March 2009 - Issue 3

Jetzt die richtigen Weichen stellen

In Zeiten in denen milliardenschwere Rettungspakete für Kreditinstitute geschnürt werden, intensiv über staatliche Beihilfen für Automobilhersteller und andere Industrieunternehmen nachgedacht wird und die öffentliche Verschuldung droht, neue Höchststände zu erreichen, muss der Blick auf die Zukunftsfähigkeit und gesellschaftliche Rendite der avisierten Hilfspakete und Konjunkturmaßnahmen geschärft werden. Soll Deutschland – wie von der Bundeskanzlerin mehrfach betont – gestärkt aus der aktuellen Finanz- und Wirtschaftskrise hervorgehen, müssen jetzt die Weichen richtig gestellt werden.

Staatliche Konjunkturprogramme können durchaus geeignet sein, den durch die internationale Finanzkrise ausgelösten Verwerfungen kurzfristig entgegenzuwirken und die negativen Auswirkungen auf den Arbeitsmarkt abzufedern. Es besteht jedoch die Gefahr, dass die Gelder in Projekte fließen, von denen keine nachhaltig positiven Effekte auf das Wachstumspotenzial der deutschen Wirtschaft ausgehen und lediglich ein kurzes konjunkturelles Strohfeuer entfacht wird. Jeder, der nach staatlicher Hilfe verlangt, muss sich der Tatsache bewusst sein, dass sämtliche staatlichen Konjunkturmaßnahmen durch die Steuerzahler finanziert werden müssen. Durch die steigende Staatsverschuldung wird diese Finanzierungslast immer stärker auf zukünftige Steuerzahler abgewälzt. Schuldenfinanzierte Investitionsprogramme sind nur dann gerechtfertigt, wenn sie eine gesellschaftliche Rendite in Form von wirtschaftlichem Wachstum und besseren Lebensbedingungen auch für nachfolgende Generationen versprechen. Ob dies für die staatlichen Hilfen für „notleidende“ Banken, die Umweltprämie für die Verschrottung alter Autos oder andere Maßnahmen zur Rettung angeschlagener Unternehmen zutrifft, ist mehr als fraglich.

Gerade jetzt kommt es darauf an, die Innovationsfähigkeit der deutschen Volkswirtschaft zu stärken und so die Basis für zukünftiges Wachstum zu verbessern. Ein Beispiel dafür sind Investitionen in eine moderne Kommunikationsinfrastruktur. Nach dem Willen der Bundesregierung soll im Rahmen des Konjunkturpaketes II jeder Haushalt in Deutschland bis Ende 2010 mit einem Breitband-Internet-Anschluss ausgestattet werden. Zur Verwirklichung dieses ambitionierten Ziels müssen gezielte Investitionsanreize gesetzt und die richtigen regulatorischen Rahmenbedingungen geschaffen werden. Gelingt dies sowohl national als auch auf europäischer Ebene verspricht der IT- und Kommunikationssektor ungeahnte Möglichkeiten. Bereits heute liegt die Wertschöpfung im IT-Sektor mit mehr als 150 Milliarden Euro pro Jahr deutlich über der Wertschöpfung der meisten anderen Branchen wie beispielsweise der Automobilindustrie. Durch den Ausbau leistungsfähiger Breitband- und Mobilfunknetze könnten nicht nur neue und zukunftssichere Arbeitsplätze im IT-Sektor entstehen. Ein flächendeckender Zugang zu schnellen Internetverbindungen ist auch eine wesentliche Voraussetzung für die Modernisierung der Arbeitswelt im Allgemeinen und somit für das produktive Potenzial der deutschen Volkswirtschaft. Unsere Gesellschaft kann es sich angesichts schrumpfender Bevölkerungszahlen und des dramatischen Rückgangs der Menschen im erwerbsfähigen Alter nicht leisten, 30 Prozent der erwerbsfähigen Bevölkerung von der produktiven Wertschöpfung auszuschließen. Moderne Formen von Teilzeitarbeit, Job-Sharing oder Home-Office-Modelle und andere Varianten der zukünftigen Arbeitswelt sind ohne eine leistungsfähige und sichere Kommunikationsinfrastruktur nicht möglich. Hier gilt es, die notwendigen Investitionsanreize zu schaffen und eine flächendeckende Versorgung falls nötig auch durch den gezielten Einsatz staatlicher Mittel zu gewährleisten. Solche Investitionen erhöhen das Wachstums- und Entwicklungspotenzial der deutschen Volkswirtschaft und werfen langfristig eine deutlich positive gesamtgesellschaftliche Rendite ab.

March 2009 - Issue 2

Key Features of an enabling ICT Environment

Since information and communication technologies (ICT) are and will be among the most important drivers for economic development and growth, an enabling ICT environment is crucial for the competitiveness of economies. There are certain features that are important in order to create such an enabling ICT environment:

1. The interaction between technology and human capital, and their joint impact on productivity performance.
   
   
2. Enhance incentives to innovate and invest and boost entrepreneurship in the ICT sectors and elsewhere.
   
   
3. Fostering a climate to instil greater dynamism in the creation and expansion of firms is essential.
   
   
4. One of the main drivers behind promoting technological innovation and productivity gains has been the expansion of global markets. Continued progress in opening economies to international trade and capital flows is essential for growth, while keeping in mind the constant need to adapt the rules and practices to the changing global landscape. Openness is not just about markets of course; it is also about culture and a readiness for change. What matters in innovative and dynamic economies is that ideas and knowledge be transferred and shared among economic agents (OECD 2001).
   
   
5. Complex regulatory systems need to be clear and adaptable. Sustainable regulatory policies need to provide stability to promote investment, including from abroad.

While it is ultimately the action of consumers and the private sector that determines the country’s usage of the internet, this section examines which policy measures can facilitate internet use. We identify three central policy fields to be crucial for the facilitation of an environment that fosters the ITC sector: (i) education, (ii) innovation policy and entrepreneurship, and (iii) market regulation.

Education

Integrating education in the use of the internet from a young age can substantially increase the growth effects of the ICT sector. The Council of Europe Ministers for Education therefore resolved to integrate information and communication technologies in the education systems (Council of Europe 2007). The potential benefits of this reform are manifold. On the school level the internet cannot only facilitate the information search of students but also serve as a tool for teaching. Students also get used to working with the internet and learn about the various options of using it. This boost the demand for internet services - whether for commercial or government service. As the internet has the characteristics of a network good, a broad internet literacy increases the country’s ICT benefits.

An additional advantage of internet educating for children, which is often overlooked, is that it makes the use of the internet safer and reduces the risk of cybercrime. Education that emphasises on concepts of transparency accountability and internet ethics can raise awareness for topics like privacy of personal data, security of payments and e-commerce, and the danger of sexual harassment.

Korea and Estonia are two countries that have been particularly successful in educating children in the use of the internet. The Korean Ministry of Information and Communication has introduced a series of policy measures to promote active usage of the internet. Large-scale training programs for PC and Internet skills were carried out in schools. Similarly, the Estonian government launched the “Tiger Leap” program aimed at modernizing the education system. As part of the program, the government provided IT facilities and integrated the usage of the internet into the curriculum. Over 100 software package have been created as tools for teaching and by 2003, every school was equipped with computers and 98% had internet access (ITU 2007). The various indices discussed indicate that the promotion of the internet in Estonia was very successful. In fact, the country already ranks number 20 in the NRI Index which measures the network readiness.

Innovation policy and entrepreneurship

Politics can play an important role in facilitating innovations and entrepreneurship. However, (due to its lack of knowledge) the government should not attempt to pick and support certain ICT sub-sectors which it considers innovative but rather provide an environment in which innovative companies can flourish. The two main policy measures in this context are (i) to promote the flow of knowledge between science and industry and (ii) to provide the complementary factors needed for innovative companies.

Governments have considerable impact on research activities as 32% of R&D spending in Europe is publicly funded (EIU 2004). Most of this research is conducted by universities and research institutes. However, in contrast to the U.S., the links between theses institutes and the private sector remain weak. In order to increase the impact of R&D on firm innovation, governments need to establish closer ties among research institutes and the private sector companies. Promoting cooperation, for example by supporting public-private mechanisms, can stop the misallocation of public funds and ensure that research is conducted which can be exploited by the private sector. Politics used the internet to promote these private-public networking by establishing internet platforms (OECD 2003).

An additional means to increase the effectiveness of R&D by facilitating the flow of knowledge among scientists is to establish information networks. The internet can play a crucial role in this context as the following example illustrates. In 1993, the Estonian Educational and Research Network (EENet) was created as a nationwide scientific and educational computer network. By 2003, 455 institutions had a permanent connection and more than 200.000 researchers and students used the network (ITU 2007).

The second policy means to promote the ICT sector is to provide complementary factors for innovative companies and entrepreneurship, namely human capital and venture capital. Having an educational system that provides an adequate pool of highly-skilled labour is the cornerstone of every national innovation policy (ITU 2007). A secondary effect from integrating the usage of the internet in school curricula from a young age is that it is likely to increase the country’s innovative potential in the field of ICT. The government can furthermore promote the accumulation of human capital by creating a legal framework that allows the immigration of skilled labour. Regulatory constraints, for example, have hindered the immigration of ICT experts to Germany. By contrast, the UK has launched the Highly Skilled Migrant Programme which has been very successful in attracting immigrants with sought-after skills.

Venture capital is an additional complementary factor for entrepreneurship. A lack of venture capital is a strong disincentive to innovation (EIU 2004). This is especially true for small and medium size enterprises (SME) which often have a high innovative potential. Policy measures can alleviate this shortcoming. In order to provide loans for start-ups, the U.S. established an extensive Small Business Loan Program. Europe also compares unfavourable with the US in funding of university spinoffs. Regarding the ICT sector, a micro-finance program in Bangladesh shows that government programs can be directed towards bringing small entrepreneurs into the mobile and internet markets (ITU 2006).

Keeping markets open is another means to promote innovations as empirical studies indicate that entrants are the most innovative firms in their markets and since competition creates a pressure to gain comparative advantages through innovations (EIU 2004). Next, we will look at what regulatory framework can ensure a functioning competition.

Market regulation

In an EIU survey among 100 senior executives, effective laws and law enforcement to protect online trade and IPR as well as a deregulated and competitive telecom sector were named the two most important factors for companies to benefit from ICT (EIU 2004).

While the issue of IPR protection is an issue that needs to be addressed on a global level, the creation of a regulatory framework that allows a functioning competition in the ICT sector is foremost a national task. The gradual liberalization of the ICT sector has led to an increase in the number of national telecommunication regulatory agencies (NRA) from 14 in 1990 to 147 in April 2007 (ITU 2007). These NRAs are not only in charge of addressing areas of market failure such as monopolistic structures but also of ensuring consumer protection (ITU 2006).

A recent evaluation of the European Competitive Telecommunications Association (ECTA) on the effectiveness of NRAs in the EU has revealed substantial differences in the quality of national regulatory frameworks. The study also finds a strong and positive relationship between effective regulation and the level of investment in the ICT sector (ECTA 2006). Thus, it is not surprising that many of the countries that scored high on the Network Readiness Index or Digital Opportunity Index such as Denmark, the UK and Sweden also performed well on the regulatory scorecard developed by ECTA. A reasonable regulatory environment can therefore be seen as a central means to increase the usage of ICT by ensuring competition and consumer protection.

Central components of an effective regulatory framework are:

• Speed of process: Fast institutional procedures (e.g. appeals and dispute settlements) are particularly important in the ICT sector as it is characterized by rapid technological innovation, short investment cycles and significant first mover advantages.
  
  
• Transparency and certainty: A lack of transparent decision-making undermines legal certainty, increases the potential for political interference and discourages investment.
  
  
• Competition: Competition is the central means for the ICT sector to decrease prices, generate innovations and thus promote the diffusion of technology into different sectors. While it is important for NRAs to create a level playing field for all players in order to stimulate innovations and investments they should keep the ex-ante regulations to a minimum level necessary and limit their scope of actions to the above-mentioned core tasks. In fact, a high regulatory burden can be an important competitive disadvantage and mitigate the benefits of the national ICT sector. The OECD argues, for example, that in many European countries high regulations pose barriers for new entrants and start-ups and thus impede competition in the ICT sector. It is argued that the less regulatory system in the US enables companies to start at a small scale, test the market and their business model, and rapidly expand if it proves successful (OECD 2003). In a highly dynamic sector as the ICT, this market function as an “Entdeckungsverfahren” is vital.

The liberalization of the telecommunication market in most European countries in the 1990s has led to substantial welfare gains for both consumers and suppliers in the ICT sector. It also caused an unprecedented dynamics which is reflected in a high sequence of innovations and frequent market exits and entries. This trend has considerably complicated the task of national and global policy makers. The central task is to provide an environment which is open for new market entrants and innovations. In fact, policy was better able to control the ICT sector during the past monopoly era (Bauer 2004). In the present more competitive framework, many policy instruments work only indirectly. It is crucial to use these instruments carefully in order to provide and stimulate complementary factors for ICT development and establish an environment in which investment, innovation and competition can flourish.

References:

Bauer, J. (2004): Governing the Networks of the Information Society: Prospects and Limits of Policy in a Complex Technical System. Institute of Technology Assessment Working Paper No. ITA-04-03.

Council of Europe (2007): Building a Free and Safe Internet. Council of Europe Submission to the Internet Governance Forum in Rio de Janeiro, Brazil, 12 to 15 November 2007.

ECTA (2006): Regulatory Scorecard 2007 - Report on the Relative Effectiveness of the Regulatory Frameworks for Electronic Communications. European Competitive Telecommunications Association, December 2006.

EIU (2004): Reaping the benefits of ICT Europe’s productivity challenge. Economist Intelligence Unit.

ITU (2006): World Information Society Report 2006. International Telecommunication Union, United Nations Conference on Trade and Development (UNCTAD), Geneva.

ITU (2007): World Information Society Report - Beyond WSIS. International Telecommunication Union, United Nations Conference on Trade and Development (UNCTAD), Geneva.

OECD (2001): The New Economy: Beyond the Hype. Final Report on the OECD Growth Project, Organisation for Economic Co-operation and Development, OECD Publications, Paris.

OECD (2003): ICT and Economic Growth: Evidence from OECD Countries, Industries and Firms. Organisation for Economic Co-operation and Development, OECD Publications, Paris.

March 2009 - Issue 1

What is „Discrimination“ all about – sorting out some arguments

When it comes to controversial discussions on certain business models and regulatory issues, the term “discrimination” has been used as a knock-out argument. Sometimes, blaming someone for using discriminatory practices is rather a rhetorical trick to camouflage the real issue and in order to get the last word on opinions. Unfortunately, this strategy usually works quite well and hampers an impartial and conducive discussion.

“Discrimination” in a wider sense has always had a negative touch, though – technically and economically speaking – it is not always bad at all and can be very reasonable and beneficial. That is why we are going to sort out the spaghetti bowl of arguments regarding discrimination.

First, one can talk about discrimination if a firm, a government or an individual uses its economic, political, physical or any other form of power to exploit others in an unfair and unjust manner. Monopoly prices and exploiting and enslaving certain ethnic or religious minorities are examples of this kind of discrimination. Such forms of discriminations are unreasonable, unfair, harmful to individuals and the society and – not least – illegal. That is why a legal framework has been introduced and further developed in modern democracies. A decent constitution, competition law and other bills, anti-trust and other authorities, independent justice and so forth are dedicated to prevent and – if necessary – combat this kind of unfair discrimination. The enforcement of the constitution in European countries, for instance, has been very successful in the last decades. The same holds for competition policies on the European level which has been very effective in combating the abuse of market power. We all agree that it is crucial for any just society to effectively limit the incentives and opportunities for individuals and organizations to abuse any kind of power in order to exploit and harm others as well as to combat such unfair discriminatory practices if their occur.

Another form of “discrimination” is the differentiated treatment of more or less different things which could be perfectly reasonable because of various reasons. Certain groups of consumers, for instance, may pay different prices for the same product or service. Senior citizens, children or students usually pay less than others in museums, operas and even some restaurants, for transportation and other services. The providers of these services – let it be public or private – introduced these discriminatory pricing policies in order to take into account the very economic status of individuals; that is their ability and willingness to pay. Such regimes are nothing else than cross-subsidizing between different consumer groups. The technical economic term for this kind of pricing policies is “price discrimination”. Although it is most certainly a discriminatory practice and not always uncontroversial to charge different individuals differently for more or less the same product or service, most people would agree that it might be not the worst idea and not particularly “unfair” to give a 5 year old girl free access to the Museum of National History whereas other consumers pay 5 Euro to enjoy the same experience. There are many other examples for reasonable price discrimination: Car drivers pay different motor vehicle tax or road tolls according to the size of their car or – in the latter case – the traffic density on the very street. Transportation prices for the same category and connection differ according to the day and/or time. Hotels usually charge more during the busy weeks (exhibitions, sport events etc.) for exactly the same room and service. All of these examples are in a way “discriminatory” but this differentiated treatment accounts for different characteristics and could enhance the quality of the very service, make this service available to certain individuals that could not afford it otherwise and – not least – might enhance economic efficiency. That is why this kind of “discrimination” could be perfectly reasonable because it enhances the overall availability of products and services and it is beneficial to the vast majority of a society. Therefore, I suppose, hardly anybody would disagree with such differentiated pricing policies and blame it as “discrimination”. 

Another form of differentiated treatment that has been disparaged as “discriminatory” has nothing to do with discrimination in the narrower sense. It is rather the translation of a simple principle of justice and fairness into business terms: It is unjust to treat unequal things as being equal. Take for example products or services that are basically of the same kind but possess different characteristics regarding the specific value for consumers, cost and expenses, quality, social merit and so on. Would it be reasonable to treat these different products and services equally with respect to their priority, terms of delivery and price? Not worth to give an answer to this question. It is one of the most important, though pretty much unsung, benefits of market driven economies that people have a choice between different products, services, quality and – yes – different prices. That gives individuals the opportunity to pick and purchase exactly what meets their specific needs, preferences and willingness to pay best. The price mechanism is the most powerful driver of an efficient adjustment of supply and demand and – not least – the driving force of innovation and growth in any market driven economy. Without this crucial mechanism, incentives and efforts to improve the range, availability and quality of services would be stalled and eventually come to an end.

Taking into account these considerations, the turmoil about the prioritization of certain types of internet applications and the according data packets, the fear-mongering regarding an efficient traffic management and technologies that are able to enhance the availability and quality of high value and quality sensitive services and would be beneficial to the vast majority of users seem to be not only by far exaggerated but simply nonsense because they overlook and negate the obvious advantages of a differentiated treatment of different things. Let’s again take an example: There can be doubt that there is a fundamental difference between a telemedicine application and downloading a movie on a Peer-to-Peer website. The former could be of extremely high value for the patient and is highly quality sensitive. Therefore, the security and quality of this service is of tremendous importance for actually offering this service. Because of the considerable value and benefit of the telemedicine application, the willingness to pay for this service is supposed to be well above zero. The P2P file-sharing application is not quality sensitive at all because of the multi-source characteristic of these applications and the fact that it does not really matter if the downloading of the file – let’s say a movie – takes a few seconds longer or not. The individual and let alone the social value of this application is probably not terribly huge. This is one reason why the willingness to pay for this kind of services is usually very low, if not zero. Having said this, there is no need to explain further why it could make perfect sense to prioritize the telemedicine application in order to guarantee the quality of service. In fact, such prioritization is the necessary assumption to actually make such services available on a larger scale and scope. And, by the way, the prioritization of telemedicine applications and the according data packets would not affect the user of P2P applications at all. The latter would not even recognize that a couple of highly important Mbits (telemedicine data) are preferentially treated.

Without infinite bandwidth, which will most probably never exist all over the place, a differentiated treatment of different applications and data packets according to their quality sensitivity and economic value might be the only fair and just way to enhance the availability of high value and quality sensitive services. Once effective control mechanisms such as competition law, anti-trust agencies and the like are in place in order to guarantee a sufficient level of competition and to prevent the abuse of market power, there is simply so point to argue against technologies and business models that are able to efficiently account for the different characteristics of applications and services.

Keep things straight:
Prevent and combat unfair and unreasonable discrimination and encourage and support reasonable and efficiency enhancing differentiation!