GREEN GROWTH: FROM RELIGION TO REALITY - Sustainia

Chapter 1possibility of this outcome? For that, we turn to otherinstances of technological transformation in networkedsystems, to see where and how they supported sustainedeconomic growth.4: An earlier transformation: networksand the ICT revolutionSignificant infrastructure changes have often promptedbroad investment to take advantage of them. Railways inthe 19th century radically transformed time and space,drove transport costs to a minimum, and opened up vastnew territories, resources, and markets to economic activity.Likewise, the information technology revolutionbuilt new business models and products atop radicalchanges to the structure and function of telecommunicationsnetworks. Both transformations provided the foundationsfor decades of sustained economic growth."The network—power grids or rail infrastructure—played the critical role in each transformation"These earlier transformative epochs provide importantlessons for thinking about how and where the transformationof the energy system—itself a network likerail or information technology—could do the same. Ineach case, two lessons stand out: first, that the network—power grids or rail infrastructure—played the criticalrole in each transformation; and second, that most of thegrowth generated by these earlier systems transformationscame from the possibilities created for the broadereconomy, rather than from the investments in the systemitself. This mismatch between the social and privatebenefits should lend caution to those predictions of puremarket-based solutions.We begin with the ICT revolution. In 1991, the UnitedStates National Science Foundation opened its internal,distributed information network that it had inheritedfrom the Department of Defense to commercial activity.The Internet, as it came to be known, was born. By2000, internet-related commerce accounted for at least$100 billion in annual turnover and 2.5 million jobs inthe United States alone12, acounted for several firms inthe Fortune 500, and laid the foundations for a secondround of innovations in social media, communications,and logistics management that continue to this day13.Thus, within twenty years of commercialization, the internethad radically transformed both communicationsand the broader economy, and generated significant economicgrowth and productivity improvements.14Why did the digital revolution happen so quickly,and so smoothly? We argue that the economic transformationwrought by the Internet and ICT came in twophases. Both phases merged private-sector investmentand innovation with public-sector market formation andrulemaking. While neither phase proceeded via somegrand design, both shared critical features: support forbasic research and development as well as early deployment,market rules that favored openness and access andchecked monopoly and tremendous private sector investmentsin experimentation both within and on top ofthe evolving network. That experimentation establisheda symbiosis in which rapid innovation in new ICT productscreated ever-new possibilities for incorporation ofdigital technology in production processes and products.Those new possibilities, in turn, drove new demand thatfunded subsequent waves of ICT innovation. This symbiosis,founded on the possibilities ICT created for theeconomy at large, made the revolution self-sustaining.The first phase of the ICT revolution, lasting from theinvention of the transistor in 1947 to the introduction ofthe personal computer in the 1980s, coupled private sectorinnovation to public-sector restriction on the abilityof dominant market players to restrict the diffusion ofthose innovations. Many of the innovations critical tothe ICT revolution came out of industrial giants, mostnotably AT&T and IBM. Left to their own devices, eitherfirm might have used their monopoly positions to generaterents, constrain market competition, and compete onthe basis of network access instead of product features.Instead, AT&T found itself the subject of ongoing antitrustscrutiny starting as early as 1947 – well this goesback to MCI and even answering machines. IBM cameunder scrutiny starting in the late 1960s. That meant thatalthough AT&T’s Bell Labs invented the silicon transistorin the 1950s, the technology quickly diffused into themarket, rather than remaining trapped inside the AT&Tmonopoly. An ongoing set of antitrust and network accessdecisions meant that AT&T could not use its ownershipof the communications network to limit access tonew competitors exploiting the possibilities in emergingdigital technologies.Likewise, IBM initially thought that their control ofthe BIOS—the control logic of a personal computer—would allow them to control the PC, while they outsourcedthe operating system and other components.But IBM could not dominate semiconductor marketswithout falling afoul of its federal antitrust investigators.As a consequence, the personal computer became anopen standards platform. This gave rise to the IBM clonemarket, massive competition and price pressures, andincreasingly inexpensive computing power. Thus privateinnovations—the semiconductor, the transistor, and thepersonal computer—were coupled to public initiative toensure that new technologies were not constrained by themarket power of dominant players.Finally, especially in the 1950s and 1960s, but less sothereafter, a number of the initial products of private sectorfirms were predominately purchased by governmentswith bottomless pockets and a perceived need for maximalperformance—chiefly the United States Departmentof Defense and the space program—whose purchases atvery high prices with enormous margins underwrote theearly experimentation in the industry.In the second phase of the ICT revolution, beginning12 See the summary of Measuringthe Internet Economyin John Leatherman, “InternetbasedCommerce: Implicationsfor Rural Communities” Reviewof Economic Development Literatureand Practice 2000:5. TheUnited States Census Bureau putsthe total value of e-Commercerelated shipments in 2004 at $996billion. See “E-stats”, 27 May 2005,at http://www.census.gov/econ/estats/2005/2005reportfinal.pdf.Last accessed 9 May 2011.13 Tyler Cowen would arguethat this last series of innovationsmarks the erosion of the long tailof investments made in the 1960sand beyond. Whether this holdstrue or not remains to be seen;though Kondradieff-wave stylearguments would suggest this tobe true. See "The Great Stagnation:How America ate all the lowhangingfruit of modern history,got sick, and will (eventually) getbetter" (New York: Dutton, 2011).14 Those productivity improvementshave been famously hardto track. For attempts at quantification,see Bart Van Ark, RobertInklaar, and Robert McGuckin(2002) “”Changing Gear: Productivity,ICT, and Services: Europeand the United States” ResearchMemorandum GD-60, Universityof Grönigen Growth and DevelopmentCenter; and Sinan Aral, ErikBrynjolfsson, and Marshall VanAlstyne “Information, Technologyand Information Worker Productivity:Task Level Evidence”. Econometricianshave been skepticalof these claims. For an earlier attemptat establishing ICT-basedimprovements to productivity, seeAlan Krueger (1993) “How ComputersHave Changed the WageStructure: Evidence from the microdata,1984-1989” The QuarterlyJournal of Economics 108(1)February 1993, pp33-60. JohnDiNardo and Jorn-Steffen Pischke(1996) responded to this attemptby using the same methodologyto show similar productivity gainsfrom pencils, suggesting that theidentification strategy containedsevere flaws. See “The Returns toComputer Use Revisited: HavePencils Changed the Wage StructureToo?” NBER Working PapersSeries no. 5606. National Bureaufor Economic Research.8