National Exceptionalism ? : the Importance of Context in Shaping the Birth of the U . S . Internet Industry

The emergence of the Internet as a commercial tool galvanized a gale of Schumpeterian investment and economic restructuring. In 2002 amidst the wreckage of that investment hurricane it should be interesting to reflect upon what was permanent and what appears to have been more fleeting. This paper uses the national system of innovation (NIS) framework to examine the context within which the Internet was commercialized in the U.S. It is argued that the U.S. has a peculiar commercialization pattern that was a function of its long history of telecommunications deregulation and the existence of a venture capital-based new technology commercialization system. The role of U.S. universities in the gestation of the Internet in the pre-commercial and early commercialization phases was also very significant. In this respect, the commercialization of the Internet parallels the commercialization of university-based biology research in the late 1970s and early 1980s that led to the formation of a biotechnology industry. The argument to be presented here is that certain characteristics of the U.S. political economy contributed to the head start that U.S. firms enjoyed, their ability to grow rapidly, and, after the 2000 NASDAQ decline, a large number of firm failures. With respect to commercialization, the U.S. institution of venture capital played a central role in the rapid formation of new dedicated Internet firms that were established to define and occupy the new economic space. With respect to the Internet, there were three advantageous features of the U.S. national system of innovation: a unique telecommunications infrastructure, an active government in funding university research, and a capable set of private sector institutions dedicated to funding new high-technology enterprises. * This is a revised and updated version of a paper prepared for the forthcoming book edited by Bruce Kogut The Global Internet Economy (MIT 2002).