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Concluding Remarks Dale W. Jorgenson Harvard University Dr. Jorgenson said that while he did not wish to minimize the many interest- ing disagreements that had marked the day's proceedings, he felt justified in con- cluding that, in the course of them, lessons learned from previous symposia in the STEP Board's series on the New Economy had been corroborated. The series, he recalled, had started with semiconductors and gone through computing and software before arriving at telecommunications. What is different about the last, as those attending had heard over and over again, is legacy. This legacy easily goes back to Alexander Graham Bell although, for economic histo- rians like Dr. Jorgenson's neighbor, Al Chandler, the person most important to the industry's origin was Benjamin Franklin. Why Franklin? He was the first postmaster of the United States. But if communications is an industry with a huge legacy, it has certain features that are very similar to those of other industries that the conference series had examined, something Dr. Jorgenson would talk about in these closing remarks. The first issue he would consider was economic impact. The telecommunica- tions industry accounts, by various measures, for about 1 percent of the economy. But, Dr. Jorgenson cautioned, "'1 percent of the economy'" is the way industries are characterized not by economists but by the business press--so that, in The Wall Street Journal, an industry is accorded importance depending on its percent- age of GDP in dollars. Economists, in contrast, look at an industry in terms of its 157

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158 THE TELECOMMUNICATIONS CHALLENGE impact on economic growth. And if the telecommunications industry were appraised from the latter point of view, he said, a rough estimate would be that this 1 percent of the GDP was responsible for about 10 percent of economic growth. Ten was a common multiplier; the New Economy, while only about 3 per- cent of the overall economy, was responsible for about 30 percent of economic growth, and the figure was rising. The corresponding figures for other countries trailed those for the United States but were on basically the same track. The economist's contribution was to get that multiplier of 10 front and center. "I realize we didn't totally succeed," he admitted, "but we tried." The second issue concerned a standard industry model that emerges in the New Economy, a subject treated by Andy Grove in Only the Paranoid Survive. This "beautiful" book, which Grove wrote when he was not only CEO of Intel but a part-time business school professor as well, described a huge shift from a vertical model to a horizontal model in both the computer and semiconductor industries. In the vertical model--incarnated by IBM, which for a long time was the com- puter industry--there was a huge laboratory that created large portions of the intellectual property involved in the development of computing technology. But while such labs might still exist, the model itself was "history," as Grove's book had pointed out more than a decade before. What the day's discussion had taught, Dr. Jorgenson said, was that the identical shift had taken place in the communica- tions industry. AT&T had been the IBM of that model, and R&D under it had been conducted at Bell Labs. In the new model, which had yet to be precisely defined, most of the interesting innovations were disruptive: Vonage was an example of a disruptive innovator, as was Skype, through which a mere eight programmers were disrupting the entire communications industry. With the third issue, the business model, the most important question to be asked about any New Economy venture came to the fore: "How in heaven can we ever make any money out of this?" Agreeing with Dr. Raduchel that the way to make money is to figure out what the consumer wants and withhold it, Dr. Jorgenson commended the former's analysis of the cheeseburger-drink-French fries bundle's cost structure as an explication of the business model. Pointing to the existence of many books on the subject, of which his own favorite was Varian & Shapiro, he said the matter was very well understood and it applied, to a greater or lesser degree, to all of the businesses carrying the New Economy designation. Despite the business model's familiarity, Dr. Jorgenson cautioned, it is hard to make money operating under it because consumers are both clever and unpredictable. It was "too bad," he said, that the consumer ends up carrying away most of the welfare, which then cannot be delivered to shareholders. But in another respect the fact that "consumers emerge over and over again as the big winners, even when confronted by tremendous intellectual talent, [was] the great thing about the New Economy." This brought Dr. Jorgenson to the policy issues, which he qualified as extremely difficult. He characterized the economist's typical stance as: "'Private

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CONCLUDING REMARKS 159 property has to be the answer, so we just create property rights and then leave the scene and let them fight it out.'" But in the telecommunications sector things are not quite that simple, because of the presence of other, related issues--common property rights, for example, or infrastructure that has to be maintained and compensated. So, while "it's not just a case of private property rules the world," a way had to be found of maintaining common facilities within a market-based approach. In addition, there were more subtle property issues: How do you protect property? How do you keep it from being stolen? It was difficult to prevent con- sumers' not merely benefiting, but benefiting illegally and carrying off other people's property, which was obviously undesirable. At the same time, it was important to provide privacy in a convincing way, one that "assures people that they are in fact going to be able to enjoy their property in private if that's their wish." Property-rights questions spill over into other areas as well: hardware, infrastructure, software, and content as opposed to software. One very important area was the right to the R&D product, "the intellectual property that is created by people who are trying to create this new future that we've heard about here." Dr. Jorgenson called the day's proceedings "a total success for the New Economy model" and credited the collective efforts of the presenters, panelists, organizers, and members of the audience who had participated in the discussions. He thanked all for attending and said he hoped they would be able to follow these issues as they unfolded. In closing this meeting and the series on the New Economy, Dr. Jorgenson offered special thanks to Dr. Wessner, Dr. Shivakumar, Mr. Clabaugh, and Mr. Dierksheide of the STEP Board staff, and above all to Dr. Raduchel, whom he called the intellectual leader of the STEP Board's venture into the New Economy.

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