The National Information Infrastructure is often referred to as the
nation's information superhighway, with the implication that like the
nation's interstate highway system, it constitutes a public good, thus
justifying government involvement and support in its development and
management. But is the information superhighway really a public good?
And if it is, how should the government promote it?
The Power of a Metaphor
The current hype over the information superhighway leaves no doubt in
the reader's mind that it is essential to the future well-being of the
nation:
"This capability will enhance the productivity of work and lead to
dramatic improvements in social services, education, and entertainment."
--Council on Competitiveness
"A strong commitment to building the national telecommunications
and information infrastructure will promote economic growth, aid
America's competitiveness, and increase the Nation's standard of
living."
--Telecommunications and Information Infrastructure and Public
Broadcasting Facilities Assistance Act of 1993
"Our government has the responsibility as public trustee to ensure
that new communications technologies serve the democratic and social
needs of the country."
--Telecommunications Policy Roundtable
Statements such as these point to two types of benefits: economic and
social. Industry productivity gains from more efficient and timely
access to information will provide some of the economic benefit. In
addition, the information superhighway will open up new markets for
information and entertainment services. It is the potential for those
new markets that is driving many of the current mergers and acquisitions
occurring among telecommunications and entertainment companies.
Social benefits are more difficult to document, but the value assigned
to a better-educated, a more informed, and an interconnected citizenry
has been cited to justify government support for public education and
public broadcasting, under the theory that society benefits overall
whenever any one of its members is able to function as an educated and
responsible citizen. Because the information superhighway represents a
very powerful means for supplying information and education to the
citizenry, it confers certain benefits that accrue not only to the
person directly affected but also to society as a whole, which is why
the information superhighway can be seen as a "public good."
But Is the Metaphor Accurate?
Pure public goods have two characteristics. The first is that people are
not competing for the good, namely, that its use by one consumer does
not decrease the amount that can be enjoyed by other consumers. An
example of a pure public good would be protection of the citizenry by
police or military forces. In the case of the information superhighway,
as long as there are both sufficient capacity to handle network traffic
and sufficient computing and storage power, congestion should never
arise. True to the highway system analogy, once a network is built that
goes everywhere for one person, then the cost of letting a second person
onto that network is practically zero.
The second characteristic of a pure public good is that no one is
excluded from enjoying the benefits, regardless of whether they've paid
for those benefits. The two-way, interactive nature of many of the
services proposed, such as electronic shopping or video on demand,
requires that individuals go through some formal logon procedure to
access the network. Such a procedure makes it easier to identify users
and assess charges. In this case, the information superhighway becomes a
toll road rather than a public highway. Other tolls include the price of
information appliances required to connect and make use of the network,
such as computers and telecommunications equipment, and the price of
using information services.
What Can the Government Do?
Whereas the information superhighway is not a pure public good in the
strictest sense, in the absence of government intervention the benefits
likely will be less than what optimally could be provided. As a result
of the tolls described previously, many users will be excluded from the
the information superhighway's direct benefits, thus diminishing the
overall social benefit. Because of that, government might intervene in
order to expand the social benefits to be realized. Depending on market
characteristics, the number of firms involved, and the behavior of
costs, the lowering of tolls for access can be achieved in several ways,
including price regulation, antitrust action, and direct subsidies.
Regulation
In a monopolistic environment, demand generally exceeds supply. That is
because when there is no competition, a monopolist produces only to the
point where the cost of one additional item equals the price at which it
can be sold. There is no incentive to cut costs or change the equation
in any way. In that case, regulatory action could be brought to bear,
requiring universal service as a condition of remaining a monopoly. Such
is the current practice with the regional phone companies, which each
continue to have a monopoly in their local service area.
Antitrust
Antitrust action can be used to break up a monopoly and force
competition. The breakup of AT&T in 1984 was instituted in part to allow
for competition in the provision of long-distance services. AT&T's
monopoly in that area of business was ended in the hope that competition
would force long-distance rates down, making long-distance service more
affordable to more people.
Subsidies
In a market where there is perfect competition, supply is directly
correlated with demand. For example, in the case of the information
superhighway, there may be several competing delivery means (e.g.,
through phone lines, cable, or wireless media) and many different brands
of computers, personal digital assistants, or other devices. But normal
supply and demand does not take into account the additional demand that
results when the social benefits of expanded access to the information
superhighway are considered. Just as in the case of government support
of public colleges and universities, a corrective subsidy would lower
the net price the consumer has to pay, making the information
superhighway accessible to more people.
What Should the Government Do?
One problem with government intervention is our inability to measure how
much a more educated, better-informed society is worth. Such a
determination would be necessary in order to calculate the truly
efficient quantity of access to be provided. Some might argue that 100
percent access for a type of Advanced Universal Service is required.
After all, the value of the network itself is a function of the number
of people connected to it. But the cost of that type of coverage could
be extremely high, especially considering that in 1991, following years
of government-mandated efforts to achieve universal telephone service,
only 93 percent of households had phones. The costs involved in
providing universal access on the information superhighway are sure to
be considerably higher.
Lessons from the Past
A striking example that closely parallels what could happen with the
information superhighway appeared on the front page of the September 28,
1993, Wall Street Journal: "Scrambled Picture: How Cable-TV Firms Raised
Rates in Wake of Law to Curb Them." The Cable Act of 1992 was intended
to put an end to the exorbitant rise in monthly cable bills and provide
"an average rollback of up to 10% for two-thirds of the nation's cable
customers." Unfortunately, the Cable Act of 1992 seems to have had the
opposite effect of what was intended: "But a year later, cable companies
[found] loopholes in the new law to raise rates rather than reduce them
in many cases, even for low income customers with the least service."
In implementing the Cable Act, the Federal Communications Commission was
given only six months to set up a framework that would aid 33,000 local
government bodies in regulating 11,000 cable systems. Because the cable
industry had the most to gain or lose from the Cable Act, it involved
itself in the legislative process, whereas the huge population of
average consumers expected very little direct benefit. The unintended
side effect was that instead of guaranteeing affordability of basic TV
service to low-income viewers, the cable industry was able to raise
basic service rates significantly while rolling back prices for premium
services. Those who could least afford the basic cable service were now
shouldering the burden of the new benefits (lower prices for premium
service) brought about by the new law, and those with higher incomes
were the ones actually seeing the lower bills.
Politics versus Policy
How did this happen? One answer is suggested by Charles Wolf Jr. in his
book Markets or Government. Wolf asserts that ill-conceived public
policy inevitably results when the conflict between the short-term goals
of politicians and the longer time frames required for effective policy
making combines with a situation in which the benefits and burdens of a
specific bill are not borne in equal amounts across the population.
Even though public-goods arguments may be used to justify government
action in promoting and increasing access to the information
superhighway, the aftermath of the 1992 Cable Act is a sobering reminder
that government intervention does not always result in the most
efficient or desirable outcome. Government action is lagging behind the
tremendous investments and frenetic activity rampant among the
computing, telecommunications, and entertainment industries. But public
officials intent on spreading the benefits of the new electronic
resource throughout American society need to temper their enthusiasm for
quick-fix solutions and learn from the unintended consequences of
previous government forays into market manipulation.
J. Andrew Magpantay is special assistant for innovative projects at the
University of California, San Francisco, Library and Center for
Knowledge Management.