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29 January 2001Printer-friendly versionEmail a friend

IT's potential: computing and communications
More than just data storage? The fourth in Phil Mullan's series demystifying the 'information society'.

by Phil Mullan

In essence, IT comes down to a fast means of data processing with storage (computing) and a fast means of communication (telecommunications).

IT specifically refers to the fusion of these two: the potential to move a lot of data, or anything that can be digitised (words, images, sounds), quickly from one place to another. This fusion is best represented by the internet and, more specifically, the web. This week we look at the impact of computing and communications on the economy; next week, at the internet.

When it comes to computing, the data processing implications of IT have been around the longest and have been relatively well exploited - though least in the area of production. These include accounts packages and technology for doing complex arithmetical and scientific calculations: for example, many applications in the physical sciences such as astronomy or the sequencing of human DNA, computer-guided munitions and computer-integrated manufacturing. Data processing mainly replaces mental processes, and does them faster and more accurately than the human mind. Of course, the results are only as good as the quality of the data input, as, for example, the NATO bombing of the Chinese embassy in Belgrade showed to grim effect.

The economic benefits of computing per se are mainly seen in three areas: the spheres of bookkeeping, accounts, monetary transactions and financial operations; the production process; and research and development.

In the first area, computers eliminate time spent by companies on their own bookkeeping and accounting-type operations. All economies here reduce waste and so boost productivity. Most large US companies with a significant accounts department introduced computerisation before 1996; so while the impact was reasonably significant, most of these gains would have been secured before the post-1995 spurt in economy-wide productivity. The trend for the manufacturing sector to contract out accounting functions, hence removing the accounts department headcount in one fell swoop, probably had more significance for boosting manufacturing productivity in the second half of the 1990s than computer technology itself.

Computerised cash registers have resulted in economies in the retail sphere, both increasing the efficiency of sales staff and making possible the advances of supermarkets and warehouse-style retail units. Financial operations, too, have benefited from the spread of computers. Necessary activities such as banking and insurance have become more efficient and have made significant reductions in the relative numbers of 'back-office' staff: computer technology probably makes the concentration and centralisation of financial institutions easier. Centralised ticketing operations for airlines has also been quite extensively exploited.

Computers excel in cheapening the production of information
Since the 1970s, the line has become increasingly blurred between the sort of financial activities required for productive operations and the creation of new surplus (accounting, credit provision, insurance), and those activities required for financial activity - which has become an alternative depository for surplus, rather than productive investment. Computer technology has evidently facilitated the explosion of unproductive financial activities, including making possible those activities based on complex mathematical models - such as derivatives trading, which has characterised the economic slowdown post-1973.

Computers can also cut time and costs spent on the control, organisation and operation of the production process. Most progress has occurred in areas where the product has a high information component and can be digitised: words, sound and visuals. Hence all forms of media production from music, to film-making, radio and TV, to newspaper, magazine and book publishing, have seen major upheavals in recent years. In the UK, the destruction of Fleet Street would not have been possible without digitisation, while the proliferation of magazines would not have occurred without desktop publishing. Nor would we have seen the explosion in the number of independent film production companies without cheaper digital equipment.

But these information media comprise a relatively small part of total production (less than 10 percent), and one that primarily serves the consumer market. Relatively few information products have the beneficial knock-on effect of being productively consumed through re-entering the production process. Information is integral to all production; but outside particular business services sectors (for example, the production of annual accounts or a marketing plan) information is a background and fairly static element (for example, information about the relative constituents of a pharmaceutical product, or about the components required to make a consumer or business product like a car or a computer).

When it comes to the production of material goods with a more limited information component, computer developments have, so far, been more disappointing. This is the area in which IT has made fewest strides in comparison to its possibilities.

Twenty years ago we used to imagine the labour-less factory where robots (computer-guided machines) would make things. Today this seems more fantastic than it did then. Although manufacturing employment has fallen by between a third and one half in America and Britain since the 1980s, this is mainly to do with the way many service functions previously included in that headcount have been spun off into different sectors, and with the relocation of manufacturing to South and East Asia. The replacement of workers by robots has been so limited that productivity growth within manufacturing has stayed below the long-term average.

There have been some changes which confirm the potential of computerisation. The biggest of these have been in reducing production time prior to the production process. Computerisation has benefited inventory and made possible the JIT (Just In Time) stock control systems, which limit the time components are stuck in the storerooms in readiness to enter the production process. This cuts turnover time and accelerates the production of wealth. The recent explosion in supply-chain software management tools indicates there remains plenty of room to extend these gains. Computers can be programmed with suppliers' prices, quality, delivery times, and so on, and make orders when required. This will cut both human involvement and again speed up turnover time.

The big prize outstanding is the deployment of computers within the production process itself
But the big prize outstanding is the deployment of computers within the production process itself. After a promising start in car production, spearheaded by the Japanese in the 1980s, the pace of innovation has slowed. Original research into developing this area seems to have been distracted by the 'artificial intelligence' debate - the emphasis on making 'cleverer' machines, rather than those which are simply more efficient.

Some of the most interesting current initiatives are the use of powerful computers to plough through hundreds of millions of possibilities involving dozens of variables, to come up with more effective products and optimum manufacturing processes (1). Using this approach, for example, General Electric has developed a light bulb 50 percent brighter than the standard. These techniques are now being applied more to factory operations.

One of the limitations with the first wave of computer automation were systems breakdowns: today, this is being addressed by so-called intelligent agents - self-running software programmes, which can monitor and minimise defective products and equipment failures. The basic idea with the latter is to equip each factory robot with a software agent. Then if the robot conks out the agent zips around the factory's intranet to find another machine that can take over the task. When it does, it triggers a reprogramming of the assembly line - and production hums along.

Some proponents predict improvements in plant efficiency of up to 30 percent. Such an application of computers will both eliminate humans in the form of controllers, fixers, quality testers and so on. Potentially more significantly, it could also accelerate the roll out of robots into more areas of production by removing some of the drawbacks of automation.

Finally, research and development (R and D) is essential to the growth of knowledge and the possibility for heightening the productiveness of labour in the future. But as scientific research is not directly productive of wealth, it is another necessary cost for the production process. The lack of any guarantee of a useful result makes R and D an expense which is often cut when funds are tight. Value for money is always of concern in this area and computerisation has been a significant aid, though one which it seems difficult to quantify in financial terms. However, computers can allow research involving the processing of huge volumes of results to be speeded up considerably, and computer programmes make possible the effective simulation of laboratory experiments saving both time and money.

There is no denying, then, that computerisation has had a significant impact on many aspects of the economy as a whole. But leaving aside some of the recent developments in computer-aided production techniques, most of these computer applications were all well advanced by the end of the 1980s. Consequently, their direct and indirect productivity benefits should have been evident well before 1995 and the subsequent spurt in US productivity figures. These applications also appear equally advanced in Britain and much of western Europe; so the absence of any 'New Economy' productivity improvement in these countries during the 1990s would imply that even the tangible productivity gains from computerisation are insufficient to generate a step-change in productivity.

Most significant computer applications were well advanced by the end of the 1980s
In contrast to computerisation, communications is much more a facilitator than a doer. Computers have both more applications and more potential to eliminate mental and manual labour. Communications, on the other hand, is about the transfer of information from A to B, where A and B are either people or the computers which replace them. Leaving the computer-computer and the person-computer connections to a discussion of the internet, we are left here just with voice and data transmission between people.

The two main developments here have been in the cost of communications, which is falling rapidly to near zero, and the greater flexibility in the means of communication: the fact that one is no longer tied to a fixed land-line.

The transmission of information is a vital part of all economic and much of social life, and the reduced cost of communication is a direct boon for society, as a smaller portion of social wealth is spent communicating. But since the Second World War, at least, the amount allocated to pay for telecommunications has not been that big a portion of business or domestic expenditure in most industrialised countries. So the economies possible should be kept in perspective: probably they accounted for no more than one or two percent of Gross National Produce (GNP) over a couple of decades.

Unless you are subjected to listening to it on ever-longer train journeys, the greater convenience of wireless or mobile telephony is a definite plus for society. But this is more difficult to quantify in its economic effects. No doubt for workers on the move - travelling salespeople, managers of geographically dispersed operations - mobile telephony can give access to more timely information, and probably saves time in not forcing people to communicate only on arrival. Direct point-to-point data transfer between people by telecommunications represents a more obvious economy in time. It can speed the links between different parts of the production process and reduce turnover time. For example, it has revolutionised publishing by allowing digitised typeset copy to be sent to a printer by phone line. But to appreciate the true economic and social impact of modern communications technologies, it is necessary to examine the fusion of computing and communications: the internet.

Phil Mullan is the author of The Imaginary Time Bomb: Why an Ageing Population Is Not a Social Problem, IB Tauris, 2000 (buy this book from Amazon (UK) or Amazon (USA))

This is the fourth in his series demystifying the 'information society'.

Read on:

IT's potential: the internet by Phil Mullan

Don't Blow IT by Sandy Starr

spiked-issue: Don't blow IT

(1) See Business Week, Special Report on Smart Manufacturing, 7 August 2000

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