Wharton Chapter 5

Chapter 5 is entitled Emerging Technologies and Public Policy: Lessons from the Internet. This chapter is about how public policy can not only influence emerging technologies but even create them. Throughout the chapter the government's relationship to the Internet over the years is used as an example of how public policy can change or create an industry.

The government's role in developing emerging technologies happens through many different venues. As we learned in the book they provide an institutional infrastructure by way of patent laws and public education. They provide a research infrastructure by supporting various research projects financially. Military research has played a large role in developing certain technologies. Governments can set standards. They can also set barriers to entry through tariffs and subsidies. Lastly they can regulate any industry.

The early years of the Internet are interesting. The first packet switched network was paid for by the Defense Department during the Vietnam war. This is a perfect example of a technology that switched domains from it's original purpose (secure communications in a nuclear war) to something entirely unforeseen at the time (the commercial behemoth we have today). Eventually the network grew, standards were established and a community grew. During this time the government, first through the DoD and later through the NSF, funded and controlled the Internet. From this we learn lesson one; the government can play a powerful role in shaping the development of a new technology.

Eventually it was decided that the government should back away from the control of the Internet and that private firms should take over it's development. This policy change coupled with the development of a new method of using the Internet (World Wide Web) and the penetration of PC's into a large section of households helped lead to massive growth. This commercialization of the Internet had detractors, namely those who benefited from the status quo. That is lesson two. We also learned that during this time of transition from public to private control everyone involved will complain. That is lesson three.

During this time of unprecedented growth new social challenges emerged. How is all of this new information going to effect the culture? Easy access to pornography and hate sites worried many people. These concerns needed to be weighed against constitutional freedoms. This leads to lesson four, public concern about the affect of new technologies on social mores may lead to demands for political solutions that can have unintended consequences. Disruptive technologies, like the Internet, can have an impact on how governments and companies conduct business and they will seek legal protections from those disruptions. This is lesson five.

The Internet is still developing and changing today. The book lists four public policy concerns that will shape how the Internet develops. Those concerns are; universal service or is the service available and affordable to everyone? Quality of service or is the service efficiently provided at a reasonable quality? Monopoly power or is the provider earning excess profits from abuse of a monopoly market position? Access to distribution or is the distribution system available to all providers? Lesson six tells us that a new technology that is highly valued may lead to political demands for universal service. This could lead to a monopoly protected by the government. Lesson seven says that dominant firms can make the mistake of treating customers poorly which can lead to more regulation. This could be a result of the monopolies from lesson six. Lesson eight says that if a new technology threatens to lead to a single firm being dominant the government may intervene to control this monopoly. This could be to protect it or to break it apart. Lesson nine tells us that if the technology leads to a firm's dominance in a bottleneck market there will be a political demand for a limit to the dominant firm's vertical integration. I think we are seeing this currently in the 'Net Neutrality' debates. Finally lesson ten tells us that regulations meant to promote competition or objectives for an emerging technology can have unintended or even opposite effects.

This was a very pithy chapter for me right now. The industry I work in (student loans) was devastated by an announcement in the Presidents budget last week. Namely that it is the President's objective to make all student loans through the direct loan program and to end the private but federally guaranteed system that has been in place for 40 years. While my industry is certainly not emerging any longer it does show the massive impact that government can have on an industry.