Dominant firms can often make the mistake of treating customer poorly, which can lead to a political demand for intervention by regulators (eg. Government regulated/created monopolies, Bell System before deregulation, Williamson’s cable franchising case)
Implication. Managers of leading and possible new competing companies must monitor what customers are saying. What their concerns and satisfaction levels are, the one to address these issues and concerns will likely win the business
8) If a new technology threatens to lead to a single firm gaining a dominant market position, government may intervene to control this “natural monopoly,” either through regulation or antitrust (eg. Power companies, when the price of building the infrastructure may prevent competitors from being able to enter the market)
Implication. If managing a monopoly or a firm with much market power, managers must be careful on how the firm acts in the market. They cannot be viewed as using their market power to inflate prices, stifle competition and/or innovation
9) If the technology leads to firm dominance in a bottleneck market, there will be a political demand for government to limit the dominant firm’s ability to vertically integrate (eg. Computer companies bundling hardware and software
Implication. Managers of firms that must compete with bottleneck firms should lobby hard to keep them from vertically integrating. If you are that firm, you could come under scrutiny if you exhibit ultra-competitive behavior
10) Regulations that appear to promote competition or policy objectives for emerging technologies can have unintended side effects or even the opposite effect
Implication. As a manager it is often in your best interest to lobby for “minimalist” regulation and let the market set the competition and price levels

As I was reading through this chapter I started thinking about what possible technologies increased broadband availability or even increased bandwidth could bring. Expanding the reach and affordability (universal service) of broadband would open e-Commerce and information transfer to rural and low-income populations. However, what really got me excited was the thought of what increased bandwidth might do. One possibility that I thought of and did a little research on was 3-D holographic television. Per the CNN article (link below) this technology has been under way for almost 20 years now and recently they have made some big strides. The bandwidth needed to take this from the labs to reality could also be right around the corner as well, however, both technologies have a lot of work to do on cost before this can become reality. Infiniband technology has been around for a while now, but it is expensive to implement and, at present, there are few advantages for companies to take the first step in implementing.


http://www.cnn.com/2008/TECH/science/10/06/holographic.television/index.html
http://www.tvpredictions.com/hologramtv041807.htm
http://www.youtube.com/watch?v=thOxW19vsTg
http://www.popsci.com/digital-micromirror-device/article/2005-05/holographic-television
http://www.infinibandta.org/itinfo/


The author presents us with 10 "lessons" learned from the development and spread of the Internet that can be applied to instances where government is or may be involved. Many of them are very good and I think relevant across different emerging technologies, such as numbers 1, 3, 4 and 6, which deal with that pure busness as usual cannot handle; From the government shaping and investing in the development of new technologies, to coordinating the transition from public to private or private to public, to legalities and public policy of the new technology. However, near the end of the chapter Faulhaber starts getting into issues of market power, "natural monopolies and government regulations, which I think need to be addressed on a case by case basis as opposed to addessed generally as done in this instance. The author questions the need to regulate the dissemination of broadband and whether a "natural monopoly" would be acceptable. However, he fails to touch on the cost to companies of laying the technology infrastructure for the ability to provide "universal service", and whether the general public would benefit or enjoy having the choice of multiple cable providers. Does a "natural monopoly" in the instance of expensive and difficult infrastructure make sense? Does it better serve the consumers? Do any of the lessons learned fromthe expansion of the Internet apply if the government isn't directly involved? How?


http://books.google.com/books?id=MUPVLuiy9uQC&pg=PA326&lpg=PA326&dq=Franchise+bidding+for+natural+monopolies&source=bl&ots=Q76yaD8EVB&sig=Q9wCRE3Dmul-JcOxvNWhN1hTo3c&hl=en&ei=WGOtScbrHYG0sAOVtNnFBA&sa=X&oi=book_result&resnum=6&ct=result
http://tutor2u.net/economics/content/topics/monopoly/natural_monopoly.htm
http://www.voxeu.org/index.php?q=node/2715
http://www.telecommunityalliance.org/issues/broadbanduniservice.html