by John Ure 04:45 AM Jul 31, 2012In recent years, numerous reports have estimated the impact on GDP growth of investment in information and communications technology (ICT). The norm is around 1 per cent growth for every 10 per cent increase in investment, and that is substantial.
These “estimates” are really “guesstimates” but the underlying reality is that ICT is now an integral part of virtually every economically productive activity on the planet.
But is it a given that ICT investment can “grow” an economy out of recession? The question is relevant because the current trajectory of the world economy looks more like downwards than upwards.
The ratio of total debt (public and private) in all the leading economies is higher now than in 2007 and it will take at least 15 years to restore a financial balance.
It is a widely-held view that a 10-per-cent annual debt reduction is historically the most that can be achieved without incurring social and political upheaval. Most crucially, deleveraging and recapitalising the world’s leading financial institutions seems like a bridge too far.
With the euro crisis unresolved and the BRICs grouping – Brazil, Russia, India and China – showing slowdown as world trade recedes, a double-dip global recession is not at all unlikely.
How resilient are ICT markets? And how growth-promoting can ICTs be?
In a downturn, it is to be expected that most commodities, such as mobile handsets, will slow down. ICT products at the very high end may do well as conspicuous consumption by the very well-off compensates for the gloom and doom surrounding them.
But the real money comes from mass production, mass sales, and the outlook would be bleak. As end-market sales slump, so too will orders along the supply chain and very soon Asian, including Chinese, producers would feel the cold winds.
The International Telecommunication Union in its “Confronting the Crisis: ICT Stimulus Plans for Economic Growth (2009)” argued the case for greater infrastructural investment, especially in broadband networks, and in ICT skills training, to create stimulus and lay the foundations for future growth.
This looked plausible if the recession was “normal” albeit severe; but clearly today at near-zero rates of interest, private sector investment is still holding back due to commercial uncertainties and the as yet undeclared debts of the financial institutions remain as high as they ever were.
So what role can ICTs play in the immediate economic and social future?
ICT investment cannot on its own lift the economy out of recession. But every recession lays the basis of a transformation if the economy and society is adjustable. The criteria that will be most important is this: Does the new ICT offer two basic functions?
First, does it do better what existing systems and technologies do and in a cost-effective way? In other words, is it more efficient and, therefore, does it give competitive sustainability, not to say, advantage?
Second, does it extend the functionality of existing systems and technologies? In other words, does it give rise to new products and services or ways of delivering them?
In every recession, there is growth of new companies and even of new sectors of the economy, the green shoots. In the current period, ICTs are at the root of them all.
Dr John Ure is the Director of the Technology Research Project Corporate, a boutique telecommunications consulting firm, and Executive Director of the Asia Internet Coalition.
