This is the second in a series of articles in which contributor Stacy Baird presents and in-depth analysis of the role of governments in standards setting initiatives which is posted on a bi-weekly basis. The first in the series can be seen here – Editor

PART 2: There are Good Reasons for Government to be Reluctant to Mandate IT Standards

To start with the end: Government should be reluctant to mandate an IT standard. Before regulating an industry, policy makers have to look at a few things: the sophistication of the industry with regard to what is being considered for regulation; the capacity of industry to address a perceived problem without government regulation; whether regulation would be contrary to or in support of good public policy; and finally, whether the risk of “government failure” outstrips the risk of market failure. It is incontrovertable that when it comes to standards, the IT industries are sophisticated.

Furthermore, it has well established, sophisticated mechanisms and means to develop standards. There is also a well developed body of law and public policy in the area, both the laws of the U.S., but also, those laws as representative of most of the developed world – laws and public policy that guide governments to prefer market-developed standards. To this same point, trade agreements may preclude a government from setting technology standards that may impact international trade. Finally, another factor, the high risk of “government failure,” or “non-market failure,” warns against regulation. I will describe each of these considerations in the weeks ahead, starting this week with a brief discussion of how well the industry is structured to develop standards…

One of the first set of factors for the government in analyzing an apparent market failure is to consider how sophisticated the market participants are and how well developed the market is. In the context of standards development, the questions to consider are: is the industry mature; are the participants sophisticated in their ability to develop standards; are there well-developed institutional structures to facilitate standards development; and so on. The industries I have considered, given the conflation in the market place of what were once discrete sectors, include the computing and software industries, entertainment, and consumer electronics industries and in some instances, telecommunications and broadcast industries. Each of these industries has a long and successful history of standards-setting. In relation to each industry and the broad convergence of these industries there are many now well-trodden paths the market can take to establish an information technology standard.

Looking at the computer industry alone, the industry utilizes patent pools and cross-licensing and in the full range of forums, those being informal groups, consortia, and formal standards development organizations to an extent similar to that of the broadcast and consumer electronics industries. Computer standards include the twisted nematic liquid crystal display (invented by James Fergason, which lead to the

LCD of modern computer and television monitors), the Kensington security socket (the mechanical connector used to physically secure a computer to a desk by a cable), the ISO-adopted Moving Picture Experts Group (MPEG) digital audio and video compression specifications including MPEG-2, MPEG-4, Thompson’s MPEG-1, Layer III (AKA MP3), Apple’s IEEE 1394 digital communication specification, the joint ITU-ISO/IEC specification AVC/H.264 video codec (a mandatory specification of both Blu-ray and HD DVD), Small Computer System Interface (SCSI), Universal Serial Bus (USB and USB2), AT Attachment (ATA), a digital transport standard, accelerated graphics port (AGP), Peripheral Component Interconnect bus (PCI) and an alphabet soup of other standards.

There are over 450 standards-setting organizations in the U.S. alone and an additional 150 consortia standards-development activities ongoing. Approximately twenty standards-setting organizations develop about 80 percent of the standards in the United States. Although the U.S. standards system is highly decentralized and naturally partitioned into industrial sectors, ANSI alone is composed of more than 700 companies, 30 government agencies, 20 other institutions and 260 professional, technical, trade, labor, and commercial organizations. There are more than 13,000 private sector standards in use by the federal government.

It is well established, through the long history and up to current practices of formal and informal standards-setting organizations, and the vibrancy of ad hoc standard setting or adoption through consortia and the use of “patent pools,” as well as marketplace adoption of both open standards and proprietary standards, that the IT industries are well suited to and capable of developing standards.

Indeed, these are sophisticated participants in mature industries, experienced in developing standards. Further, there are many and varied types of standards used by these industries. In the weeks ahead I will survey these various forum for standards development and the standards that have been developed – all of which evidences the sophistication of the companies and organizations responsible for creating IT standards.