Internet's future lies not with big business but with academe, Cornell economist asserts

An economist at Cornell's Johnson Graduate School of Management said the engine carrying the world into the information age could stall if the for-profit sector takes too tight control of the Internet. "If the for-profit sector takes tight control of the Internet, charging fees for every transmission and transaction, the Internet will not continue its impressive evolution and rapid growth," said Alan McAdams, associate professor of managerial economics and an expert on the national information superhighway. "It could well stumble and stall.

"Microsoft did not invent the Internet. Neither did anybody else in the for-profit sector," he said. "Nor could they have done so. I n fact, by their own admission, the industry powerhouses were blindsided by its development and growth. The Internet owes its birth to universities, that largely paid for it, and its success to the university's imperative to share knowledge freely under the 'publish or perish' incentive structure."

McAdams adds that media, telephone and cable companies also have had a go at constructing the information superhighway. But they failed miserably, in part because they did not understand the principles of pricing different types of goods. "They didn't recognize the power of information made freely available -- though they are beginning to catch on," McAdams said.

McAdams' comments come at a time when discussion about the future of the Internet is reaching a fevered pitch: access to the information superhighway recently surpassed 25 million people worldwide, with no slowdown in sight.

At the same time that industry leaders vie to harness the cyber-road and mold it in their own image, McAdams finds the most common alternative proposal -- government participation and subsidy as the road to realizing the Internet's full potential in the new information society -- to be "highly unlikely."

His scenario: "Formalize the not-for profit consortium of universities and other knowledge-creating institutions that currently 'run' the Internet, with the goals of continuing the explosive pace of innovation, keeping access costs low to the end users and open access for all service providers." Such a consortium of institutional users would support the Internet's core operations much as universities currently do -- by aggregating resources sufficient to permit new knowledge and innovation to be made freely available.

McAdams has no complaints with those who would make money through virtual stores or catalogs or by charging for special services; he simply believes that for the Internet's basic functions -- sharing information, facilitating fundamental governmental and social services, and supporting R&D -- that the service must be available at low or no direct cost to end users and that access be open to all service providers. "We need not turn over the core of the Internet to the private sector, so it can charge fees for every transmission and transaction," he said. "We should oppose schemes that charge users by the minute for all kinds of use." McAdams bases his arguments on economics of efficient pricing.

"The Internet fits the 'university model' for resource allocation," he said. "It costs much to create new knowledge, but once it is developed, it is then most efficiently made available for free -- because it costs society little or nothing for additional people to use it. This is what economists call a 'public good.' Once the goods are produced, one person's using them does not prevent another from doing so, nor does it reduce their value to others. In fact, often information becomes more valuable as more people have access to it.

"TV shows have the same economic characteristics," he continued. "And we see this same model is [properly] used: While producers must be paid enough to produce the show economically, efficient pricing and allocation for public goods implies that the show be given away -- and that's what happens when it's broadcast."

McAdams served as a senior staff economist with the President's Council of Economic Advisors and as chief economic consultant and expert witness for the government in United States vs. IBM. He is the principal author of a number of reports on the national information infrastructure for the Committee on Communications and Information Policy (Institute of Electrical and Electronics Engineers).

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