Information Society and Trade and Industry Policy

Anders Henten & Knud Erik Skouby. Handbook of New Media: Social Shaping and Consequences of ICTs. Editor: Leah A Lievrouw & Sonia Livingstone. Sage Publications. 2002.

This chapter is concerned with trade and industry policy aspects of information society concepts and policies. Two sets of concepts are thus the focus of attention, ‘information society’ and ‘trade and industry policy’. Whereas information society questions are widely discussed in this Handbook and will not be subject to any extensive deliberation here, it should be noted that the information society concepts are seldom defined or explicitly discussed, and that this applies not only to information society visions of governments, companies, etc., but also to more academic expositions. Although this is regrettable, we will not here venture into a definition exercise regarding the information society concept but use the term in the same manner as it is mostly used, as a framework or template for discussions regarding the changes in society that are related to the increasing production and usage of information and communication technologies and services.

With respect to the other concept, ‘trade and industry policy’, the delimitation of the area corresponds to what, for instance, the Department of Trade and Industry in the UK and the Department of Commerce in the US deals with, namely the establishment and development of favourable framework conditions for business development in both the production and distribution fields. Trade does not necessarily denote international relations. However, in our exposé, we pay special attention to the international aspects of trade and industry policy developments as the internationalization (or globalization) of the economy increasingly is related to the opportunities offered by information and communication technologies.

Elsewhere in the Handbook, other aspects of information society developments are dealt with, including implications for the development of democratic procedures, access to information, etc. Some of these subjects are more or less related to the issue of trade and industry policy. They have a bearing on trade and industry developments, and trade and industry policy cannot be isolated from other policy areas. This is often reflected in information society visions of governments where trade and industry policy initiatives are seen as part of a more encompassing strategy comprising both ‘harder’ matters concerning economic development and ‘softer’ issues regarding democracy, education, universal access, etc. In this chapter, however, we seek to concentrate on matters that are at the core of trade and industry policy questions, and other matters will only be dealt with if closely related to this subject.

The chapter first discusses more thoroughly the subject matter of the trade and industry policy aspects of information society concepts and policies. After that, the academic origins of the debates on information society developments are briefly traced. This is followed by a review of trends in economics and other social science research that have keenly affected information society discussions in the political establishment. We then concentrate on the information and communication equipment and service producing sectors themselves, and deal with internationalization aspects. A presentation is given of the main trends in the information society visions and plans that have cropped up since the beginning of the 1990s, and is followed by the summary and conclusion.

The idea and aim of the chapter are thus to review important academic trends and sources in the area of trade and industry policy aspects of information society discussions, and to relate these to the host of information society visions and policy declarations that have been issued by governments and other public authorities since the beginning of the 1990s.

A somewhat reassuring conclusion for the world of academia is that academic analyses seem to have had a visible impact on discussions among political decision-makers in this area. There is not a large gulf between academic analyses and the discussions taking place on the political scene. However, this may be an expression of a lack of sophistication on the part of the academic analyses of the societal changes related to the developments that have been dubbed ‘information society’, ‘knowledge society’ and ‘network society’.

The main issue of the chapter is to examine the continued need for and existence of national trade and industry policies in the present information society settings characterized by fast technological developments in the information and communication technology fields, internationalization of the economy and a prominent position for liberal policies and ideology.

In trade and industry policies these developments have resulted in a turn away from direct forms of state interventionism towards more indirect forms of framework regulation. But they have not resulted in abolition of the need for or existence of national trade and industry policies as such. Where formerly trade and industry policies were concentrated on regulating more closed national markets, the policies of today focus on situating the national economies as advantageously as possible in the international economy.

This development is reflected in the great number of information society visions and plans that public authorities all over the world have been issuing during the past decade. Although it would seem to be a paradox that a liberalization of the national economies is followed by so much state planning, the reason is exactly the increasing internationalization of the economy that sets the need for new national trade and industry policies. However, these trade and industry policies are often not very specific but consist of broader vision statements, a fundamental belief that market forces will ultimately realize the visions, and an external framework regulation of the markets.

Trade and industry policies all over the world have much that is similar, but there are, of course, also many differences: policies in Europe, for instance, to a greater extent than US policies, are stretched between wealth and welfare policies. In spite of such differences, the chapter mainly deals with policy developments in Europe as these clearly illustrate the general trend from state interventionism to external regulation.

Subject Matter

In general terms, at present, the two most important areas of interest in the discussions of information societies are information and communication technologies and services, and internationalization—according not only to the information society visions and plans of public authorities but also to more theoretical analyses. ICTs and internationalization are the recurrent themes in most discussions of the matter.

Internationalization is the subject of a separate section in this chapter, where different approaches to the analysis of the internationalization of the economy are put forward, as well as different attitudes to the desirability of this development. There are, however, analysts who claim that the importance ascribed to internationalization (or globalization) is exaggerated and not based on well-documented facts. This applies, for instance, to Paul Krugman (1997) who has argued sharply against tendencies to pay too much attention to the importance of internationalization for the US economy. It also applies, for example, to Paul Bairoch (1996) who has analysed indicators of the degree of internationalization over a long period stretching back to the late nineteenth century, and who shows that internationalization was as developed at the beginning of the twentieth century as it was at the beginning of the 1990s. It furthermore applies to Paul Hirst and Grahame Thompson in their book Globalization in Question (1996). But apart from such ‘dissenting’ views, there is an overwhelming focus on internationalization as an important trend in trade and industry developments today.

ICTs are, obviously, of central importance, and there are (at least) two sides to this importance. One side is related to the production of information and communication technologies and services. The other side has to do with the implications of the usage of these technologies and services in other societal connections—where the usage in other business areas is the other half of the issue in this chapter.

In a way, the focus of attention with respect to ICTs has changed, moving to and fro during the past 40 years or so. In the first period, in the 1960s and 1970s, there was a strong interest in the usage of information technologies for the purpose of automating industrial production. However, as we shall see in the following section on the origins of the discussions on information societies, there was, at the same time, an interest in information-processing occupations. In the following period, the focus of attention shifted more to the production of information and communication technologies and services. This was clearly the case in the European Community where big research programmes were launched, with first and foremost the Research in Advanced Communications in Europe (RACE) programme in the telecommunications field, demonstrating the interest in promoting the ICT sector in Europe by way of joint research initiatives.

Although this interest in promoting ICT production is still important, research interest gradually shifted back to the usage side during the 1990s. In the European Union, this shift is partly reflected in the changing focus of the telecommunications-oriented research programmes, from Advanced Communication Technologies and Services (ACTS) to Information Society Technologies (IST) today, where the title in itself illustrates both the central importance that the European Community attaches to information and communication technologies in the building of information societies, and the preferred framework and direction of information technology developments, namely their ability to support information society developments. But it is even more clearly reflected in the many information and network society vision statements by EU institutions or public authorities in individual member states.

However, lately one could claim that the centre of attention is returning to the production of information and communication products—however, this time with an emphasis on the production of services and content. There is a rising discussion concerning a new network economy or simply ‘the new economy’, which in some presentations of the theme also encompasses ‘old physical’ production areas if they adopt the new ways of trading and interacting electronically, but mostly deals with the production of information or knowledge content and goods and services that are related to networked technologies and services.

Of course, this kind of overall characterization of research and discussion themes risks suppressing other important development trends. All along there have been analyses and debates regarding both the development of information and communication technologies and services and their implications for other production fields. However, the shifts in focus between the production of ICTs and the usage of ICTs still illustrate important development trends in the discussions, especially with respect to the shift in emphasis from the production side in the 1980s towards the implication side in the 1990s. This is very clear, at present, as the implication side is very much where the discussion is today.

There are, however, two important themes to be added to the issues of internationalization and ICTs in the characterization of central questions concerning trade and industry policy aspects of information society developments. The first one is services and their increasingly dominant position in the economy. Services constitute around 60-70 per cent of national GDP and occupations in developed economies. In developing countries, the picture is more mixed. However, services in developing countries also constitute the largest share of registered production.

It is, however, far from all services that are of interest in relation to the information society theme. Most services are ‘old-fashioned’ person-to-person services or services dealing with physical goods as, for instance, many repair services. However, information- and knowledge-intensive services constitute a growing share of services in total, and these services can, to different degrees, be entered on electronic media and transported on communication networks. There is, therefore, a special synergy between ICTs and information-intensive services, and services do play a special role in the development of information societies. This should be and often is reflected in trade and industry policy developments.

The second theme is liberalization. Since the beginning of the 1980s, a wave of liberalization has dominated politics and ideology, not only in the US, Europe and Japan but in almost every region of the world. It has strongly affected the communication areas as the societal organization of both telecommunications and broadcasting has been changed considerably. But it has also more generally affected the whole manner in which trade and industry policies are conducted. Liberalization and its many consequences with respect to new regulatory provisions were during the 1990s an important part of information society programmes. Liberalization of telecommunications and broadcasting are perhaps the most important results of the whole surge towards ‘information societies’.


Although debates on information, knowledge or network societies are most often seen as something new, they actually go back almost 40 years and even further if, for instance, some of the discussions on the importance of knowledge and the growth of services are included. We will, however, confine ourselves to the contributions that are directly linked to the present understanding of information society developments with a bearing on trade and industry policy.

The ‘information society’ concept itself can be traced back to the first half of the 1960s. A group of researchers from Napier University in Scotland have done a thorough investigation in this field, discussing the different possible origins of the concept and concluding that ‘the lion’s share of the credit for inventing the “information society”’ must be assigned to the editorial staff of the Japanese journal Haso Asahi which ran a number of articles with titles including the words ‘information society’ from 1964 onwards (Duff et al., 1996: 119).

In the US, the term ‘information society’ was not used until 1970 where it first appeared in the discussions of the American Society for Information Science (1996: 118). However, the origins on the content side rather than the actual words are most often ascribed to the American economist Fritz Machlup, whose work The Production and Distribution of Knowledge in the United States was published in 1962. But as pointed out by Duff et al. (1996: 118), Machlup’s book is concerned with the ‘knowledge industry’, not with the ‘information society’.

Nevertheless, seen from our perspective in this chapter, Machlup’s book constitutes an important starting point for the development of the conception and understanding of the trade and industry implications of the development of knowledge/information societies. He developed a foundation for analyses of the ‘information economy’ and documented the importance of knowledge production and distribution in a society that, at that time, was conceived as an industrial society.

Later, when this development had moved much further, Machlup’s work was followed by a great many other ‘measurements’ of the information economy. The work led by Marc Uri Porat and resulting in the publication The Information Economy: Definition and Measurement (1977) was the most prominent example. While Machlup operated with a definition of knowledge production that centred on sectors producing what he saw as knowledge products, the team led by Porat included two information sectors, the primary and the secondary, where the primary sector comprises companies that produce information goods and services and the secondary includes all information services for internal use in public institutions and private companies. On this basis, it was concluded that, in 1967, 53 per cent of all labour income in the US could be ascribed to information work of different kinds (1977, vol. I: 8).

Another often-cited originator of information society analyses is Daniel Bell, who published The Coming of Post-Industrial Society in 1973. Although the term ‘post-industrial society’ cannot unequivocally be equated with the term ‘information society’, this book has since been seen as the foundation for subsequent theories concerning the information society concept—even though Bell was not too confident about the concept ‘information society’ himself (see, for instance, Duff, 1998). In his book, Bell analyses different aspects of what is now often summarized by the term ‘information society’: the composition of the workforce, the importance of information and knowledge in society, and the development of computer and communication technologies—all of which are issues that are still central to the discussions on information society developments.

The last origin to be dealt with here, even though many others might deserve mentioning, is the book by Peter Drucker, The Age of Discontinuity (1969). Even in 1969 Drucker was writing about the new ‘knowledge technologies’. He also analysed what he called the development ‘from international to world economy’ (Drucker, 1994: 77-168)—a theme that is today vital in many analyses of the changing world economic conditions under the headline of ‘globalization’. Last but not least, he stated that the economy could best be described as a ‘knowledge economy’, thus preceding the many subsequent claims for a knowledge economy by a couple of decades.

Theories of Industrial Change

This section reviews trends in the theories of industrial and economic change that clearly have affected thinking on trade and industry policy among political and administrative decision-makers. It is, of course, conceivable that more popular writings, as for instance the works of Alvin Toffler (1980), John Naisbitt (1982) or Nicholas Negroponte (1995), have had a greater and more direct impact on decision-makers. However, here we concentrate on the more academic contributions.

The theoretical contributions that we have chosen are the so-called regulation school, theories on flexible specialization, and theories on changes in the technoeconomic paradigms. There are many common threads in these theories. They all focus on industrial and economic change and they all have a kind of holistic approach to change, integrating different aspects of the societal complex—not just the economic aspect.

It could be argued, and with good reason, that by far the most influential trend in trade and industrial policy in the past 20 years has been liberalism and, with respect to economic theory, a return to neoclassical economics. This trend has had a strong impact both on theoretical thinking and on practical policies. However, we have in this section chosen to look at theories that take alternative approaches although they do not exclude the trend of liberalism (discussed later). Liberal thoughts can be incorporated and are often part of the theoretical complexes.

The regulation school clearly has—in its intention at any rate—a focus on the totality of societal formation. It is interested in the relationship between production, consumption and political intervention and it also examines the social struggles that lie behind the actual organization of the economy and the political sphere. The two most important concepts are ‘accumulation regime’ and ‘mode of regulation’—where the first denotes conditions in the production sphere with an emphasis on the relations between capital and labour and capital growth, and the second deals with political organization and intervention. The interesting thing is to study how these two spheres relate to one another.

The regulation school is often called the French school of regulation, as some of the more prominent proponents are French: Michel Aglietta (1979), Alain Lipietz (1987) and Robert Boyer (1990). The regulation school clearly had its roots in a Marxist discourse on production relations, but has contributed to a much broader trend trying to explain the reasons for the economic (and political) crisis that began in the 1970s and the subsequent changes in the economic and political system. The emphasis has been on explaining how the accumulation regime and the mode of regulation were constructed in the post-World War II period, why and how this system has been breaking down, and in what direction the economic and political system is developing today.

The period from the end of World War II to the beginning of the 1970s is seen as a relatively stable period with steady economic growth. The period is called the Fordist period, after Henry Ford as the paradigmatic representative of both mass production and relative welfare for workers. The Ford Corporation, when it really took off, paid higher wages to its employees than the average production site. This created a more stable labour force and also allowed for higher consumption by the employees. The paradigmatic system is thus based on a relationship and adaptation between mass production and mass consumption. The question is how such a system is created and what holds it together.

Part of the answer is that it is created in and by the social struggles between the classes and that it is held together, among other things, by the political governance of the state. There is a strong focus on the role of the state in the theories of the regulation school—which is obvious from its name. Markets are not seen as functioning independently of the political governance system. Markets are, to a large extent, politically constructed or, at least, held together by political regulation or intervention, and the founding economic theories of the Fordist period were much inspired by the writings of John Maynard Keynes who had, inter alia, emphasized the importance of stabilizing demand in order to avoid the worst fluctuations of the market.

However, this system gradually broke down during the 1970s and 1980s, triggered by the so-called oil crises of the 1970s. The period that followed was called the post-Fordist epoch by the regulation school, and the main questions being what caused this dissolution and what are the bases of a new period of economic growth.

The main reason for the dissolution of the Fordist period dealt with by the theories of post-Fordism is the increasing globalization of economic, political and ideological conditions. Another important reason is that there are limits to the positive relationship between production and consumption. Higher wages do facilitate more consumption and, therefore, increased production. But higher wages also cut down on the profits of investment, and consequently means were developed to undercut the strongholds of labour, comprising direct attacks on trade unions and changes in the organization of production.

Regarding globalization, the reason that these processes are so important to the regulation school is that production (and consumption) in the Fordist system, basically, is nationally oriented. With increasing globalization, national relations between production and consumption fall apart, there is increased international competition putting pressure on social contracts between capital and labour, and the role of the state is changed. This last point has, in the general debate, often been interpreted as a diminishing role for the state. However, proponents of the regulation school have been more inclined to see it as a new role for the nation-state. In the increasingly global marketplaces, nations tend to compete for production to be located in their country, competing on establishing the most favourable conditions for investment. But this does not necessarily mean bad conditions for employees and people in general. A new role for the nation-state is to develop conditions with highly qualified labour power, efficient infrastructures, etc. This line of thought has, for instance, been taken by Robert Boyer and Daniel Drache (1996).

But what is the relevance of all this to trade and industry policy in an information society context? There is not much emphasis on the role of information or of information and communication technologies in the regulation school. However, the reason that it is interesting is the description of the post-Fordist epoch with its new, more flexible production structures, its more global production structures, and its emphasis on new roles for the nation-state: all of these issues are central in today’s information society discussion.

The flexible specialization theory, which is the second theoretical trend to be presented here, can be interpreted as a variation of the theory of post-Fordism, which, as described, also underlines the importance of flexible work processes in the new era. However, the strength of the flexible specialization theoretical branch is that it sheds light and concentrates specifically on production structures, whereas the regulation school is more concerned with the relations between production and political regulation.

The primary proponents of the theory of flexible specialization are Michael Piore and Charles Sabel with their book The Second Industrial Divide (1984). But many others have followed, and there is a whole branch of analyses based on the concept of flexible specialization.

Piore and Sabel (1984) explicitly reject the explanation for the economic crises of the 1970s which proposes that state regulation limits the initiatives of entrepreneurs. They also reject the idea that the oil crises have any significant importance. None of these rejections, however, is directed against proponents of the school of regulation, as they do not see the oil crises as anything else than triggering events, and as they have focused not on the limitations that national states might have put on private initiative, but on the changing role that the national state has had to adopt in the face of globalization. However, these rejections show that Piore and Sabel’s theory of flexible specialization is focused on the inner working of production and that the reasons for the breakdown of the former system must be found in the structures of production themselves.

Piore and Sabel point at cycles of production where new uses of labour and machines are followed by periods of expansion, but which culminate in crises signalling the limits of these arrangements (1984: 4). According to the authors, there are two kinds of crises: one where the existing match between production and consumption falls apart, and the other where the type of technology chosen and the production structures around it reach their limits of expansion (1984: 4-5).

This second kind of crisis is the one that interests Piore and Sabel the most. They describe situations in which different technology paths are possible as ‘industrial divides’. The first great industrial divide took place at the beginning of the nineteenth century, when the dominant mode of production chosen was mass production instead of flexible craft production. Today, we face a second industrial divide, as the mass production system has entered crisis and it is once again possible to choose a new path where craft-based flexible production methods constitute a feasible possibility.

The words ‘choose/chosen’ are well considered by Piore and Sabel, as they believe that there is no one ‘natural’ path of production structures but that production structures are social constructs. The authors propose that a structure of flexible specialization is the best ‘choice’ in the present situation.

The relevance of this theory for our discussion of trade and industry policy with regard to information society developments is once again the emphasis on new production structures and the possibilities in these more flexible systems. One would think that ICTs would have a prominent place in such systems as they allow for a better coordination of, for instance, networks of companies. And computer technology is also dealt with in the book, representing new and more flexible work tools instead of special-purpose machines used in the production of standardized mass production items. However, ICT is seen not as the vital technology in the development of flexible production structures, but as one important element among others (1984: 262).

The third and last of the theories that will be presented in this section is the so-called theory of technoeconomic paradigms. The most outstanding representatives of this theoretical trend are Christopher Freeman and Luc Soete (1982) and Giovanni Dosi (1984). Many of the thoughts in this theoretical trend are similar to those presented in the paragraphs on the regulation school and on flexible specialization. However, the theory of techno-economic paradigms is characterized by a keener concentration on technology—especially technological innovation. It is, therefore, also often subsumed under the broader term ‘innovation economics’.

Technology has often not played any central role in economic theory, although there are some prominent exceptions: Adam Smith (partly), Karl Marx and Joseph Schumpeter. Mostly technology has been seen as an exogenous factor not to be dealt with more extensively. But in the theory of techno-economic paradigms, technology is assigned a central role and is made the object of thorough analysis.

Four different kinds of innovation are depicted: (1) incremental innovations, which are the day-to-day improvements in existing production and marketing activities; (2) radical innovations, which are the results of more committed research and development activities which may result in wholly new products, but normally are confined to individual production sectors; (3) innovations of technological systems that are more fundamental innovations affecting a number of sectors; (4) changes in the technoeconomic paradigm, which affect the whole production system and constitute the basis for new production paradigms.

The understanding of the term ‘paradigm’ is borrowed from the philosopher Thomas Kuhn, whose book The Structure of Scientific Revolutions (1962) analysed the developments in science as structured by paradigmatic ideas changing over time. In the theory of technoeconomic paradigms this understanding is transferred to the field of production where succeeding technoeconomic paradigms are seen as based on different technologies and associated organizations of production.

The first paradigm or wave in the industrial era from 1780 to 1840 was the time of the industrial revolution. The key products were textiles and the energy systems were based on waterpower. A second paradigm revolved around iron and coal production and energy systems built on steam power, etc. Since the late twentieth century, a new technoeconomic paradigm has been under way, based on microelectronics and computer networks. ICTs are thus the central technologies in this new wave, illustrated by the fact that ICTs are used in practically all production areas. ICTs are the pervasive and generic technologies of our time.

Such thoughts are not entirely new as they are based on the works of Joseph Schumpeter, especially his book Business Cycles (1939), and before him Kondratieff (1925) and his theory of long waves in economic life. However, the proponents of the theory of technoeconomic paradigms have combined the thoughts of Schumpeter with Kuhn’s theory of successive paradigms and have used these theoretical tools to examine the vital importance of ICTs today, and the many implications that these developments have on economic and social developments. There is no doubt that these thoughts have had a significant impact on the understanding of information society developments among political and administrative decision-makers.

The ICT Sector

The sector comprising information, communication and telecommunication activities, the ICT sector, has emerged as one of the most dynamic conglomerates of economic activities among industrialized countries and increasingly also among developing countries. The use of computing and communication technologies is transforming the way we produce, consume and accumulate wealth. It is generally acknowledged that a thorough restructuring is evolving and this is often described under the headings of convergence or ‘new economy’, indicating that economics rooted in the ICT sector is based on new relations, rules and models of accumulation. However, it is not clear to what extent something is new from a theoretical point of view. This has partly to do with the fact that ICT is a troublesome area for the analyst. The activities of the sector unfold in three distinctly different areas or dimensions:

  • As a generic technology that is applied in most economic activities;
  • As an industry producing the equipment and software support for the generic technology;
  • As a broad and fast-growing service industry using the technology, equipment and software support mentioned above.

It is the combined effects of the three areas that give the ICT sector its vast potential. The background is that computing was ‘just’ part of the array of new technologies that resulted from the war effort and formed the material basis for the Fordist boom, first in the US and then gradually in the rest of the Western world. After four shifts of generation in computing, the fifth generation unexpectedly took the form of a rapid integration of computing and communications in the 1980s (Eliasson, 1998). This again was based on two developments. One is the introduction of personal computers. The other is the breakup of the Bell/AT&T system.

During the 1980s, personal computers were steadily adopted by businesses. By 1990, they began to enter the home and the microprocessor became embedded in tools, products for the home, cars, etc. By 2000, the power of computer chips was still being doubled roughly every 18 months (Moore’s law), and increasingly pervasive computing is a reality as almost everything comes with a small, cheap chip. But it is in the combination with telecommunications, related to the Internet and mobile services, that the biggest potentials are emerging.

The trajectory of telecommunications parallels the computing development but is, to a large extent, rooted in organizational/institutional developments. The breakup of AT&T initiated in 1982 resulted immediately in heavy entrepreneurial activity in the US as companies like MCI and Sprint raced to build nationwide fibre-optic networks. But it also initiated a global liberalization drive propelled in Europe by the European Commission from 1987 onwards. The call for liberalization in Europe was really articulated by the issue of the Green Book of 1987 that aimed to make the European telecommunication market become one market like its rivals in the US and Japan. Further, the ambition was to create a competitive market with its alleged virtues of lower prices and faster service and technology development. By 1 January 1998, telecommunication markets including infrastructure provision and telephony had opened up for competition in the majority of countries in the European Union and the European Economic Area. Telecommunication markets were liberalized.

Now, competition as an organizing principle may mean very different things. The most important dimension of the discussion concerns the differences between proponents of pure competition in the form of laissez-faire, where the market is just liberalized without any further regulation (advocated by incumbent operators), and types of regulated competition where an asymmetric regulation is established in order to open the market for new providers.

The pure competitive situation presupposes non-violation of the traditional full competition assumptions: no dominant supplier, no barriers to entry, transparent pricing, etc. None of these assumptions was initially or is today fulfilled on the telecommunication markets, with incumbent operators still having a dominant market share and controlling the delivery channels—the networks. These severe market failures call for forceful regulation to ensure, for example, non-discriminatory access to networks, transparent pricing, etc. Hardly anyone disputes that this type of regulation is needed, and the liberalization that has been under development in the EU for the last 15 years has been liberalization in the sense that regulations aim at advancing competition. Such a liberalization of markets does not, however, in itself lead to a situation where new competitors can obtain considerable market shares and compete with the incumbent operators on an equal footing. The former national monopolies have far too dominant positions in existing markets for this to develop.

Even if it seems that the liberalization of telecommunication markets has not led to anything resembling a fully competitive market, and instead of legal monopolies we now have the old incumbents as quasi-monopolies with competition at the fringes, the liberalization of telecommunications has, nevertheless, played a dominating role in ICT developments. What began as fringes open for competition outside the focus of the traditional operators have developed into some of the most dynamic areas: the Internet, international communication, mobile and value added.

The symbiotic relationship that developed between the computer and telecommunication technology sectors led to major economic growth, first in the US from the beginning of the 1990s, and a few years later in Europe as well. Generally attributed to the explosive growth of the Internet, there have been traditional economic growth effects as direct job creation, and traditional side effects as exponential growth in hardware and infrastructure companies. Building the new information infrastructure is one of the great global businesses. But the most dynamic immediate economic impact is related to the third part of the converging ICT sector, the content-producing communication and mass communication industry. The ICT-related media industry is growing very fast to be ready to take advantage of the network’s capabilities such as interactivity and individual customization (e.g. video on demand). The Internet is expected to develop into the main medium and the old television networks are engaged in a struggle with newcomers such as Disney and Microsoft for the dominance of digital TV. The empirical evidence of this is unfolding as mergers, fights for future markets, etc., but the field of convergence is still new as an academic discipline and the related social science research is still in its infancy. As a tendency, two points of view can be seen. One is the conventional view on convergence, in the sense that this is seen as an important driver for technological and economic development (Baldwin et al., 1996). Another point of view is more critical towards these possibilities in convergence owing to, for example, inherent differences among the traditional sectors involved with respect to technologies, organization and other structures (Garnham, 1996).

One effect of the emerging convergence, the liberalization and internationalization in the ICT areas, is that standards developments increasingly become an important issue. In a network, environment standards and interoperability are crucial. In the old regime with monopoly operators, standardization was dealt with in official or semi-official institutions such as the ITU with its subcommittees. In a market-driven environment this is no longer sufficient, and as a result standardization research is a fast-growing area that is acquiring great importance. Compatibility is a central theme and has been elaborated, for example, by Paul Allen (1995) and Stanley Besen (1995).

Statistically, the development of the ICT sector can be illustrated in different ways. As mentioned above, the sector is one of the most dynamic ones as the growth contribution of the sector is far greater than its share of GDP. Following the discussion above, the direct growth contribution from the US ICT sector during the 1990s has been estimated at about 15 per cent (OECD, 1999), whereas the total growth contribution of the sector has been estimated at 25-30 per cent (US Department of Commerce, 1999). This compares with a sector share of GDP of 8 per cent (US Department of Commerce, 1999). Furthermore, the development of the ICT sector in the emerging network economy has led to increasing productivity and competition and lower inflation. These effects are so far distinguishable especially in the US,7 but are increasingly felt in Europe and even in developing countries. One of the strongest indirect economic effects is seen in the service industries where ICTs create the possibilities for new divisions of labour and new tendencies in internationalization. Traditionally, most services have to be consumed where and when they are produced, as they cannot be transported. Once information-intensive services are detached from human beings and stored on electronic media, they can be transferred on telecommunication lines and traded across borders. Other services also experience an increased tradability when the acts of contacting and contracting become easier with new ICTs.

The emergence of ICTs as the pervasive and generic technologies in the global economy makes it difficult today to see these technologies just ‘as one important element among others’ (Piore and Sabel, 1984: 262). The convergence of computing, telecommunications and mass media as a phenomenon associated with the development of ICTs has introduced ‘placelessness’ in production, i.e. geographical localization is becoming less important. That placelessness is gaining importance especially in the production of services has been argued from a theoretical point of view (UN, 1994) and can be observed in, for example, the development of Bangalore, where a region in a developing country has emerged as a vital partner in the international production of software. This is, however, no longer a unique example. Increasingly, there is evidence that ICTs enable the participation of developing countries in the international division of labour at an advanced level. During the last few years a small but growing indigenous software industry directed towards both the home market and the international market has emerged in West Africa and is increasingly seen as a possible avenue for participation in the global information society (Wayo Seini et al., 1998).


Alongside the development of ICTs, internationalization is often depicted as the most important fundamental feature of information society developments. But why is this, and how does the importance of internationalization manifest itself? These questions are briefly dealt with at the beginning of this section, after which the discussion concentrates on developments in theories of internationalization with special interest for trade and industry policies.

The overall importance of internationalization is related to the implications that it has for the productive structures in different countries, based on competition from producers from other countries (import and settlement), and to the new possibilities for expansion (export and settlement) and political governance: compare the discussions of the above-mentioned regulation school. This applies broadly to all industries (but not to the same extent), including the sectors that produce information and communication goods and services. On the other hand, ICTs have strong implications for the possibilities for trading and producing internationally because ICTs improve communications both between trading partners and inside transnational corporations. There is thus an affinity between questions of internationalization and questions of trade and industry policies in an information society context.

At the beginning of the chapter, the extent of the importance of internationalization was briefly discussed. Paul Krugman, Paul Bairoch, and Paul Hirst and Grahame Thompson were mentioned as examples of researchers who have advanced the view that too much emphasis can be attached to the phenomenon of internationalization. The reason for this view may be that in some expositions, if not all, far too many developments are attributed to internationalization. After a good number of years spent attracting attention to the questions of internationalization, it may seem to some economists that everything in public debates, apparently, can be explained by reference to the developments of internationalization and that this requires some measure of correction. Examples of writings that either favour or condemn internationalization, i.e. see it as either a great advantage or a threat, are K. Ohmae’s The Borderless World (1990) (advantage) and H.-P. Martin and H. Schumann’s Die Globaliserungsfalle (1996) (threat). However, in spite of such differences in view, there is general agreement that internationalization is extremely important and has vast implications, not only for trade and industry development but also for society at large.

Theories of internationalization deal with many subjects, and it is impossible to do them justice in such a short space. However, the theme can be subdivided into two categories, namely trade and foreign establishment (settlement). Most often, these two subjects are treated separately, and in this section we concentrate on the discussions that take trade as their point of departure, not because foreign establishment is uninteresting—quite the contrary—but because trade discussions constitute the classical point of departure in theories of internationalization and because most of the themes that are interesting in an information society trade and policy discussion context can be approached via the trade debates.

Classical trade theory builds on David Ricardo’s The Principles of Political Economy and Taxation (1817) where the theory of comparative advantages was first expounded. In fact, Adam Smith in his book The Wealth of Nations (1776) had already paved the way for a theory of absolute advantages. These two trends in the theoretical work regarding trade have continued to exist ever since. They do not necessarily exclude each other, but they emphasize different aspects of the determinants of trade. The theory of comparative advantages focuses on the determinants of international specialization, while the theory of absolute advantages focuses on economic power relations between countries. The theory of comparative advantages has had a dominant position ever since Ricardo, but for the last 20-30 years criticism has become stronger and theories of, for instance, ‘strategic trade policies’ and even theories of absolute advantages have gained strength.

The theory of comparative advantages clearly has some explanatory power in relation to trade between countries with different endowments. But the strongest reason for the persistence of the dominant position of this theory in international economic relations is probably that it supports the normative claim for the advantages of free trade. However, the numerous problems in this theory have increasingly become clear with the changes in international economic relations. The assumptions on which the theory builds are not only very strict but in many ways highly unrealistic.

In relation to our discussion, we will only mention three assumptions that are clearly unrealistic: that both product markets and factor markets are assumed to be perfectly competitive; that all factors of production are perfectly mobile within countries but immobile between countries; and that different countries enjoy equal access to the same body of technological knowledge. The first assumption applies generally in traditional neoclassical economics, but is no more realistic in international relations than in national circumstances. One of the implications is that there are production areas where economic rents (extra profit and/or extra high wages) are appropriated, and not only on a short-term basis. The second assumption regarding immobility of production factors is notoriously not true: international investment is gaining increasing importance. The third assumption concerning technical knowledge cannot be subscribed to either: this is one of the differences between countries that has a growing importance today.

The second assumption is the one that has attracted most attention in broader public discussions on international economic relations. Where internationalization formerly, to a larger extent, consisted of trade between countries, international investment and settlement in foreign countries is gaining increasing importance. The extent to which this is true can be discussed and is discussed, but international investments are important and have a growing importance. On a world political level, this is reflected in the negotiations in the World Trade Organization (WTO) where not only traditional trade questions are raised, and in the attempt by the Organization for Economic Cooperation and Development (OECD) to establish a multilateral agreement on investment (MAI). It is also reflected in the increasing internationalization of services, where modes of internationalization other than traditional trade are of central importance.

Such developments and observations have led to a discussion of whether the term ‘globalization’ is more appropriate than the term ‘internationalization’, as the word ‘internationalization’ in itself denotes relations between (inter) nations while globalization, ostensibly, better expresses a situation where national borders are becoming less important in economic activities. We see the advantages of the term ‘globalization’ if internationalization is understood as describing merely traditional trade relations between countries. However, in both trade relations and international investment, there are still large national interests and one should not underestimate the importance of nation-state initiatives. As we shall see in the following, an increasing role for the nation-state in international trade and industry policies can even be envisioned and defended.

The first and third assumptions regarding the theory of comparative advantages have been widely discussed in academic work. The question is whether, or to what extent, the theory of comparative advantages is the best way to analyse the positions of strengths and weaknesses of countries in different production areas and whether, or to what extent, the proposition of free trade advantages for all can be supported. The obvious fact is that different countries have different possibilities for access to technological knowledge and technologies. Furthermore, there are clearly production areas where rent is appropriated and where, for instance, higher wages cannot be explained by labour power with higher competencies.

These facts have been analysed and crystallized in theories regarding strategic trade policies (see e.g. Paul Krugman, 1986), competitive advantages (e.g. Michael Porter, 1990) and even absolute advantages (e.g. Giovanni Dosi et al., 1990). The argument in ‘strategic trade policies’ is that, as some sectors produce higher rents and as technological innovations play an important role in the differences between companies and countries, one cannot rely on some automatic comparative advantage to create the best of all economic worlds. Strategic policy moves can be appropriate. The term ‘competitive advantages’ points in the same direction. Instead of more static comparative advantages, based on, for example, natural endowments, more dynamic competitive advantages are the foundations of the distribution of production. And, in the theory of absolute advantages, this argument is taken even further, claiming that some countries may have an overall advantage, covering almost all sectors, and that they will not move all their production into the sectors where their advantages are the best because this is not realistic, and because they are also highly competitive in the sectors where their advantages are the smallest. With ICTs, this situation is very feasible as ICTs are used in all sectors and, therefore, affect the competitiveness of all sectors in the countries that are advanced in the use of these technologies.

In essence, this situation does not contradict the theory of comparative advantages. However, in reality it leaves very little room for countries with lower absolute advantages. In continuation of this, it should also be stated that the above-mentioned theories do not entirely discard the existence of comparative advantages. But the role assigned for comparative advantages is relatively insignificant.

The conclusion of all this, in our case dealing with trade and industry policies, is that national and/or regional trade and industry policies are not becoming less relevant than they were in less internationalized phases. In a world where comparative advantages are the dominant mechanisms of distribution of production, there is not a great need for policy intervention, as wealth will automatically be optimized in all countries. However, if strategic moves are necessary and if competitive and even absolute advantages can be created, this calls for appropriate policies to be applied. However, as we shall see in the following section, it also calls for very much the same policies in all countries as they respond to similar mechanisms and priorities.

An open question in continuation of this is whether all countries really face similar situations. Do the poorer countries face issues similar to those faced by the richer countries? The degree of internationalization is, for instance, much lower in poor countries compared with rich countries. By far the largest share of international trade and international investments take place between the US, Europe and the richer countries in Asia. The whole African continent seems practically exempt from international economic relations if one examines international trade and investment on an overall scale, for example, the percentage of international trade in which African countries are involved. However, seen from the perspective of these national economies, international economic relations play an important role and most of the policy discussions follow the same lines as in the richer countries. This partly reflects a policy import from richer countries but also reflects the fact that many of the questions that poorer countries face are not fundamentally different from those faced by richer countries.

Policy Visions

Following the arguments in the sections above, there is general agreement that technological, economic and political developments together constitute the drivers in an increasing internationalization of the economic system. In this relation it is, however, also interesting to analyse to what extent it is possible to conduct national/regional policies. The question is multifaceted and has been dealt with in research during the 1990s (e.g. Hirst and Zeitlin, 1992). As an immediate empirical observation, a surprising global coordination and timing of plans and visions for the information society can be seen. In 1993 the US government published The National Information Infrastructure: Agenda Action; the same year, the European Commission published its White Paper, Growth, Competitiveness and Employment; and in 1994 the Japanese government released Reforms toward the Intellectual Creative Society of the 21st Century. These were followed during 1994 and 1995 by plans and strategies issued by many countries in Europe. This applies, for example, to the UK and France and to the Netherlands, Sweden and Denmark. In other parts of the world, Singapore, South Korea, Canada and Australia published national plans during these years. And so did some developing countries in Asia, such as Malaysia, Thailand and the Philippines. Additionally, a G7 meeting in Brussels addressed the question in February 1995, and a Global Information Infrastructure Commission has been set up on the basis of a private initiative.

It is remarkable that so many countries and international institutions, at the same time, elaborate plans and programmes for the exploitation of the potentials of the emerging new information and communication technologies. Not since the construction of the railway system has a similar common international interest and enthusiasm for a technology and its possibilities been shown. Another analogy to this development comes easily to mind. As in the case of the railways, the electronic communication systems are only really useful when they are connected and developed more or less on the same level. It may be possible for a large country like the US to make some progress in ICTs alone. However, for smaller European countries, the advancement of one country very heavily depends on the advancement of other countries. The simultaneous drawing up of information society plans might be seen as an implicit understanding of this and, to a great extent, all of these strategy statements and plans build on the ideas and thoughts in the theoretical literature described earlier.

However, a closer analysis clearly reveals that these first-generation plans/visions hardly represent social planning in a strict sense, owing to two sets of assumptions. The basic problems in planning for a national information society are simply assumed away in the plans presented. The general assumptions are that the information society is emerging as a matter of fact, and attention can then be turned to the support of existing economic-political interests and problems. The second set of underlying assumptions is in reality that the market is taking care of the development of new services, technologies and structures. What seemed to be a global planning exercise was in reality a demonstration of the general acceptance of the neoliberal policy vision.

Following the major reorganization of the telecommunication sector in most EU countries, the EU Commission and the member countries have, since the mid 1990s, been engaged in a second wave of information society plans. Where the first wave of plans emphasized liberalization of telecommunications and information technology development, the second wave has focused more on social aspects of information society developments.11 This understanding is, to a large extent, well founded—especially if the first wave is seen as being represented by the Bangemann Report and the Action Plan of 1994 (European Commission, 1994). However, the shift has to be seen against a changed socioeconomic setting.

The first initiative of the European Commission in its information society planning of the 1990s was the White Paper Growth, Competitiveness and Employment of 1993. This was prepared by the Commission under the chairmanship of the former French Socialist Minister of Finance, Jacques Delors, and clearly bears the hallmark of a social democratic concern for job creation and equal opportunity combined with a focus on Europe’s competitiveness in an increasingly internationalizing world economy. This broadly focused White Paper was followed by the Bangemann Report in 1994 on the basis of an initiative by the Council. Martin Bangemann is a former German FDP (liberal) minister, and the emphasis in the report, and the Action Plan that built on it, is much more on the issues of liberalization of telecommunications and the primacy of the private sector in the development of an information society.

In 1995, the European Commission initiated a high-level expert group (HLEG), and an Information Society Forum (ISF) was established to analyse ‘the social aspects of the information society’, as the HLEG (1997) puts it in its final policy report. As a justification for this focus, the HLEG wrote: ‘Until that time, the debate on the emerging information society had been dominated by issues relating to the technological and infrastructure challenges and the regulatory economic environment’ (1997: 14). There was, therefore, a perceived need for refocusing on the social dimensions of the ‘European model’ in line with the White Paper (HLEG, 1997: 17).

The development in EU information society policy can thus be seen as having changed from a technology- and market-oriented focus to a broader social concern. One of the reasons for this priority is clearly that the development of the basic infrastructure through the liberalization of telecommunication has developed in a satisfactory way—seen from the point of view of the Commission. But even if other issues in other contexts may be given priority, the second-generation visions clearly cover a broader area than the first-generation visions. This has not, however, changed the clear neoliberal basis for the visions—a feature that is almost universal even in the present emerging plans/visions from former planned economies in developing countries, where Ghana’s vision ‘Ghana 2020’ can be mentioned as a specific example.

Summary and Conclusion

The most conspicuous developments that have taken place through the last two to three decades with respect to trade and industry policy trends in an information society context can be summarized in the following way. On the technological side, information and communication technologies and services have developed and expanded vastly, and the processes of digitalization have allowed for new technological possibilities to be explored, among them a beginning convergence between formerly separate information and communication sectors. On the economic side, economies have internationalized to an increasing degree, and especially the growing internationalization of production processes (epitomized in the term ‘globalization’) and the beginning internationalization of services is seen as important. On the political (and ideological) side, liberalism has changed the political climate considerably and has had a clear impact on the societal organization of, for example, electronic communication areas. And other important development trends and features could be mentioned, such as the ever increasing importance of services in the economies, the growth in information processing occupations, the role of information and knowledge in society, new and more flexible work processes and organizations, and changes in the role of national states.

These developments are reflected in economic and social science research and have greatly impacted on the trade and industrial policies implemented by public authorities. With respect to economic and social science theories with influence on information society visions of public authorities, at least four different trends (or areas of research) deserve mentioning here.

The first is concerned with the liberalization of the different communication sectors. Two of these sectors, telecommunications and broadcasting, were formerly in state monopoly or very strictly regulated. However, over the past 20 years this has changed, which clearly has been reflected in economic and social science research where a great deal of work has been done regarding the implications of liberalization.

The second research area is concerned with trends in the internationalization/globalization processes in the economic (and other) sphere(s). This area of research can hardly be drawn together in just one or a few trends. Many different processes are examined, though there is a dominant interest in international investment and the globalization of production structures.

The third deals with evolutionary (and revolutionary) developments in the economy and the importance of technological change. The theories examined in this chapter, to a large extent, are part of these areas of interest—although they also touch upon internationalization and state regulation. It is a broad category encompassing research interested in the technology side of production (innovation economics) and the evolutionary processes in the economy (evolutionary economics).

The fourth theoretical trend is interested in institutional aspects of the economy. This trend has not explicitly been dealt with in this chapter, but plays an important role in the discussions concerning flexible production and the importance and implications of electronic communications in production and distribution.

The influence of these theoretical trends on the discussions and decisions taken at a broader societal level, e.g. among decision-makers on the political scene, has been discussed in the course of this chapter and the evaluation expressed has been that there clearly is a connection between the academic world and the world of economic and political decisions in this area. However, a modification of this evaluation could be made. As much as it is a question of academic research influencing political discussions, one could claim that both ‘worlds’ have been under the influence of the significant changes that have taken place during the past two to three decades. Still, the overall evaluation is that discussions and concepts that have been crystallized in academic research have had a relatively strong influence on broader political debates and decisions in this area.

In a sense, it is strange that, since the beginning of the 1990s, there has been a surge of information and network society visions and plans issued by public authorities. Often, one of the common understandings is that with the many changes in the economic and political systems, state planning is passé. However, there has probably never been so much political planning as has been witnessed in relation to all the information society vision statements in the last decade.

But the content of these plans has changed considerably compared with former political interventions. This change has often been described as a turn away from direct state interventionism towards an emphasis on the creation of framework conditions for economic activity. This development can, for instance, be seen in telecommunications where direct control via ownership of operators is relinquished and indirect regulation is implemented.

The background for this development is multifaceted. However, the development towards framework regulation fits in well with the increasing internationalization where public authorities aim at creating the best possible framework conditions for businesses in an international competitive environment; note, for example, the discussions of the regulation school on the changes in the role of the state.

Analyses show that the trade and industry policies relevant to the information society, implemented in the different countries, are to a large extent similar. The reason is partly that policy directions in one country inspire other countries—and for the poorer countries also there is external pressure from transnational corporations, richer countries and international organizations. However, it is also a result of the competition to become a prime site for production of different kinds in the international divisions of labour. Dynamic competitive advantages are increasingly important compared with more static comparative advantages. This has led to internationalization not only of production but also of trade and industry policies.

There are, nevertheless, differences in the policies. This applies, to some extent, to the priority given to the combination of ‘harder’ trade and industry policy measures and ‘softer’ areas like culture, education, etc., although most information/network society visions today include such areas. But more fundamentally, it applies to the perspective in which trade and industry policies are seen. In Europe, there is a tendency to consider the creation of wealth and welfare as two aspects that should not be separated. In the US, there is a focus on wealth creation, and welfare is considered a byproduct. This is, of course, partly a reflection of the fact that social democratic governments dominate the European Union at present. But it is also a more basic difference, based on the differences in positions of strength of the social classes in the various areas.