: Explain how advances in information technology and automation will affect the economic system. The index for this section is:
As communication capacity expands, an increasing number of markets will gravitate to the social nervous system. For this to happen, computer shopping must be able to offer the consumer a better way of shopping than shopping in malls. Consider first price comparisons. Currently, it is very expensive in terms of time and resources to drive around to several grocery stores to compare the price of a weekly grocery list. In informational society, the home computer would create the grocery shopping list by monitoring household inventory and would dial up the alternative stores and compare prices in their computers. In computer markets price differentials would reflect quality differentials and services offered with the product. I also believe that with broadband communications, consumers shopping through computer networks would have access to better information to make quality comparisons than traveling through stores in a mall or all over town. We will debate this issue in class. Would you buy, for example, clothes through a computer shopping network.
With the increase in computerized markets the number of middlemen will definitely decrease. Many people will buy directly through the social nervous system and take delivery from warehouses (or the factory) without display areas. Because most people like convenience, the 7-Eleven type store will continue. Current malls would evolve towards specialty stores and entertainment.
In current society, the transactions costs make organization of consumers expensive. With the social nervous system household computers facilitate the organization of various types of consumers groups. Two types of special interest are:
a. Buyer's Groups: If households tend to select communities with similar interests, they would have a powerful incentive to form buyer's groups in order to obtain discount prices through large purchase orders. With the advance in home computers and LANs in communities the organization of such purchases can be greatly facilitated by software. For example, the community could purchase its weekly groceries in a single purchase. Deliveries could be made to and distributed at the community center.
Buyer's Services: In addition, the creation of the social nervous system creates a media for the development of buyer's services to provide information concerning purchases made through the social nervous system. Such information includes the best price plus information and software to analyze the various attributes of market products. The impact of buyer's services on the market would be enormous if consumers were given sufficient information rights. For example, if the buyer's service represented 1M households and received overnight by E-mail the repair records of all equipment bought by its clients, the buyer's service could quickly spot defects in products on the market. If the buyer's service issued a warning to its clients not to buy these products, the manufacturers would by under constant pressure to immediately correct any known defects.
As transportation and communication costs continue to fall, the world market becomes the only market. As less developed nations advance they become proficient at producing products made in more advanced countries. This means that industries tend to move from the advanced countries toward the less developed world. To increase their prosperity, the advanced nations must constantly invent whole new industries. The advanced nations will maintain a high rate of spending for basic research to maintain their position on the frontiers of science. The less advanced nations will create research universities to acquire the skills to succeed with existing industries. The world economy will become increasingly competitive.
In order to transfer basic research more rapidly into marketable products, nations will innovate in the transfer of knowledge from research universities to the market. Consortia among private firms and among private firms and various levels of government will become commonplace to share the risk in developing new technology inventions. Because innovations in business organization and incentive systems are such an important part of maintaining a competitive edge, the methodology for innovation will become more systematic.
With major national efforts to promote new technology, new industries will be constantly displacing old industries. In the advanced countries, most of the new industries will be created by startups because new technology is usually not understood by managers in existing firms, Then, as the industry matures, competition will result in a small number of large producers. In the less developed world, new industries will frequently be started by multinationals seeking lower labor costs and new markets.
Nevertheless, national economies will be characterized by large numbers of smaller specialized firms. In the 19th century competition drove firms to vertically integrate to protect themselves from a rival capturing any component of their operations. With intense international competition, firms will concentrate on their core business. They will contract out secondary activities knowing that in a competitive world market the threat from a rival capturing a needed service is remote. Thus in most national markets there will be a very large number of smaller firms supplying intermediate products to larger firms.
Multinational corporations into true international entities with multinational management. Currently, multinationals must hire local managers for operations within a foreign country. As time progresses, the top management of multinationals will gradually become international.
To be more competitive firms will concentrate on their core businesses. To be more flexible firms will have few levels of hierarchy, a horizontal corporation. Increasingly, firms will conduct business through a network of contracts between firms with can be changed as market conditions change.
With constant, rapid change, internal organization will increasingly rely on temporary groups to solve sequences of specific problems. These temporary groups will frequently communicate using video communications from diverse locations on the globe. Thus rather than relocate individuals for a temporary assignment, the firm will establish a local area network of videoconferencing workstation for the assignment.
In a rapidly, constantly changing environment, you must be prepared for a career of constantly changing jobs which will necessitate you constantly acquire new skills. This is because as automation progresses, human work is constantly being reorganized. After such a reorganization, workers will have to learn new skills to be effective. Increasingly, you will alternate between work and school, whether company or university, to learn new skills. Universities (very reactionary institutions when it comes to change) will pump educational products into firms using teleconferencing.
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