Introduction
Over the recent past, economic experts and other scholars have been stressing that the competitive edge of the economy of most industrialized nations are technologies based on knowledge and information (CIO Communications, 2000, p. 2). These new technologies have significantly shaped the nature of work and the general economy.
The expansion of these technologies is attributed to the proliferation of personal computers and the surge in the use of internet (Black & Lynch, 2000, p. 6). Nonetheless, the impact of these technologies on the economy still remains to a certain extent obscure with the critics and proponents giving their opinions without considering the real facts (CIO Communications, 2000, p. 3).
This paper aim to answer one of the most commonly asked questions among the public regarding ICT and new economies. The question is “why are new media technologies seen as the new engines of economic growth in many countries? Plus how are these countries coping with the challenges posed by these new technologies?”
According to Flew (2006, p. 5), new media is basically computing and information technology, communication networks and digital media arising out of the convergence process. New media can also be contemplated as digital media. Digital media are forms of media that merges, integrates and stores data in digital format and distributes them across networks.
The role of ICT on the economy cannot be understood without exploring the significance of the knowledge economy. Drawing on numerous literatures on this discourse the paper will explore a number of theories focusing on the knowledge economy and their role in socioeconomic transformation.
The study will provide facts that are drawn from various literatures on the knowledge economy and how it has facilitated new inventions and productivity. After that, the paper reviews the role of new media technologies in economic growth. A number of important issues will be raised in the study through the application of the theories to a real life situation.
Knowledge Economy
As already mentioned, the role of ICT on the economy cannot be understood without exploring the significance of the knowledge economy (Stiglitz, 1999). The study of knowledge economy highlights the significance of ICT and learning in the creation of wealth and competitive advantage in the global economy (Foss, 2002, p. 10).
This is supported by three interrelated arguments. First, there is a paradigm shift from agriculture and industrial production to service and information sector. Second, new media and ICTs have speed up the creation of new knowledge. They have achieved this by improving access to the current knowledge through networks, facilitating online interactions and accelerating the speed of knowledge dissemination and pooling together global intelligence.
Lastly, the new knowledge has boosted new innovations, or development of new products and services. The development of new products and services is viewed as the principle means to survive and thrive in the current competitive global business environment (Standards Australia, 2001).
The economies based on creation, dissemination and use of knowledge and information first emerged in a documented report presented by the Organization for Economic Co-operation and Development (OECD 2012). The knowledge-based economy emphasizes on the dissemination and use of the information and knowledge besides its creation.
The productivity and success of a company and of the economy as a whole depends on the efficiency and effectiveness of assembling and utilizing knowledge. Therefore, knowledge-based economy is mainly concerned with knowledge creation, transmission and dissemination (Foss, 2002, p. 12).
According to economic expert knowledge is the only resource whose value increases instead of decreasing, therefore causes a lot of confusion among economists. It is also costly to generate but less expensive to disseminate. Unlike many other tangible goods whose returns diminish with time, knowledge returns increase with consumption.
For that reason, the more information is used the more it becomes more precious resulting in a self- reinforcing pattern (US Department of Commerce, 2000, p. 3). Economies that heavily rely on knowledge are generally referred to as buoyant economy. These economies are replacing manufacturing and assembly plants with economic values signified by exceptionally intricate, miniaturized, and integrated hardware and software systems and designs that use them (Foss, 2002, p. 13).
The ICT revolution and knowledge revolution complement each other and have rapidly created tools and systems that are aimed at transforming individuals’ lives for the better. E-business emerged from the revolution of knowledge and ICT infrastructure. The two forces have significantly enhanced the potential and capacity of e-business (CIO Communications, 2000, p. 3).
Even though experts dismiss the inflated returns attributed to investment in e-business, they all agree that a new economy is emerging. The new economy is knowledge-based and is driven through digitally driven (The Intellect Digital Convergence Council, 2010, p. 6).
According to CIO Communications (2000, p. 3), the economy of major world superpowers, for example, the U.S. strengthened when it was built on the latest digital infrastructure. The new infrastructure through a synergistic convergence enhanced the computer power, increased connectivity and introduced upgraded computer software. These technological advancements resulted to a decline in the cost of computing and the surge in online activities and ICT investment (CIO Communications, 2000, p. 3).
In accordance with Gordon Moore’s principle, the power of the computer processors has considerably increased as well as the storage capacity. The improved computer capacities together with the expanded networks have significantly transformed commerce and industries (US Department of Commerce, 2000, p. 4). The current economies are not only shaped by advancement in computer hardware and software, but also increased connectivity (Standards Australia, 2001, p. 20).
The advent of the internet and cloud computing have significantly reduced the cost of software and computing infrastructure. A case study conducted by Khajeh-Hosseini et al. (2010) on the migration from grid computing to cloud computing introduced the subject of third party cloud infrastructure.
According to Khajeh-Hosseini et al. (2010), the third party infrastructure presents numerous prospects for businesses to enhance the management of their revenues and information exchange. Cloud computing improves cash-flow management given the fact that it reduces the overall costs and periodical billings as well as minimizing the inconsistency of expenditure on energy. Cloud computing also assists companies to reduce administrative costs.
Knowledge Economy and Productivity
Most of the macroeconomic studies have paid much attention on the relationship between technology and the productivity of labour. Earlier studies show a decline in productivity despite of massive spending on computing technology. This incidence baffled many economists.
Strangely enough, the greatest computer investment was in the service sector which was severely affected (Roach, 1987, p. 7). Roach (1987, p. 8) confirms that from early 70s to late 80S, computer investment increased from 6% to 15% in the service sector. However, the productivity of the white-collar information staff was below par compared to the general staff.
Loveman (1994) also carried out a similar study on large multinational companies in the late 70s and early 80s.He established that the return on investment in ICT (Information Communication Technology) was in fact negative. Similarly, Berndt and Morrison (1995) discovered that the marginal product of ICT was less than the associated costs.
The lack of proof of a positive correlation between investment in computing technology and productivity is what was referred to as productivity paradox. The results of these studies were summarized in Solow’s (1987, p. 36) broadly repeated line: “the computers were all over the place except in the figures gauging productivity”.
Appraising the benefits of the growing use of computing technology is not easy. Almost all the measures do not take into consideration expediency and ease of accessing information. Nor does the rate or volume of information transfer considered in the productivity measurement. However, towards the beginning of the 21st century, a couple of studies reported a positive link between ICT investment and the productivity of labour (Oliner & Sichel, 2000).
In the mid 90s, the productivity of labour in the US had revealed signs of the revival, kindling the debate of an alleged new economy. Studies reveal that sectors dealing in industrial and electronic machineries, for instance, computers contributed significantly to the resurgence (Nordhaus, 2001, p. 3).
A research was conducted to examine the link between ICT capital intensity and labour productivity among US industries from early 70s to late 90s. The study established a positive correlation between ICT investment and general productivity in the organization (Powell & Snellman, 2004, p. 207).
Without a doubt, there is some doubting Thomas, for example, Gordon (2000, p. 50) who argues that ICT in general has very little impact on the economy compared to earlier inventions such as power. However, most literatures nowadays agree that investment in ICT has promoted productivity.
According to Hitt, Frei and Harker (1999, p. 94), the inconsistency between earlier researches and the current studies is attributed to the use of more suitable and inclusive data. Studies that rely on general macroeconomic data have failed to establish the relationship between ICT and productivity, whereas studies relying on comprehensive, company-level data have been more successful in establishing the relationship between the two factors. This clearly shows the complexity in evaluating macro-level data.
Most economic theories view economic growth in terms of labour productivity and growth in labour supply (Powell & Snellman, 2004, p. 208). The productivity of labour hinges on the expansion of productive inputs, for instance, capital intensity and quality of the workforce. However, there is part of economic growth that is not captured by growth in productive inputs. This is normally referred to as multifactor productivity (Stiroh, 2002, p. 34).
OECD (2000) state that the growth in multifactor productivity is as a result of technological advancement and enhanced efficiency. Proponents of knowledge economy claim that investment in ICT drives economic growth by generating wider gains in the form of economic spillovers (Clarke, 2001, p. 190).
Nonetheless, there are mixed reactions to the spillover effect from the empirical perspective. Some studies have found a positive correlation between ICT investment and multifactor productivity (Griliches &Siegel, 1992), while others have found no relationship at all (Stiroh, 2002).
More comprehensive studies at a micro- level show that the contribution of ICT investment to productivity growth surpasses the contributions of other investments. This is subject to other significant changes in the organization (Powell & Snellman, 2004, p. 208). According to Black and Lynch (2000), ICT facilitates other complementary investments which help the companies to minimize costs and enhance the quality of output, thus resulting in a long-term growth in productivity.
A study on the impact of internet on the OECD countries established a positive correlation between ICT investment and company’s output, but there were variations among companies (OECD 2012). In addition, Oulton (2010) demonstrates that although ICT contributes to the productivity growth in the short-term, significant returns can only be realized in the long ran, for instance, after three to eight years. Black and Lynch (2000, p. 435) states that ICT investment enhances autonomy and the skills of the workforce.
Some economists describe ICT as a general purpose technology and compare it to telegraph and steam engine (Powell & Snellman, 2004, p. 209). The real value of general purpose technologies is measured from a string of supportive innovations rather than the technology itself.
Therefore, the value of a general purpose technology depends on the ability of the staff to come up with new processes and structures in the organization (Hitt, Frei & Harker, 1999, p. 102). Hitt, Frei and Harker (1999, p. 102) adds that introduction of novel technology without making necessary changes in the organization would have negative effects on the productivity. This is because the benefits of the new technology are counterbalanced by the negative relations within the organization.
Change in technology is normally associated with job loss and increased wage differentials (Powell & Snellman, 2004, p. 212). Most studies concur that technological changes increase the demand for skilled workforce compared to non-skilled workforce. This is attributed to computer-labour substitution where technology substitutes non-skilled workforce.
However, proponents of ICT and the new media technologies argue that more jobs have been created by these technologies than the one that have been lost. However, the new jobs tend to favour individuals who are educated than less educated individuals (Cheeseman Day J & Newburger, 2002, p. 4).
ICT and Economic Growth
Digital convergence across ICT, media, and other content sectors provides new opportunities for organizations and the general consumers. Digital convergence basically refers to a world where data and information are transformed into digital forms, personalized and accessible through different platforms on demand. It is also a world where the end users are not passive consumers but actively contributes and interacts with the service (The Intellect Digital Convergence Council, 2010, p. 7).
The current convergence value chain, which cuts across various sectors, has resulted into new business opportunities and threats. The new convergence value chain also presents new challenges to the current laws and regulations, most of which were intended for the non-digital world (Flew, 2006, p. 1).
According to the Intel Corp’s CEO Craig Barrett, convergence of technology expands opportunities. Craig Barrett reveals that digital convergence is creating more products that are even harder to classify. Information and Communication Technologies (ICTs) contribute massively to the global economy in terms of GDP. Economic expert states that ICT impacts over 50 percent of the Europe’s productivity and directly contributes about 7-8% of its GDP (Patel, 2008, p. 2).
Most Asian giants, for instance, Japan and South Korea are understood to have the largest digitized advertising market. The digital mobile advertising market only earned Japan and Korea €11.1b and € 2.5b revenue respectively in 2006.
These figures are much higher compared to most European countries, for example, Russia and United Kingdom which earned €0.3b and € 0.6b respectively. Digital media contribute considerable amount to Australian media revenues. In 2009, digital media generated approximately $3.2bn compared to $9.8 bn generated by the media in general (Patel, 2008, p. 3).
In industrialized economies, increased demand for mobile and internet services and changes in consumer behaviour has encouraged convergence of technologies. Technological convergence has been facilitated by digitization of media, globalization of corporate brands, the growth of online communities, the growth of internet and formation of new online communities, and the development of browsers and digital devices (The Intellect Digital Convergence Council, 2010, p. 9).
On the other hand, digital convergence has been used to bridge the digital divide and empower individuals in the developing economies. Therefore, digital convergence is not only used as a means of communication but also for credit/money management, for instance, micro lending and mobile banking (Flew, 2006, p. 1).
The general impact of digital convergence on various business functions include enhanced productivity, better customer service and product quality, minimal procurement costs, growth in revenue, better work organization, process efficiency among others.
In a nutshell, digital convergence either helps companies to enhance their revenue or optimize costs (The Intellect Digital Convergence Council, 2010, p. 9). The rate of adopting digital convergence depends on organizational strategies, competition and technological advancement (Patel, 2008, p. 6).
The Intellect Digital Convergence Council (2010, p. 10) emphasizes that the future only belongs to the economies that are harnessing ICT for socioeconomic gain. Most countries, for instance, Qatar has realized that without a strong commitment to improve the ICT their vision would never be realized. As a result, they have created a Supreme Council for Information and Communication Technology to regulate and direct ICT development (ICT QATAR 2012).
Most economies are now aware of the significance of new media and ICT since the world is now moving towards a knowledge-based economy. New media and ICT are playing a major role, both as a groundbreaking sector and as a facilitator of other sectors in the economy (Leonard, 1999, p. 2).
New media and ICT have enabled diversification and growth of the economies by encouraging innovations and entrepreneurship, creating well-paying job opportunities, and developing a skilled workforce (The Intellect Digital Convergence Council, 2010, p. 10). ICT contributed $3 bn to the GDP of the Qatar government in the year 2008. On a global scale, the ICT has created approximately 5.4 percent of the aggregate GDP during the same year and the figure was expected to increase to over 9 percent by 2020 (ICT QATAR 2012).
Besides economic considerations, ICT has helped to tackle societal challenges in a reflective manner, for instance, it has improved access to education, health care delivery, efficiency and effectiveness of state functions, and the contribution of the general public in decision making. As a result, ICT has not only helped to improve the productivity of the economy but also the general well being of the people (The Intellect Digital Convergence Council, 2010, p. 11).
New media and ICT have also helped many countries to tackle periodic challenges efficiently and effectively, for instance, the problem of insecurity, natural calamities, weather forecasting, and health care delivery among others. All these challenges have considerable impact on the economy. Therefore, New Media and ICT have a direct and indirect impact on the growth and development of the economy (The Intellect Digital Convergence Council, 2010, p. 12; ICT QATAR 2012).
Conclusion
In the past, the economy of most countries depended on the agricultural and industrial sector. However, there has been a paradigm shift towards the knowledge-based economy. New media and ICT acts both as an innovative sector and a facilitator towards the knowledge-based economy.
New media and ICTs have accelerated the creation of new knowledge. They have achieved this by improving access to the current knowledge through networks, facilitating online interactions and accelerating the speed of knowledge dissemination and pooling together global intelligence.
In addition, the new knowledge has led to new innovations, or development of new products/services. The development of new products and services is viewed by economic experts as the principle means to survive and thrive in the current competitive global environment.
New media and ICT have enabled diversification and growth of the economies by promoting innovations, free enterprises, creating well-paying job opportunities (particularly online jobs), and developing a skilled workforce by pooling together global intelligence. In addition, new media and ICT has helped to tackle other socioeconomic challenges including insecurity, access to education, health care delivery, disaster response, and good governance among others.
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