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Economic growth and information technology
Dr Frank Shostak
Many experts hold the view that the information technology (IT) revolution could be the main engine for growth and prosperity. It is argued that because of the limited amounts of capital and labour, without technological progress the opportunities for growth will eventually run out. According to experts, ideas unlike material inputs are not themselves scarce. Consequently, it is argued, new ideas for more efficient processes and new products can make continuous growth possible.
While ideas and new techniques can result in a better use of scarce resources, they can however, do very little without the pool of savings. Most modern theories, while emphasising the importance of new ideas and new technologies, give the impression that these ideas and technologies have a “life of their own”. However, regardless of how many ideas people have what matters is whether these ideas can be implemented.
What always limits the implementation of various new techniques is the availability of funding. So regardless of how clever we are and regardless of various technological innovations without the adequate pool of funding nothing will emerge. It is through the expansion in the pool of savings that the increase in the stock of capital goods is possible.
And it is the increase in the capital goods per worker that lifts workers real wages. Obviously new ideas and new technology can be introduced during the production of new capital goods, i.e. new technology will be imbedded in the capital goods stock. The crux of the matter however, is that capital goods cannot emerge without the prior increase in the pool of funding. The former Soviet Union is a classical case in this regard.
Thus in terms of ideas and know-how scientists in the former Soviet Union are as good as their counterparts in the West. Yet despite all the knowledge the former Soviet Union its economy is still fell apart. The major reason for this is the lack of funding. (For instance a big majority of workers and members of the army weren’t paid for many months).
If technological innovations could replace funding then poverty everywhere in the world would have been eliminated a long time ago. After all, people are never short of ideas.
Dr Shostak is a former professor of economics who now works in the private sector
BrookesNews.Com
Monday 28 November 2005