Rational Explanations of ICT Investment

After the 2000 NASDAQ decline, and subsequent downturn in global information and communications technology (ICT) markets, the telecommunications industry remains an important source of productivity growth and technology diffusion (OECD 2002, 2003). For example, packaged software sales, whose estimated value in 2001 is US$ 196 billion, are still expanding at 16% p.a. in OECD Member Country markets. Further, global mobile telephony subscription increased from 11 million subscribers at 1990 to 945 million subscribers at end-2001. Finally, Internet subscription reached a penetration of 8.2 users per 100 persons globally at end-2001, i.e., equaling 1999 mobile telephony market penetration (ITU 2002b). Reasons proffered for the NASDAQ decline, and the bursting of the dot.com bubble more generally, include unrealistic market growth expectations, firm activity not aligned with core competency and the accumulation of unsustainable debt. However, such rationalizations themselves require explanation. That is, whose expectations are at issue, those of firms making infrastructure investment decisions or those of shareholders making portfolio investment choices? With asymmetric information these expectations may differ, and so should policy response. Additionally, for both the dot.com and shareholder groups, unrealistic growth expectations may arise from premature timing in an unfamiliar environment. While it is the nature of uncertainty that expectations are mostly wrong, such expectations are still rational should they prove correct on average, i.e., averaged over the circumstances that might occur. Based on this criterion, over a time interval and in an environment subject to technology change it is difficult to confirm that expectations are irrational. Specifically, it is uninformative to characterize management decisions as poor ex post. Further, a claim that firm activity is not aligned with core competency is at variance with the view that, in a modern economy, it is prudent to operate a portfolio of interests. Finally, conventional wisdom in the form of advice to management is often fashion driven, viz., debt is only a problem when it is unsustainable, and assuming that foreseen unsustainable events are avoided, this explanation does not add anything to the unrealistic expectations variant.