September 18, 2002

PS 138D – Governance of the E-conomy

Lecture Overview Week IV

- Schumpeter differs from standard economics in his focus on change and its drivers

- DeLong/Froomkin argue that the three assumptions on which efficient market exchange rests – excludability, rivalry, transparency – are not met by info goods

- One or several E-conomies? How and how much do national economies differ?

o developed countries vs. developing countries

o differences within developed countries – we focus on these because dynamics here shape available strategies for developing countries

- Dynamics among advanced industrialized countries (AIC) – three views:

1. “Silicon Valley” view: all innovation come from one place (S.V.) and then spread – tech. determinism

2. Realist power view: one country forces the rest to adopt its standards and technologies (e.g., Windows, Intel, U.S. data privacy standards…etc.)

3. Comp Pol Econ view: technologies are shaped by the diff pol and market settings in which they are developed => innovations come from everywhere and there is a logic as to what comes from where

- Question whether there is one or several “types” of society has always been there, for example:

o Development – do all nations go through same stages (e.g, Rostow) or are there different routes (e.g., Moore)

o Labor – how are serfs turned into citizens? Problem solved differently in Britain (where it leads to democracy) than Germany (where it leads to authoritarianism)

o Free Trade – how to respond to late 19^th C recession? British, U.S., and German responses differed dramatically, with huge social and political implications down the road

- Connection to E-conomy?

o Will country respond similarly to problems of diminishing excludability, rivalry, and transparency? History and logic suggest no. What will drive different countries to different responses? What will be the implications?

o Question whether one or several E-conomies is ultimately political question, not about technology or economics

* * *

Guest Lecture:

Professor François Bar

Stanford University

- “open” is a big, though poorly understood word in the context of networks

- move from analog to digital

o some changes: everything is in bits, ubiquitous logic (i.e. processing power everywhere), virtually endless bandwidth (i.e. capacity)

o BIG change: networks become programmable, b/c all parts of network are computers => network control becomes key!

- different types of networks:

	Live (synchronous)	Delayed (asynchronous)
Interpersonal (one-to-one)	telephone	mail
Broadcast (one-to-many	t.v.	print

o used to be dedicated networks, optimized for each type of communications - - these were all separate physically, separately controlled, and separately regulated

o “reconfigurability” of dig networks enables leaving one’s box

o Internet is not a “thing,” its common software protocols rolled out over many different networks

- network control and openness:

o three layers: applications, control, hardware

o control and hardware layers are no longer automatically tied together

o => control and ownership are separated

o with Internet, interfaces between the layers are open, enabling “user-driven innovation”

- user-driven innovation:

o data from corporate data network users suggests three-stage iterative cycle of 1) automation, 2) experimentation, and 3) reconfiguration (and back to “1”)

- conclusions:

o access to control layer is key for user-driven innovation – architecture matters!

o coevolution of tech and econ organization – character of “openness” shapes character of coevolution

o allocation of network control is political, not technological question