Information Systems Frontiers 1:3, 317±320 (1999)# 2000 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.

Advancing the Digital Economy into the 21st Century1

Neal LaneAssistant to the U.S. President for Science and Technology

Abstract. This article focuses on ways in which the Federalgovernment is addressing long-range implications of the digitaleconomy. First, it attempts to set some context and then brie¯ydescribes the Clinton-Gore Administration's InformationTechnology for the 21st Century Initiative �IT2�, which includesresearch on the social and economic implications of informationtechnology. Finally, it identi®es some of the key areas ofresearch within the scope of that initiative.

Key Words. digital economy

Introduction

The term ``digital economy'' refers to the conver-

gence of computing and communications

technologies in the Internet and the resulting ¯ow of

information and technology that is stimulating all of

electronic commerce and vast organizational change.

No current public policy issue is more timely or has

the potential to affect more people.

The Internet, the World Wide Web, e-commerceÐ

these are still very new phenomena in our lives, and

they are affecting our lives in ways that we are

perhaps not suf®ciently prepared for. It is imperative

that we begin now to systematically analyze the ways

these phenomena have changedÐand will continue to

changeÐour world.

Twenty-two years ago, when the Commerce

Department published its study ``The Information

Economy,'' digital information was found principally

in the back of®ces of large companiesÐin payroll

records, typing pools, mailing databases, and the like.

Today, it is everywhere, in everyday content and

communications, and as the logical infrastructure that

drives the digital economy. Not everyone agrees on

just how large a role the digital economy plays within

the economy as a whole, but it is clearly a prominent

driver of economic and social change at presentÐ

attracting investment, reducing in¯ation, and

increasing productivity. Twenty years ago, the typical

job was that of an assembly-line worker. Today, it is in

an of®ce with a computer.

But how different is the digital economy, really?

What should we expect of it? We do not want the

transformations underway in technology and the

marketplace to outpace our ability to make sense of

them. That is why we are trying to engage some very

intelligent and knowledgeable people from academia

and industry to help us understand these phenomena.

Modeling the Digital Economy

The digital economy is driven by a convergence of

information, computing, and communications, which

we have come to call the Internet. This convergence is

responsible for the widespread growth of electronic

commerce, new competitive strategies, and changes in

business processes and organizational structure. It is

enabling new networked forms of activity that are

neither markets nor hierarchies but are based on

relationships. See Fig. 1.

The three-way convergence depicted here is

signi®cantly different from earlier models of con-

vergence, such as the computer-communications

convergence that confronted the FCC in the late

1970s and early 1980s, in that it derives from the

widespread digitization of information brought on by

the personal computer. Building on the ubiquity of

personal computers, the Internet has combined

general-purpose communications (e-mail) and infor-

mation publishing (the Web) on a single service

platform.

Internet technology is a direct driver of changes in

commerce and in ®rm structure and operations (as in

317

intranets). These changes are already well docu-

mented in case studies, but there is little solid data,

even though estimates of the growth of electronic

commerce are widely cited. There are also case

studies suggesting that the Internet enables new

network-based forms of activity that either span

organizational boundaries (as in extranets) or repre-

sent new, more open forms of organization

(sometimes described as ``communities''). This is

depicted in Fig. 2, below.

The outer circle in the diagram represents the

broader social and economic implications. This is not

a linear progression. The concrete changes underway

in commerce and organizations will play a major role

in shaping the long-term social effects, but the

underlying phenomena of technological and market

convergence in the Internet will continue to play out

in ways that are dif®cult to anticipate.

We see examples all around us of how this new

technology is used in scienti®c research, health care,

education, and government. We hear daily about ways

in which the technology is challenging traditional

laws, policies, and institutions. But what we do not

have yet is a clear sense of the long-term social and

economic implicationsÐthe broad outer circle in the

diagram.

Central Goals for Investigation

Although we know that this technology is bringing

signi®cant economic, legal, social, ethical, political,

and cultural changes along with it, the Federal

government has sponsored little social science

research in this area. The National Institutes of

Health has its ELSI (Ethical, Legal, and Social

Implications) Research Program, but there is no

comparable effort in the information technology ®eld.

The Administration's new initiative, Information

Technology for the 21st Century, known as IT2, is

designed to help us perpetuate and understand the

Information Revolution. The initiative corresponds to

an increment of $366 million, a 28% increase in

overall spending on IT research, bringing the total to

about $1.8 billion in FY 2000. The IT2 initiative is a

team effort involving the White House and several

Federal agencies. It is a high priority with the

President and the Vice President.

The initiative has three central goals: (1) to carry

out basic research to advance IT, (2) to use the most

advanced information technologyÐfor example,

computer simulationÐto enhance research across all

areas of science and engineering and hasten the pace

Fig. 1. Convergance of computing, communications and digital information centered in the Internet.

Fig. 2. The digital economy.

318 Lane

of discovery, and (3) to investigate the social and

economic implications of the Information Revolution.

Let us examine the third element of this initiative.

We have proposed $15 million for the coming ®scal

year for research on the social and economic

implications of IT that would be administered within

existing agency programs on top of existing funding.

There are several research topics that might be

addressed as this new initiative is launched. These

are offered purely as areas for further investigation,

not as areas in which we already have all the answers,

or even all the questions.

One question is privacy. Using the Internet,

businesses have discovered an improved ability to

target advertising to individual consumers, making it

more cost-effective. This ability has also created an

unprecedented market for personal information as an

adjunct to e-commerce transactions, raising new

concerns about privacyÐa potential obstacle to

wide acceptance of electronic commerce. We need

research to tell us how consumers may feel about

technology-enabled options for specifying and enfor-

cing their own privacy preferences or requirements,

including selling access to it on their own terms.

Another question to explore is innovation and its

role in the digital economy. Extraordinarily rapid

technological and market innovation distinguishes the

digital economy from other parts of the information

economyÐas well as from other ®elds of technology.

We still know little about how innovative processes at

the heart of the digital economy may differ from

innovation in physical products and processes. In

some sectors of the digital economy innovation may

be closer to the processes of scienti®c research than to

the incremental development of new manufactured

products. Or it may be so unique as to demand

understanding on its own terms. If this is true, how

would it affect policies and laws on competition, such

as intellectual property protection? How does one

measure productivity in this environment? We need to

know more here also.

Yet another question is standards. Most observers

agree that openness is an underlying technical and

philosophical tenet of the expansion of electronic

commerce. The widespread adoption of the Internet as

a platform for business is due to its non-proprietary

standards and open nature, as well as the huge

industry that has evolved to support it. Experience to

date shows us that open standards do not have to be

engineered by international committees over many

years, but can evolve within a large, digitally

connected professional community in parallel with

rapid development and roll-out of technology by

competing companies. Are critical open standards

processes still strong and healthy? What are the

tradeoffs between openness and exclusivity as drivers

of investment? Obviously, network effects have a

strong in¯uence on business strategy, but do they

suggest a different balancing of interests in policies,

laws, and their administration?

Finally, we need to explore the question of the

Digital Divide. We know that the functionality of

information technology and Internet services has the

potential to segregate non-users from users. It can

leave non-users out of important markets and virtual

communities within the digital economy. Such

segregation not only diminishes the potential of

those markets and communities, but also raises the

specter of a class of outsiders who face isolation at

many levels and in a growing number of contexts.

Ultimately, these outsiders may face increasing costs

as services and sales performed outside the digital

economy lose scale and become comparatively

expensive to provide.

Conclusion

The President's Information Technology Advisory

Committee (PITAC) helped the Administration focus

much-needed attention on this area. And PITAC

concluded that we need more data and a deeper

understanding of social, economic, and policy issues.

The PITAC report stated: ``The research that is

required to develop this knowledge should be broad-

based, long-term, and large-scale, in its scope and in

its promise for continuing the bene®cial transforma-

tion of our society and economy.''

In particular, we need well-designed empirical

research that lays a foundation for others to test and

build on, whatever their business interests or political

persuasion. Otherwise, decisions will be based on

guesswork, rhetoric, and politics as usual. The loudest

voices may be raised by those who feel most

threatened by the currents of the digital economy.

Those most focused on creating new value may be

least able to take time out for advocacy or litigation.

Laws, once made, are dif®cult to undo. It would be

nice to get the law right in the ®rst place, but that may

Advancing the Digital Economy into the 21st Century 319

be asking too much, given how little we know yet

about the future digital economy. Last year's Digital

Millennium Copyright Act mandates follow-up

studies that may tell us how well the law is working,

and we have proposed a similar follow-up study for

the database protection legislation currently before

Congress. At the same time, new laws are benchmarks

that offer opportunities to achieve a deeper under-

standing of how the digital economy works.

Since the goal is to understand implications, the

disciplines cannot work in isolation. (Indeed, the

disciplinary boundaries between the technical, eco-

nomic, business, and legal aspects of the digital

economy are as blurred and porous as other

boundaries in cyberspace.) We need research that

draws on and integrates the language, structures, and

insights of the different disciplines. We need research

that speaks in clear and simple EnglishÐthe common

currency of Washington, Wall Street, Silicon Valley,

Main Street, and the Net.

The digital economy is a moving target. But it is

also the major economic and social development of

our time, so our stake in making sense of it is high

indeed. We need to know how it is or isn't different.

We need to know how to pursue privacy, innovation,

and other goals in its unfamiliar light. We need to

ensure that our exploration of digital technology and

applications is undertaken cognizant of the social and

economic implicationsÐand vice versa. And we need

to make sure that new knowledge and understanding

of the digital economy spreads throughout our society

as quickly and widely as the Internet has.

Notes

1. This article is adapted from the keynote address of Dr. Lane at

the Digital Economy Conference, Washington, D.C., June, 1999.

Neal F. Lane, Assistant to the U.S. President for

Science and Technology, was sworn in as Director of

the White House Of®ce of Science and Technology

Policy in August 1998. Prior to moving to the

Executive Of®ce of the President, he was Director

of the National Science Foundation (NSF) from

October 1993 and served on the National Science

Board. Before becoming NSF Director, he was

Provost and Professor of Physics at Rice University

in Houston, Texas, a position he held since 1986. His

tenure at Rice began in 1966, when he joined the

Department of Physics as an assistant professor. In

1972, he became Professor of Physics and Space

Physics and Astronomy. He left Rice from mid-1984

to 1986 to serve as Chancellor of the University of

Colorado at Colorado Springs. In addition, while on

leave from Rice from 1979 to 1980, he worked for the

National Science Foundation as the Director of the

Division of Physics. Widely regarded as a distin-

guished scientist and educator, Dr. Lane has published

numerous papers on atomic and molecular physics,

and has delivered many lectures on science and

public policy. Early in his career, he received

an NSF Post-doctoral Fellowship and an Alfred

P. Sloan Foundation Fellowship. He earned Phi Beta

Kappa honors in 1960 and was inducted into Sigma

Xi National Research Society in 1964, serving

as its president in 1993. While a Professor at

Rice, he was a two-time recipient of the

University's George R. Brown Prize for Superior

Teaching. Dr. Lane has also received honorary

degrees from several institutions of higher education.

He is a fellow of the American Physical Society, the

American Academy of Arts and Sciences, the

American Association for Advancement of Science,

and a member of the American Association of Physics

Teachers.

320 Lane