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close this bookUnited Nations University - Work in Progress Newsletter - Volume 15, Number 1, 1998 (UNU, 1998, 12 pages)
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View the documentCybergrowth: Pathway to sustainable development?
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Organizing for growth...

By W. Edward Steinmueller and Maria-Inês Bastos

One of the great economic puzzlers of our age is why the vast expenditures on information and computer technologies have not yet been reflected more clearly in productivity statistics. Robert Solow, the Nobel Prize laureate who largely created modern growth theory, has said that "we see information technology everywhere but in the numbers." The debate rages between those who see the world on the brink of a new golden age of prosperity and those who predict economic disaster.

In the following article, W. Edward Steinmueller and Maria-Inês Bastos examine the ways in which the new technologies (semiconductors, computers, software and telecommunications) are impacting on economic growth, both in the advanced industrial societies and in the Third World. They stress in particular the importance of new ways of organizing production if we are to take full advantage of modern information and communications techniques. A major problem is dealing with existing networks, both social and technological, which resist reform in the workplace.

Professor Steinmueller is on the faculty of the University of Limburg; Ms. Bastos is on the staff of the UNU's Institute for New Technologies (UNU/INTECH) in Maastricht in the Netherlands. This selection is excerpted from their 1995 paper for the Global Forum on Industry Perspectives for 2000 and Beyond, organized by UNIDO in cooperation with the Government of India. - Editor

Information and communication technologies (ICTs) have been heralded as the foundations for a new industrial order. The enormous scale of current investment in these technologies - across a broad span of countries in various stages of development - indicate that this belief is shared by developed and most developing nations. It is reputably estimated that in 1993 alone, the major and emerging economies together spend something approaching $750 billion in this field. What do these technologies promise that has attracted such a level of investment? Have these promises been kept, or will they be, sometime soon?

In the last two centuries, economies throughout the developed world have been able to achieve higher levels of sustained economic growth by transferring agricultural to industrial labour through the use of fossil fuels for motive power, the improvement of mechanically based technologies of mass production, and the establishment of new forms of social organization - a primary example being the factory. The basis for this sustained growth was the realization of much higher productivity in industry than had been possible in agriculture.... Agriculture itself was transformed beginning in the 19th century through the use of fossil fuels, originally for transportation, and subsequently for uses such as irrigation, and chemical fertilizer.

In the advanced industrial nations, most of these gains had been realized by the first half of the 20th century. The developing nations, for many reasons, have experienced difficulties in fully entering this process.

The promise of information and communication technologies for addressing manufacturing productivity in developing nations is that substantial advances would allow expansion of industrial output. If large enough this could substantially influence the creation of employment and the creation of wealth. Because ICTs are often labour-saving, a large increase in output is necessary to raise the derived demand for labour - otherwise their impact may be the negative one of reducing the need for labour.

This promise is partially supported by observed technical progress, much of it the direct result of the application of materials science to the production of modern information and communications technologies. The earliest, and still the most important of these applications, is the use of semiconductors for the production of computers, telecommunications equipment and related electronic devices.

Productivity gains from the use of information technologies involve improved control within individual production processes, smoother integration of individual processes, and better control in the acquisition of inputs and the disposition of outputs. Communication technologies are particularly important in coordination - for example, in relaying detailed information about inventories and scheduling throughout a distribution system. Productivity gains are realized through cost-reduction, with reduction in material inputs, labour and capital. Labour saving is a principle source of cost-reduction.

ICTs can also play a role in compensating for particular deficiencies in market infrastructure. A truck driver stranded in a traffic jam, for instance, can notify the destination of the delay using a cellular phone and identify alternative routes using local radio communication. Even better, all of this information can be coordinated through a sophisticated logistical control network.

We caution, however, that widespread deployment of these technologies, without organizational change, is unlikely to reproduce the sorts of historical productivity advances experienced in the last century. It does little good for the truck driver to notify the destination of delay unless this message can be transmitted to the shop floor in a way that alters the composition of work activities. This presumes a high degree of flexibility and ease of "reconfiguration" of production processes and tasks.

Our simple example of the truck driver is only an illustration of a very large class of specific actions within the social and technological networks that comprise the modern manufacturing organization. Most of these networks have evolved for several human generations and are not amendable to rapid alteration or reconfiguration. This is the essence of the problem of reforming manufacturing organizations to fully exploit the productivity potentials of information and communication technologies.

Information Use in Services

The second trend underlying the claim that these new technologies are tools for economic growth focuses on the "service sector." This encompasses an enormous range of activities, ranging from professional services like medicine to personal services such as hair stylists. Trying to register the historical gains in manufacturing productivity within the service sector has proven to be a much for intractable problem.

Information and communication technologies have been seen as an important solution to this problem. The hope is that they will produce productivity gains that match or exceed those historically experienced in manufacturing technologies. This would make it possible to indefinitely sustain overall economic growth and improved productivity, as a growing share of output is being produced in service sectors.

The possibility of indefinite growth in the service sector is encouraging for both industrialized and developing economies. For the advanced countries, a larger share of output in services is consistent with increasing investments in human capital as well as the dispersal if industrial activities to reduce localized environmental problems. The growth of services can also provide domestic growth opportunities that can absorb labour displaced by productivity improvements in agriculture and industry.

Such opportunities, moreover, are less challenged by imports from abroad. The use of information technologies, for example, can create a domestic demand for software and systems engineering services, creating better paying jobs than many other service occupations.

The corresponding challenge for developing countries is to find ways to upgrade the value and quality of services so that service sectors employees experience increasing wages over time. Doing this, of course, requires improvements in the productivity of the service sector.

Thus both developed and developing nations face a common challenge in finding ways to improve service sector productivity. But, we stress again that it is the issue of organizational change that provides a fundamental barrier to translating new technological advances into productivity gains. Implementing the organizational changes that would permit ICTs to have the same productivity impact in services that previous organizational shifts had in manufacturing has proven a very difficult task - for several reasons.

First, in the service sector, mass production is the exception rather than the rule. This makes it difficult to engineer information and communications solutions that can be applied across a range of service activities. Second, these technologies are often used in the service sector to develop new products, removing them even further from the mass production and consumption model. In financial services, for example, it is true that ICTs support economies of scale in transaction processing. But at the same time, they also permit the creation of many new services of an individually tailored nature.

The service sector might seem of lesser importance to the developing nations, where the first priority is to increase manufacturing productivity, and thereby stimulate other economic activities. Moreover the chief contribution of information technologies is often to reduce the number of workers. Most services in the developing countries are personal services; few opportunities exist to absorb the available labour. While there is some truth to these arguments, they are also misleading.

Firstly, in developing countries, governments often absorb relatively large shares of national output - most government activity involves delivery of services. Improving government productivity could free resources for private investment.

Secondly, services are often close complements to manufacturing. The effectiveness of the retail and distribution sector influences manufacturing by providing more efficient market outlets.

Harmonizing Global Production

Third, developing nations are increasingly faced with the problems of harmonizing their production systems with computer-driven systems in the more advanced economies in order to serve as suppliers and sub-contractors in an increasingly global division of labour. This process of harmonization requires adoption of new information technology not only at the "service" levels of the firms - the front office and communications links to developed nation supplies - but also within the production process to control quality and scheduling in ways that are consistent with customer demands.

Many of these harmonization problems are reflected in demands for services. Without extensive use of ICTs, these can become barriers rather than complements to improved international trade.

Finally, productivity improvements in both services and manufacturing are worthwhile wherever they may be achieved. To the extent that these technologies release labour, the problem is to develop other opportunities for their employment rather than lock them into employment patterns where they have low productivity.

On the shop floors and in the offices of modern enterprises of both industrialized and developing nations, ICT use implies forms of organization that are antagonistic to the traditional hierarchical division of labour. Achieving productivity gains from these technologies most often requires restructuring both the organization and the content of labour contribution to economic output.

"Persistent, Incorrect View..."

A persistent and incorrect view of the role of information and communication technologies is that they could be productively employed as direct substitutes for unskilled labour in production activities; managers and designers would then have a more pliant and reliable labour force of automated machines rather than workers. Experience has shown, however, that the information acquisition, filtering and transmitting operations performed by middle managers are often the ones that are bypassed by ICTs they become redundant at a faster rate than the labourer on the shop floor.

In addition, implementing the new production technologies requires a skilled and flexible labour force that can solve problems on the shop floor independently of the guidance of the industrial designers. Precisely because of these tendencies, the adoption of ICTs is often resisted by the hierarchical structures created by earlier stages of the industrial process.

Developing nations face many of the same basic problems as the advanced countries in the use of ICTs to improve manufacturing productivity. They are further influenced by the pattern of ICT use in the latter nations. As the advanced countries use ICTs to move toward greater levels of outsourcing, the developing nations experience reduced market barriers and are more likely to become suppliers.

To participate in this process, however, developing nation enterprises find it necessary to develop the information links to integrate themselves into supply chains being created for such activities. In addition, as the industrial nations utilize these technologies to improve the level of their manufacturing flexibility, developing countries enterprises face competition that is more difficult to meet. Traditional mass production methods no longer suffice. They are forced to consider also adopting organizational models that reduce hierarchies and more closely link production to market demand.

Our conclusions about the potential contribution of information and communications technologies are based on empirical results from advanced industrial countries. The results from the US experience (which appears to parallel the experience of Europe and Japan) suggest that reproducing the enormous gain in productivity that were achieved in manufacturing over the past century will require far more than the rapid technological progress that has come from the new information technologies. They call for fundamental organizational changes that have only begun to be made. These changes are proceeding at very different speeds and in many different ways among the services and manufacturing industries that intensively use the new technologies. The same uneven development appears to characterize their use in developing countries.