From Internet induced economic effects in micro-economic structures, i.e.,
on enterprise and industry levels, we now address network effects on a macro scale
involving productivity, growth, and the business cycle. The network effect is strongly
facilitated by computerization and information technologies (ITs). Ubiquitous
computerization and digitalization increasingly pervade many sectors of the economy,
and communication by network technologies through the Internet (the network is the
computer) as a strong catalyst. Eventually, through this synergy, most sectors of the
economy will be impacted by network effects. Thus, networking and computerization
have far-reaching impacts on the pace and path of the economy but they could also
make the economy more vulnerable to economic shocks and security breaches. We
address three important issues: networks and productivity, endogeneous growth and
increasing returns.
The relationship between technology and productivity used for the United States on the
economy or sector level, found little evidence of a relationship in the 1980s. Capital IT
investment between 1977 and 1989 rose several hundred per cent but was barely
reflected in a rise in output per worker. There was this famous saying by Nobel prizewinning
economist Robert Solow (1987): “You can see the computer age everywhere
except in productivity statistics”. In the 1990s, such a positive relationship on the firm
level was established empirically. On a short-term basis: one-year difference in IT
investments vs one-year difference in firm productivity should be benchmarked by
benefits equal to costs. However, benefits are supposed to rise by a factor of 2–8 in
forecasting future benefits through productivity growth.
Keywords: Catchup Race, DARPA, E-commerce, Economic transformation,
Endogeneous Growth, General Purpose Technologies (GPT), Increasing Returns,
Information Goods, Information markets, Minitel, Multi-Factor Productivity
(MFP), Productivity Paradox, SABRE, Total Factor Productivity(TFP).
