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Technology and Economic Change

Getting the benefits from1 technological progress


.... a powerful new technology, such as that represented by the computer, fundamentally
reorganises the infrastructure of our material world. It eliminates former alternatives. It
creates new possibilities. It necessitates fresh choices.

Technology has always been a key element in economic development: whether machine
technology in the industrial age, or computer technology today. With investment in technology,
not only is the productive capacity of resources increased, but the ability of business to create
new products and production processes is enhanced.
Ultimately it is technology that is crucial for long-term economic growth. Without constant
technological advance, economies are likely to stagnate and fall behind their rivals, as new
products emerge and as markets grow.
So with each wave of technology, economies must change and adapt if they are to stay in the
game. The high-technology wave, which the world economy is currently experiencing, is of
massive proportions - and it is widely accepted that the wave is not as yet at its full height! Not
only is it changing the structure of production, trade and international competitiveness, it is also
changing employment patterns, skill requirements and the direction of investment. In addition,
businesses have been forced to reorganise to reflect the enhanced flexibility that new technologies
offer. Governments also have had to assess and reassess, in this new technological age, how they
can best aid their industries in creating the right conditions to achieve economic success. In many
respects these policies are quite different from those pursued in the past.
It is hardly surprising, then, to find that many aspects of economic life are reflecting this ever-
changing technological position.

The OECD economies are more strongly dependent on the production, distribution and use
of knowledge than ever before. Output and employment are expanding fastest in high-
technology industries, such as computers, electronics and aerospace. In the past decade,
the high-technology share of OECD manufacturing production and exports has more than
doubled, to reach 20 to 25 per cent. Knowledge-intensive service sectors, such as education,
communications and information, are growing even faster. Indeed, it is estimated that more
than 50 per cent of GDP in the major OECD economies is now knowledge-based.
Investment is thus being directed to high-technology goods and services, particularly
information and communication technologies. Computers and related equipment are the
fastest-growing components of tangible investment. Equally important are more intangible
investments in research and development (R&D), the training of the labour force, computer
software and technical expertise. Spending on research has reached about 2.3 per cent of
GDP in the OECD area. Education accounts for an average 12 per cent of OECD
government expenditures ... Purchases of computer software, growing at a rate of 12 per
cent per year since the mid-1980s are outpacing sales of hardware. Spending on product
enhancement is driving growth in knowledge-based services such as engineering studies
and advertising. And balance of payments figures in technology show a 20 per cent increase
between 1985 and 1993 in trade in patents and technology services.

Jobs and skills


The traditional view has been that technology destroys employment, as computerisation and
automation dispenses with the need for labour. What employment is created by the new
technology tends to be small scale and highly skilled and insufficient to offset the number of jobs
lost. An alternative view is that technological change offers employment opportunities as new
industries and new processes create new demands for labour.
But even if the technological revolution is creating job opportunities, it would appear that
increasingly the acquisition of high-level skills is necessary if a worker is to attain both
employment and higher wages. OECD figures suggest that the employment of high-skilled
workers increased on average 2 to 3 per cent faster than that of low-skilled workers during the
1980s and early 1990s. For example, the average annual growth in employment of high-skilled
workers over this period in the six richest OECD countries ranged from 1.9 per cent in Italy to
nearly 3 per cent in Canada. The growth in employment of low-skilled workers, by contrast,
ranged from -0.6 per cent in France to 1.4 per cent in the USA. Such trends are likely to continue
as the technological revolution advances.
Not only are high-level skills going to be increasingly necessary to get a job, but they will be
vital in supporting and maintaining levels of productivity growth.

Productivity and knowledge networks


Any individual firm introducing a new technology or industrial process is likely to see an
improvement in its productivity. To be truly beneficial to a country, however, such innovation
must be diffused throughout the whole economy. The success or otherwise of technological
diffusion depends on the knowledge network of the economy.

The success of enterprise, as of national economies, is determined by their effectiveness in


gathering and using knowledge and technology. This may in turn reside in the tacit abilities of
individuals and firms to link up with the right networks and use all relevant items of
information. Increasingly, the ability to innovate and enhance technological performance
depends on obtaining access to learning-intensive relations. The result is a society
composed of networks of individuals and firms, usually linked electronically ... Innovation
stems largely from the feedback loops or the continuing interactions which exist between
science, engineering, product development, manufacturing and marketing. It is fed by the
interplay among the different institutions and individuals involved - firms, laboratories,
universities and consumers. The patterns of technology-related interactions in a national
economy combine to form national innovation systems which are composed of the contacts
and flows between industry, government and academia in the development of science and
technology. The links within this system, and its ability to diffuse knowledge and technology,
influence the innovative performance both of firms and of economies as a whole.

Question
In what ways might government contribute to improving the knowledge networks within an
economy?

2
Government policy and the new technological age
We have seen that both workers skills and a knowledge network are vitally important within the
current technological revolution. In fact, the two are intimately related:

.. [skills] are essential to selecting, using and manipulating the knowledge which can be
codified. The ability to select relevant information, to recognise patterns in information and to
interpret and decode information is not easily bought and sold.

This aspect of new technology has significant implications for government policy. Workers
require relevant training and education, and such training and education must be updated
continuously. Education is thus at the centre of the knowledge-based economy.
Education, whilst of vital importance, is not the only target of government policy on
technological diffusion. Governments in many advanced industrial economies have adopted some
or all of the following measures:

The promotion of innovation and the encouragement of greater levels of R&D.


Support for small and medium-sized enterprises. SMEs have received particular attention because
of their crucial role in enhancing innovation, creating employment and contributing to skills
development, especially in high-tech areas.
The improvement of infrastructure. This includes both physical transport, such as roads and
railways, and information highways.

Massive investments in up-grading the telecommunications infrastructure, reform of


regulation and advances in digital technology underlie the creation of the global information
infrastructure. Digitisation has made possible the processing, retrieval, communication and
dissemination of all forms of information worldwide.

The protection of intellectual property by more effective use of patents and copyright. By
reinforcing the law in these areas, it is hoped to encourage firms to take the risks of developing
new products and commit themselves to research.

Sources: OECD Economic Observer, No 198, 200 and 204