<nettime> Economist: Learning the rules

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New communications
Learning the rules
Jan 24th 2002
>From The Economist print edition

HOW lucky we are to have lived through a period of technological
innovation. The sheer speed with which the Internet, once commercialised,
became part of everyday life has provided a rare chance to see how
innovation can transform social, corporate and political life. Perhaps not
since the arrival of television have people been so conscious of the
impact of change.

But how novel is the novelty? In a beautifully written book, subtitled
"Cycles of Discovery, Chaos, and Wealth from the Compass to the Internet",
Debora Spar, a professor at Harvard Business School, puts cyberspace in
its place. She writes not only with historical depth but with acute
observation. Earlier innovations in transport and communications shared
many of the Internet's impacts, she insists. In particular, they
demonstrate that new technologies do not remain indefinitely unregulated.
They begin with swashbuckling independence: new players spring up,
operating in a sort of new frontier, unconstrained by governments. But,
once a technology acquires commercial importance, rules and standards
emerge. Why? Because, argues Ms Spar, the industry's most successful
companies want them.

Commerce and politics need each other, she explains. As an industry
expands-whether international shipping or the telegraph, radio or
satellite television-the pioneers begin to want to consolidate their
gains. To do so, they need enforceable property rights. So, in the
mid-1920s, America's radio stations fought each other for frequencies
until the resulting cacophony annoyed listeners and sales of radio sets
began to slide. At that point, the larger radio stations begged Congress
to take responsibility for allocating frequencies.

Because communications industries need intellectual property rights and
common standards, they are particularly subject to the observation made
long ago by Douglass North, an economic historian who pointed out that
markets need the state in order to flourish. Will the Internet be
different? Many of its pioneers saw it as an unregulated frontierland,
where the writ of the state cannot run. However, Ms Spar insists, "there
will be rules in cyberspace, and government will help to craft and enforce
them. Why? Because even along this wildest of frontiers, pioneers need
property rights and standards. And the only entity that can sustain and
enforce these rules is the state."

Though this is broadly convincing, Ms Spar sometimes misses opportunities
to develop issues. In particular, she fails to draw conclusions from
Europe's preference for government ownership and a state monopoly (in
telephony, radio and television) and America's preference for regulation
backed by antitrust rules. And inevitably, some of the industries she
studies fit her argument better than others.

The same is true of Alfred Chandler's account of the development of the
consumer electronics and computer industries. Mr Chandler, the doyen of
business history, still writing furiously in his Cambridge eyrie in his
late 80s, is interested in "paths of learning": broadly, the way an
organisation sets about developing and applying technologies. The concept,
although central to the book, is sketchily and inadequately explained.
However, Mr Chandler argues that the evolution of the consumer electronic
and computer industries has been unique, because a single company-RCA in
the first case, IBM in the second-defined the national industry's "paths
of learning". The explanation for this unusual dominance lies, he
believes, in the industries' underlying technologies. Earlier industries
relied on a broad range of innovations; these two, on only four: the
vacuum tube, the transistor, the integrated circuit and the
microprocessor.

But paths of learning only lead so far: RCA's led into a thicket, from
which Japan emerged as the world's leader in consumer electronics. And IBM
has survived largely by reinventing itself. Companies need to be lucky as
well as learned to stay alive through a technological revolution.


Copyright � 2002 The Economist Newspaper and The Economist Group. All
rights reserved.




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