The Micro and Macro of the Information Technology Revolution

No.102
April 2001
Fujistu Research Institute
Japan Center for Economic Research

1. The essence of the new economy spawned by the IT revolution can be found in the questions of how to acquire and exploit the resultant new concepts of "abundance", "scarcity", and "combinations". The "second information society" that can lead us down the path of the IT revolution signifies a shift from the individual income/consumption dimension to that of a new dimension that will cultivate heretofore untapped potentials. Regardless of the success or failure of this IT revolution, connection to the IT network has now become the very condition for our survival.
2. That the declining labor force and resulting anticipatory drop in investment is to blame for Japan's low economic growth has become a popularly accepted theory. This theory is supported by the neoclassical economic growth model, which assumes the decreasing marginal productivity of capital. As an alternative approach, this report proposes a growth model emphasizing a demand-side viewpoint in which the saturation and decline of demand for existing goods and services is the prime determinant of growth patterns. In this approach, the IT field possesses just the sort of demand creation capacity necessary to become the motive force behind economic growth.
3. In order to harness IT potential and revitalize Japan's economy in the years to come, it is imperative that Japan (1) liquidate its bloated capital goods, (2) mobilize human resources, and (3) integrate networking, management reorganization and proximate technology fields in order to fully exploit IT capital.
4. In instances where irreversible investment and uncertainty are present, asset specificity is not the only contributing factor that determines the level of IT outsourcing. Incorporating real option theory as a reference, it is clear that outsourcing history (i.e. a company's past outsourcing choices) also plays an important role.
5. The greatest innovation of today that the IT field of 20 years ago was unable to achieve is the extreme reduction in information transmission costs. As a direct result, the market mechanism itself has been drastically strengthened, and providing opportunities for integrating fragmented and dispersed information has become a simple matter.
6. IT development has two advantages: (1) it contributes to reduced costs for linking separate actors and (2) it facilitates the transformation of non-equity assets into equity assets. In order to clarify the relationship between the IT revolution and productivity, it is necessary to elucidate the reciprocal relation of information and production networks.
7. This reports also locates the IT revolution within traditional economic development theory. Both Adam Smith's "market" and Max Weber's "organization (bureaucracy)"-concepts that characterize current society-are being transformed by the IT revolution, and a new, independent order-i.e. "network"-is in the midst of development. Indeed, we are even witnessing a transformation in the schema of production/consumption opposition itself, one of the very hallmarks of our modern society. If the power of this revolution is not harnessed, there is no prospect for economic development.

More Informations

• Japanese
• Full text is not available in English for this report.
  The original Japanese full text is PDF here [1.52 MB].
  Please let us know the serial number of this report (102) to submit a request for translation.