Session on IT and New Businesses for Corporate Management
Let me start by saying that I fully agree with Mr. Fitzgerald and Mr. Bernardino on the great potential that digital information and communication technologies have in creating beneficial economic and social change. Economists and historians have good reason to call the IT-transformation the third industrial revolution or the fifth Kondratieff cycle.
In many countries the rapid expansion of the sectors producing the information and communication equipment has greatly contributed to overall growth rates. This is certainly true of my own country, Finland, where the IT sector has contributed about one fourth to overall economic growth in recent years.
This is not the whole story, however. These new technologies are generic in the same way as steam and electricity were earlier. It was not only the railroad companies that benefited from the railroads and not only electricity companies that benefited from the introduction of electricity. Similarly the effects of information technologies will be felt in the long run in products and in business practices of all the sectors of the
economy. As Mr. Bernardino pointed out, for the traditional sectors this adaptation process is a great challenge.
Information technologies as such are not a new thing, on the contrary they have a long history, hundreds, even thousands of years. An excellent book called A Nation Transformed by Information – How Information Has Shaped the United States from Colonial Times to the Present was published recently on this topic by Chandler and Cortada.
Since the Second World War, and particularly during the last decade, our capacity to process and exchange digital information has gradually increased so much that we can finally speak of a true, long awaited IT-revolution. Professor Solows remark that computers can be seen everywhere except in the productivity statistics was true in the 70s, but not anymore.
Mr. Fitzgerald correctly pointed out that the potential offered by these new technologies may not be fully used if there are institutional or financial constraints. The best practice technologies are not the same as average practice. And for the average to catch up with what is now the best practice, will take a lot of time. There are many developing countries that have not yet benefited even from the diffusion of earlier industrial revolutions. This sad fact, of course, also has a positive side: there is an enormous unused potential related even to existing technologies.
Flexibility, institutional and organizational innovations, extensive educational efforts and financial arrangements are needed to reap the benefits of new technologies. Some of these problems are closely related to more fundamental questions like how should we organize our societies.
As in past transformations, we now have to redefine many regulations and rules on which our societies rest. Mr. Fitzgerald discussed the issues of competition, intellectual property rights, privacy, security, and consumer protection. What makes these key issues even more complicated is the fact that in a globalized world our countries have to solve all of them together, starting from different rules of the game. For small countries like Finland access to the new internationally deregulated and to some extent again reregulated markets is particularly important.
If we use the concept of a New Economy, we should remember that most old truths will stay with us also in the future. There will be business cycles, bankruptcies, and also many surprises. Earlier new technologies, which now are often called old, will, of course, remain extremely important. Most mechanisms of the old economy will apply also in the future: wage increases that exceed productivity growth will lead to inflation, and so on.
So far, productivity increases in most countries have been large only in the sectors producing IT equipment. However, in recent years, investments in these innovations have rapidly increased in the traditional sectors. Thus we may expect more widespread positive productivity developments in the future.
Thus the bursting of the IT bubble in the stock market does not mean the end of the new technological transformation. It only demonstrates to us that, as with earlier technologies, the process of adaptation will be not only gradual but also painful. According to the great economist Joseph Schumpeter, creative destruction is an important part of the growth process.
Let me finish by asking how large productivity increases we may expect from the IT-revolution? Earlier industrial revolutions led to growth rate increases of the order of 1 percentage point per annum. This may sound insignificant. However, over 30 years this means an additional increase in our living standards by one third. This is an enormous change.