Adapt and Adopt: Governments’ Role in Internet Policy

By David DeanTaantee KarmakarJames Purnell, and Paul Zwillenberg

Fifteen years ago, the Clinton Administration made a prediction that seemed radical at the time: “Over the next decade, advances on the GII [Global Information Infrastructure] will affect almost every aspect of daily life—education, health care, work, and leisure activities. Disparate populations, once separated by distance and time, will experience these changes as part of a global community.” 1 1 The White House, “ The Framework for Global Electronic Commerce. Notes: 1 The White House, “ The Framework for Global Electronic Commerce.

The GII acronym failed to catch on, but in most other respects, Bill Clinton and Al Gore got it right. Gore did not invent the Internet, but he did recognize the importance it would have. The Internet has become pervasive and its economic impact considerable. It will represent more than 5 percent of GDP in the G-20 nations by 2016, and in the most advanced countries, that figure will exceed 12 percent.

As The Boston Consulting Group’s latest update to the BCG e-Intensity Index indicates, the gap between the world’s Internet leaders and laggards is widening. Governments of countries that are at the top of the e-Intensity Index rankings—or are rapidly moving up—encourage Internet use among consumers, businesses, and within government itself, because they recognize that it can be a powerful edge in the competitive global economy. Countries further down the list in many cases have failed to implement effective policies that encourage widespread adoption and use. These countries risk falling further behind if they do not act.

Back in 1997, the White House also put forth five principles that described how governments should approach Internet policy. The first and most important was that “the private sector should lead.” This has been borne out by time. The Internet has enjoyed widespread adoption in countries with vibrant private sectors that allow the inventions of Apple, Google, Orkut, Rakuten, Spotify, and their kin to thrive.

But if we examine the e-Intensity Index leaders, a more complex—and interesting—story emerges. (See Exhibit 1.) Many of the most advanced digital economies—South Korea, Sweden, and Japan, for example, three of the top ten 2012 e-Intensity Index nations—have developed coherent, long-term strategies for going digital.

The private sector in those countries created the products, but their governments took leadership positions: they foresaw the importance of the Internet, they believed that they could encourage its evolution, and they developed policies to help their countries get more than their fair share of the growth and social benefits the Internet brings. Both the private and the public sector have led.

Today, with economies stagnating and countries looking for fresh growth engines, the economic potential of the Internet is particularly enticing. The Internet economy in the developed markets of the G-20 is forecast to grow at an annual rate of 8 percent over the next five years. In developing markets, annual growth is expected to be 18 percent. These rates far outpace just about every traditional economic sector.

Not only is this growth delivering new jobs across the employment spectrum—from app developers to smartphone manufacturers, from Internet marketers to so-called big-data analysts—but the jobs this growth creates are more valuable than others. Estimates show that in the U.S., the multiplier effect for high-tech positions is three times that for jobs in traditional manufacturing.

Our research into developed and developing markets worldwide shows that in the last three years, small and midsize companies that have embraced the Internet in their business operations grew by 10 percent annually, adding jobs as they did so. Companies that have not grew more slowly or shrank over the same period.

No wonder policymakers are intrigued. They are also unsure how to proceed. The Internet raises both hopes and fears in the minds of many politicians and senior civil servants: hopes, because the economic potential appears all but limitless; fears, because the challenges of getting policy right are big and complex, all the more so as governments must make long-term decisions while the technology evolves at a breakneck pace. Governments want to lead, but they worry about getting it wrong.

Would that government leaders could simply run a Web search for a “top ten” list of recommendations they should follow. Any such list, if it existed, would soon be out of date. For one thing, every country has its own attributes, from climate and culture to natural resources and economic strengths. For another, the Internet flattens out policy differences and telescopes catch-up times. Effective policy can give a government a lead, but such leads are temporary, and the country will soon find others nipping at its heels. Because the need to innovate is continuous, smart policy tries to aid and abet the private sector rather than supplant it.

The digital economy is often described as the “always on” or “real time” economy. The challenge for governments is to be always on too, in touch with the Internet’s impact on their economies and continually evaluating ways to promote its use—or to stay out of the way of what’s already working well. In this paper, we argue that, instead of focusing on specific policies, governments need to adopt a different style of policymaking, one based on experimentation and adaptation. By choosing the right approach—which should take into account national strengths and the current state of economic development—and organizing themselves accordingly, governments can make sure that they keep up with the best and move ahead by promoting their countries’ particular advantages.