Telecommunications and Socio-Economic Development
Edited by S. Macdonald and G. Madden
1998 Elsevier Science B.V.
13
CHAPTER I
Telecommunications Infrastructure and Invention, Innovation,
and Diffusion Processes
Sandra Braman
College of Communication, University of Alabama, USA
Introduction
As the nascent sub-field of the economics of information has developed, the concomitant expansion of the analytical lens has in tum permitted identification of more and
more types of significant relationships between the development of the information
infrastructure and the practices and processes of innovation. Historically, economists
examining innovation have focused on the question of whether innovation occurred in a
systematic effort at factor replacement or was simply the random result of genius. More
recently, economists have fretted about the structural encouragement of innovation and
experiments with organizational form. While all of these forces remain, the logics of
induced innovation and inspiration still apply, and structural and organizational
tinkering can indeed make innovation processes more successful, or cheaper, or faster.
None of them, alone, has proven adequate to explain innovation in ways sufficient for
current decision-making needs. This suggests the need for a multi-causal perspective,
the mining of additional logics, and consideration of ways in which historically
important forces may be operating in different ways in today's environment.
In moving towards a multi-causal perspective, those studying innovation join others
in the social sciences coming to acknowledge that any single phenomenon or process
occurs as the result of interactions among a variety of forces, an approach known as
theoretical pluralism. The particular way in which those forces come together is always
unique to the time and place, the specific historical conjuncture. Among newly
significant forces in today's environment are avoidance, reduction, or transfer of risk;
manipulation of transparency; and the generation of new resources through attention to
those made available in the increasingly important domain of what Scazzieri (1993) has
termed the virtual, meaning those materials and processes of which we can conceive but
which do not yet exist, though they become available for use through human effort in
programming and other forms of invention. Capital, the factors of production, and
transactions function differently from how they have been understood to have
functioned historically.
14
The information infrastructure (today, the global telecommunications network) has
played and plays a significant role in stimulating and supporting innovation processes,
though its contributions have not yet been fully appreciated nor deeply explored. This
chapter examines the range of ways in which innovation processes are understood
economically through the lens of the specific roles played by the information infrastructure, with the goal of providing a picture that may be useful to decision-makers in
the public or private sectors seeking to generate environments conducive to innovation.
The discussion distinguishes between the contributions of telecommunications to
innovation processes at three stages: invention (the creative processes of invention
itself), innovation (the bringing of an invention to practical and affordable production),
and diffusion (the distribution of an innovation to a population, and the use by that
population of that innovation). It also uses as a basic assumption the concept of the
filiere electronique, the notion introduced in the mid-1980s in Europe that analysis of
the information infrastructure must include examination of the activities of those
organizations that exist in and through the net as well as the telecommunications lines
themselves. This is a focus on what Petrella (1989) would call the technological matrix
rather than individual technologies. While the relationships between the development of
innovations in the information infrastructure and other types of innovation processes
interact, the former are more widely discussed; thus the emphasis here is on the latter.
Invention
Today's information infrastructure facilitates invention both through its effects on
interpersonal and group relations (stimulation through interdisciplinary contact and
expansion of the range of motivations for innovation) and through the new types of
materials and processes it makes available (through use of generic technologies and
virtual materials and processes). The emergence of the theories and concepts of network
economics to cope with the new ways in which the economy is functioning as a
consequence of the use of new information technologies brings the social and
technological influences on innovation together in new arguments for the value of
sharing intellectual property rights.
Stimulation through interdisciplinary contact
Among the reasons the printing press served as a stimulus to the enormous growth in
knowledge of the last few hundred years was the fact that its development and use
brought together types of actors and, therefore, of knowledge previously isolated from
each other. This encouraged and enabled the cross-fertilization of ideas, perspectives,
and needs that play such an important role in innovation processes (Eisenstein, 1979).
Development of the telecommunications infrastructure has played a similar role,
especially in the 1990s but with notable examples decades earlier. The result has been
stimulation of innovation both in areas dealing with information creation, processing,
15
distribution, and use, and in other areas as well. One example of the corporate
recognition of the value of such cross-disciplinary activity is the practice of leading
research and development organization Xerox Pare, which links up artists with
engineers to work together over years solving problems presented by artists seeking to
realize things they have imagined. Upon completion, artists keep the works of art
produced, and Xerox Pare keeps the intellectual property rights to any materials or
processes invented.
This interdisciplinarity is a characteristic of the infrastructure itself. Since the
appearance and widespread diffusion of e-mail and then the web, today's information
infrastructure also stimulates interdisciplinarity and the invention that may follow
through its provision of cyberspace as a place in which people of different backgrounds,
training, ways of thinking, and physical locations can meet to discussed shared matters
of interest. Thus, today's information infrastructure shares with print the bringing
together of different types of knowledge in its very creation, but differs in the degree to
which its use is social rather than individual.
Expansion of range of motivations for invention
A number of motivations for invention and innovation processes have been identified.
Mokyr (1990) neatly synthesizes and clearly presents the most influential schools of
thought. Some innovations are driven by sheer aesthetic concerns, the desire to discover
elegant solutions to problems. Often invention derives from the need to solve a technical
problem. Much has been made of the role of the military in providing the impetus to
certain kinds of innovations. The argument that innovations develop as part of the effort
to replace expensive factors of production with less expensive alternatives is known as
the Habakkuk thesis. McLuhan (1964) claimed that technological innovation is always
biologically defensive, as the central nervous system responds to changes in stimuli
offered by the external environment. Sheer play, the ludic motive, drives some inventors
(Stone, 1995).
Path dependency in innovation occurs both when one development enables another,
and when one development requires others in order for a larger system to function (King
and Anderson, 1995). Brousseau and Rallet in Chapter 15 identify three ways in which
the use of a new technology generates additional innovation: the implementation process
itself generates new technologies as bottlenecks are identified; the use of technologies
helps identify coordination failures by putting additional stress on a system; and there is
classical learning by using. Today, two additional motives for invention and innovation
have been identified: risk avoidance and responses to transparency.
Risk
Risk arose as an economic problem in the 1920s when Frank Knight claimed that true
profit comes from uncertainty (Babe, 1995), arguably launching the beginning of the
subfield of the economics of information. By the 1960s, Machlup found risk so
important that it comprised three of his original 17 categories of a taxonomy of the
16
economics of information and knowledge; for Machlup risk played a role in individual
choice, institutional activity, and specific phenomena; in the functioning of markets;
and, in the form of risk aversion, as a factor in entrepreneurship and profit. In some
areas, such as finance, risk avoidance is key to the innovations of the 1990s. Innovations
in organizational form, notably the growth in the formation of alliances, are efforts to
reduce risk that rely heavily upon the t~lecommunications infrastructure in order to
operate.
Transparency
The goal of transparency, which had moved to the center of the agenda in a variety of
policy issues areas by the mid-1980s from trade to defense, provides a stimulus to
innovation that is both positive and negative. The concept is applied in telecommunications in a number of ways. It is used to refer to the provision of the same types and
quality of services to all customers and types of customers. The term appears elsewhere
in regulatory language referring to the sharing of information about formal and informal
rules regarding a service, from general legal principles to specific protocols. There is the
transparency demanded as an exercise of power using the increased ability to surveil.
Transparency has become a goal in the crafting of content that will successfully deliver a
desired message though, as Baudrillard (1993) notes, transparency in content brings it
closer to insignificance. Transparency is discussed by artists and cultural critics
participating in creative activities made possible by the web, in this case referring both
to the transparency of the medium itself, which permits expert users to focus on content
alone, and to the ability of software to make it possible to move from place to place in
cyberspace so effortlessly and seamlessly. Luhmann (1990) argues that self-transparency
of a system becomes ever-more difficult or 'distant' with increasing differentiation.
While transparency is rife, its meaning differs. Notably, for example, while the
reality of transparency in practice in international trade means extension of the use of
single accounting and other systems globally, so that the movement from physical place
to place means no change in information sought and received, artists and cultural critics
emphasize the ability of the global telecommunications network to offer qualitatively
different informational experience from place to place within cyberspace. Experientially, the latter interpretation differs radically from the former, though both are
discussing transparency as experienced via the same network. The divergence of
experience is one example of the general principle that contradictory effects of the use of
a new information technology may be experienced simultaneously.
Transparency can also stimulate innovation in a negative way. In an area like
telecommunications, where the boundaries of the domain in which it is recognized that
transparency is important in order to serve the mandate of interconnection are constantly
expanding, for example, innovation can provide a means of evasion. The length of time
it takes for an evasion of the mandate for transparency to be experienced, recognized,
challenged, and explored through legal routes is a long enough temporary monopoly to
make it worthwhile to innovate, despite the relative ephemerality of the lead. More
production can also be negatively stimulated through desire to evade surveillance
17
directly and permanently through development of technologies not perceivable through
existing surveillance mechanisms in the military (Braman, 1991). Transparency and
risk interact because, as Goldfinger ( 1995) pointed out in a discussion of the global
financial market, an increase in transparency may at the same time increase risks. Thus,
in the military, in commercial law, and in private life, zones and periods of opacity are
developing.
Sharing of intellectual property rights
The need to share intellectual property rights in order to develop new information
technologies has plagued an economic and regulatory system devoted to keeping
corporations and organizations isolated from each other since the late 19th century.
Thus the history of the repeated use of antitrust law against corporations in the
communications industry. From this perspective, it is a relief that network economics
presents the argument that it is often more valuable to networked firms to share
intellectual property rights than to hold them tightly to the chest.
Emergence of generic technologies
The invention process itself has been affected by the emergence of genenc, or
meta-technologies, characterized by:
their role in enabling other technologies and processes (generic technologies bring
virtual materials and processes into being);
a focus on information (thus new information technologies and biotechnology are
considered generic technologies);
self-reflexivity or the use of a generic technology not only participates in a particular
production chain, but also contributes to the overall reconceptualization of production processes and relationships; and
the way in which they break down the historical linkage between specific inputs and
particular outputs of processes. As digital information technologies permit fungible
use of previously distinct communications media, for example, and biotechnology
completely changes the structure of agricultural inputs and outputs.
Emergence of awareness of generic technologies and their multiplication does intensify
battles over intellectual property rights because there is more to protect (higher
investments are required in R&D). there are more actors against whom there is a need to
protect, and the collaborative nature of much R&D on generic technologies requires
more clearly specified intellectual property rights rules.
Availability of virtual materials and processes
New information technologies, as mentioned above, affect invention processes by
making materials and processes that were virtual in the sense of being imaginable but
not actual or accessible. This sense of the virtual is based on use of the concept by
18
economist Scazzieri (1993). Often, virtual materials and processes are created through
computer programming, or through manipulation of materials at the genetic, or
molecular, level.
Changes in the inventor and invention processes
Telecommunications infrastructure has also contributed to changes in the nature of the
most economically important innovators and in the nature of the processes most widely
used by those who successfully and repeatedly innovate. While historically the
innovator was an individual working alone, today most technological innovation is
carried out by large teams working with an institutional context, cooperative work
enabled by telecommunications. And while historically invention processes were likely
to be widely disparate and idiosyncratic to purticular individuals, today they have
become systematized just like other industrial activities.
Innovation
It was recognized fairly early that infrastructural concerns were central for those
interested in innovation. The telegraph, telephone, and steam locomotive critically
stimulated innovation by opening markets and offering access to the resources needed to
finance R&D and move inventions into the mass production phases of innovation.
Along with investment in new types of production and distribution facilities came new
organizational forms that also facilitated the ability of firms to capture large shares of
national markets and to transform the high fixed costs of an innovative strategy into low
unit costs (Lazonick, 1991). In addition, the telecommunications infrastructure has
participated in and contributed to many of the ways in which innovation processes today
tend to differ from those historically experienced, such as the merging of technical and
narrative issues.
Expansion of markets and provision of capital
The relationship between innovation and expansion of markets and capital is entirely
two-way. On the one hand, innovations in transportation and communications infra-
structure so expanded markets for existing products that investment in such innovations
was justified. In turn, it has long been understood that development or introduction of
new products also expands the market and can lead to expansion of capital.
Appreciation of this aspect of the role of the information infrastructure vis a vis
innovation was in place by the middle of the 19th century as governmental entities from
the municipal through the national gave sanction to the formation of the corporate form
in exchange for commitruents from those organizations to build infrastructure. Governments were interested for a variety of reasons. Often corporations had the resources to
build infrastructure when governments did not (Wittrock and Wagner, 1988). Corporate
involvement in building of infrastructure and innovation processes served to disperse
19
risk (Gerlach, 1992). And development of the infrastructure served innovations in the
structure and processes of government that accompanied ideological innovations of the
period (Smith, 1991).
Already by the late 19th century innovation was seen as a critical element of
comparative advantage in the international environment. A statistical approach developed by a Swiss naturalist to determine the relative 'scientific value' of different nations
was used in the 1870s to identify the sociocultural factors believed to affect the
development of new knowledge and its incorporation into useful innovations, including
a nation's religion, class structure, language, type of government, library and other
knowledge institutions (Crawford, 1992).
Today, both of the old arguments for an interest in innovation hold true. It still plays a
role in the expansion of markets and capital. Certainly in the area of information and
communication technologies, international competition for control over informational
resources and the value added by the processing of those resources is keen. Innovation is
also still seen as a way of building or sustaining a market domestically by multiplying
the range of products to be consumed.
The loci of comparative advantage today, however, appear to have shifted. It was
precisely in studies sponsored by the European Commission into the effects of the use of
new information technologies, among others, that inequities remain at the regional and
municipal level. Cities, rather than nation-states, are today the real loci of innovation
processes and it is among cities more than nation-states that true issues of comparative
advantage arise (Petrella, 1989; Dutton and Guthrie, 1991; Sassen, 1991 ), though
improvement of the telecommunications infrastructure in one region can have a positive
impact on another region.
The stuff of competition over comparative advantage issues has also changed. In
addition to competing at the level of innovations themselves, there is competition over
conceptualizing frameworks through which innovations and the intellectual property
rights that pertain to them should be perceived as well as frameworks for the crafting of
policy to guide the development of innovations and their uses (see Bruce et al., 1986).
Evolution of organizational form
Changes in organizational form made possible by the use of new information technologies over the past 150 years have served the purposes of innovation. The very
possibility of forming large organizations that could serve national markets, made
possible by the telegraph and telephone, helped provide the capital and justification for
innovation. By the late 19th century there was experimentation for the explicit purpose
of supporting innovation. In Japan this meant the appearance offinancing techniques for
innovative offspring of large families of enterprises (Gerlach, 1992). In the West this
meant the first industrial research laboratories (Bowker, 1994), as well as experimentation with financing techniques as increasing numbers of organizations went
public and reacted to antitrust law. The career managers who took over from entrepreneurial owners of corporations had the kind of organization-specific knowledge that
20
made them ideally suited to planning long-term investment strategies such as those
required by R&D programs (Lazonick, 1991). Innovation processes received a further
boost in the 1920s as methodological and organizational developments combined in the
first use of massive and systematic testing programs (Bowker, 1994). Coase's seminal
work in the 1930s on the role of information flows in the firm turned the attention of
both economists and managers to the specific value of innovations in information technologies. The impact of innovations on organizational form is generally felt first at, to
use military terms, the level of logistics (how to make things happen concretely), then of
tactics (short-term planning in service of long-term goals), then of strategy (long-term
goals), and only belatedly at the level of doctrine (general principles guiding the setting
of long-term goals). Preiss!, in Chapter 13, provides a useful categorization and
thorough listing of the variety of ways in which information technologies are used by
organizations and have an impact on organizational form, while Newstead argues in
Chapter 16 that in the 1990s very few managers are using new information technologies
for strategic purposes. Madden and Savage in Chapter 4 note that calculations of the
economic impact of telecommunications must include both carrier and content- their
analysis of international trade in telecommunications in the Asia-Pacific region
combines both exports in equipment and international telephony- despite the fact that
neoclassical economic analytical approaches would not relate the two.
Today, interactions between innovation and the telecommunications infrastructure
go two ways: the development of the net continues to facilitate the emergence of new
types of organizational form while in turn those industries that are most focused on
innovation- information technologies and biotechnology- are the most adventurous
both in shaping organizational form and in developing new types of financial instruments to finance their activities.
Focusing on the other direction of causality, Brousseau and Rallett in Chapter IS
argue that organizational determinism is as important as technological determinism in
shaping the outcomes of interactions between information technologies and organizations. Their point is further emphasized by the distinction between isolated systems,
systems linked through the general telecommunications network, and systems linked
more synergistically and embodying coordination processes.
The merging of technical and narrative issues
The impact of the use of the net on narrative form has been well remarked, notably by
Bolter (1990) and Joyce (1995). Another way in which the nature of innovation today
has changed is in the merging of technical and narrative issues. Intellectual property
rights depend upon the ability to describe; thus developments in intellectual property
rights for biotechnology and new information technologies, including software, can be
understood from the perspective of achieving ever-higher degrees of articulation of
description via narrative, a matter of the evolution of narrative form.
A second narrative issue that arises when dealing with innovation is the problem of
facticity. Claiming property rights in an innovation requires the fixing of that innovation
21
in describable form. Sometimes, however, it is impossible to achieve because of the
nature of the entity being described. Thus a barrier to development of intellectual
property rights for biotechnology for a long time was the natural falsification of seeds
(such as empty seed husks, which confound counting processes), falsification by
mimicry across species, change that results to the phenotype from environmental
impact, and genetic drift.
Changes in the state and state policy
The modern nation-state has been involved in stimulating, supporting, and shaping
innovation processes since its emergence in the 15th century, when the new European
states of the period appreciated what was to them the innovation of gunpowder and
began to introduce the patent system as a means of protecting property rights in such
innovations. This property rights system in turn became entrenched with the development of the mass production techniques used first for the purpose of manufacturing
weapons for the state. Industrialization, in turn, triggered the building of the R&D
system needed to guide the creation of military technology from the middle of the 19th
century (De Landa, 1991; Mokyr, 1990). As innovation came increasingly to be used by
the state to its own ends, legal protection was heightened and economic incentives
strengthened. By the 1920s, national differences in intellectual property rights law were
already significant to industrialists who often chose the locations for their firms based
on identifying the nation with the patent law most favourable to their own endeavours
(Bowker, 1994).
Innovations in the nature of the nation-state also interacted with the development of
information and communication technologies. The move to greater and more sophisticated use of statistics from 1850 meant that the state had an interest in the development
of information processing technologies. The blossoming of the welfare state in the
1930s invited states to set up special agencies to pursue innovation, as they did under the
stimulus of war during the 1940s. In the US this meant establishment of an Office of
Scientific Research and Development, followed after World War II by the National
Science Foundation and think tanks such as Rand (De Landa, 1991). By the close of
World War II, the scale and complexity of what was required to support the military
were so great that governments became committed to big science, forming what
Eisenhower called the military-industrial complex. During this period the military itself
became an entrepreneur in the area of innovation, financing research, supervising
production methods, and aiding in dissemination of technology. Following the war,
these approaches were institutionalized for peacetime use. Procurement by the government rather than direct involvement in R&D, however, became the dominant mode of
stimulation of the emerging high-technology industries during the 1950s and 1960s
(Branscomb, 1993).
Throughout the 20th century those involved in building, maintaining, rnnning, and
regulating the telecommunications infrastructure were deeply involved in these interactions between the nation-state and innovation practices, whether in the private or
22
public sector. In the US, AT&T for most of the century managed the leading laboratory
for R&D in telecommunications (Bell Labs), provided infrastructure to specifications
provided by the military, organized research labs dedicated to other types of questions
(such as Livermore, a laboratory for R&D in nuclear physics), and served as a diffusion
instrument for management techniques.
Increase in the proportion of radical innovations
In the perspective on innovation drawn by Nguyen and Phan in Chapter 17, a radical
innovation is one the use of which ultimately leads to the fundamental transformation of
what had been the dominant design. From this perspective, it can be argued that radical
innovations are appearing more frequently today as a consequence of the constantly
increasing speed of the innovation cycle and because of the extremity of the types of
innovations made possible through the use of generic technologies such as those in
telecommunications.
Diffusion
The role of the telecommunications infrastructure in the diffusion of innovations may
seem the most obvious and is probably the most discussed. As Preiss! notes in Chapter
13, however, there is still insufficient data about information technology diffusion,
implementation, and impacts at the company and industry levels, and, as Bowles aud
Maddock observe in Chapter 2, almost no information on the structural side. Relatively
little attention has been paid to the role that the use of the telecommunications
infrastructure has played in making consumers and users of innovations more active
participants in innovation processes, or to the importance of attending to the diffusion of
ideas as well as of things.
The role of the consumer
The consumer is becoming more important in diffusion processes in several different
ways. In a formal and explicit way, consumers are being brought into conversation very
early in and throughout R&D processes, providing specifications, identifying constraints, and offering ideals of what they would like. What had in the past been described
as 'adaptations' of innovations by users during the diffusion process has now come to be
recognized as continued innovation. In a related vein, what had in the past been
understood as one-time innovation processes are now understood to be continuous.
Understanding innovation as continued and continuous gives a much larger role to
users throughout and it is here that the telecommunications infrastructure has been so
important, for entirely new forms of collaboration, known as computer-supported
cooperative work, have become one of the fastest growing and most exciting uses of the
Internet. In Chapter 14, Isckia discusses the importance of the trend of such uses of
'groupware', arguing that this use of the new information technologies outweighs in
importance the use of those technologies for simple information transmission.
23
Diffusion of content as well as carrier
Analysis of diffusion of new information technologies and the content they carry has
affected diffusion theory and practice by drawing attention to the fact that almost all
diffusion research focused on innovations that were objects, not on those that were
ideas. Thorough analysis of the diffusion of telecommunications innovations will
include study of the diffusion of the ideas that infrastructure carries. Indeed, separating
the diffusion of ideas from the diffusion of things makes it clear that some adaptation or
reinvention that takes place during the diffusion process comes from gaps between the
arrival of objects and ideas about those objects in a particular society.
Conclusions
Most work on the economic effects of telecommunications has focused simply on
whether or not there is growth in economic activity following improvement of an
infrastructure. A review of its roles in stimulating and enabling innovation, however,
shows that this is a significant, albeit more indirect, way in which telecommunications
has a significant influence on the economic activity. There are two types of these
indirect influences. Matters such as facilitating cooperative invention processes require
lengthening the time line and increasing the number of steps through which the
relationship between telecommunications and economic activity should be understood.
Factors such as the merging of narrative and technical issues concern more subtle facets
of the relationships between the practices of invention and innovation and other social
forces in the environment.
Hopefully this introduction to the wide range of ways in which telecommunications
stimulates or enables innovation will also contribute to the development of multi-causal
explanations for understanding innovation processes. For the policy-maker or organizational decision-maker, it may help identify blockages where possibilities opened up
by the use of telecommunications in one area are restricted by a failure to take advantage
of what telecommunications offers to innovation practices and processes in others.
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