beyond pt 0 23/1

Box 2.1
Can information technology improve productivity?
The productivity gains from investment in information oriented infrastructure has
been a controversial issue amongst economists for some time. It has been pointed
out, for example, that the rapid adoption of information and communications
technology from the mid-1970s onwards was accompanied by a slowdown in labour
and capital productivity growth in most developed countries. This led the Nobelprize
winning economist, Robert Solow, to observe in 1987 that ‘you can see the
computer age everywhere but in the productivity statistics’. The reasons for this may
include the substitution of investment in information and communications
technology for other types of capital and learning effects. These may mean that it
takes time for business to realise the full benefit of new technologies.
While academic economists are still pondering the issues, practitioners are taking a
more pragmatic approach. Alan Greenspan, the Chairman of the Federal Reserve Bank
in the US, for example, finds arguments that IT related productivity gains are
ephemeral hard to believe. He gives every indication that he is taking the
productivity enhancing e-commerce factor into account when forecasting economic
outcomes and setting monetary policy. This was clear when he recently said that
‘The Internet offers an admixture of potential new goods and services and
potential lower costs of production. A major part of our current GDP reflects
distribution cost, and it is evident that much of that is subject to potential
competitive reduction through Internet marketing. I do not perceive the end of
the shopping mall, if for no other reason than I have been strongly advised that
shopping is not solely an economic phenomenon. But the relationship between
businesses and consumers already is being changed by the expanding
opportunities for e-commerce. The forces unleashed by the Internet may be even
more potent within and among businesses, where uncertainties are being reduced
by improving the quantity, the reliability, and the timeliness of information.’
Sources: UK Cabinet Office, e-commerce@its.best.uk, September 1999, p. 105.
Remarks by Chairman Alan Greenspan, Information, productivity, and capital investment,
Before the Business Council , Florida, October 28, 1999.
The value-added chain
Following on from the potential for e-commerce to reduce the cost
structure of firms, it will also change firms’ relationships with their
suppliers, or with their customers. This can change the structure of the
complex interrelationships represented in value-added chains which make
up the economy.
Disintermediation
A concept that underpins much of the economics of this study is the
process of disintermediation.
In the chain of activity between the producer and the final consumer,
intermediaries perform many services including transportation,
wholesaling and retailing—these activities are known as margins
because their costs form a margin between buyers and sellers. In most
OECD countries, margins typically add about 33 per cent to the final
price of goods. 10
The exhibit below illustrates some disintermediation opportunities in a
very simple value-added chain.
10 OECD 1999, p. 64.
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