Arthur: Myths and Realities of the High-Tech Economy

Arthur, WB. 2000. “Myths and Realities of the High-Tech Economy.” Talk given at Credit Suisse First Boston Though Leader Forum, Santa Fe Institute.

Author presents 4 myths of the “high tech economy”.

The author first points out a general trend: a digital economy of networks has emerged that is distinct from the earlier economy of input-output production. This new economy is overlaid upon the old economy. Additionally, the author believes that, “of networks, there will be few” because increasing returns to scale will be impossible to overcome with differentiation (1).

Myth 1: All Networks are Subject to Network effects:

“Network effects”, a synonym for Metcalfe’s Law, states that the “value” of networks increases quadratically. Therefore, any network that people are involved within will be beneficial for those people. While this relationship may be true of some technologies (the author points to a telephone), the nature of digital networks provides different kinds of increasing returns with increased membership in a network. Combinatorial networks, like eBay, show some sort of increasing returns to scale, while “hub and spoke” networks do not: users are just connected to the same server and not to one another.

Myth 2: The Coming of the Internet implies a New Economy:

Myth 3: Either that technology must evolve in a specific place, or that technology can come from anywhere: the answer is somewhere in the middle.

Myth 4: Current political structures will last forever