miércoles, 10 de diciembre de 2014

Learning from the Industrial Revolution: The balance between regulation and innovation

The Digital Revolution is often compared with the Industrial Revolution. This comparison reflects, among others, the hope that digitalisation will bring for the economy the same degree of growth as industrialisation brought. In order to make this promise a reality, we need to learn from history. So we need to understand how it was possible for some countries to reap the benefits from the Industrial Revolution in a quicker pace than others. 

There are thousand books about the Industrial Revolution which we can learn from. Nevertheless, one of the best comparative narratives has appeared in a book that it is not so old, "Why nations fail?". From its pages, we discover that the laggard nations  in the adoption of the Industrial Revolution was due to the fact that they regulated against innovation and creative destruction. At the same time, the early adopters usually introduced regulations to boost innovation and at the same time leveling the playing field between the economy players. One example of the former are the barriers for the spreading of the printing press in the Islamic countries. An example of the later are the patents regulation introduced in the United Kingdom while they also maintained a continuous fight against monopolies.

Similar dilemmas are faced by the regulators of the digital economy nowadays.

There is a demand to establish barriers to the digital disruptions in all the economic sectors when digitisation knocks the door. The intensive usage of ICT in an economy sector means (usually at the same time) a change in the business models and a revolution in its production chain. The avoidance of social unrest is a temptation to regulate against innovation in an economy sector instead of taking advantage of the opportunity to adopt new business models. What is happening now with the sharing economy is an example of what has been described above.

Net neutrality has been one of the cornerstones for innovation in the digital era. Without the worldwide enforcement of this principle, it would have been difficult for Google or Facebook to reach its current position on the digital market. However, their overwhelming position could endangered the full digital ecosystem. So now it would be wise to introduce some principle similar to Net Neutrality for Internet Value Added services to level the playing field with their present and future competitors. So establishing a new digital neutrality principle is critical for preserving innovation and limiting the power of the great network and service providers.

Innovation was at the heart of the countries that were the main winners of the Industrial Revolution, but regulation played also an critical role. The right balance between both elements is the unique guarantee for a sustained economic growth in an economic area in the forthcoming decades.

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