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Social and Economic Limits of the Current Economic Paradigm

Changing roles of government, citizens, private sector in the new networked economy

Issue Identification. 

A fundamental economic and social transformation is happening all over the world. Social and technological forces—referred to in a shorthand way as globalization and networked societies are at the core of change.

Some of the trends that challenge our understanding of the economy are:

  • Rapidly advancing technology
  • Declining levels of trust in many parts of society and economy
  • Deregulation leading to competition to in what were once sheltered areas
  • Falling trade barriers as a result of globalization.
  • Restructuring of national, continental and global industry
  • Growing concern about future scarcities in resources and energy
  • Increasing growth and increasing reliance on the Internet by all parts of society
  • Blurring boundaries between public and private; erosion of long-standing borders between nations; new partnerships regulated and unregulated sectors
  • The changing nature of scarcity in an information economy: Commodities can be shared and consumed by many at the same time. The nature of consumption and use has changed.
  • Growth of networked economy and networked society, where anybody can interact with anyone at anytime; where location is a URL or e-mail address and is thus geographically insensitive. The strong implication that follows is that jurisdiction may no longer be an important factor.

Is There a Problem/Issue with Governance? 

We are moving from an economy of tangibles to an economy of intangibles. We are moving from a local economy to a global economy. We are moving from a time of closely held information to a networked society where information is broadly held and shared in near real time. Responsibilities become more difficult to define as jurisdictional boundaries become blurred; as production and consumption move from within one country to anywhere in the world; as networks lead to more and more shared information; as multiple actors participate in everyday events.

Governance can be defined as ‘whose hands are on the helm and how did they get there?’ We used to know whose hands were on the helm and we knew the process of how they got there. To continue with the metaphor, we also had a pretty good idea of where the corporate and national ship of state was heading and which maps were being used. Today there are multiple hands on the helm, we are often bewildered as to how they got there and as to the maps, route and direction of travel there is concern and bewilderment by citizens, elected officials and public and private bureaucrats alike.

Broadly speaking our bewilderment is a result of the rapid move from an industrial to an information-based economy. The maps and ways of behaving in an industrial, largely nation-based economy no longer serve us well in a networked, largely global economy. Public and private governance structures from an era of smokestacks and railways must be modified in the new era of electronics and digital networks. We need new mental maps and shared understandings of where we are. Only then can we evolve a system of governance that will allow us to optimize the outcomes for all citizens in the new networked economy.

Because networks are global, complex and pervasive, governance will have to be similarly complex and similarly global and pervasive. The governance process itself will have to be modified since control can only be had when collaboration between governments and private actors is put in place Governance is more and more going to be a collaborative exercise. So it is not useful to list who is responsible for what, where and when. There will be, more and more, a seamless web of responsibilities from governments to private sector to voluntary sector to NGO to citizen. Governance of the networked economy will become a shared responsibility. It will be more complex and rules need to be invented/developed and “ironed out” but with multiple actors, locally and globally, shared governance seems to be central to the new networked economy.


Information and communication technologies are transformative. They change the way in which we see the world. They create new situations that are unfamiliar. The ways in which information moves at the speed of light, the number of people who have access, the ways in which value is added and so on, all mean that the ways in which we have seen the world are more and more becoming out of date. The mental maps used to determine ‘the ways things are’ are, to an increasing degree, not in accord with the way things really are. Decisions made on the basis of the old mental maps can lead to inappropriate, dangerous or disastrous outcomes. We are in the process of inventing new mental maps so that as a society we are better able to deal with and benefit from a networked economy and society. This means a strong and comprehensive understanding that society is going through a major transition and that new governance mechanisms, at all levels, are necessary if we are to successfully manage the transition to the new networked economy.

Whose hands are on the helm and how did they get there. Where and how is governance taking place? Currently there are a host of hands on the helm, public and private. They got there because they were there at the outset, they have the power of the state behind them, they have the power of major banks or charge cards behind them and, of course, there are a host other actors who are filling a niche here and there. What is needed is some way of normalizing and making legitimate and predictable those whose hands are on the helm and putting in place accepted ways of succession to the helm. It goes without saying that the networked economy’s version of maps; routes and charts are all necessary.

The networked economy is ‘for real’ and in time a variety of governance mechanisms will all come to pass and be put in place in much the same way as other major technological transformations were accommodated into the working of society. It will happen by some mix of public and private actors working together in the spirit of ‘enlightened self interest.’ A practical and pragmatic approach, one that must have characterized the era which led to regularizing international postal routes, international air travel, international telecommunications, banking, the railroads and, of course the automobile.

Sustainable development is a national and international goal. Information and communications technologies are energy saving, capital saving and labor saving. It is these three factors are at the heart of and help to make the networked economy so valuable and productive This proposal acknowledges the importance of sustainable development and will continually seek to demonstrate ways in which is can easily be one of the outcomes of the networked economy.

Ideally new ways of governing will be developed in a thoughtful and deliberative way, with the intent to maximize benefits for all. Or new structures and ways of behaving can happen after some crisis has taken place, forcing officials to move quickly (viz., an earthquake leads to a tightening of building standards). Good governance anticipates a range of possible developments and puts in place ways of behaving before a crisis takes place. Here public policy is aimed at anticipating some of the possible, probable as well as some of the unintended consequences of governance challenges related to the new networked economy.

The networked economy is a shorthand expression, a way of describing an amalgam of new technologies and new ways of doing business. Much is in place. Much more needs to be done. It is, say, 1914 and the automobile is ‘for real.’ Waiting to be developed and waiting too for ways in which development could take place was the following: car insurance, traffic police, fuel distribution systems and service stations, standardized ways of licensing drivers and automobiles, driver education, highway design and development, national road systems, the notion of access to individual dwellings (driveways and curb cuts).

Waiting to be developed in the networked economy are ways of identifying those who are active on the information highway. Do we need a licensing or identification system to better govern the traffic flows and provide sanctions for those who commit crimes, of whatever sort. Will yesterday’s laws apply/be enforceable tomorrow?

What about intellectual property and the downloading of software in whatever form: music, graphics or video. Or is the notion of intellectual property ‘yesterday’s story’ in the networked economy? Intellectual property law, which includes patents and copyrights, is the fastest growing segment among American Bar Association members. Last year, it grew 9 percent to occupy 19,000 lawyers. Is this a ‘good thing or a bad thing?’ Will the technology make information so easy to download and share that new pricing and compensation mechanisms will be needed if we are to compensate those who create such software.

Economics can be defined as the allocation of scarce resources among competing uses. Scarcity is key. In the hardware economy, if person A has a ton of steel, then person B can’t have access at the same time. The same holds true for a bushel of wheat or copper, or rail cars, etc. In the software economy person A can have a piece of software (program, music, movie, video game, etc) AND person B can also have the very same product. Both can use and enjoy the product. Hence the term, ‘information wants to be shared.’ What happens to scarcity in the new paradigm? Scarcity has to be enforced. It is not inherent in the non-sharability which is a function of an economy based on tangibles. The ability to copy and reproduce the very same product and the existence of global networks where information moves in an instant fundamentally changes the world of economics.

The development of increasingly sophisticated networks has made it far easier for criminals to operate anywhere in the world. The growth of complex transactions via the Net provide more and more opportunities for international cyber crime which seems to be on an ever-increasing growth trajectory. Interpol has a long and distinguished reputation. In 1998 it celebrated 75 years of international police cooperation. Can it meet the challenges of the networked economy or need there be created a specific global police instrument to challenge crime and criminal activities in the networked economy

Cyber-traffic enforcement and catching criminals in cyberspace will become increasingly important. Some of the numbers associated with network-related fraud indicate that we had better be fully prepared for a fully networked economy. To take one example, Canada last year saw $4 billion in telemarketing fraud; more than $3 billion from stock market fraud; $650 million from cellular phone fraud; $127 million from credit card fraud. The old days of a culture of trust based on seeing colleagues on a day-to-day basis is no more; with global networks the tendency to take at the expense of others is heightened since the crime is often seen as ‘victimless.’

But to what extent does enforcement abridge privacy? Consider the recent controversy over the US FBI’s system of Internet ‘wire-tap’ code-named Carnivore. It is a personal computer designed to act as a ‘wire-tap’ by sifting through all messages going through a particular ISP. Although used in less than 100 cases, the broadness of the search and the fact that is resides on the location of the ISP (with an FBI agent changing the hard disk daily) raises questions of whether this particular form of wire tap is too broad, sort of a ‘fishing expedition.’ Answers the FBI, not at all. There is nothing malicious or mysterious about the new device. ‘This is an effort on the FBI’s part to keep pace with changes in technology—to maintain our ability’ to lawfully intercept everything as long as there is court authorization.

The list of topics where governance is at issue might broadly include: network privacy, security, public space on networks, impact of networks on community, taxation of e-commerce (locally and globally), crime, pornography, network integrity, enhancing the infrastructure, domain names, accountability and enforcement of commercial transactions, authentication, etc. Because the networked economy is integrative and comprehensive, the list of areas where governance faces new challenge can be very long, as we can see below

Managing the transition. Questions and concerns surrounding governance in the new networked economy

In the transition to the new networked economy, where and how does governance take place in the following areas:

Personal and commercial security

  • Junk e-mail and information overload
  • Hackers
  • Cookies and privacy
  • Authentication of digital signatures: Where does it take place and who does it?
  • Stock fraud on the Internet
  • Cyber crime including vandalism and viruses
  • Enforcing e-commerce security
  • Determining the limits to data mining and sale of information to third parties
  • Ensuring that all users have trust in the system


  • Increasing and enhancing Internet infrastructure to meet increased demand
  • Internet infrastructure security
  • Acknowledge the value of redundancy
  • Ensuring the global stability and robustness of the Internet infrastructure (top level routers, addressing schemes, interconnection arrangements)
  • Ensuring an orderly implementation of Internet-based telephony
  • Ensuring that society’s digitized archival material does not deteriorate, is maintained and remains accessible
  • Constant obsolescence (of computers, operating systems, applications, media, etc.) means that most data created a decade ago can no longer be accessed. (Who is responsible for a future that is structurally capable of keeping connected with the past?)
  • Deregulation of the North American power grid and ensuring adequate future electrical energy to power the new networked economy.
  • The extent to which there should be professional certification for programmers. It is said that licensed professional engineers build our bridges, yet unlicensed programmers are building our most important networks and databases.
  • Ensuring an adequate supply of technically trained workers

Social and Legal

  • Resolving the ‘digital divide’
  • Internet lotteries and gambling-especially those located off-shore
  • Defining the limits to intellectual property
  • Respect creativity
  • Ways of adjudicating disputes in web-based e-commerce
  • Assessing location for purposes of jurisdiction in net-based legal cases
  • Ensuring that telemedicine is implemented in such a way that the benefits are maximized and widely realized
  • Are there limits to personal authentication?
  • As a society do we move to a DNA based model of proving who we are?
  • Is privacy a malleable concept, one that is culturally and temporally defined? Maintaining competition in a ‘winner take all’ environment
  • Health (Electro-magnetic radiation) implications of a growing number wireless devices Extent to which employee e-mail and web surfing can and should be monitored
  • Understanding and dealing with the implications flowing from new uses of the Internet such as Gnutella and Napster, non-ISP peer to peer net traffic

Economic Issues: Fiscal and Monetary

  • Regulation of global net-based banking-especially offshore banking.
  • Transparency and openness
  • The creation and circulation of net-based currency (viz., digi-cash, Mondex, and other forms of electronic money)
  • Taxation of local, national and global e-commerce
  • Understanding the how productivity is created in new networked economy so that we can put in place future national economic policies that benefit citizens over time Developing new measures of wealth and well-being that can be used to help to understand and guide activities at all levels
  • Respect for competition
  • Current compensation and pricing schemes may need to be augmented if we are ensure a continuing supply of digital material

Electronic Democracy: Citizens and the Net

  • Limits of free speech on the Internet: when is free speech a hate-crime?
  • Rights and responsibilities of citizens on the Internet: how are sanctions administered?
  • Electronic democracy (online voting, referenda, consultation and policy development)
  • Establishing rules regarding broad community Internet consultation vis-à-vis bodies such as the WTO, World Bank
  • Online education, new methods of academic accreditation, credentials, etc.
  • Ensuring high-speed ‘broad band’ access to all schools and universities; to all households-the latter to be available at ‘reasonable cost.’

Next Step: Research

Governance is an ongoing and iterative process conditioned by today’s events and tomorrow’s challenges and opportunities. There should be a greater awareness across society on how countries are managing the transition to the new networked economy; technological developments affecting the transition; other, including legal, developments that can enhance the governance process. Policy discussions in both public and private sectors are needed on the governance process.

There must be a broader realization that the transition to the new networked economy is not a simple menu of more this or more of that. It is, rather, a complex amalgam including new understandings, understandings that are dynamic and can be adjusted according the changing situation. The research and writing that will be done by Dr. Peat, et. al., in this proposal is intended to go a long away to providing needed new understandings.

The final product will provide new models or metaphors specially developed to demystify the nature and extent of change. Saying that we have no control and that globalization and more and faster technology is inevitable is to invite a technological backlash that would be unnecessary and unfortunate. We have choices and there are trade-offs all along the way.

We are moving from a top down control oriented industrial structure to a distributed networked structure. We need new ways to understand and govern such a system.

Arthur J. Cordell, Ph.D.

Author bio

Dr. Arthur J. Cordell received a BA from McGill University and a Ph.D. (economics) from Cornell University. He has worked for the US Government in Washington and as a business consultant in New York City. He was a Science Advisor with the Science Council of Canada. Recently, Arthur Cordell retired from his position as Special Advisor, Information Technology Policy, Industry Canada, Ottawa. He is currently an Adjunct Professor at Carleton University.