1.2 Economy of post-industrial capitalism
We live in an information-dependent and information-driven world. A world where information and information systems are used to drive the rapid changes in the global marketplace, which is having a major effect on the economic and political aspects of every modern nation.
Information is a national and corporate resource and has a real financial cost associated with it. It is through the correct application of information that value is added and wealth is created (see Figure 2.1). Consequently, any restrictions on the flow of information between departments will adversely affect the organisation. In essence, there are four strategies that an organisation can adopt to achieve a competitive advantage. The term value-added can be used to mean the following:
• Reducing costs through the optimisation of the business process
• Creating new business opportunities
• Improving the competitive position of the organisation
• Modifying the structure of the industry
Power of Information
In relation to the global nature of information, the meaning of the abovementioned comment is clear: in business and war, information on an opponent’s capabilities and tactics is the key to success. In short, the most important asset an organisation has is its own information capital. Intellectual property rights deal with copyrights, patents, trademarks and designs. Basically, intellectual property rights are the rights designed to provide remedies against those who steal the fruits of another person’s ideas or works. An example of an intellectual property right is the power to xecute a computer program. The effect of information, in general, is to create knowledge by allowing one to add value to a resource. That resource may be physical (such as a new cure for an illness), or it may be logical (such as a piece of information). The effect of adding value to a resource is to create wealth for the individuals and organisation that owns it and/or the users who consume it. In 2004, the School of Computing at the University of Glamorgan conducted an analysis of 106 computer hard disks for sale on eBay. They concluded that 60% of the disks contained personal or confidential information that was of commercial value. For example, the growth of Silicon Valley in California, USA is largely based upon the concentration of expertise in the area of information technology. This expertise has created wealth for the companies that have located themselves in Silicon Valley and used the skilled workforce to create intellectual property and consequently add value. The net effect is that if California were considered as a country, it would have the sixth largest gross domestic product (GDP) of any country in the world.
The growth of the Internet currently allows organisations around the globe to communicate with each other in ways that were not previously heard of. This ability to share information has transformed the marketplace and has become one of the major factors governing business success and competitive advantage. This ability to share information and the market pressures of a competitive world economy has driven many organisations to integrate their supply chain.
This integration has allowed many organisations to react faster to the changing demands of the world marketplace and create strategic relationships with its customers. The ability to integrate a supply chain using technologies, such as the Internet, has created commercial organisations that span the globe. The effect of these global organisations is that they can directly affect the state of a nation’s economy.
We are entering a new era of information or ‘post-industrial capitalism’. The term used in the article is post-industrial capitalism. This is mainly because the notion of information capitalism does not define explicitly what is really new regarding the history of capitalism. Information capitalism can be either post-Fordist, or postindustrial, or even a transition period towards a post-capitalist society.
The transition from an energy-intensive to an information-intensive technical system is well demonstrated by many authors. Similar accounts can be found for communication technologies, biotechnologies, and other new technologies that are not yet developed. What the above technologies have in common is that they announce the coming of a ‘weightless’ economy. This is totally different from the logic of the industrial revolution. Therefore, theories speaking about a ‘third industrial revolution’ or a ‘fifth Kondratieff wave’ are misleading because they continue to think within the framework inherited by the industrial revolution. The ‘dematerialization’ tendency in the modern economy is characterized by the increasing importance of software over hardware and of knowledge and service relations over material components of commodities.
According to the evolutionist schema – which assumes a linear transition from agricultural to industrial, and then to service, societies – post-industrial capitalism is understood as a service economy and society. Certainly, the very fact that the heterogeneous service sector gets more than two-thirds of GDP in advanced economies constitutes major empirical evidence for the end of industrial capitalism. This is the reason why post-industrial capitalism is understood as the victory of services over manufacturing (Bell, 1973), but as the blurring of their boundaries.
The information revolution, by enforcing an amazing compression of the time-space equation – which by no means could be realized from the energy-based technical paradigm – opens up radically new perspectives of economic integration. During the last decade, the control of multinational firms over the globe has shifted from exports of long-term capital to exports of intangible capital (technological and managerial know-how, patents, branding, expertise, etc.). Finally, the new
information and communication technologies (ICTs) have enabled the formation of global networks between corporations, quasi-independent units of corporations, and big, medium, and small firms, linking them together via complex forms of contracting, monitoring and unwritten obligations.
Today, the crisis of the Fordist model tends to be transformed into a crisis of the whole industrial paradigm. The notion of productivity no longer makes sense in an economic context where quality and variety take precedence over quantity. Investment in intangible capital (R&D, training, software, and long-term marketing positioning) becomes more important than the mechanization of labour processes. the centre of the business organization moves from the shop floor to the interfaces between the members of a network of enterprises and other organizations, and between the network and its clients. The firm is better conceptualized as a ‘knowledge-creating’ than as a ‘materials-processing’ company (Zuboff, 1988). And, even if physical labour is far from being eliminated, the heart of the capitalist valorization process is situated now in the ‘symbols-manipulating’ workers.
The coming of mass production inaugurated a new era where investment in intangible capital (and especially in human capital) started to have increasing importance relative to conventional investment.
In sum, one can distinguish among three main periods in the history of capitalism. The first period is merchant capitalism, which occurs when capital occupies the sphere of exchange. The second major period, industrial capitalism, arises when the ‘rationalization’ of manual labour (or the exchange between humanity and nature) becomes the main source of capital valorization. Finally, the third period, which is described here as postindustrial capitalism, is characterized by the subordination of societal and individual symbolic resources (cognitive, communicative, and aesthetic) to the movement of capital.
The Digital Revolution
One final word of introduction: underlying both the Internet and its wider effects is the digital revolution. This has three components (two technological and one economic) - each reinforcing the others. First, there is computing power. Different parts of computing (storage, transmission, etc.) have advanced at different speeds at different times, but, taken overall, computer power has grown persistently at between 15 and 30 per cent per annum . The implications are astounding. Growth of just over 25 per cent each year implies a tenfold increase in 10 years and hundredfold in 20 years. Over a lifetime of, say, 70 years, the growth is by a factor of no less than 10m!
Second, there is the digitization of information. This consists of the ability to represent not just letters but also colours and sounds in numbers and thus to be able to process everything in terms of ‘0s’ and ‘1s’. As far as the computer is concerned, the result is that text, music, and pictures are equivalent. Each one can therefore be processed (edited, combined, copied, erased, etc.) as well as mixed with one another. This is truly multi-media. In addition, provided that standards are agreed so that the digital signals can move freely from machine to machine, this information can be transmitted anywhere in the world. Indeed, in one important sense the Internet is no more than the standards that govern all these exchanges.
Third, there is the underlying economics of the Internet. Many aspects of the digital revolution imply high fixed costs combined with marginal costs that are close to zero. Once installed, fibre-optic cables have near infinite capacity and so cost, literally, nothing to use, while to make a digital copy of a book or a piece of music requires no more than the click of mouse. As a result, average costs fall persistently as demand increases—and as costs and prices fall, so demand rises again.
The ultimate effect of these changes, taken in combination, is still hard to assess, but it is already clear that the Internet, as a new means of commu- nication, is having profound effects on society. Indeed, it seems likely that the changes will be as profound as those brought about by the development of the printing press in the sixteenth century.
Chapter 2. How New ICT affects economy?