Five Questions for Debora L. Spar

HBS Working Knowledge editor Sean Silverthorne conducted an email interview with Debora L. Spar about her new book, Ruling the Waves: Cycles of Invention, Chaos and Wealth.
by Sean Silverthorne

In the long run, even the most fundamental innovations have a way of being influenced by government, says Harvard Business School professor Debora Spar. That's why business leaders need political skills, too.

Silverthorne: In Next: The Future Just Happened, Michael Lewis argues that the Internet enables individuals—a teen manipulating the stock market—to overthrow established players. The old rules no longer apply. You argue that during these periods of change the old rules may not apply for a period of time, but in the end the system bites back. Even the innovators demand the return of rules and law. Is Lewis being premature in his "Internet changes everything" scenario?

Spar: I think he is. Lewis is right, I believe, in arguing that the Internet is a radical technology and that it has showered both wealth and power on a range of non-obvious people: young people, inexperienced people, people outside the so-called Establishment. But I don't think that the Internet changes everything; and I certainly don't think that it changes our basic, underlying demand for the rule of law. In the book, for example, I describe how both self-professed radicals and staid high-technology companies pushed the U.S. government in the late 1990s into relaxing its rules on encryption exports—a great case of how the Internet would seem to take power away from the state and put it, as Lewis might predict, back into the hands of individuals. Yet just look at what the fall-out from the World Trade Center attack is likely to be. People, I suspect, will demand that governments step back into the game—that they regulate, or at least track, encryption exports, and that they find the means to eavesdrop again on potential terrorists. People will demand that the government protect their privacy online, and their property as well. So even though the technology may change, it doesn't necessarily bring everything in society along with it.

Q: Is there anything about the Internet that is different from past innovations such as the printing press or radio? Could the Internet be the technology that breaks with history?

A: There are many ways in which the Internet differs from past innovations. The Net is much more international, for one thing, and it crosses borders even more easily than did the telegraph or the radio. It is a relatively inexpensive technology (once people have access to the basic communications infrastructure) and it allows for a whole range of media to be combined in exciting and innovative ways. But I still don't think that gives it any particular edge on history. Society has not been fundamentally altered by this new means of transmitting information, nor have the underlying conditions for either governments or markets. The one thing that I think will be most dramatic, though, is the ability of the Internet to sneak information around the governments who would be most likely to try to stop its flow. In this regard, I think that over the long run, the Net will prove to be most influential not in the Western industrialized world, but in places like Burma, or China, or Saudi Arabia.

Q: What are the public policy implications in your description of this reoccurring give-and-take between innovators and regulators?

A: The most important implication is that both business and government need to realize that, at some stage, they will be working together. Smart businesses will realize that a completely apolitical strategy—a strategy that assumes governments will simply go away or get out of the market—simply will not work. And smart policymakers will realize that, despite an initial hands-off approach, they will eventually have to think about what kinds of policies make sense for a new technology. As the book describes, regulators can either intervene at the start of a new market (which has essentially been the European model) or once the market has is already underway (the typical American response). In either case, though, policies are demanded and policymakers need to think about how best to balance the demands of society and commerce.

Q: In today's headlines, what story or stories do you see that affirm your view of how cycles of innovation work?

A: There are many. Recent decisions against Napster and other file-sharing firms, for example, confirm that property means are by no means dead online. On the contrary, both citizens and firms want to preserve property rights in cyberspace, and they want government to take an active role in that enforcement. We see a similar demand with regard to the Russian programmer who was just arrested in the United States for distributing a technology that allowed readers to break through the software protecting e-books. I also think that the whole case against Microsoft shows that antitrust law is alive and well in cyberspace and that governments are fully prepared to enforce it. And finally, although we haven't seen these stories yet, I imagine that there will soon be a lot more interest in preventing possible terrorists from using encryption codes that governments can't crack.

Q: Any surprises as you did your research for the book?

A: The biggest one was how large a role private firms played in dragging the government back towards regulation. In most of the cases I studied, it was firms, rather than states, that voiced the initial demand for rules. It was U.S. firms, for example, that begged the U.S. government to regulate the radio market in the late 1920s, and firms that pushed the British state to finally put an end to piracy. In retrospect, of course, it all makes sense: for once entrepreneurs have carved out a lucrative piece of a new market, they want someone to protect their position and governments are well poised to do so. But I was surprised to see how strong this dynamic was, and how common.