Into the new paradigm
An economic revolution is under way, but revolutions leave many behind, warns Marc Coleman , Economics Editor
It was early 1999. Together with some of my economist colleagues, I was glued to a screen at which we were gasping in amazement. "Has someone just sighted alien spacecraft?" the secretary asked.
From an economist's point of view, that's just what we'd seen. New statistics had just been published on Reuters, putting economic growth at 9 per cent. In Ireland we wouldn't have flinched, but we weren't in Ireland. We were in Frankfurt at the European Central Bank and global economic statistics, particularly statistics for the US economy, were our food and drink.
It bored my colleagues when I told them that the Republic's economy was growing by more than 10 per cent that year. The Republic was then in an early stage of catch-up and our rapid growth at the time was more or less in line with textbook predictions, especially for a small economy like ours.
For the US economy, growth like this was a thing of wonder. Something very unusual had to be afoot. And it was: in the late 1990s, the information technology revolution was truly coming of age in the US economy, and not just in the form of a dotcom bubble. Since the 1980s there had been a decade of mass investment in all kinds of information technology. Now American workers were beginning to exploit its potential, ascending a steep learning curve to a higher level of economic achievement.
Now in Ireland we like to think we are at the forefront of a similar revolution in IT.
But as far as the indigenous economy is concerned, we are still beginners. As the Small Business Forum report this year showed, the potential of information technology remains a mystery to an alarming number of small and medium-sized enterprises. Despite the presence of world leaders in computer technology on our island, computer literacy among our children is far below Scandinavian levels. The difference between being a high-tech economy and a high-tech society taunts us.
Neither is the IT story in the US entirely rosy. Like the industrial revolution, the information technology revolution greatly and rapidly expanded the potential of the US economy to grow, making many rich in the process. But just like its predecessor, it caught half of the labour market either unawares or unable to respond to its challenges. About one-quarter of US workers saw their living standards decline during the 1980s and 1990s, while those in the middle got disproportionately few of the benefits. Part of this was due to changes in other government policies.
But much of this change was caused by a phenomenon called "skill-biased technological change".
The good part of the IT revolution is easy to understand, the downside less so. As the internet greatly reduces or eliminates "front office" or customer interface operations, intranet and business-to-business networks allow different parts of a business to interact simultaneously on engineering or design work, cutting production times to a fraction of their former length.
They have also released companies from having to locate all their operations in one country: Armani can design its clothes in Milan, where the designers are based, and manufacture them in China, where the most efficient production is. Labour-intensive tasks in a range of areas - finance, accountancy and human resources - have become routine and many workers have been liberated from the tyranny of the office.
But all revolutions devour at least some of their children. While it defied fears that it would lead to mass unemployment, the IT revolution has for many people done something almost as bad. Work that was once highly rewarding and rewarded has been routinised as high-value capital (computers) is substituted for high-value labour.
What the spinning jenny did to artisan clothmakers in the early 19th century, information technology has done to service-sector artisans in this century. A trip to your nearest train station will confirm how an automated ticket vendor has rendered many station workers practically redundant. And even if such workers are not laid off, they have lost an essential component of their bargaining power.
The result has been falling incomes - in relative and in some cases real terms - and declining conditions, with less skilled workers suffering more than skilled ones. Hence the term skill-biased technological change.
One challenge is to harness the benefits of information technology. As renowned economist Hal Varian has shown in a comprehensive study, the huge productivity gains for the US economy were generated by organisations that were most capable of structural change and adaption. In Ireland many potential gains in the public sector or in large private-sector organisations are being stymied by opposition to change. Perhaps social partnership has a role here.
Another challenge is to ensure fair opportunities for all workers to benefit from IT. Information technology on its own does not create unequal opportunity. But IT literacy will be to our century what literacy was to the last one, and having among the lowest computer literacy and broadband access rates in Europe is a bad start for the Republic on the road to becoming a high-tech society. A better one might be to set the goal of ensuring that every primary-school child has a laptop by the year 2016.
An illustrated history of the Internet and its impact on Ireland.