Why It All Matters Emergence Economics, Adaptive Policymaking, and the Virtues of Tinkering Without Tampering Richard S. Whitt Google Inc. CITI, Columbia University New Economics: Implications of Post-Neoclassical Economics For the ICT Sector March 20, 2009 Overview I. Emergence Economics II. Adaptive Policymaking III. Evolving Communications Policy 2 1
Emergence Economics 3 Our Many-Sided Markets Emergence Economics helps us understand often-overlooked aspects of how markets really work. Emergent Economy Human Economy Networked Economy Evolving Economy Growth Economy Political Economy Adam Smith Friedrich Hayek Vint Cerf Joseph Schumpeter Paul Romer James Madison Invisible Hand Constrained Planners Innovation Without Permission Creative Destruction Innovation Agenda Coevolving Markets and Government 4 2
Agents + Networks + Evolution = Emergence 5 Agents Compete in Dynamic Markets Economic agents traverse various fitness landscapes, adapting to the peaks and valleys of competitive challenges. 6 3
Employing Tools and Technologies Differentiation, Selection, and Amplification Physical Technologies (PTs) + Social Technologies (STs) = Business Plans (BPs) 7 Convergence of Networks Leveraging the virtuous hourglass. The Net s architectural norms. The Net as a complex adaptive system. The Net as a platform for innovation and growth. Virtuous feedback loops. Services become applications. The core moves to the edges. 8 4
Emergence of the Net CAIDA Internet graph 2005 Clusterball Wikipedia visualzation by Chris Harrison 9 Growth Technological change lies at the heart of economic growth. - Paul Romer 10 5
Spillovers spillovers 11 Adaptive Policymaking 12 6
Interacting with the Fitness Landscape Tools Tinkering tools Enabling vs. dictating exploring a fitness framework for policy makers Transition slide Pg 63: adaptive policy making paper Mountain with binoculars looking out at landscape So how should the adaptive policymaker perceive his or her role vis-à-vis the market? 13 Adaptive Toolkit Policymakers should assemble various conceptual tools to help better understand and, if necessary, act upon the fitness landscape. In particular, algorithms and environments, processes and platforms, make it easier to conceptualize what is actually taking place when the micro-level activity of human beings emerges into the macro-level activity of the market. 14 7
Nine Principles of an Adaptive Stance Cautious Humility is essential. Macroscopic The big picture. Policymakers should confront those powerful influences that favor the status quo over change and progress. Incremental Experimental Contextual Flexible Provisional Evolutionary, not revolutionary. Necessity for experimentation. Well-grounded and context-dependent. The need for flexibility. Favor reversibility. Accountable Own the decision. Sustainable Politically adoptable and achievable. 15 Institutions: The Rules of the Game Degree of formality, coercion, accountability, and enforceability. Norms Standards Codes of Conduct Self-Regulation Bully Pulpit Co-Regulation Policies Regulations Laws Constitutions 16 8
Organizations are the players of the game. Organizations: players of the game. Bunch of people playing poker Each player in an entity (corp, policymaker) It is the interaction between institutions and organizations that shapes market change. 17 Conceptual Metaphors in the Toolkit The Fitness Landscape Human beings cannot help thinking metaphorically. We should use this fact to construct conceptual metaphors in the service of public policymaking. The market is a landscape featuring peaks and valleys of productivity; it is possible to arrive at the peaks via different fitness functions. The Modular Approach Network-based infrastructure like the Internet is composed of certain modular components (layers); our public policy should adapt itself to this functional reality. The Imagined Horizon While prognostication is fraught with peril, those making public policy must do what they can to peer into the fog and discern patterns that can help shape analysis. 18 9
Avoid Dictating or Tampering Policymakers should seek to foster the market s processes, rather than interfere with or attempt to replace them. DON T Differentiate. Policymakers should not be in the habit of creating, proposing, or emphasizing market alternatives. Select. Policymakers should not have any direct role in business plan selection. Amplify. Policymakers should not amplify the most fit business plans. 19... But Enable or Tinker Where Useful. The government s proper role is to generate conditions where growth can occur. encourage connectivity landscape the environment seed inputs create feedback functions 20 10
Policy vs. Markets The dichotomy between appropriate tinkering and unacceptable tampering. 21 Evolving Communications Policy 22 11
Challenges for Policymakers Outdated concepts Outmoded tools Urges to tamper Old issue, new guise: The role of network infrastructure 23 Choosing Policy Goals & Objectives One Policy Goal more good ideas One Policy Objective broadband as optimal internet platform 24 12
A Modular Framework One overarching conceptual tool for policymakers is the layered approach to communications policy. Content/Interactivity Layer Applications Layer End User(s) Logical Layer Physical Layer Service Provider(s) 25 Two Stances: Prescriptive & Adaptive The end goal is the same disciplining the market behavior of certain agents but the means are markedly different. The Prescriptive Stance uses direct government intervention in the market, premised on a certain theory of market failure, and a certain faith in government s effectiveness. The Adaptive Stance seeks instead to explore a range of policy options, including indirect economic incentives, which fall short of direct regulation of an entity s market behavior. 26 13
The Concept of Institutional Overlays Inputs Tinkering Tools Connectivity Incentives Feedback Laws Rules Principles Norms Institutional Overlays 27 Thank You! Rick Whitt Whitt@google.com 28 14