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Chapter Two
Economic issues
What difference will greater reliance on e-commerce make? Why is it not
just an information technology issue? This Chapter identifies some of the
key economic issues at stake. This sets the groundwork for the work to
follow in examining actual impacts.
Huge estimates of the rapid growth in e-commerce sales generally do not
impress economists. If US Internet retailers have boosted their sales to
US$38 billion, so what? 9 Economists will assume that this is offset by a
US$38 billion loss by other retailers. Where is the net gain?
Major economic issues include the following:
• Will e-commerce change productivity?
• Will it lead to new products and ways of doing things?
• Are there implications for employment?
• Will prices or the rate of inflation change?
• Is there a risk of industry dislocation?
• Will some regions be impacted more than others?
• What are the implications for international competitiveness?
• How will it change the way that business is done?
2.1 Productivity gains
It is becoming clear that e-commerce is likely to have a profound impact
on the economy at large. Even mainstream economic policy makers in
other economies now recognise that the gains, characterised as
productivity gains by macroeconomic analysts, are already having a
substantial impact. As noted by Alan Greenspan, Chairman of the
Federal Reserve:
… Our nation has been experiencing a higher growth rate of productivity—
output per hour worked—in recent years. The dramatic improvements in
computing power and communications and information technology appear to
have been a major force behind this beneficial trend.
‘Monetary Policy Testimony and Report to the Congress.’ Testimony of Alan
Greenspan, Chairman, Federal Reserve Board. February 24, 1998
http://www.bog.frb.fed.us/boarddocs/HH/
There are good reasons to expect that e-commerce can raise productivity.
Firms can ‘reengineer’ to make maximal use of the capabilities of the new
technology. With a streamlined interface between production and sales,
for example, firms could extend ‘just in time’ processes to almost every
activity, reducing inventories and other input costs. They may also be able
to streamline their own purchasing and orders processing systems and
reduce the cost of finding and processing sales. E-commerce introduces
potential distribution cost savings for many firms, particularly those that
can digitise their products. It may also be easier to reduce the cost of after
sales service.
9 As forecast recently by the Centre for Research in Electronic Commerce, University of Texas.
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