Some Reflections on ICT Some Reflections on ICT and Policy Implicationsand Policy Implications

Alfonso GambardellaAlfonso GambardellaBocconi University, MilanBocconi University, Milan

Geneve June 2 2006Geneve June 2 2006

Computer vs DynamoComputer vs Dynamo(Paul David)(Paul David)

Rapid technological innovation with Rapid technological innovation with slow gains in productivity … Why?slow gains in productivity … Why?

In computer like in electricity at the In computer like in electricity at the beginning of the XX centurybeginning of the XX century

Robert Solow: “We see computers Robert Solow: “We see computers everywhere but in the productivity everywhere but in the productivity statistics”statistics”

Both Computer & Both Computer & Dynamo …Dynamo …

… … were nodal elements of a series of were nodal elements of a series of future technological improvementsfuture technological improvements

… … started during a long productivity started during a long productivity slowdown (1890-1913 for the dynamo)slowdown (1890-1913 for the dynamo)

… … were seen as the start of amazing were seen as the start of amazing new trajectoriesnew trajectories

Answer Answer

Major technologies put pressures Major technologies put pressures for for complementarycomplementary organizational organizational and institutional changes. This and institutional changes. This takes time. takes time.

DynamoDynamo

By 1899 only 3% households had By 1899 only 3% households had electric lightening, and 5% factories electric lightening, and 5% factories had electric motorshad electric motors

It took 20 years to reach 50% diffusionIt took 20 years to reach 50% diffusion

In 1990 only 10% of world firms were In 1990 only 10% of world firms were using computersusing computers

Diffusion of electricityDiffusion of electricity

Pace was largely determined by factory Pace was largely determined by factory electrification, which had to wait forelectrification, which had to wait for reduced electricity pricereduced electricity price depreciation of older plantsdepreciation of older plants investment boom (1920s)investment boom (1920s)

Most importantly, benefits depended on Most importantly, benefits depended on several complementary factors … re-design several complementary factors … re-design and re-organization of factoriesand re-organization of factories

Question, Where are We?Question, Where are We? Probably after price reduction, Probably after price reduction,

depreciation & investment boomdepreciation & investment boom But my sense is that we have not yet But my sense is that we have not yet

resolved all the complementarity resolved all the complementarity issuesissues

May be more at the level of firms (even May be more at the level of firms (even though there is more to do)though there is more to do)

Definitely at the level of markets/uses Definitely at the level of markets/uses (large new markets)(large new markets)

Bryonjolfsson-Hitt Bryonjolfsson-Hitt (Computing productivity)(Computing productivity)

Shows empirically that the benefits of Shows empirically that the benefits of firm investments in IT are greater 5-10 firm investments in IT are greater 5-10 years lateryears later

Consistent with the view that they Consistent with the view that they require complementary investmentsrequire complementary investments

Data on 527 large US firms, 1987-1994 Data on 527 large US firms, 1987-1994

Bresnahan et al, QJE 2001Bresnahan et al, QJE 2001 Tests “complementarity” among: Tests “complementarity” among:

IT investmentsIT investments Worplace organization (WO)Worplace organization (WO) Skilled laborSkilled labor

Find correlation/complementarity among themFind correlation/complementarity among them

Data:Data: Survey of senior managers in 778 Fortune 1000 firms Survey of senior managers in 778 Fortune 1000 firms

(about 55% mfr, 45% services)(about 55% mfr, 45% services)

First policy issue First policy issue We need to encourage the formation of We need to encourage the formation of

complementary resourcescomplementary resources Not just for the leading firms (who do it in Not just for the leading firms (who do it in

any case, and have probably already any case, and have probably already done it)done it)

But for the larger markets (firms, But for the larger markets (firms, consumers, users)consumers, users)

Let me now move to Let me now move to another related issueanother related issue

The previous question was: where are we with The previous question was: where are we with complementary assets in different complementary assets in different industries/firms/users? industries/firms/users?

Now we ask a related one: how diffused as ICT Now we ask a related one: how diffused as ICT really been? Definitely not like automobile, at really been? Definitely not like automobile, at least in many parts of the worldleast in many parts of the world

Is ICT going to remain largely an industrial Is ICT going to remain largely an industrial good industry or is it going to become a wider good industry or is it going to become a wider consumer industry?consumer industry?

An example, DomoticsAn example, Domotics Technology has not developed much Technology has not developed much

since 1995since 1995 Prices are still very highPrices are still very high No new services or interesting No new services or interesting

innovatonsinnovatons Why? Why?

An even more important An even more important exampleexample

Bottom of the pyramidBottom of the pyramid

Is 4 billion people a big enough market?Is 4 billion people a big enough market?

Can we make it through Can we make it through the computers?the computers?

Connectivity

PC Mobile Phone

Connectivity an add-on Core function is to connect Expensive Cheap Complicated Easy to use High maintenance Low maintenance High Power demand Charge once Physical Connectivity Wireless Fixed in space Portable Primarily data Primarily voice High bandwidth Low bandwidth

From a presentation by Mans Olof Ors, Reuters, at Bocconi University, November 18. 2006

Connectivity

Internet access grows2000 2.1%2004 6.9%

Mobile usage explodes2000 5%2004 17.8%

Mobile subscribers Developed Countries2000 464m2004 740mDeveloping Countries2000 261m2004 900m Picture: REUTERS

From a presentation by Mans Olof Ors, Reuters, at Bocconi University, November 18. 2006

Mobile phones

80% of worlds population lives in areas covered by networks

India adds 2 million subscribers per month

Total Indian market is 350 million

Picture: REUTERS

An increase of 10 mobile phones per 100 people in African developing countries would increase GDP growth by 0.6 percent. (LSE 2005)

Picture: REUTERS

From a presentation by Mans Olof Ors, Reuters, at Bocconi University, November 18. 2006

Policy?Policy? Well, the market seem to grow in any Well, the market seem to grow in any

case, it’s companies who should pick this case, it’s companies who should pick this upup

… … creating demand, a Marshall Plan? creating demand, a Marshall Plan? Needs coordination … in fact coordination Needs coordination … in fact coordination is an important policy task here (e.g. is an important policy task here (e.g. standards, promotion)standards, promotion)

Give out cell phones to Africa? Give out cell phones to Africa?

Summary & ConclusionsSummary & Conclusions With IT we have moved beyond the first With IT we have moved beyond the first

steps, but still lack of complementary steps, but still lack of complementary assets (at firm and societal level, and of assets (at firm and societal level, and of course much more in certain parts of the course much more in certain parts of the world than others)world than others)

Policy: Support for creation of Policy: Support for creation of complementary assets complementary assets

Summary & ConclusionsSummary & Conclusions The other big issue/question: The The other big issue/question: The

industry is an industrial good but not yet industry is an industrial good but not yet a consumer industrya consumer industry

New market expansions can only come New market expansions can only come through thatthrough that

Cell phones = consumer industryCell phones = consumer industry Computers = capital good industryComputers = capital good industry Policy: a classical one, stimulate demandPolicy: a classical one, stimulate demand