Research paper of 10 pages "Benefits of Information Technology in the Global Economy"

The evolution of a global information economy presents economic developers and education specialists with unprecedented opportunities and challenges.

The Global Information Economy and Its Effect on Local Economic Development

Will Clark

Economic developers and continuing education specialists now practice their crafts in a global economic system. Facing competitive challenges from Europe to the Pacific Rim, American producers and workers must literally meet world-class stan- dards. To help meet these challenges, developers and educators need to understand the nature of the global economy as well as the technologies shaping that economy.

Emergence of the Information Economy

Historically, communications improvements have profoundly altered the scope and nature of market activities. In the nonelectronic age, information moved slowly; markets were segmented and small; and distance was a major factor limiting economic growth. In the electronic age, information moves at the speed of light; markets are integrated and global; and the “concept of distance has finally lost its meaning” (Hogrebe, 1980, p. 1). In the most recent phase of the electronic age, digital telecommunications have revolutionized not only the speed and geographic scope of economic transactions but the very nature of the economic system.

This most recent phase coincides with the emergence of what has been called the information economy. In the information economy, the collection, storage, manipulation, analysis, and transmission of data are primary activities. Agricultural and manufacturing activities employ fewer and fewer workers while the informa- tion and service sectors employ more and more. Shifts in the composition of the national workforce mirror these changes. Today about 4 percent of the national

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workforce is employed in agriculture, 23 percent in manufacturing, and 73 per- cent in services. In ten years, 2 percent are projected to work in agriculture, 5 per- cent in manufacturing, and 93 percent in services (Crupi, 1989).

The transition to the information age has accelerated sharply in the last three decades. With the 1959 introduction of the chip—an integrated electronic circuit fabricated on a fleck of silicon—the ability to collect, store, manipulate, and analyze data made a quantum jump forward. Today a chip the size of a newborn’s thumbnail can hold a million electronic components and perform a million calculations a second while drawing the same power as a nightlight. “The chip would be extraordinary enough if it were only low-cost electronics, but its ability to embody logic and memory also gives it the essence of human intellect. So, like the mind, the chip has virtually infinite application—and much the same potential to alter life fundamentally” (Boraiko, 1982, p. 421).

The revolution in microelectronics has been accompanied by equally por- tentous changes in telecommunications technology. The first commercial com- munications satellite was launched in 1965. This satellite made available 240 telephone circuits between the United States and Europe. The capacity required for these circuits could be used to provide one television circuit as well. “This one satellite, with only one television circuit, revolutionized com- munications across the Atlantic Ocean” (Rubin, 1983, p. 4).

But the revolution only began in 1965. In the years since, the number of satellite television circuits has increased more than tenfold and the number of telephone circuits has increased more than a hundredfold. Audio and visual communications now instantaneously link more than 146 countries around the world. Alvin Toffler’s electronic global village is very nearly a reality.

Whereas satellites have stretched the geographic limits of communication, advances in fiber optics have greatly enhanced the efficiency of data transmis- sions. With potentially ten thousand times as much information capacity as copper circuits, fiber optic cables offer the prospect of ending communications congestion and fundamentally altering the information economy. The stage may be set “for an enrichment of life like that following the invention of the steam engine, the light bulb, and the transistor” (Kao, 1979, p. 516).

The technological advances in microelectronics and telecommunications are currently merging into what might be called the digital revolution. “In this phase, all the traditionally distinct media used for information transfer (such as telex), information storage (such as paper), and information processing (such as the human brain) converge into one medium: the computer network. The one carrier for all types of information will be the digital signal” (Hameling, 1983, p. 2). The ability to participate in the digital revolution will be essential for future local development.

Evolution of the Global Economy

The digital revolution and transportation improvements have made global finan- cial and product markets possible. As a result, many local economies face intense international competition for customers and capital. The Department of Com-

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merce estimates that the United States exports about one-fifth of its industrial production and that about 70 percent of all U.S. goods compete directly with foreign goods (President’s Commission on Industrial Competitiveness, 1985).

The rapid transition to global markets has spawned new economic power centers and consolidated some old ones. The ranks of the top twenty exporting countries now include newly industrializing countries such as Korea, Taiwan, Hong Kong, Singapore, China, Mexico, and Brazil. The Pacific Rim countries currently account for a higher share of world exports than do the countries of Western Europe (“Trade Winds . . .,” 1986). At the same time, Europe and the United States have tried to consolidate their positions with the European Eco- nomic Community and the North American Free Trade Agreement—alliances that embrace entire continents.

Participation in this evolving international economic order depends increas- ingly on the ability to use the new information technologies—computers and telecommunications. This is true, in part, because our major international com- petitors are themselves information economies. The information sector con- tributes more to gross domestic product in Canada, Japan, and several Western European countries than the combined agricultural and industrial sectors. This is also the case in many newly industrializing countries (Hameling, 1983).

Although information, broadly defined, is the most important good traded in world markets, the diversity of information services and physical com- modities produced by the global economy is truly astonishing. In product lines ranging from computer software to automobiles, growing consumer demands for differentiated products have led firms to market niches and production processes requiring increasingly specialized workers and machines. Such unprecedented specialization, however, has increased the market volatility and financial risk faced by many firms.

As a result of these changes in the economic environment, diversification is no longer the strategy of choice; building defensible positions is. “In manufac- turing industries this has meant using new technologies. The intensified use of automation equipment (numerically controlled machine tools, robotics, flexible manufacturing systems) constitutes part of the firms’ strategy to improve pro- duction flexibility. The second major component of the firms’ strategy in this area is to form networks of specialized suppliers. This suggests that the observed changes may lead to a new form of industrial organization—networks of small plants or firms clustered around particular large enterprises” (Acs, 1992, p. 43).

The new forms of business organization evolving from the digital revolution and the global information economy present economic development and con- tinuing education specialists with unprecedented challenges—and opportunities.

Opportunities for Economic Developers

Economies develop when productivity and real per capita incomes grow over time. By definition, productivity increases when any innovation, either managerial or technical, increases output for a given cost or equivalently

54 THE UNIVERSITY’S ROLE IN ECONOMIC DEVELOPMENT

reduces the cost of producing a given output. An advanced telecommuni- cations system can facilitate such cost-minimizing innovations and in the process increase competitiveness, generate new jobs, attract new businesses, and speed rural development.

Advanced telecommunications can increase competitiveness by lowering distribution, inventory, labor, scheduling, and managerial costs. Instantaneous communications often increase the efficiency of distribution systems, not only in dispatching but in monitoring expenses like freight handling, transport con- tractors’ charges, and marketing costs. Inventory costs can be lowered by telecommunications-based ordering systems that detect shortages sooner and allow quicker, more frequent reorders. Labor savings may be realized by sub- stituting telecommunications for the services of messengers, drivers, even guards. Scheduling costs can be reduced by the rapid communication of mechanical breakdowns, parts shortages, raw materials deficiencies, or other reasons for production stoppages. And managerial productivity can be increased if telecommunications-provided data result in better-informed administrative decisions (Jonscher, 1985).

Managerial productivity can also be enhanced by increased use of tele- conferencing. According to one study, key company officials spend almost half their time in face-to-face meetings, with travel time to and from averag- ing three hours per meeting. “Much of this travel time is wasted: company time when the executive is out of touch and not productive. Worse, rough trips, frantic airport hopping, jet lag, and meals on the run all take a mental and physical toll on the traveler, further degrading effectiveness even when the executive or sales representative is on the job” (Singleton, 1983, p. 180). Teleconferencing also reduces travel costs. A Delaware chemical firm reports that in 1982 teleconferencing eliminated three hundred sixty-two trips and four thousand hours of employee travel time for a total savings of $500,000. The company claims that teleconferencing will eventually reduce its annual travel budget from $18 million to $10 million a year (Leddick, 1983).

A state-of-the-art telecommunications system also helps in the formation of job-creating small businesses. “One of the more innovative uses of telecom- munications for small businesses is the expansion of their markets through telemarketing. Such usage is popular in Nebraska. In fact, Omaha has been called the ‘800 Capital of the World.’ Omaha and the surrounding area are populated by telemarketing businesses that are intensive users of 800 and WATS services. These businesses employ a large number of Omaha’s work force” (Williams, 1989, p. 57).

More generally, a sophisticated electronic infrastructure makes an area more attractive to all sorts of businesses. In a recent survey of corporate exec- utives, 68 percent of the respondents indicated that the availability of telecom- munications services was an “important” or “very important” consideration in their site selection decisions (Bergeron, 1988). Increasingly, industrial park evaluations include telecommunications capabilities as selection criteria. For many firms, the availability of fiber optic cable is especially important.

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General Telephone Company of California (GTE), for example, runs a fiber optic cable directly into the communications building of the industrial park. One of the chief benefits is that installation time for new park tenants is reduced substantially. Whereas it may take a year in other locations to hook up to the telecommunications system, the hookup is completed in less than a month at parks already configured with fiber optic cable (Henry, 1988).

In addition, more and more firms are constructing office facilities with built- in communications networks. In the future, “companies building their own facil- ities will plan for such information outlets in the way they now plan for telephone outlets. Smaller businesses that rent office space will come to expect built-in communication networks that can be shared by tenants in the same way they now demand phone lines or air conditioning” (Singleton, 1983, p. 176).

The advantages of a sophisticated telecommunications network may be especially important for economic development of rural areas. A director of the National Association of Towns and Townships may well be correct in observ- ing that “rural America is an opportunity we can’t afford to pass up. Small com- munities can provide attractive, viable alternatives to the urban lifestyle, because the old objection that there are no jobs in rural America has a new answer. That answer lies with our emerging technologies. With computers and telecommunications links, many of America’s jobs can be done anywhere. It is beginning to happen” (Cole, 1989, p. 90).

A modern telecommunications infrastructure, especially a telephone system with digital switching capabilities, could contribute significantly to narrowing urban-rural economic gaps. With information moving at the speed of light, geo- graphic location is no longer a central consideration. Telecommunications-based increases in competitiveness, employment growth, and new business formations need not be confined to city dwellers. But how, specifically, will advanced telecommunications help rural areas?

First, better telecommunications can give farmers better information about prices, contract opportunities, and export markets. The cattle industry offers a good illustration of the importance of the instantaneous availability of accu- rate price information. “The new trend in many livestock-raising areas is direct buying; the buyer visits larger farms (minimum one thousand head of cattle), quotes a price, and makes the buy on the spot. Smaller farmers still have to take their cattle to market and that puts them at a serious disadvantage. If they think the price quoted upon arrival is too low, they do not have any feasible alternatives; maintaining the cattle at market or returning home are both too costly. So they end up being forced to take whatever price is offered” (Parker, Hudson, Dillman, and Roscoe, 1989, p. 141). With an advanced telecommu- nications system, the ranchers could telemarket their cattle all over the coun- try (indeed all over the world) before physically transporting them to the buyers. Not surprisingly, however, the major meat packers have resisted cattle telemarketing experiments.

Second, the electronic infrastructure can help rural areas attract major corporations that are using enhanced telecommunications to relocate and

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decentralize operations. This trend is called outsourcing, a process by which major companies farm out certain basic production tasks to rural towns with cheap labor and rent (Parker, Hudson, Dillman, and Roscoe, 1989). General Motors Corporation, for example, has been able to successfully outsource to a huge production plant in Juarez, Mexico, by using telecommunications- intensive, computer-aided design and computer-aided manufacturing tech- nologies. Given access to the information superhighway, many rural areas can be similarly attractive to outsourcing firms.

Finally, state-of-the-art telecommunications offer rural businesses the opportunity to export their services far beyond local markets. Increasingly, the production of traded goods and services depends on the efficiency and qual- ity of such services as accounting, banking, legal services, and printing and design—services that can be exported via telecommunications. Currently, how- ever, most rural-area business services are concentrated in activities with little export potential—wholesale and retail trade, other private services, and gov- ernment. Thus, “the expansion of new and existing telecommunications tech- nologies into rural area holds the promise of enabling the rural services sector to attract and foster the higher end services and information processing jobs on an equal footing with the urban areas” (Aspen Institute, 1989, p. 3).

In the information-based global economy, advanced telecommunications systems clearly offer local developers tremendous opportunities. Large oppor- tunities, however, are usually accompanied by large challenges.

Challenges for Economic Developers

A central challenge to economic developers is the identification and procure- ment of electronic infrastructures that match the requirements of modern firms. An information-based economy requires sophisticated telecommunica- tion systems as well as the traditional water, sewer, electric power, and trans- portation infrastructures. But what, specifically, are electronic infrastructures?

Clearly, a central part of the telecommunications infrastructure is the public telephone network, including local exchange carriers such as the Bell operating companies as well as long-distance and interexchange carriers like AT&T, MCI, and U.S. Sprint. From a development perspective, however, the telecommunica- tions infrastructure cannot be defined so narrowly. A wide range of other telecom- munications systems, such as value-added networks, cellular radio systems, paging networks, shared tenant services, metropolitan area networks, teleports, and cable television, can be used to meet the requirements of modern firms.

In addition, the telecommunications infrastructure can include so-called pri- vate networks—that is, telecommunications facilities used by a single firm or a closed group of firms. “For certain applications, such private networks can pro- mote efficiency by permitting large users to develop customized solutions to their particular telecommunications needs and to employ telecommunications strate- gically to gain a competitive advantage in the marketplace” (U.S. Department of Commerce, 1990, p. 10). Given the variety and complexity of modern telecom-

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munications systems, a key challenge to economic developers is the matching of local firm requirements with existing information technologies.

Once the appropriate electronic infrastructure has been identified, the next question is, How can economic developers help to procure such a telecommu- nications system? Answers can be found at the state, local, and industry levels.

To date, state public utility regulators and legislatures generally have been the focus of activities related to telecommunications and economic develop- ment. The most common state initiatives have been to provide regulatory flex- ibility and deregulation for telecommunications service providers. The New Jersey legislature, for example, passed a Telecommunications Act in 1992 that deregulated competitive telecommunications services and provided for other reforms aimed at streamlining the regulatory process. By the end of 1993, New Jersey Bell had installed about five hundred thousand miles of fiber optic cable throughout the state; the accelerated investment had resulted in advance ser- vice applications and trials including distance learning and telecommuting. A 1994 report of the New Jersey Board of Regulatory Commissioners looked “at real world examples of job development through either new firms moving into the state or existing companies electing to stay. What was found was very encouraging. The network deployment is less than one year old and already the benefits are there” (Southwestern Bell, 1994, p. 3). Although specific state policies will vary with individual circumstances, local developers should gen- erally push for flexible policies that reduce regulatory delays and spur com- petition among telecommunications providers.

Urban area developers may want to consider narrower policies such as tax breaks and real estate concessions to lure telecommunications firms to their cities. The telecommunications firms, in turn, may prevent a business exodus from metropolitan high rents, taxes, and wages. The Port Authority of New York and New Jersey, for example, initiated the Teleport project in 1983 to keep banking, law, insurance, real estate, and other service firms from fleeing the Big Apple’s high costs of doing business. At its inauguration, Teleport was expected to create more than five thousand jobs and generate more than $10 million in revenues for the surrounding localities (U.S. Department of Commerce, 1990).

At the industry level, most Bell operating companies and many indepen- dent local exchange carriers have economic development programs. Illinois Bell’s strategy for economic development, for example, is to establish regional organizations to assist communities in attracting and retaining businesses (per- haps reasoning that business development also increases telecommunications usage and revenues) (U.S. Department of Commerce, 1990). Southwestern Bell sponsors development grants for Oklahoma communities with the best pro- posals for an Information Age Telecommunications Center and funds new computer labs, new business administration buildings, and new master’s telecommunications programs at Oklahoma universities (Southwestern Bell, 1994). A general implication of these privately funded programs is that devel- opment professionals need to establish and maintain close working relation- ships with their local phone companies. The challenge is to cultivate such

58 THE UNIVERSITY’S ROLE IN ECONOMIC DEVELOPMENT

relationships while urging state officials to increase the competition faced by telecommunications firms.

To meet these challenges, economic developers need technical expertise, political acumen, and strong interpersonal skills. As the following case study shows, however, successful procurement of the right telecommunications infra- structure can yield substantial benefits to the local economy.

Case study: Pauls Valley and Southwestern Bell. Located about fifty miles south of Oklahoma City, Pauls Valley has a population of approximately six thousand people. In 1993, the national headquarters of a major local employer began to significantly increase voice and data communications with its local offices. Company executives told city officials that the Pauls Valley plant would be forced to relocate unless better telecommunications services could be obtained. Specifically, the local telephone system needed to be upgraded with digital switches to accommodate the firm’s communications traffic.

After careful analysis, Southwestern Bell determined that the Pauls Valley digital switch investment would not be profitable. Rather than seeking an Oklahoma Corporation Commission order mandating the digital upgrade, city officials appointed a steering committee to seek the new switches. In commit- tee chair Bill Humphrey’s words, “rather than take an adversarial course, we sat down at the table and everyone arose a winner.”

In December 1994, the Pauls Valley Industrial Authority and Southwest- ern Bell signed an innovative agreement. The industrial authority agreed to serve at least one year as an agent of Southwestern Bell and to sell enough tele- phone services to justify the switch investment. Southwestern Bell agreed to train selected city employees to sell specialized phone services like caller ID, call waiting, call forwarding, call trace, and others. If city agent sales generated annual revenues of at least $65,000, Southwestern Bell agreed to undertake the $1.2 million digital switch upgrade.

The agreement was a success. Pauls Valley is now equipped with digital switches. The major employer did not relocate, and local leaders now tout Pauls Valley as a “pretty little town” with a state-of-the-art electronic infrastructure.

Opportunities for Educators

Telecommunications holds great promise for improving access to education. Teleconferencing can provide distance learning to any suitably equipped loca- tion. By combining a critical mass of students with specialized instructors, interactive video broadcasts can improve the variety and quality of courses offered by rural high schools. And, unlike school district consolidations that move students physically to teachers, televised courses move teachers elec- tronically to students (Parker, Hudson, Dillman, and Roscoe, 1989).

As an example, rural education research centers sponsored by the National Rural Education Association (NREA), one of which is located at the University of Oklahoma, serve rural school administrators, teachers, and students. The university’s center currently provides satellite-delivered professional develop-

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ment programs for administrators and educators within the state’s seventy- seven counties and holds videotape licensing agreements for these programs with rural school districts in ten other states. These distance education pro- grams provide access to advanced education and training otherwise not avail- able for rural educators. Using a variety of advanced technologies, the center also conducts electronic field trips for rural students by exposing young adults to content experts and practitioners of multiple professions. Students learn more about the subject matter and are able to evaluate career opportunities in fields representing the arts, humanities, and physical and social sciences.

Educational networks can also be extended to the business community as companies develop interactive training centers linked to public and private institutions. Currently, such U.S. corporations as AT&T, Digital Equipment, General Electric, Hewlett Packard, IBM, Motorola, NCR, and Xerox participate in the National Technological University (NTU), a satellite-based consortium of twenty-eight engineering universities. “NTU awards accredited master’s degrees in engineering and material sciences as well as noncredit courses and workshops on advanced technology to 220 corporate and government research sites nationally. NTU is ranked among the top-quality postgraduate engineer- ing institutions in the United States” (U.S. Department of Commerce, 1990, p. 30). Other educational networks designed to serve the business community include Colorado State University’s SURGE program, which delivers graduate education in business, engineering, and computer science to working profes- sionals. On-campus courses taught by university faculty are videotaped and then distributed to students along with supplemental course materials. The Virtual College teleprogram, administered by New York University and devel- oped through support from the Alfred P. Sloan Foundation, is an on-line grad- uate teleprogram that trains professionals and managers. Using the Lotus Notes groupware package, students can complete the course from their home or office computers, collaborate over national data networks, and build business applications for their own organizations. The teleprogram delivers the same level of instruction that characterizes on-campus lectures, seminars, and lab- oratories. Course offerings use advanced technologies such as interactive video, virtual reality, hypertext libraries, and on-line laboratories (Peterson’s Guides, 1993, p. 56).

A more localized application can be illustrated through the University of Oklahoma’s delivery of graduate-level engineering programs to one of the state’s major energy firms, Halliburton Services, through a compressed two- way video, two-way audio network. Students on the university campus receive simultaneous instruction with Halliburton employees located more than ninety miles from the campus in fully equipped compressed video classrooms. Hal- liburton employees can directly access advanced degrees without leaving the work site. In essence, continuing education centers can televise interactive seminars for doctors, lawyers, accountants, bankers, nurses, architects, air traf- fic controllers, economic developers—any group of workers needing profes- sional updating or periodic retraining.

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Telecommunications can expand educational opportunities well beyond secondary schools, business firms, and professional groups, however. With the proper infrastructure, homemakers can learn Japanese or astrophysics in their dens. Junior and senior citizens can browse electronically through the best libraries in the world while researchers swap data files, exchange technical drawings, even talk with their colleagues. Using telecommunications, the potential for more people to acquire more education is simply immense. Unfortunately, the obstacles to electronic education are also large.

Challenges for Educators

Many educators fail to use the information technologies in ways that truly enhance education. “Either there is no interaction between students and teachers, the video is ‘boring talking heads,’ or ‘glitzy production values get in the way of education’” (Parker, Hudson, Dillman, and Roscoe, 1989, p. 146). If lectures are broadcast in sixty-minute segments (with no commercial breaks or music), for example, stu- dent torpor may be as immense as the potential of distance learning.

In addition, many of the people who most need to be reached—for basic literacy and skills training, for example—are not in institutional settings such as schools and workplaces (Parker, Hudson, Dillman, and Roscoe, 1989). To be effective, of course, the new technologies must be used. But the new elec- tronic devices are daunting enough for educated urbanites; the comfort level with these machines is no doubt lower among the uneducated and those liv- ing in rural areas. A major challenge to electronic education is to devise set- tings in which the illiterate and unskilled feel comfortable enough to experiment with the new technologies.

Despite these limitations and obstacles, electronic information flows can significantly improve education. Equipped with computers, digital switches, fiber optic cables, and communication satellites, learning institutions through- out the country can become educational models in the information age. Less grandly, if educators do not acquire these capabilities, their competitive posi- tions will erode and eventually become untenable.

Conclusion

The digital revolution and the information economy are realities that will grow more important in the coming decades. Already the information indus- try grows faster and employs more people than any other. The national and international economic systems are crucially and increasingly dependent on instantaneous communications. There is little evidence that these trends will be reversed; indeed, they are likely to accelerate.

If these observations are correct, an advanced telecommunications net- work is essential for future economic growth. The central feature of every information-based economy is the ability to move electronic zeroes and ones over long distances at fantastic speeds. Computers and telecommunications are as essential for information capitalism as raw materials and railroads were

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to industrial capitalism. A twentieth-century state without an advanced telecommunications system would be as competitively disadvantaged as a late-nineteenth-century state without a railroad.

Advanced telecommunications can help firms expand markets, reduce costs, and create jobs; attract new companies and diversify a local economy; reduce the urban- rural economic gap; and help firms become more globally competitive and make an area more attractive to international investors. In these ways and others, advanced telecommunications can set the stage for an enrichment of life as revolutionary as that following the steam engine, the light bulb, and the transistor. The challenge to eco- nomic development and education specialists is to make that enrichment possible.

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WILL CLARK is associate professor of economics at the University of Oklahoma.

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