Technology and Economic Change

Getting the benefits from 1 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. o 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 e#periencing, is of massive proportions - and it is widely accepted that the wave is not as yet at its full height$ %ot only is it changing the structure of production, trade and international competitiveness, it is also changing employment patterns, skill re&uirements and the direction of investment. 'n addition, businesses have been forced to reorganise to reflect the enhanced fle#ibility that new technologies offer. (overnments 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. 'n many respects these policies are &uite different from those pursued in the past. 't is hardly surprising, then, to find that many aspects of economic life are reflecting this everchanging technological position.
The OECD economies are more strongly dependent on the production, distribution and use of knowledge than ever before. Output and employment are e panding fastest in high! technology industries, such as computers, electronics and aerospace. In the past decade, the high!technology share of OECD manufacturing production and e ports has more than doubled, to reach "# to "$ per cent. %nowledge!intensive service sectors, such as education, communications and information, are growing even faster. Indeed, it is estimated that more than $# per cent of &D' in the ma(or OECD economies is now knowledge!based. Investment is thus being directed to high!technology goods and services, particularly information and communication technologies. Computers and related e)uipment are the fastest!growing components of tangible investment. E)ually important are more intangible investments in research and development *+,D-, the training of the labour force, computer software and technical e pertise. .pending on research has reached about "./ per cent of &D' in the OECD area. Education accounts for an average 0" per cent of OECD government e penditures ... 'urchases of computer software, growing at a rate of 0" per cent per year since the mid!012#s are outpacing sales of hardware. .pending on product enhancement is driving growth in knowledge!based services such as engineering studies and advertising. 3nd balance of payments figures in technology show a "# per cent increase between 012$ and 011/ 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 *obs lost. +n alternative view is that technological change offers employment opportunities as new industries and new processes create new demands for labour. ,ut even if the technological revolution is creating *ob opportunities, it would appear that increasingly the ac&uisition of high-level skills is necessary if a worker is to attain both employment and higher wages. -./0 figures suggest that the employment of high-skilled workers increased on average ) to 1 per cent faster than that of low-skilled workers during the 1234s and early 1224s. 5or e#ample, the average annual growth in employment of high-skilled workers over this period in the si# richest -./0 countries ranged from 1.2 per cent in 'taly to nearly 1 per cent in /anada. The growth in employment of low-skilled workers, by contrast, ranged from -4.6 per cent in 5rance to 1.7 per cent in the U +. uch trends are likely to continue as the technological revolution advances. %ot only are high-level skills going to be increasingly necessary to get a *ob, but they will be vital in supporting and maintaining levels of productivity growth.

Productivity and knowledge networks

+ny 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 e ist 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?

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. 'n fact, the two are intimately related:
.. 4skills5 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 re&uire relevant training and education, and such training and education must be updated continuously. .ducation is thus at the centre of the knowledge-based economy. .ducation, whilst of vital importance, is not the only target of government policy on technological diffusion. (overnments in many advanced industrial economies have adopted some or all of the following measures: 8 8 8 The promotion of innovation and the encouragement of greater levels of 9:0. upport for small and medium-si;ed enterprises. <.s 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.
6assive 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. ,y 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.

ources: OECD Economic Observer , %o 123, )44 and )47