Introduction

Information technology (IT) is a pervasive technology which has major implications for industrial development and economic growth around the world. Many of the industrialized countries have developed government policies to promote the production and use of the technology. In this study we review policies in OECD countries designed to encourage the widespread diffusion of IT. We do so in order to draw out lessons of relevance to developing countries. More specifically, the study seeks to:

· Help aid agencies move beyond fragmented efforts to promote the use of information technology and towards the development of national policies, strategies and programs in support of IT diffusion throughout an economy.

Provide an empirical basis for designing such assistance, by drawing on the rich menu of programs and lessons of experience of eight OECD countries.

· Demonstrate the most appropriate approaches for government interventions (in collaboration with the private sector), in response to specific yet pervasive market failures and the substantial externalities associated with IT adoption by private enterprises.

· Develop frameworks and tools for analyzing the portfolio of IT policies and programs of a country and for packaging these programs in support of differentiated target groups.

The structure of the report reflects our approach. After initial clarification of the objectives of the study, Chapter II discusses the importance of IT and the reasons why governments have formulated and implemented policies to promote its diffusion. This Chapter also examines some of the barriers to effective diffusion. The focus then shifts in Chapter III to the articulation of some simple models of the diffusion process and government policies in the area. These we use throughout the report to categorize and analyze government policies and their implementation.

Chapter IV reviews the range of government policies affecting the development and use of IT in OECD countries, with particular emphasis on the role and position of diffusion strategies in overall policy portfolios. This is followed by detailed coverage in Chapter V of IT diffusion programs of varying types, concluding with an analysis of best practice in combining programs to create an effective portfolio of diffusion programs. Chapter VI continues with a number of rules-of thumb for policymakers responsible for designing individual programs.

The final Chapter VII reflects on the experience of OECD countries and examines the implications for developing countries. Appendices provide descriptions of national policies in the OECD countries (Appendix 1) and details of individual programs (Appendix 2).

As a pioneering study, it does not address all questions relevant to the promotion of information technology diffusion in developing countries. It is not intended to provide blueprint plans or country-wide specific assistance packages. The study focuses on a few relatively visible programs, with a particular focus on IT, in each of the selected OECD countries. Many of the programs reviewed continue to evolve. There are about a thousand programs in OECD countries concerning technology development and diffusion, and the share of those focused on IT is about half (Box 1). So the picture is complex and there is no simple way of depicting overall patterns and trends. The study had to simplify and briefly outline each country and program strategy so as to move the analysis quickly to focus on the broad picture: the main trends in the mix of national programs, for policy makers, and the key guidelines, for program designers.

Box 1

OECD Industrial Support Programs Database

The OECD Industry Committee has created an information database describing industrial support schemes implemented by 22 member countries and the Commission of the European Communities.

As of April 1993, the database contains 1013 programs for the period 1968-89 with a total net cost to government between 53 an 75 billion US$ yearly. It is the author's estimate that about half of these programs are targeted at the information technology industry, including the use of IT as an input to other industries (see the study of SPRINT program, Chapter 4).

The programs analyzed (879 out of the total) cover a wide variety of policy objectives. These were classified under eight groups:

· 130 were sectoral programs aimed at improving a country's competitiveness in a given sector;

· 37 were schemes of exceptional recourse for assisting companies in difficulty;

· 159 were programs dedicated to the strengthening of R&D expenditures and capabilities;

· 123 were dedicated to improving general investment behaviors by diminishing general capital costs;

· 162 were supporting regional development in areas with adjustment difficulties and remoteness handicaps;

· 117 were to support small and medium-sized enterprises;

· 60 aided employment and training activities inside companies;

· 91 supported exports and international investment.

The 879 programs surveyed use one of six financing instruments. Direct grants are used in 468 programs. Subsidized loans are the financing instrument for 61 programs, and government guarantees for 57 programs. Equity capital infusions are used in 24 support schemes. Tax concessions are the financing tool for 145 programs. Finally, 115 remaining schemes utilize simultaneously two or more of the above-mentioned instruments, and are classified as mixed instruments.

Programs differ also according to the economic costs they target and reduce. Among the 879 programs, 126 diminish production costs, 147 schemes specifically reduce research and development costs, and 144 focus on costs of acquisition of specific tangible and intangible assets. 88 programs reduce export and international investment costs. Finally, 46 programs subsidize not company costs, but the operating costs of non-profit industry support organizations.

The management structures administering support programs in different countries also differ and can be grouped into four categories: 627 programs are directly funded and administered by central governments, 88 programs are funded and managed by regional and local authorities, and 46 under the joint action of central and regional bodies, and 109 programs are conducted by partially off-budget intermediary institutions.

Although this information database is probably the most systematic and extensive information source available internationally, a number of important shortcomings still remain with respect to data coverage and to the methodology used. Support schemes by sub-central authorities and quantitative measurement of tax concessions to manufacturing are especially two areas where reporting remains uneven.

Source Industrial Policy in OECD countries: 1993 Annual Review; "1993 Annual Review of Industrial Policies," OECD, Industry Committee; and "Subsidies and Structural Adjustment," Report to the OECD Council at Ministerial level. May 1992

The study also encountered difficulties in trying to isolate common barriers to general technology diffusion from those specific to IT - hence the need for conceptual frameworks to clarify the additional barriers. Market failures and capability failures in IT diffusion are of a different order from those facing adopters of other technologies: the importance of 'intangible' and complementary investments; the different phases of IT use that are required to realize 'transformational' benefits; the managerial and institutional factors involved in effective IT use, etc. The study developed frameworks and tools to aid thinking about the complex and cumulative nature of technological learning, and about the diverse capabilities required for this generic and pervasive technology.

The study does not address the new managerial and organizational innovations which may have enormous value on their own, particularly for developing countries. Our view is that technological and organizational changes are complementary and mutually reinforcing. The introduction of modern information and communication systems has its own attraction for policymakers in developing countries, and should thus be used to induce and support new managerial and organizational practices.

The study should thus be seen as a first phase in a learning process for aid agencies. This is a vast and relatively unexplored field for development practitioners, and the study was not intended to answer all research issues on the subject. We should keep in mind the objectives of the study: to identify guidelines and best practices in formulating national IT diffusion strategies and programs. It is not intended to provide or report in-depth evaluations of each country policy or program. Quantitative analysis of the impact of each program or policy at the firm, sector or national level would have been beyond the resources of this study. Evaluation studies sometimes require extensive resources, and are often constrained in their focus by political considerations.

Although the focus of study is on drawing practical lessons for designing effective IT diffusion programs, rather than evaluation of impact, there is a growing evidence that such programs make a difference, particularly for small and medium enterprises (SMEs). There is empirical evidence that SMEs are significantly lagging behind the larger firms (in the same industries) in IT adoption, even in industrialized countries. An Italian study for the Lombardy, one of the most developed industrial regions in Europe, found a large share of enterprises totally unaware of the potential use of IT. In contrast, countries with a longstanding tradition of technology diffusion programs such as Canada and the Netherlands do not rank the awareness problems as a serious barrier any more.

Our approach is practical, selective, and low-cost. We draw on the substantial 'tacit knowledge' of practitioners, extensive reviews done by us and by various program managers and independent evaluation teams of OECD over the last decade (see acknowledgment). Timely articulation and dissemination of these lessons of experience is critical as developing countries are investing heavily in acquiring the technology, often under very imperfect conditions. Aid agencies need to invest more intellectual capital to capture, adapt and transfer these lessons.

The study focuses on IT diffusion in manufacturing. This covers a vast range of technologies from Management Information Systems (MIS) that try to utilize the growing flows of information as a useful resource for management and coordination, to Advanced Manufacturing Technologies (AMT) that are used to cope with the growing information content of the processes on the shop floor, to integration of microelectronics and Application Specific Integrated Circuits (ASIC) into manufactured products. AMT, in turn, covers a broad range of technologies for product design, materials handling, process control, fabrication monitoring and quantity control. Types of ATM are: Computer Aided Design (CAD), Computer Aided Engineering (CAE), Materials Requirement Planning (MRP), Computerized Numerically Controlled machine tools (CNC), Computer Aided Manufacturing (CAM), Flexible Manufacturing Systems (FMS), Industrial robots, automated guided vehicles, and Flexible Manufacturing Systems (FMS), Industrial robots, automated guided vehicles, and automated storage and retrieval systems. These applications can be connected via Local Area Networks (LANs) to form Computer Integrated Manufacturing (CIM) and externally, across organizations and space, via Electronic Document Interchange (EDI).

The special focus on manufacturing applications of IT is because diffusion of AMT is better researched and surveyed. This provides a better empirical basis on which lessons can be drawn for policy and program design. These lessons however have broad implications for IT applications in services and for technology policy in general, since, as will be shown, IT lies at the heart of current technological and structural changes (OECD, 1989).

This study addresses two main questions:

· Should governments promote the diffusion of information technology?
· What specific lessons can be drawn from the IT diffusion policy experience in OECD countries?

Justifying government action that promotes the generation or diffusion of any technology arises due to the presence of market failures which limit, inter alia, the availability of appropriate skills, information, or finance. Market failures have greater adverse implications for the spread of such new and fast changing technologies as information technology compared to mature and conventional technology. In the presence of market failures, governments all over the world have adopted policies that enhance their countries' and industries' ability to acquire, adapt, use, diffuse, improve, and generate technology. This includes such OECD governments committed to nonintervention and the unfettered operation of market forces as Thatcher-Britain and Reagan-Bush United States.

While not an exhaustive survey of IT diffusion policies in OECD countries, this report seeks to establish guidelines for good practice based on OECD policies and programs. We have concentrated therefore on:

· Canada, which has long-established and successful technology transfer policies. Germany, where significant IT programs and promotions have operated (to the benefit of both suppliers and users) for a number of years.

· Ireland, which is industrially catching-up within the EEC. Successful in attracting electronics multinationals as inward investors, Ireland is struggling to exploit this possibly temporary advantage, not least by trying to create national software capability.

· Japan, in many respects the global exemplar for rapid industrial development, where the production and use of IT have played a strong role.

· The Netherlands, which has particularly wide-ranging policies regulating technology support and acquisition, and managing successful programs.

· Sweden, with the highest R&D spending (as a proportion of GDP) in the World, which has especially strong programs aimed at the more capable actors in its economy.

· The United States of America (USA), where, until recently, explicit actions to support civilian IT diffusion and manufacturing capability were political anathema, but where local governments have been active in diffusion, and new national policies are emerging.

· The United Kingdom (UK), which has traditionally supported the suppliers of IT but is now rapidly moving towards a diffusion focus.

We have also selectively looked at the experience of the European Commission (EC), where programmatic interventions have promoted IT-specific R&D and telecommunications infrastructure projects since the early 1980s, and more recently have promoted diffusion as well.

The countries studied here span a range of experience and approach, normally viewed as good practice in the realm of science and technology policy. The study concentrates only on relevant programs and does not attempt statistical completeness. The reader, therefore, should avoid inferences from the fact that different numbers of programs appear in different categories in the analysis. The search was for insight and practical experience. More detailed information about the initiatives included in the study can be found in Appendix 2.