Borders in Cyberspace:
Conflicting Public Sector Information Policies
and their Economic Impacts
Summary
Report
Peter Weiss
U. S.
Department of Commerce
National
Oceanic and Atmospheric Administration
National
Weather Service
February
2002
Disclaimer
The views
expressed in this paper are those of the author and do not necessarily
represent those of the U.S. National Weather Service. Contract support from
Yvette Pluijmers, Pricewaterhouse Coopers, is gratefully acknowledged.
1. Background and Introduction
Many nations are embracing the concept of open and
unrestricted access to public sector information -- particularly scientific,
environmental, and statistical information of great public benefit. Federal information policy in the US
is based on the premise that government information is a valuable national
resource and that the economic benefits to society are maximized when taxpayer
funded information is made available inexpensively and as widely as possible.
This policy is expressed in the Paperwork Reduction Act of 1995 and in Office
of Management and Budget Circular No. A-130, “Management of Federal Information
Resources.”[1] This policy actively encourages the
development of a robust private sector, offering to provide publishers with the
raw content from which new information services may be created, at no more than
the cost of dissemination and without copyright or other restrictions.
In other
countries, particularly in Europe, publicly funded government agencies treat
their information holdings as a commodity used to generate short-term revenue.
They assert monopoly control on certain categories of information to recover
the costs of its collection or creation. Such arrangements tend to preclude
other entities from developing markets for the information or otherwise
disseminating the information in the public interest.
In the US, open and unrestricted
access to public sector information has resulted in the rapid growth of
information intensive industries particularly in the geographic information and
environmental services sectors. Similar growth has not occurred in Europe due
to restrictive government information practices. As a convenient shorthand, one
might label the American and European approaches as ‘open access’ and ‘cost
recovery’, respectively. The cost recovery model is now being challenged on a
variety of grounds:
·
Economists
argue that the benefits to the American Treasury that accrue from corporate and
individual taxes from the secondary publishing and service activities
stimulated by open access policies far exceed any revenues that might be
generated through cost recovery policies;
·
Cost
recovery policies often mean that budgetary constraints prevent some government
agencies from acquiring information that has already been created or collected
by another part of government, resulting in agencies either doing without or
using inferior alternatives;
·
No one
supplier, public or private, can design all information products required to
meet the needs of all users in a modern information-based economy. Private
sector intermediaries are increasingly important players in the rapidly
developing information economy;
·
European
information service providers are increasingly frustrated at the competitive
advantages enjoyed by their American counterparts;
·
A
recognition that efforts to build transnational data sets, be they
meteorological or environmental (where serious problems have already arisen),
statistical or cartographic, are hampered by national agencies bent on preserving
intellectual property to pursue local cost recovery policies;
·
A
growing understanding of the wealth creating possibilities (‘prosperity
effects’ in the words of one Dutch study) that arise from a common information
base (e.g. US street mapping) or software standard (e.g. the World Wide Web).
This report examines fundamental differences in
the policy and funding models for public sector information (PSI) in the US as
compared to Europe. The following figure illustrates these differences.
This report seeks to demonstrate the economic
and societal benefits of open access and dissemination policies for public
sector information, particularly as compared to the limitations of the “cost
recovery” or “government commercialisation” approach.
It focuses primarily on the
conclusions of recent economic and public policy research in this area, as well
as examples of failed or limited cost recovery experiments in the US and
Europe. Emerging European thinking on the issue of government competition with
the private sector, and recent developments at the European Commission level
and in selected European countries are briefly summarized. [2]
2. Recent Research
The vast economic potential of public sector
information has only recently begun to be recognized in the economics and
public policy literature. Recent significant research, much of it originating
in Europe, documents the effect that governmental information policies have on
the economy in general and on particular sectors.
The Potential of European Public Sector Information
With respect to the growing
challenge from economists, the European Commission’s Directorate General for
the Information Society commissioned a study from PIRA International on the Commercial Exploitation of Europe’s Public
Sector Information. (“the PIRA study”)[3]. The PIRA study attempts to
quantify the economic potential of public sector information in Europe and the
extent to which it is being commercially exploited, and suggests policy
initiatives and good practices. Although some of the qualitative data had to be
extrapolated, the study should be sufficient to persuade policy makers of the
need for serious rethinking of European information policy and its high
priority. PIRA
states:
“Cost recovery looks like an obvious
way for governments to minimize the costs related to public sector information
and contribute to maximizing value for money directly. In fact, it is not clear
at all that this is the best approach to maximizing the economic value of public
sector information to society as a whole. Moreover, it is not even clear that
it is the best approach from the viewpoint of government finances. […]
Estimates of the US public sector information market place suggest that it is
up to five times the size of the EU market.”
The PIRA study went on to observe
that the fledgling European market would not even have to double in size for
governments to more than recoup in extra tax receipts what they would lose by
ceasing to charge for public sector information. The problem is that these
positive macro-economic effects are masked by the adaptation of European
markets to cost recovery policies, by which both individual agencies and
partner publishers have grown adept at extracting monopoly rents from captive
markets to their own benefit but to the detriment of the economy at large.
Furthermore, as the study noted with understatement:
“The
concept of commercial companies being able to acquire, at very low cost,
quantities of public sector information and resell it for a variety of
unregulated purposes to make a profit is one that policymakers in the EU find
uncomfortable.”
The
amounts of money involved are significant. PIRA distinguished between government investment in public
sector information (“Investment Value”) and the value added by users in the
economy as a whole (“Economic Value”). Economic Value could not be directly
obtained, so aggregated data was used. PIRA estimated the Investment Value of
public sector information for the entire European Union at 9.5 billion
EURO/year. The Economic Value was estimated at 68 billion EURO a year. By
comparison, the Investment Value for the United States is 19 billion EURO/year
and the Economic Value is 750 billion EURO/year. To summarize:
Economic Potential of PSI in Europe and US
|
||
|
In EUROs |
EU |
US |
|
Investment value |
9.5 billion |
19 billion |
|
Economic value |
68 billion |
750 billion |
This contrast points to both opportunities
and challenges for European companies and their governments. PIRA’s main
conclusions are:
·
Charging for public sector
information may be counter-productive, even from the short term perspective of
raising direct revenue for government agencies;
·
Governments should make
public sector information available in digital form at no more than the cost of
dissemination;
The fledgling EU market would not even have to double in size for governments to more than recoup in extra tax receipts what they would lose by ceasing to charge for public sector information
;
Governments realize two kinds of financial gain when they drop charges:
Higher indirect tax revenue from higher sales of the products that incorporate the public sector information; and
Higher income tax revenue and lower social welfare payments from net gains in employment.
Prosperity
Effects of Open Access Policies
A study commissioned by the Dutch Ministry of
the Interior examined both qualitative and quantitative prosperity effects of
different pricing models for public sector information[4]:
no cost, marginal cost and full cost recovery. Its main conclusions:
Prosperity effects will be maximized when data is sold at marginal cost. Marginal cost is defined as all costs related to the dissemination of public sector information. This includes shipping, promotional costs, personnel and information technology costs.
·
Enormous additional economic activity can be expected
by extrapolating the study’s results to all public sector information.
Resolving
Conflicts Arising from the Privatization of Environmental Data
A U.S. National Academy of Sciences
study[5]
which examined the practices of commercialized government agencies in Europe
and experiences with privatization of environmental data in the US concluded:
“…[c]ountries
that exercise intellectual property rights over government data…limit the
extent to which government-collected data can be used, even in international
collaborations. By making it more difficult to integrate global data sets and
share knowledge, such a commercialization policy will fail to achieve the
maximum benefits provided by international collaboration in the scientific
endeavor.”
For
example, basic research on monsoon prediction at the India Institute of
Technology is hampered by the unaffordable prices for historic atmospheric
model data from the European Centre for Medium-Range Weather Forecasting. As a
result, the researchers are not able to integrate the European data with freely
available US data.[6]
Thus, the Academy recommended:
·
Environmental
information created by government agencies to serve a public purpose should be
accessible to all. To facilitate further distribution, it should be made
available at no more than the marginal cost of reproduction, and should be
usable without restriction for all purposes.
·
The
practice of public funding for data collection and synthesis should continue,
thereby focusing contributions of the private sector primarily on value-added
distribution and specific observational systems.
Economic Benefits of Open
Access Policies for Geographic Information
A study[7] commissioned
by the private sector members of the Dutch Federal Geographic Data Committee
attempts to quantify the economic effects of open access policies for spatial
data. The main conclusions are:
·
Consumers
as well as private business can profit significantly from freely accessible
public sector information;
·
Growth
potential for the geographic information industry: lowering the price of public
sector geographic data by 60% would lead to a 40% annual turnover growth plus
employment growth of approximately 800 jobs. Companies that pay a much lower
price for public sector information will invest these savings in the
development of new products, thereby expanding the potential market.
Policy Comparison in the
Dissemination of Spatial Data
A North American-European comparative study on the impact of government
information policies, which focused on databases from national mapping agencies[8],
concluded that:
·
A
direct association exists between pricing and its effects on public access and
commercialisation of government agency information. Current pricing problems are having a
deleterious effect on the affordability of spatial data in Canada, France, and
the United Kingdom;
·
A
direct association exists between the application of intellectual property
rights and the degree of public access and commercialisation of government
agency information. The greater the restrictions on access, the less successful
dissemination programs will be;
·
Reducing
prices and relaxing intellectual property restrictions on government datasets
are significant factors improving opportunities for access and
commercialization for stakeholders in the geographic information community.
The Impact of Database
Protection Legislation in Europe
A study prepared for the Canadian government examined the European
Database Directive, which does not exclude governments from using the database
protection right and gives European governments an extra argument for cost
recovery policies. [9] Therefore,
its findings are important in the debate on public sector information policies:
·
During
its first year, the new protection right seems to have produced a one-time
boost in database production and the number of new firms entering the industry.
Since 1999, however,
growth rates have returned to previous low levels.
·
The
European database protection regime has also produced side effects (“negative
externalities” in economic parlance) including:
o
Excessive
protection for certain databases (e.g. phone directories, environmental
observations);
o
New
barriers to data aggregation;
o
New
opportunities for dominant firms to harass competitors with threats of
litigation;
o
Increased
transactional gridlock due to so-called “anti-commons” effects; and
o
Inadvertent
impediments and disincentives for non-commercial database providers, e.g.
universities and other research institutes.
The Economics of
Meteorological Information
John Zillman, Director of the Australian
Meteorological Department and John Freebairn of the University of Melbourne
recently performed extensive theoretical research on the economics of meteorological
information[10].
Their main conclusions are:
Direct government funding and free provision to all are favored with their contribution to national welfare maximized at the point where marginal benefits equal marginal costs.
“Private and Mixed Goods” (i.e. “value added”) meteorological services are most economically produced and provided through market forces.
Comparing Weather risk
management and commercial meteorology markets in the US and Europe
The Weather Risk Management Association,
representing an emerging economic sector which uses weather and climate data to
mitigate commercial risk, commissioned PricewaterhouseCoopers to study the
rapid growth of this industry[11]. The study shows that the weather
risk management industry is booming in the United States (almost 7,300 million
USD in contract value in 3 years ending March 2001) compared to the small
European market (120.3 million USD in the same 3 years)
Notional Value by Contract Coverage Period and
Region, All Contract Types ( in thousands of US Dollars)
|
||||||
Coverage Period
|
North America
|
Europe
|
Asia
|
Australia
|
Other
|
Total
|
Winter 1997
|
169,410
|
0
|
0
|
0
|
0
|
169,410
|
Summer 1998
|
733,932
|
0
|
0
|
0
|
0
|
733,932
|
Winter 1998
|
1,101,306
|
320
|
0
|
0
|
300
|
1,101,926
|
Summer 1999
|
639,861
|
0
|
1,561
|
0
|
0
|
641,422
|
Winter 1999
|
2,242,562
|
70,690
|
2,799
|
0
|
1,689
|
2,317,740
|
Summer 2000
|
623,553
|
183
|
15,920
|
594
|
262
|
640,512
|
Winter 2000
|
1,785,632
|
48,146
|
29,147
|
1,929
|
10,279
|
|