Transcript The telephone - School of Business Administration

The IT Revolution
and
The New Economy
Objectives
To understand better:
1. What the IT revolution means
to the economy.
2. How the IT revolution compares
to previous economic revolutions.
3. Whether the productivity and
GDP growth rates of the past decade
are telling us about the IT revolution.
4. What economists think it reasonable
to expect from IT in the future.
Outline
1. Learning from history.
2. Productivity and IT in principle.
3. Economic data since 1991, what
do they mean?
4. What can we say about the future?
Three events in history are in different
ways especially relevant to our
discussion of the current IT revolution.
1. The Industrial Revolution.
2. The invention of the telephone.
3. The invention and distribution of
electricity and electric motors and lights.
What caused the Industrial Revolution?
1. Population growth?
2. Population concentration and leisure?
3. Invention of medicine?
4. Inventions such as the cotton gin,
sewing maching, power loom, steam
engine, steamboat, farm machinery?
5. Division of labor?
6. Information technology?
Why did population grow like this?
By chance at first and then this growth
ignited the industrial revolution?
This is logical e.g. if this growth made
the division of labor possible and then
the greatly increased production…
Think of this as reaching the first rung on
a fire escape ladder. Then you climb up
the steps to the top.
Population concentration and leisure?
Urbanization:
concentrations needed for factory system
concentrations create new markets
Leisure: For example, the aristocrat has the
time to dabble in science.
Koch, Pasteur
both 1800s
Virchow, Harvey
1800s & 1600s
Fleming, Jenner
1900s & 1700s
The Semmelweis
story reveals
how bad medicine
was even in
the late 1800s.
Could inventors
or even single
inventions have
caused the
Industrial
Revolution?
Or did it cause
them?
Electricity:
In the 18th Century, electricity
came to be understood and it
was a frequent source of fun for
parlour games.
Many of the practical applications
didn't come until the 19th Century
with inventions such as the electric
light bulb, phonograph, motors.
But, complete
electrification
came only by
the 1930s in FDRs
Rural Electrification Administration
the "REA"
Above: electric feed
grinder;
Below: rural creamery.
The telephone:
When Alexander Graham Bell invented the
telephone and began to sell them, the value of
a telephone to a given person generally increased
as more people bought telephones.
This illustrates the phenomenon of
increasing returns (the opposite of
what every economics student was
taught, which was the "law of
diminishing marginal returns").
This might happen with the current
IT revolution caused by computers and
the internet.
Adam Smith
and the
Division of
Labor
Was this the key?
Johannes Guttenberg
Inventor of the
printing press.
Motive: He was
trying to pay off
some debts by making
indulgences in large
quantities for the church.
Marco Polo
The other leg of the
"information
revolution"
that might have
triggered the
Industrial
Revolution.
But, what are the lessons for us? What
does this imply for our IT revolution?
My choices:
1. Tech revolutions may take many
decades, even centuries to play out.
2. The current IT revolution was
probably not the first.
3. Pinning economic growth to a specific
source is often difficult.
4. IT revolutions may even accelerate due
to increasing returns.
Growth in GDP depends on these factors:
1. Productivity growth.
a. Technological change.
b. Improvements in physical capital.
c. Improvements in human
capital -- education.
2. Growth in availability of factors.
A look at U.S. recent productivity growth:
From 1965 up to 1997.
The upturn in the 1990s.
Country
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Greece
Ireland
Product
ivity
96
102
128
97
92
93
123
105
75
108
Country
Productivity
Italy
106
Japan
82
The Neth.
121
Norway
126
Spain
84
Sweden
93
Note
Switzerl.
94
OECD
Turkey
36
Average= United K.
100
100
U.S.
120
Part 2: Recap and review: How does IT
improve productivity in principle?
My personal choices:
1. Speeds up diffusion processes.
2. Improves matches of consumer and product.
3. Enables improved production process controls.
4. Improves matches in business to business markets.
5. Helps to create new products.
6. Others.