The Net is "poised to trigger change"

Scepticism about the impact of new technology on UK productivity could set back efforts to improve the UK's economic performance,...

Scepticism about the impact of new technology on UK productivity could set back efforts to improve the UK's economic performance, say economists Diane Coyle and Danny Quah in their report, Getting the Measure of the New Economy, written for The Work Foundation, writes Ross Bentley.

Coyle and Quah say new technology is having a significant effect on how the UK economy operates, even though belief in a new economy driven by the latest information and communication technologies has been tainted by the bursting of the dotcom bubble and the Enron fiasco.

"Secretary of state Patricia Hewitt recently said that the Labour Government bought into new economy hype too enthusiastically. She now describes the notion of a weightless economy as 'hot air'. This attitude suggests the Government is going to miss out on the chance to improve Britain's economic performance," Coyle says.

She argues that mounting doubt about the new economy is driven by a misplaced focus solely on productivity. Because technology does not appear to have had a big effect on measured productivity figures, sceptics now say that nothing has changed.

Instead, the debate needs to balance concerns about productivity by examining how consumers, and their use of new technologies, are radically changing the shape of the economy, Coyle says. "Consumer tastes are going to be the real engine of change, as they have been in all previous technological revolutions. It is from the experience of our daily lives that we understand that new technologies are having a profound impact in reshaping our economy and society."

To redress the balance, the report assembles 32 UK-specific indicators to track the wider impact of technology on consumers, business, and the macro-economy. Only by monitoring a wide range of indicators, from the uptake of broadband Internet to levels of expenditure on research and development, will the wider impact of technological change be understood, the authors assert.

They make comparisons with other general purpose technologies, such as electricity, to show that the effects of such changes are gradual and dispersed widely. The real transformation requires organisations to restructure around the new possibilities.

Evidence is mixed on whether high levels of investment in technology have changed the structure of UK economy. High levels of investment in information and communications technology have not yet been reflected in productivity figures. The report argues that this is consistent with what we know about the impact of technology as it diffuses through economic activity: that it takes time to take effect, is difficult to measure, and requires widespread consumer use to have full impact.

Using the US as an example, Coyle and Quah show that although US investment in computer hardware has been high since the 1970s, it was only when more users became adept at technology and when Internet dissemination brought online hundreds of millions of users that productivity skyrocketed. "It is not the production side that is crucial: it is the consumption side," they say.

The report also shows how the current crop of new technologies - notably faster information processing combined with the Internet - have all the characteristics of the type of general purpose technology which will, in time, reorganise the way the UK economy operates. Studies of electrification show that it took new buildings, single storey and laid out in modules, to capture the productivity improvements it promised. Once factory buildings started to change, it became possible for management innovators to think about the layout of the production line, paving the way for mass assembly.

"The full social and economic ramifications of electrification, a technology dating back to the 1850s, were played out in the mass production era that reached its apogee in the mid-20th century," says Coyle.

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