Published

1

Aug

2012

Report

Fusing the Growth and Austerity Agendas via Information Technology

In the 1930s, John Maynard Keynes used the concept of “the paradox of thrift” as a cornerstone of his seminal work, The General Theory of Employment, Interest and Money. Keynes argued that while it makes perfect sense for individuals to reduce their spending during tough economic times, if everyone does this, including the government, mass austerity will only make the downturn worse. Since then, whenever a deep recession occurs, the spectre of Keynes has re-emerged. Indeed, the Time magazine cover above appeared in 1965.

Fusing the Growth and Austerity Agendas via Information Technology

Growth or austerity?

Figure 1 – Growth vs austerity – the debate of our time

Figure 1 – Growth vs austerity – the debate of our time

Of course, many economists and other experts completely disagree, arguing that today’s high levels of government spending and debt have been a major cause of the world’s recent economic stagnation and subsequent turmoil, and that huge deficits and unprecedented quantitative easing are unsustainable and dangerous.

These opposing world views have resulted in an increasingly polarized growth vs austerity debate that has coincided with similarly heated arguments about societal fairness and equity, symbolized by the ‘Occupy Wall Street’ and related global movements.

This LEF research project began as the result of a simple observation. As the world has increasingly focused on whether to pursue growth or austerity economics, it struck us that one of the unique things about information technology is its ability to drive growth and austerity at the same time – to make so many products and services bigger, better and cheaper.

Since IT now underpins an ever-rising share of the global economy, this fusion appeared to us to be of increasing relevance to individuals, companies and society at large. This report describes the many ways in which business growth and IT are now inter-connected, and what this means to your firm in the context of today’s highly uncertain global economy.

Figure 2 – IT is central to employment and fairness concerns

Figure 2 – IT is central to employment and fairness concerns

The information technology business has its own versions of these economic controversies and paradoxes. Inside the IT industry, this is the best of times. Apple is now the world’s most valuable company; Google and Amazon are seemingly unstoppable; Facebook has created another cadre of instant billionaires; and IT skills are in high demand. Countless new mobile, social and cloud-based firms are being continually created all around the world. Rapid progress seems very likely to continue.

But, as MIT Professors Eric Brynjolfsson and Andrew McAfee show in their important 2011 book Race Against The Machine, IT-based automation and self-service systems are steadily eliminating many traditional retail, support, middle management and other jobs. The authors argue that the sheer breadth of these changes may make today’s situation different from previous generations of technological innovation, most of which also triggered fears of rising unemployment which eventually proved unwarranted.

We do not believe that IT is the principal cause of western unemployment today. As we will discuss later, the single biggest driver has almost certainly been declining US and European manufacturing competitiveness. In addition, the collapse of the housing bubble, skill shortages, and the slow development of new industries such as alternative energy, electric vehicles, biotechnology and other sectors are all significant factors.

However, if information technology becomes broadly seen – rightly or wrongly – as a creator of great wealth for a few, but a net job destroyer for everyone else, the implications for our industry would be profound. It’s an important issue for IT professionals to stay abreast of, particularly if unemployment remains high or even increases. This increasing virtualization of the economy is explored further on the next page.


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