Putting a price on information is the next great puzzle economists need to solve, according to UQ economist Professor John Quiggin.
Professor Quiggin delivered the 2013 Colin Clark Memorial Lecture and says it was an honour to speak at an event dedicated to one of the nation’s greatest economists.
“Colin’s greatest contribution to economics was the development of the first system of national accounts for the UK,’’ Professor Quiggin says.
“He was a pioneer of development economics and had a fifty-year association with Queensland.’’
In his lecture, Professor Quiggin argued that, just as Clark developed a new set of concepts to meet the needs of the 20th century industrial economy, the task, now, is to develop accounting concepts for the digital economy of the 21st century.
“The key problem for national accounting in the 20th century was that of the input-output relationships between industries,’’ he says.
“The solution in national accounting terms was the concept of ‘value added’ and this concept was crucial in measuring economic activity for the purposes of macroeconomic management and in assessing the rate of economic growth.”
The argument is particularly salient as controversy swirls around the continued roll out of Australia’s National Broadband Network, a review of which has been handed to the Federal Government.
In the 21st century, Professor Quiggin says, the crucial problem is to account for the value of information – information that is centred on the internet and the world wide web.
“Information is, naturally, a public good even though it is costly to produce,’’ he says.
“Moreover, the distinctions central to the 20th century economy, such as those between primary, secondary and tertiary industry, and between households and the market economy are increasingly irrelevant.
“These changes bring new policy challenges and, with them, the need for new systems of national accounting.’’
Professor Quiggin says Clark’s construction of national accounts was a major contribution to and documentation of 20th Century prosperity.
“We need a similarly radical innovation for the 21st century.”
Quiggin argues that the debate about valuation of the NBN provides an illustration of some of the problems that need to be solved to produce national accounts for the 21st century.
He says there are two large and interrelated problems in evaluating the NBN.
“The first is that until the network is actually built, it is impossible to estimate the market value of the services it will provide,” he says.
“Small-scale pilot projects allow households to increase the download speed for existing content but only after a substantial rollout will it make sense to produce data-heavy content that takes advantage of the download speeds made possible by the NBN or for new social networks reliant on high upload and download speeds to develop.”
Professor Quiggin says it is virtually impossible to tell in advance whether or not the NBN will be commercial profitable. The only way to find out is to work on the assumption ‘build it and they will come’.
He says that the more fundamental problem is that the benefits gained from extending an information network include not only benefits for new users but also benefits for existing users.
“This means that an expansion can be socially valuable, even if it is not profitable,’’ he says.
Turning this point around, Professor Quiggin says that “if the NBN is profitable, it’s probably too slow”.
Professor Quiggin’s presentation is available here.