How Revolutionary Was the Digital Revolution?: National Responses, Market Transitions, and Global Technology 9781503625730

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How Revolutionary Was the Digital Revolution?

INNOVATION

and

TECHNOLOGY

in the

WORLD ECONOMY

Editors \L\.RTIN KF:\iNEY

{lniversity ofCalij(mzia, Davis/Rerkeley Roundtable on the International Economy BRlTCE KOl;UT

\VIwrton School, University of Pennsylvania

Other titles in the series The Triumph o{Ethemet: Technological Communities and the Battle for the LAN Standard URS VON llURG

Territories of Profit: Communications, Capitalist Development, and the Innovative Enterprises ofG F Swift and Dell Computer GARY FIELDS

Ivor;· Tower and Industrial Innrmtlion: University-Industry Technology Transfer Before and After the Baylz-Dole Act DAVID C. :\IOWERY, RICHARD R. :\'ELSON, BHAVEN N. SAMPAT, AND ARVIDS A. ZIEDON!S

I ,ocating Global Advantage: Industry Dynamics in the lntemational Economy MARTIN KENNEY AND RICHARD FLORIDA, EDS.

Global Broadband Battles: Why the US. and Europe Lag While Asia Leads MARTIN FRANSMAN, ED.

How Revolutionary Was the Digital Revolution?

National Responses, Market Transitions, and Global Technology

EDITED BY JOHN ZYSMAN

and

A BRIE /ETLA Project

Stanford Business Books

An Imprint o( Stan(ord University Press Stanford, Calif(m1ia 2006

ABRAHAM NEWMAN

Stanford University Press Stanford, California ©2006 by the Board ofTrustees of the Leland Stanford Junior University. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or in any information storage or retrieval system without the prior written permission of Stanford University Press.

Library of Congress Cataloging-in-Publication Data How revolutionary was the digital revolution?: national responses, market transitions, and global technology

f edited

by

John Zysman and Abraham Newman. p. cm.- (Innovation and technology in the world economy) Includes bibliographical references and index. ISBN o-8047-5334-2 (cloth : alk. paper) ISBN o-8047-5335-0 (pbk. : alk. paper) 1.

Information technology-Economic aspects.

ical innovations-Economic aspects. tries.

4· Globalization-Economic aspects.

11. Newman, Abraham, 1973-

2. Technolog-

3· High technology indusI. Zysman, John.

Ill. Series.

HC79.l55H686 2oo6 303-48'33-dc22 Original Printing 2006 Last figure below indicates year of this printing: 15

14

13

12

11

10

09

o8

07

o6

Typeset by G&S Typesetters, Inc. in 10j12.5 Electra Special discounts for bulk quantities of Stanford Business Books are available to corporations, professional associations, and other organizations. For details and discount information, contact the special sales department of Stanford University Press. Tel: (65o) 736-1783, Fax: (65o) 736-1784

CONTENTS

Figures and Tables Acknowledgments

XI

XIll

Abbreviations

XV

Contributors

XIX

INTRODUCTION 1

2

Frameworks for Understanding the Political Economy of the Digital Era Abraham Newman and John Zysman

3

Creating Value in a Digital Era: How Do Wealthy Nations Stay Wealthy? John Zysman

PART ONE.

NATIONAL STORIES AND GLOBAL MARKETS

IN THE DIGITAL ERA

The Finnish Story 3 Finland's Emergence as a Global Information and Communications Technology Player: Lessons from the Finnish Wireless Cluster Ari Hyytinen, Laura Paija, Petri Rouvinen, and Pekka Yla-Anttila 4 An Old Consensus in the "New" Economy? Institutional Adaptation, Technological Innovation, and Economic Restructuring in Finland Darius Ornston and Olli Rehn

55

Contents

The Japanese Story

VIII

5 Telecommunications Competition in World Markets: Understanding Japan's Decline Robert E. Cole

101

6 Japan's Telecommunications Regime Shift: Understanding Japan's Potential Resurgence

Kenji Kushida

What Next? 7 The Emerging Economies in the Digital Era: Marketplaces, Market Players, and Market Makers

Naazneen Barma PART Two.

THE EXPERIMENTS: VISION AND EXECUTION

Business Strategies 8 Missed Opportunity: Enron's Disastrous Refusal to Build a Collaborative Market

Andrew Schwartz

Reorganizing Work 9 The Relocation of Service Provision to Developing Nations: The Case of India

193

Rafiq Dossani and Martin Kenney w

From Linux to I ,ipitor: Pharma and the Coming Reconfiguration of Intellectual Property

Steven Weber 11

The Learning Organization: A Research Note on "Organisational Change in Europe: National Models or the Diffusion of a New 'One Best Way'?" by Edward Lorenz and Antoine Valeyre

Tobias Schulze-Cleven

Knowledge in an Information Society 12

Spoken-about Knowledge: Why It Takes Much More than Knowledge Management to Manage Knowledge

Niels Christian Nielsen and J\!Iai Cecilie Nielsen 13 Pooling Knowledge: Trends and Characteristics of R& D Alliances in the ICT Sector Christopher Palmberg and Olli Martikainen

217

Contents PART THREE.

ix

MARKET TRANSITIONS: REORGANIZING MARKETS,

GETTING FROM HERE TO THERE

14 The Peculiar Evolution of 3G Vv'ireless Networks: Institutional Logic, Politics, and Property Rights Peter F Cowhey, Jonathan D. Aronson, and John E. Richards

15 Factors for Success in Mobile Telephony: Why Diffusion in the United States and Europe Differs

Heli Koski 16 National Styles in the Setting of Global Standards: The Relationship between Firms' Standardization Strategies and National Origin Aija Leiponen PART FOUR.

SOCIAL TRANSFORMATIONS

17 Weaving the Authoritarian Web: The Control of Internet Use in Nondemocratic Regimes Taylor C. Boas

18 Copyright's Digit:1l Reformulation Brodi Kemp H)

379

Transforming Politics in the Digital Era

Abraham Newman and John Zysman Bibliography Index

449

FIGURES AND TABLES

FIGURES

3.1 Finnish manufacturing production volume by indmtry (€ billions in 2000 prices) 3.2 Ratio of gross domestic expenditure on R&D to GDP

59

3· 3 Postgraduate degrees in natural sciences and engineering in Finland

6o

3·4 Nokia's sales by industry 5.1 Japan's trade balance in telecommunications equipment

6s 102

5.2 Global and Japanese domestic cell phone markets, 2003 7.1 Global inforlllation and communications technology

users Iin millions) 8.1 Forecasted markets in bandwidth and energy, 2000 9.1 A typical claims-processing value chain 12.1 The system of knowledge and its forms 12.2 Forms of knowledge: The transformation matrix 13.1 Growth of R&D alliances in the ICT fields, 1976-2ooo 13.2 Organisation of R&D alliances in the ICT sector, 1976-2000 15.1 Analog mobile telephones per capita(%), 1983-2003 15.2 Digital mobile phone subscribers per capita, 1992-2003 15.3 Growth in mobile phone subscribers per capita, 1996-zoo3 15-4 Cumulative mobile infrastructure investments per capita 15.5 Total PTO imestments per capita

272

Figures and Tables xii

TABLES

3-l Market shares in NMT handsets in 1985 (total 83,525 units) 6.1 Regimes in Japan's telecommunications sector

63 130

7-1 Growth in information and communication technology use in select countries 7.2 R&D potential

153 161

7·3 Sector and source of R& D performance 7·4 U.S. patents granted to emerging economies

163

10.1 Essential features of open source

223

12.1 Tacit knowledge and explicit knowledge

256

13.1 Distribution of R&D alliances across ICT subfields, 1976-2000

274

13.2 Ranking of countries by number of R&D alliances in the ICT sector

275

13·3 Ranking of firms by number of R&D alliances in the field of microelectronics

276

13-4 Ranking of firms by number of R&D alliances in the field of software

278

13·5 Ranking of firms by number of R& D alliances in the field of telecommunications

279

13.6 Organisation of R&D alliances across ICT subfields (columns sum to wo% by subfield)

282

14.1 Revenue per employee of major wireline and wireless carriers, 2002

302

14.2 Worldwide mobile communications subscribers by technology (in millions) 14·3 Countries with CDMA operators, 2002 16.1 Forms of governance for coordinating technical standardization

165

3°7 310 344

16.2 Membership of 3GPP firms in a sample of other related SDOs and industry associations, 2003

348

16.3 Fifteen most central actors in 3GPP work item coalition networks, 2000-2003

349

16.4 Centrality of 3GPP member firms in private alliance networks, 1995-2001

35°

16.5 Descriptive statistics

353

16.6 Means of standardization strategies by region of origin

353

16.7 Summary of partial correlation analysis

354

Acknowledgments

This book grew out of a Finnish-American research dialogue intent on understanding the development of the global digital economy. 'I cams from the Research Institute of the Finnish Economy (ETLA), headed by Pekka YlaAnttila; the University of Helsinki Institute for European Studies, headed by Olli Rehn; and the Berkeley Roundtable on the International Economy (BRIE) headed by John Zysman engaged in an ongoing discussion over the implications of information technology for economic, political, and social change. The following pages demonstrate the results of this collaboration. This research effort would not have been possible without the support of a number of organizations and individuals that committed \minable resources to the project. On the European side, the Finnish team would like to thank Erkki Onnala and Ilkka Lakaniemi (Nokia Corporation), Otto T()ivanen (HECER~Helsinki Centre of Economic Research), Olli J\lartikaincn (University of Oulu), lobias Kretschmer (London School of Economics), Aija Lciponen (Cornell University), Jukka Jalava (Statistics Finland), Kercm Tomak (University of Texas at Austin), and Jari Ilyvarinen (Tekes ~National Technology Agency of Finland) for their comments and contributions to the project. The U.S. team has received invaluable assistance from a host of colleagues from the University of California, Berkclcy, as well as other universities and private sector institutiom. We would particularly like to thank l'ranr;;ois Bar (Universitv of Southern California), Stephen Cohcn (BRIE, Berkelcy), Peter Cowhcy (University of California, San Diego), Stuart Fcldman (IBM), Martin Kenney (Universitv of California, Davis), Jonah Levy (Berkelev), Howard Shelanski (Bcrkclcy), and Steven Vogel (Berkeley).

Acknowledgments

xiv

We want to make a special note of our personal and intellectual indebtedness to Andy Schwartz. Andy's insights contributed to the framing of the notion of transformations as difficult political transitions from one partial equilibrium to another. As important, his energy, insight, and fundamental decency influenced the entire texture ofBRIE during the years he spent with us. We miss him very much. Financial support from the Nokia Corporation is gratefully acknowledged. Tekes has supported ETLA's involvement in the effort. Aspects of the work clone for this project were supported by funds from the European Union Fifth Framework program. Additionally, the U.S. team would like to thank the NTT DoCoMo Mobile Society Research Institute for their valuable support of the research program. This cooperative effort would not have been possible without the team that guided its development and realization. The editors would like to thank Emilie Lasseron for her commitment to the early stages and for creating the outline of and materials for the original compilation that preceded this book. We would also like to thank the staff at BRIE for all their support. The editors are grateful to their partners at Stanford University Press, in particular the excellent work of Martha Cooley and Jarecl Smith.

Abbreviations

ADR

Alternative dispute resolution

AICPA

American Institute of Certified Public Accountants Advance Mobile Phone Service Association for Radio Industries and Business Advanced Research Projects Agency

AMPS ARIB ARE\ ASP AT'v1

BzB BPO BTO CAT! CDMA CEPT CERN CLEC CMF: CNPN CPE DMCA DOT Force DRUID DSL DSP EBS

Application service provider Asynchronous transfer lllode Business to business Business process outsourcing Bandwidth trading organization Cooperative agreements and teclmology indicators Code division multiple access European Conference of Posts and Telecommunications Center for Nuclear Research Competitive local exchange carriers Coordinated market economies Cross-national production networks Constrained partial equilibrium Digital Millennium Copyright Act Digital Opporlunit\ '!ask Force Danish Research lndmtry for Industrial Dynamics Digital subscriber line Digital signaling processors Enron Broadband Services

Abbreviations

xvi

I 3901115, 406; See also TRIPS agreement World Wide Web, 368; blocking access to the, 371; development of, 47, 398-399 WorlciCom, 113, 14, 176, 177, 190; bandwidth trading and, 182; UUNet, 175 WTO 'lelecom Agreement, 134 WTO-TRIPS: See TRIPS agreement Yahoo!, 137, 208, 218 Yahoo!BB, 115 Ye Xia, 124113 Yla-Anttila, Pekka, l), 52m3, ;8, 3:; Yrjo Jahnsson FoumL1tion, 7611 Zaurus, 223 Zittrain, Jonathan, 371, 372, 373 ZTE, 101 Zysman, John, 16, 143, 170116, 339, 392

475