research reportThe Linked WorldHow ICT Is Transforming Societies, Cultures, and Economies
The Linked WorldHow ICT Is Transforming Societies, Cultures, and EconomiesRESEARCH REPORT R-1476-11-RR3 Foreword4 Introduction5 Measuring the Contribution of ICT to Economic Growth9 The Global Broadband Bonus: Broadband Internet’s Impact on Seven Countries11 Who Captures the Benefits of ICT? The Case of Digital Books14 The Impact of ICT on the Geographic Distribution of Employment16 Measuring the Impact of ICT on the Public Sector Performance18 Measuring the Impact of ICT on Health Care22 Paying Attention to Society and Culture25 The Long Tail of Digital Exclusion: A Comparison between the United Kingdomand Chile29 Mobile Communication and Social Capital in Korea and the United States:How Usage Patterns Predict Social, Civic, and Political Involvement32 Measuring the Impact of ICT on Education35 The Impact of Public and Regulatory Policy on ICT Sector Performance38 About The Linked World project38 About The Conference Board38 About The Telefónica Foundation39 Contributors
3www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economiesForewordInformation and communication technology (ICT)has decisively established itself as a general purposetechnology—one that affects an entire economy. Over thepast four decades, ICT has spurred dramatic changes thatwill continue for the foreseeable future. Harder to predict,though, is the exact nature of those changes, and howthey will play out across societies—in our economies, ourcultural relationships and the way human beings interact.This notion formed the basic motivation for embarkingon the study, which the Telefónica Foundation agreed tounderwrite in 2008. The purpose of The Linked World:How ICT Is Transforming Societies, Cultures, andEconomies is to take stock of our knowledge on whatthe economic, social, and cultural impacts of ICT willbe. How has it evolved, how much have we been able toquantify or to evaluate in a qualitative sense, and whatdoes it mean for the challenges and opportunities ahead?The Linked World: How ICT Is Transforming Societies,Cultures, and Economies (the book on which this report isbased) is the result of a two-year global research projectled by The Conference Board and builds on previouswork by The Conference Board on the impact of ICT oneconomic performance.To maximize the insights gleaned from this project,The Conference Board sought a global reach—for boththe subject matter and research team—to bring to theresearch a broad base of experience. A common threadin this research is an emphasis on comparative analysisof the experiences of various developed and emergingnations. Further, the choice of researchers from a varietyof disciplines allows an examination of this subject frommany angles; the research methods are diverse as wellwith much reliance on published measurements gatheredby reputable organizations, but with case studies tosupplement and expand the statistical analysis.The Linked World is not a futuristic study that pinpointsthe main technological and innovative trends and triesto tell the reader what the next big thing will be. It is upto investors and entrepreneurs in the ICT industry tomake their own market assessments to identify businessopportunities. Rather, this study provides guidance as towhat businesses, governments, and other organizationscan do to help drive and maximize the next wave ofbenefits that ICT will bring.While the researchers participating in this project wereheld to the highest standards of academic research, thissummary and the chapters in the published book areessentially distillations of their methods and conclusionsto make the information more accessible to a broadaudience of non-academics, including strategic thinkersin industry and policy. For those readers so inclined,the original papers from which the books’ chapters werederived, with citations, methodological explanations,and appendixes, can be found on The Conference Boardwebsite, www.conferenceboard.orgWe are grateful to the Telefónica Foundation forunderwriting this study, and also for their helpful inputthroughout the project.For more information about this project, includingvideo summaries and online forums, please go to:www.ictlinkedworld.com
4 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgIntroductionInformation and CommunicationsTechnology: A True Game ChangerInformation and communications technology (ICT)is a dominant and pervasive part of modern life. Wetalk, Tweet, and text on cell phones; work, shop, andentertain ourselves on the internet; and eagerly awaitthe next new thing, whether hardware or software, thatwill emerge from the innovative minds of engineers anddesigners around the world. Technology drives corporategrowth, the global distribution of jobs, and the value ofinvestments. Technology also spurs competition. Thereis no question that ICT, like steam power and electricitybefore it, is a fundamental force for global change.Much of the attention paid to ICT is focused on theproducers and their products. Much less attention is beingpaid to how ICT is shaping the way society is changingand, in turn, being shaped by society. The ConferenceBoard has brought together researchers from around theworld to examine some of the myriad ways ICT affectseconomic growth and social and cultural development.The intent is to shed light on three broad questions:1 How is ICT driving living standards, as measured bysocietal and cultural development and economic growth,in the world’s advanced and emerging economies?2 How is the diffusion of ICT affecting the distribution ofits benefits between and among various social, cultural,and economic entities?3 How do government policy, business strategy, andconsumer behavior either encourage or constrain therealization of ICT’s full potential?Getting a firm grasp on the impact of ICT’s use has notbeen easy despite much effort over the past two decades.Compared to the development of both steam power andelectricity, ICT’s growth and diffusion has happenedwith astounding speed, fueled by rapidly increasingcomputing power and even faster price declines for thatcomputing power. Yet difficulty in obtaining precise andcomprehensive measurements should not be a deterrentto observing and analyzing the transformative impact ofICT and distilling the lessons from it.Several themes emerge from the findings of this research.First, modern ICT applications contribute significantlyto economic growth and innovation, but spread onlygradually across the world economy and geographies.Second, the benefits of ICT are not spread evenly, andthere is no guarantee that the benefits always outweighthe potentially negative effects. Modern ICT is sufficientlycomplex that significant investment in time and attentionis necessary to master it, and a full understanding of howall parts of society can accomplish this will not comequickly. Third, the interactive connectivity of modern ICTupends established social roles and norms—the analogto the “creative destruction” it causes in the marketplace.Finally, government policy and business strategy play acritical role in how well or poorly ICT is used to improveliving standards.
5www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economiesMeasuring the Contribution ofICT to Economic Growthby Bart van Ark (The Conference Board), Abhay Gupta (The Conference Board), and Abdul Azeez Erumban (University of Groningen)Highlights• The overall growth of ICT investment and the contribution ofICT capital to output and productivity growth experiencedits heyday during the late 1990s. After 2000, the directcontribution of ICT to economic growth through investmentand productivity in ICT-producing industries slowed.• Emerging economies’ share of global ICT investmentincreased from 13 percent in 1990 to 41 percent in 2007.Even by 2007, however, the share of ICT capital in totalcapital was much higher in advanced than emergingeconomies, so that growth potential for ICT catch-upinvestment in emerging economies still remains high.• Emerging economies have a higher share of telecom capitalin total ICT capital than for advanced economies, probablyreflecting the former’s use of mobile telecom technologyto leapfrog fixed telecom technology.• Advanced economies still have a much higher level of ICTcapital per worker than emerging economies. Howeveradvanced economies show a weaker relationship betweengrowth in ICT capital per worker and in output per workerthan emerging economies, perhaps because of diminishingreturns due to high levels of ICT per worker in the former.Defining ICTInformation and communication technology is an umbrellaterm that includes any communication device orapplication—including radio, television, cellular phones, computer andnetwork hardware and software, and satellite systems, as wellas the various services and applications associated with them,such as videoconferencing and distance learning. ICT is oftenconsidered to be a general purpose technology, much likesteam and electricity in earlier eras, that has broad economicimpact through multiple applications. Its role in enhancingeconomic growth is present in both ICT-producing and -usingsectors in the economy, with important implications for socialand cultural performance, which are explored throughout thisresearch project.The impact of ICT on economic performance, broadly defined as theincrease in living standards from the creation of additional economicoutput and its wide distribution across producers, consumers, andowners of wealth, can be analyzed from three perspectives: supply,demand, and distribution. This section primarily focuses on thesupply side of ICT’s impact on economic growth, although it will referat places to demand- and distribution-related topics, such as theuse-effects of ICT within the business sector and the distributionaleffects across countries.A Look at the Supply SideOn the supply side, ICT has three main effects:1 A production effect, through which the ICT-producingsector, including telecom equipment and services,experiences an acceleration in productivity growth asrelated industries produce output at a faster pace thanthey use resources.2 An investment effect, through which the more intensiveuse of ICT improves the contribution of capital to outputgrowth in technology-using sectors, typically measuredby increases in labor productivity across the economy.3 A productivity effect, which results from an efficiencyrise in the use of ICT, which goes beyond its directcapital deepening effect. In this case, the use of ICT alsoenhances multifactor productivity (MFP) growth, which isoutput measured over all inputs—not just labor, but alsocapital and intermediate inputs—across the economy.There are three important conclusions. First, theoverall growth of ICT investment and the contributionof ICT capital to output and productivity growthexperienced its heyday during the late 1990s, when thetech boom led to a surge of investment; Second, after2000, the direct contribution of ICT to economic growththrough investment and productivity in ICT-producingindustries slowed. However, within this slowing there aresignificant changes both in the composition of the ICTcapital component, which showed an increasing share oftelecommunication equipment, and a change in industrycontribution to output and productivity related to ICT,especially a larger contribution from telecom servicesrelative to ICT manufacturing in several countries.Finally, there has been a substantive shift in the globaldistribution of ICT growth. While ICT and telecominvestment levels and growth contributions are stillmuch higher in advanced countries, emerging countriesare catching up rapidly in terms of investment intensityand productivity performance. In advanced economies,which are already at the forefront of innovation, newapplications of ICT are having much smaller and gradualeffects on investment and productivity growth.
6 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgWhile information transfer between human beings isas old as civilization, it has only been a few centuriesfollowing the invention of the printing press that thisactivity has developed into a key economic factor.The arrival of telecommunication technology in the19th century provided another impetus to the essentialrole of information and communication to the economy.While it may be early to settle on a definitive conclusion,the basic invention of the micro processor in 1971 probablyhad a more significant impact on the information andcommunication technology industry and the economythan any other ICT innovation. Computing power hasdramatically increased and has contributed to a seriesof incremental innovations, from large mainframecomputers to increasingly faster, cheaper, and morecompact devices interlinked in networks, notably theWorld Wide Web.These innovations have led to rapid and continuousproductivity gains in ICT-producing sectors. They havebrought to the market new hardware, software, andtelecommunication products and services of higherquality and better performance. They have also resultedin a huge decline in the price of ICT goods, providinginvestors an incentive to replace other forms of capitalwith ICT equipment. These productivity dynamics,combined with a rapidly increasing demand for theseICT products and services, have led to an expansionof output in ICT-producing sectors, thereby directlyresulting in a larger contribution from ICT productionto economic growth. In recent years the integration oftelecommunication devices with broadband functions hasgiven an additional boost to opportunities for investmentand economic growth.Apart from the direct effect on the ICT-producing sectorby boosting productivity, ICT also leads to faster growthof other sectors of an economy. The declining pricesof ICT have made it an attractive factor of production,thereby leading to even greater investments in ICT as away to boost efficiency and production.. The increaseduse of ICT has stimulated labor productivity, especially inindustries such as services industries, in which high-techcapital traditionally only played a marginal role.The increased use of ICT has also helped attain higherMFP growth, which measures the growth of productionover the combined contribution of all inputs, includinglabor, human skills, machinery, structures, and ICT.In this respect, ICT creates an additional bonus orspillover effect for an economy as a whole. Informationand communication technology, and in particular thetelecommunications part of it, allows a greater numberof users of the technology to create more benefits forthe economy as a whole. This doesn’t imply that MFPgrowth comes without any additional effort: it doesrequire the right institutional framework to providean optimal basis of market-based and policy-inducedincentives. It also needs a broader investment strategybeyond simply investment in ICT but in intangible capital,such as research and development, workforce skills,organizational capital, and marketing and branding.The effects on investment and productivity are keys toICT becoming a general purpose technology (GPT) in thesame way as steam and electricity had in the past. Generalpurpose technologies have four main characteristics:1 a wide scope for improvement and elaboration;2 applicability across a broad range of uses;3 potential for use in a wide variety of productsand processes; and4 strong compatibility with existing and futurenew technologies.General purpose technologies affect entire economiesand social structures, but ICT diffusion has, morenoticeably than any previous innovation, produced sucheffects across the global economy. For example, in termsof the speed of diffusion, the ICT era is comparable tothe electricity age (i.e., a relatively rapid diffusion acrossthe economy). It has affected elements of production,distribution, and consumption in most of the developedworld, and is a force for change in economic prospects foremerging economies.However, the jury is still out on how the use of ICT is leadingto improvements in MFP across the global economy. Whilethere have been important productivity improvementsin ICT-using sectors, such as the distribution, financialservices, and business services industries, it has beendifficult to assign these gains directly to ICT investment.While firm-level studies often show reasonably solidrelationships, there is only limited evidence of ICTinvestment having a direct impact on MFP growth at theindustry level. Also, controlling measurements for suchdiverse factors across the world as labor and product marketregulations have not provided a clear result regarding thefacilitation of ICT’s impact on productivity.
7www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economiesThe results of research done for this report indicate arapid surge in ICT and telecom investments during theperiod of 1995–2000. The trends generally slowed post2000, following the dot-com crisis, although growth inICT and telecom investment in advanced economiescontinued at a slowed pace. Meanwhile, emergingeconomies accelerated their investment growth in ICT,indicating the overall global shift in ICT activity fromadvanced to emerging economies. However, the rapidtrends in emerging economies still largely representa catch-up effect. Advanced economies remain theinnovation center of information and communicationtechnology and, therefore, are of crucial importance tothe industry’s further development and its impact onoutput and productivity growth.The research findings indicate impressive productivityperformance in the ICT sector relative to the world’seconomy and manufacturing sector. In particular,labor productivity growth and MFP growth in ICTmanufacturing has been quite high, particularly duringthe 1995–2000 period, and especially in countries like theUnited States and South Korea, which had comparativeadvantages in these sectors. However, productivitygrowth in ICT industries began to slow post-2000, whichis mostly in line with overall global manufacturing andeconomy trends. However, the ICT sector continues towitness relatively higher productivity growth comparedto the global economy and overall manufacturing. Thecontribution of telecom services to output and productivitygrowth in the aggregate economy has also slowed, but hasnot shown similar decline to ICT manufacturing.The analysis in this section is largely from the supply sideand needs to be complemented by an analysis of demandside channels and distribution channels. The investmentsin equipment, software, and technology are made onlybecause businesses and governments expect that theywill help to satisfy demands for better and cheaper goodsand services. A broader study of the demand side’s rolein economic growth patterns would require additionalinformation on demand decompositions from consumers,businesses, and foreign buyers; relative price movementsof ICT and non-ICT products and services; and thedistribution of labor and capital compensation in ICTindustries relative to the aggregate economy. This analysiswill greatly contribute to making a connection to thestudy of social and cultural aspects of ICT, as it wouldhelp identify the beneficiaries of the new technologies andtherefore assess the gains in social and cultural value andthe improvement of living standards.Since 2000, most countries exhibited a slowdown in ICTand telecom investment compared to the 1995–2000growth rates. However, the slowdown was much bigger foradvanced economies than for the emerging economies.The unweighted average of ICT investment growthin advanced countries has dropped from 18 percent(1995–2000) to 12 percent (2000–2007), and from 11 to5 percent for telecom equipment. The growth slowdownin emerging economies was much more moderate, i.e.,from 21 to 19 percent for ICT investment and from 17 to13 percent for telecom investment. The latter result somewhat contradicts the overall trend for emerging economies,which actually showed an acceleration in growth. This isbecause of the decline in some emerging economies: Brazilshowed a drop in the telecom investment growth rate from31 to 15 percent between 1995 and 2007; China showeda drop from 29 to 18 percent and South Korea showed adrop from 18 to 1.5 percent in a similar time frame. Theseparticular declines outweighed increases in some othercountries. For example, Indonesia saw an increase inthe telecom investment growth rate from 1 to 23 percentbetween 1995 and 2007, and Mexico from 4 to 12 percent.There was impressive productivity performance in thetelecom sector relative to the total economy and totalmanufacturing sector. In particular, labor productivitygrowth multifactor productivity growth in the telecomsector (both equipment and services) was impressivelyhigh, particularly during the 1995–2000 period.Productivity growth in telecom equipment and servicesdeclined in the post-2000 period, which is mostly in line withtotal manufacturing and total economy trends. However, theICT sector overall witnessed relatively higher productivitygrowth compared to total economy and total manufacturing.Therefore, the relative contribution of the telecom sectorto aggregate productivity growth has either improved orremained the same in at least some countries. The observedproductivity decline in the telecom manufacturing sectormight be due to saturation of innovation in the telecomequipment sector. Such saturation is less visible in the telecomservices industry, but the lower growth rates and the largervariation among countries raises important questions aboutthe future potential for productivity growth in the telecomservices industry.
8 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgThere was also some evidence of improved MFP growthin non-telecom sectors, related to possible technologyspillovers from telecom equipment to productivity growth.This aspect, however, requires more rigorous analysis,including a study of the impact of policy regulations thatmight affect MFP growth. Earlier evidence suggesteda stronger effect of regulatory policies on MFP in thetelecom service sector than elsewhere in the economy.Lowered entry barriers to the ICT sector promote MFPby increasing competition. Furthermore, past evidencesuggested that cross-country differences in ICT diffusioncan be partly explained by regulatory policy regimes, orperhaps cultural atmosphere. The diffusion of technologyby means of increased investment is a pre-condition forobtaining benefits in terms of productivity gains. Thediffusion of telecom might also be affected by industrycomposition and labor market regulations, which could beimportant determinants of demand for telecom equipmentand telecom services. This topic is more thoroughlydiscussed in later sections of this research report.Figure 1.1ICT investment in advanced and emerging economiesIn advanced economies, investment growth rates for both ICT and telecom equipment have slowed since 2000.In contrast, these growth rates continued to strengthen and even accelerate for emerging economies.Growth of total ICT investment Growth of telecom investment0.35% 0.35%0.30 0.300.25 0.250.20 0.200.15 0.150.10 0.100.05 0.050 01989–1995 1995–2000 2000–2007 1989–1995 1995–2000 2000–2007Global ICT investment shares, 2007 Global telecom investment shares, 200759%4155%45Advanced Emerging Advanced EmergingNote: Investment in ICT refers to telecommunication equipment, IT hardware and software. The growth rates refer to average annual growth ratesfor each sub-period, and represent averages for 26 advanced countries in North America, Europe, and Asia-Paciﬁc (including Japan, Korea, Taiwan,Singapore, Hong Kong, Australia, and New Zealand) and 41 countries representing emerging markets around the world, including developing Asia,Central and Eastern Europe, Latin America, and the Middle East.Source: The Conference Board Total Economy Database, January 2011.
9www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economiesThe Global Broadband Bonus:Broadband Internet’s Impact on Seven Countriesby Shane Greenstein (Northwestern University) and Ryan McDevitt (University of Rochester)Highlights• Broadband is more appealing than dial-up because of higherspeed and continuous connection which allows time savingsfor internet transactions; savings in commute time for homeworkers; health and entertainment benefits; and savings ona second telephone line including, possibly, a first line forhouseholds that use internet phone service.• In the United States, the percentage of households with abroadband connection rose from 4.4 percent in 2000 to63.5 percent in 2009. In other G7 countries, the number ofbroadband subscribers per inhabitant increased by multiplesof 5 or more during this period.• Countries with large internet economies, such as the UnitedStates and China, are receiving large economic bonusesfrom investment in broadband. Countries with smallerinternet economies—such as Canada, the United Kingdom,and Spain—receive bonuses that are small but that areproportionate to their scale of internet use.The extra value from broadband consists of two components:1 Incremental revenue paid by households for the service(this is included in GDP); and2 Consumer surplus, or the amount consumers would havebeen willing to pay for broadband in excess of what theyactually are paying. Consumer surplus is measured usingthe observed increases in broadband diffusion in eachcountry during the 2000s as its real price dropped duringthe decade.The Broadband BonusThe diffusion of dial-up coincided with the initial use ofthe internet in most households. The diffusion of broadband came a few years later and, for households in severaldozen developed economies, involved an upgrade inbandwidth. During this period, from 2003 to the present,broadband service was delivered to households primarilyin two forms of wire-line service: cable or telephone lines.Many households around the world switched their mode of accessingthe internet from dial-up to broadband during the 2000s. This sectionestimates how much value this switch created (the “broadband bonus”)in seven countries: the United States, Canada, the United Kingdom,Spain, Mexico, Brazil, and China. These seven were chosen becausetheir economies represent typical experiences in the high-income andmiddle-income countries of the world. The focus is on estimating therevenue growth and consumersurplus—the difference between price andwillingness to pay—afﬁliated with broadband’s diffusion to households.Countries differed significantly in which of these deliverychannels was used. At the very end of the period there wasgrowing use of a third and fourth delivery channel: fiberto the home and access with mobile modes. Some cablefirms built up their facilities to deliver these services in thelate 1990s, and many—especially telephone companies—waited until the early- to mid-2000s.Broadband has several appealing features that usersexperience in heterogeneous ways. In comparison todial-up service, broadband provides households withfaster internet access and better online applications.Broadband also may allow users to avoid an additionalphone line for supporting dial-up. In addition, broadbandservices are also “always on,” and users perceive that as amore convenient service. It is also generally faster in use.In short, broadband gives the user a better experiencethan dial-up access.Prior to 2002, the diffusion of broadband internet accesswas very much supply-driven in the sense that supply-sideissues were the main determinants of internet availabilityand, hence, adoption. Cable and telephone firms neededto retrofit existing plants, which constrained availabilityin many places. As infrastructure investments removedthese constraints, demand-related factors, such as price,bandwidth, and reliability, played a more significant rolein determining who adopted broadband and who did not.By 2006, supply-side issues began to fade, with only themost low-density parts of the country lacking suppliers.There are two common approaches to measuring gainsfrom a new good. First, what is the increase in revenue(GDP) above and beyond what would have been generatedhad dial-up continued? Second, what is the increase inconsumer surplus beyond what would have occurred haddial-up continued? The focus here is on revenue instead ofproducer surplus because of the lack of precise informationabout the unit cost of provision, which is necessary for anestimate of producer surplus. Instead, researchers examinedthe difference in vendor revenue between actual history anda hypothetical scenario without broadband, absent multiplierand general equilibrium effects—i.e., estimates of how muchthe GDP increased in the internet access market as a result ofthe deployment of broadband. Estimates of user willingnessto pay for the upgrade to broadband were used to measureconsumer surplus.
10 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgThe results are shown in the following two tables expressedin U.S. dollars, indexed to 2009 to allow comparisonacross countries. In general, the scale of the broadbandbonus in countries is comparable to the size of the broadbandeconomies in those countries. Countries with large interneteconomies, such as the United States and China, are receivinglarge economic bonuses from investment in broadband.Countries with smaller internet economies—such as Canada,the UK, and Spain—receive smaller levels of bonuses, butbonuses in proportion to the scale of use of the internet.Table 1 shows that the U.S. broadband bonus exceeds thatin Canada, Mexico, Spain, and the UK. The differences arein keeping with differences in the scale of the broadbandeconomies between each country. Table 2 includes Chinaand Brazil, as well as the countries in Table 1, but does notsubtract cannibalization of dial-up. These comparisonsmust be interpreted cautiously because they do not reflectthe subtraction of lost dial-up revenue, but they aresuggestive, nonetheless.In general, the findings support the view that motivatedthis investigation at the outset. The results for Braziland Mexico are intriguing, however. In comparison toother countries, both had a later start and more recentacceleration in investment in broadband. Potentialexists for more in Mexico, but that potential has not yetbeen realized. Brazil’s internet economy appears to begrowing rapidly now, and that suggests the generation ofconsiderable broadband bonus in the near future.Table 1 Broadband bonus w/ dialup using point topicIn thousands of 2009 local currency, real terms2003 2004 2005 2006 2007 2008 2009Compoundannualgrowth rateCanadaMexicoSpainUnited KingdomUnited States1,676,9181,230,160527,639226,3288,301,2532,018,3882,143,362722,799802,07212,029,8622,272,2054,324,865852,6021,276,66414,188,9592,776,1597,355,3621,694,7081,911,34520,200,5743,020,47310,709,8022,480,3492,414,80424,126,4823,326,41916,913,2443,166,6032,888,89726,434,2123,484,04127,854,1483,362,5993,164,69829,067,20511.0%56.230.345.819.6Source: The Conference Board Total Economy Database, January 2011Table 2 Broadband bonus w/ dialup using point topicIn thousands 2009 USD, real termsCompoundannual2003 2004 2005 2006 2007 2008 2009 growth rateBrazil $390,160 $965,685 $1,865,147 $3,344,271 $4,697,636 $7,598,028 $7,029,742 51.1%Canada 1,187,338 1,890,946 2,500,556 3,073,695 3,356,922 4,188,844 3,627,286 17.3China — 2,472,557 4,346,411 6,491,958 9,245,848 14,208,376 18,313,252 39.6Mexico 115,812 196,279 438,356 830,628 1,229,605 1,887,231 2,309,376 53.3Spain 842,438 1,731,363 2,401,161 3,196,967 4,452,006 5,592,804 5,255,119 29.9United Kingdom 469,724 1,870,345 3,515,734 4,831,808 6,739,761 7,672,431 6,046,106 44.1United States 10,630,149 17,966,054 22,429,000 26,339,538 30,940,777 34,571,732 38,552,257 20.2Source: The Conference Board Total Economy Database, January 2011
www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economies 11Who Captures the Beneﬁts of ICT?The Case of Digital Booksby Janet Hao (The Conference Board) and Vlad Manole (The Conference Board)Highlights• Studying the impact of ICT on book publishing servesas a case study of broader trends in media industries.Distinct steps in the creation of media products—contentcreation, selection and editing, bundling into a suitableformat, production, marketing, and delivery—havebeen consolidated, eliminated, and/or blurred by digitaltechnology, changing the value created by the variousentities in the supply chain.• From 2002 to 2008, the sales of digital books in theUnited States grew by an annual average of 57.8 percent,to $113.2 million from $7.3 million. In contrast, salesof mass market paperbacks dropped by 1.6 percent to$1,085.6 million during the same period.• Benefits of digital books flow to both consumers andproducers. In a long-run equilibrium scenario wheredigital books replaced all print books, digital bookswould increase consumer surplus by $1.52 billion, or16.6 percent of existing sales, and producer surplus by $1.23 billion, or 13.4 percent.Bye-bye, Brick and MortarThe development of digital technology and the expansionof broadband is driving the most disruptive changes thebook publishing and retailing industry has undergone in its500-year history—and the pace of change is accelerating.Brick-and-mortar bookstores long dominated the retailingof books until Amazon, Barnes & Noble, and other internetretailers entered the picture in the 1990s. In 2003, internetretailers accounted for 12.7 percent of new book sales and67 percent of used book sales. Now, the next transformativewave is washing over the industry in the form of digitalbooks, or eBooks, and specialized devices known as eBookreaders or eReaders on which to store and read them.Digital technology and broadband are driving disruptive changes tothe book retailing and publishing industries. In the 2000s, eBook sales expanded rapidly, at an average annual growth rate of 71 percentbetween 2002 and 2009. In contrast, sales of mass-market paperbacks dropped by 2.2 percent annually. This section employs a benchmarkestimate of the outcome of a hypothetical long-term situation in which digital books replace all print books in the United States. It measures the size of the pie to be divided among producers and consumers.From 2002 to 2008, the sales of digital books in theUnited States grew by an annual average of 57.8 percent,to $113.2 million from $7.3 million. In contrast, sales ofmass market paperbacks, the product that is deemedmost comparable to the eBook, dropped by 1.6 percentannually from $1,216.7 million to $1,085.6 million duringthe same period.As shown in Figure 3.1, eBook sales did not take off untilafter Amazon introduced the Kindle eBook reader inlate 2007. The Kindle and similar devices made it mucheasier to download, carry, and read eBooks in a more“booklike” setting than sitting in front of a desktopcomputer screen. Industry projections call for sales ofeBooks to have exceeded $500 million in 2010, and growthbeyond that will undoubtedly be spurred by intensecompetition among the various producers of eReadersand with Apple’s popular iPad, whose multiple featuresinclude downloading and reading of eBooks.Digital books provide an excellent opportunity toexamine who benefits from a new technology. First, ICTefficiencies create gains to be divided among customers,writers, publishing houses, and retailers by lowering theproduction cost of books by about 27 percent, the amounttypically involved in printing, binding, and other directcosts. Second, ICT allows new business models to evolveand changes the market power of different players. Thedistribution of market power determines how playersdivide the benefit.Figure 3.1Sales of digital books in the United StatesMillions3503002502001501005002002 2003 2004 2005 2006 2007 2008 2009Source: .
12 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgFor publishers, technology lowered printing costs,improved information flow, and decreased the numberof unsold books. For retailers, the implementation ofcomputer checkout systems and sophisticated enterprisesoftware permitted real-time information on the quantityof the books sold and the geographical distribution ofsales as well as background information on customers.Online retailers provide customers with recommendationlists, book reviews, and images of book pages. Customerscan easily find the books they want as well as learn aboutother books they may like.For the purpose of this section, digital books are notconsidered new goods, but rather a new way to conveythe same content. Digital books are also assumed to bea perfect substitute for print books. That assumption isconservative, and will probably underestimate how muchdigital books increase consumer and producer surplus,because digital books will likely increase the overalldemand of books. Digital books create new sales of printbooks by increasing the visibility of the print versions.Moreover, lower prices and the increasing quality ofeReaders like the Kindle and the iPad may increasedemand for books.Consumer surplus is the difference between price andwillingness to pay. Producer surplus is the differencebetween price and costs. Neither of these was estimatedfor this research; instead the extent to which digital bookswill change surplus is estimated. The value of convenienceis assumed to be exactly equal to the cost of the digitalreader, so the difference between the digital and paperbackprices measures how much the new technology benefitsthe consumers. Since digital books lower production costs,the book price drops and sales increase. Consumer surplusincreases because the price has dropped and sales areincreasing. Similarly, producer surplus increases becausecosts drop and sales increase.Costs were approximated using list price. The BooksellerAssociation showed that publishers sell books to retailersat around 45 percent of list prices and usually make a profitof 5 percent of the list price. List price is also a functionof the bargaining power of publishers and authors. Somepublishers bargain better than others for wholesale prices,and may set the list price differently from other publishers.Famous authors may ask for more royalties than otherauthors. Retailers’ costs were not considered in this model,because Amazon is the only retailer in the sample, and soall books on Amazon are assumed to have similar retailer’scosts proportional to their list prices.Another source of surplus, in addition to price reduction,is increased sales. If price increases, quantity solddecreases. At the same price, a book of more pagessells better than a book of fewer pages. Good sales of aparticular title are associated with famous authors, butnot with successful publishers. The calculations of priceelasticity of sales to price in this case imply that if pricedrops by 1 percent, quantity will increase by 0.761 percent.Since in the hypothetical long-run equilibrium digitalbooks are estimated to drop prices by 15.7 percent, thequantity sold is estimated to increase by 11.9 percent.In a hypothetical long-run equilibrium in which digitalbooks totally replace paperback books, consumer surplusincreases both because price drops for existing quantity soldand because sales increase. For existing consumers, bookprices drop by 15.7 percent, increasing total consumer surplusby 15.7 percent of existing revenues. New consumersdrawn to books by the lower price have a surplus rangingfrom 0 to 15.7 percent of book price for each book. At thehighest end, the new consumers with a surplus of 15.7 percentare indifferent between buying and not buying a book at theold high price. New consumers with a surplus of 0 percent ofbook prices are indifferent between buying and not buyinga book at the new low price. Other consumers fall betweenthose extremes. Averaging the overall consumer surplusfor new consumers produced a surplus of about 7.9 percentof book prices for each book. Multiplying 7.9 percent by11.9 percent (the estimated increased in quantity sold) meansthat sales expansion creates a consumer surplus of 0.9 percentof existing revenues.Adding up the effect of price reduction (15.7 percent) andsales expansion (0.9 percent), digital books will increaseconsumer surplus by 16.6 percent of existing revenues. Theexisting revenues of the paperback trade and mass marketbooks were $9.16 billion in 2008, so digital books increaseconsumer surplus by $1.52 billion in the hypothetical longrun equilibrium.
www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economies 13Producer surplus increases because costs drop for theexisting quantity sold, and because sales increase. For digitalbooks, producers’ marginal costs are a constant and equalto royalties, so producer surplus was estimated using newsales and the difference between reduction in marginal costsand reduction in price. New sales equal 111.9 percent(100 percent + 11.9 percent) of existing sales. Costs areestimated to drop by 27 percent, and prices to drop by15 percent, so the difference between reduction in marginalcosts and reduction in price is 12 percent of the existingprice. Multiply that difference (12 percent) by new sales(111.9 percent), and the estimate is that digital books increaseproducer surplus by 13.4 percent of existing revenues, or$1.23 billion in the hypothetical long-run equilibrium.The conclusion is that the benefits of digital books flow toboth consumers and producers. In a long-run equilibriumscenario where digital books replaced all print books, digitalbooks would increase consumer surplus by $1.52 billion,or 16.6 percent of existing sales, and producer surplus by$1.23 billion, or 13.4 percent of existing sales of paperbacktrade and mass market books. That assumes digital booksdo not change the market power of publishers and retailersand that digital books replace all print books.Competition in the digital book arena is not about costs.Technology essentially decreases variable costs to almostzero. To capture profits, companies invest heavily inupfront fixed costs such as R&D, design, and brandequity to build market power. Digital books are in theearly stage of technological evolution and Amazon isattempting to use its Kindle to become the dominantplayer in digital books by controlling the supply chainand format for electronic books. If—and it is a very bigif—Amazon succeeds with Kindle as Apple succeededwith its iPod, Amazon can profit immensely. But thecompetition to become the dominant player is muchakin to gladiatorial combat in Rome—the fight is fierceand risky and the winner takes all. Soon after Appleintroduced the iPad in April 2010, big publishers begansparring with Amazon over the pricing of digital bookson Amazon.com. In June 2010, Barnes & Noble droppedthe price of its digital reader, Nook, to $199, and Amazoncountered by reducing the price of the Kindle to $189.Going forward, the fight will include such factors asdigital rights management and the interchangeabilityof formats. The battle is just beginning and there is notelling who the winner will be.
14 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgThe Impact of ICT on theGeographic Distribution of Employmentby Vlad Manole (The Conference Board) and Randall Weiss (The Conference Board)Highlights• The recent revolution in ICT significantly changed the needfor, and importance of, physical proximity of the variousfunctions that compose the production process within firms.• Computers and broadband have assumed many routinecognitive tasks, such as recordkeeping, calculation, pickingand sorting, and repetitive assembly. Such tasks can nowbe shifted to distant facilities or independent companies,allowing businesses to focus on their core competencies.• Advances and investment in ICT will continue to reduce theforces that formerly necessitated large clusters of a firm’sand an industry’s employment to be in the same physicallocation, and jobs in occupations that can be performedremotely will continue to spread out.• Clusters of other occupations may persist, in spite of ICT’simpact, because of the continuing need for face-to-facecontact and the desire of workers with specialized skills tolive where they are most likely to find employment.A Moveable FeastDigitization is changing the structure of the U.S. economy,allowing firms to find new and more efficient ways ofproducing goods and services. Information technologycombined with the internet and broadband promotes asignificantly larger geographical flexibility in organizingproduction processes. The digital revolution has had adirect impact on demand, supply, and intermediation ofthe labor markets. On the demand side, ICT results innew occupations (like network administrator), changesin job definition (e.g., typing skills have given way tocomputer literacy and word processing programs), or thedisappearance of some occupations (typographers, forinstance). On the supply side, ICT improves the educationalprocess, reduces the cost of continuous training, and allowsknowledge workers to be more productive. At the sametime, the use of the internet to improve the matching processbetween supply and demand for labor may increase theefficiency of labor markets.Because the spread of broadband and increased use of the internethave reduced the cost of delivering information, businesses havemuch more geographical ﬂexibility in organizing production processesand locating ofﬁces and production facilities. Although much ofthe discussion of geographical movement concerning jobs is about“offshoring,” this section focuses on the impact that ICT has and willlikely have on the distribution of employment across a single country:the United States.Computers are used extensively to substitute for routinecognitive tasks, such as recordkeeping, calculation,picking and sorting, and repetitive assembly, and ascomplements for non-routine cognitive tasks, such asengineering and architecture. The increased use of digitaltechnology increased the demand for creative jobs andreduced demand for routine jobs for which computersserved as substitutes or that were outsourced. That mayexplain in large part the increased demand for workerswith college educations after 1970. One study findsthat the use of IT accounts for almost 40 percent of theacceleration in demand for educated workers since 1970.The digital economy allows companies to strengthen theirmain competencies while assigning other activities todistant facilities within the companies or to independentfirms, thus shifting the geographic demand for labor andleading, in many instances, to declustering and diffusionof labor demand. Information and communicationtechnology’s effects on the service sector are particularlysignificant. Large numbers of industries in the servicesector were once characterized by “unity in time andspace” of the production and consumption of service.The introduction of ICT led to the decoupling of productionand consumption for certain services and to furtherdivisions of labor and the creation of new business models.For example, call center employees in a location far froma company’s main operation can have access to customers’files, and radiologists located a long distance from a hospitalcan analyze images. Information and communicationtechnology also allowed companies to reorganize their supplychains into tasks with different degrees of complexity thatcould be performed in separate locations. Yet a review of theliterature on the development and impact of ICT also revealsthat ICT has led to clustering (i.e., a geographic concentrationof interconnected businesses, suppliers, and associatedorganizations or even competitors) in certain cases. ThusICT cannot be said to lead in a single direction when itcomes to the geographic distribution of employment.
www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economies 15It has, however, long been recognized as an importantfactor in the increasing use of outsourcing and offshoring bymultinational companies. Many of the same considerationsthat enter into the analysis of how broadband and theinternet may have changed the distribution of jobs amongcountries also enter into hypotheses about changes in thedistribution of jobs within countries.Previous research lead to the hypothesis that intraindustry concentration will go down as ICT enablesvarious parts of an enterprise to be physically separatedmore efficiently. But the impact may be less clear forpredicting concentration by occupation. For example,broadband, the internet, and modern applications mayallow U.S. financial services firms to spread variousfunctional operations across the United States to takeadvantage of local conditions favorable to each type evenas the firms still may find that certain occupations (e.g.,those involving product development) are more profitablyconcentrated in a few cities more conducive to face-toface interaction and idea generation.To analyze variation in the geographic concentrationof economic activity in the United States, employmentdata by industry and metropolitan area from the QuarterlyCensus of Employment and Wages for 1995, 2000, and 2005were used, as well as employment data by occupation andmetropolitan area from the 1990 and 2000 United StatesCensus. These years span the internet boom so the datashould reflect ICT’s impact on geographic employmentpatterns. Employment concentration by industry and byoccupation were analyzed separately.The research shows that ICT investment generally relaxesthe agglomeration and other forces that lead employmentwithin industries to be more concentrated than localdemand, and shows that this impact accelerated duringthe last half of the 1990s before leveling off at the beginningof the 21st century.Additionally, manufacturing industries’ employment wasfound to have less relative concentration, i.e., be moreconsistent with the geographic pattern of local demandthan service industries, which benefit much more fromclustering and agglomeration effects. It is also evidentthat the geographic pattern of employment in industriesfor which transportation costs are important followsthe dictates of local demand much more closely thanthose for which transportation costs play a small role inproduction. It also appears that greater ICT intensityin non-manufacturing industries makes intra-industryemployment patterns more related to the geographicpattern of local demand for their output.For certain occupations, the use of ICT has allowedincreased geographical mobility and allows firms toaccess the national or global labor market. The questionis whether the occupations that are most movable oroffshorable were the ones whose geographic concentrationchanged the most before and after broadband and theinternet became prevalent. A geographic concentrationindex for occupations was constructed to explore thatquestion. In the Geographic Concentration of Occupation(GCO), low values for an occupation indicate that itsgeographic distribution closely matches the pattern thatwould be dictated by local demand, while high valuesindicate relative clustering that deviates from the localdemand pattern.The results of the statistical analysis can only besuggestive, since ICT was not the only economic factorthat changed between 1990 and 2000, and the subjectivenature of the indexes makes direct comparison orinterpretation difficult. However, it does appear that, atleast for some occupations, an analyst’s view of the abilityof these workers to carry out their job functions at a largedistance from many other workers is correlated with thechange in the geographic pattern of employment.When employment is categorized by industry, there isstrong evidence that much of the variation during the1995 to 2005 period in the amount of industries’ relativeclustering, relative to the pattern that would be dictatedby local demand, can be explained by the importanceof ICT investment in that industry. It was concludedthat higher ICT investment leads to less clustering, andthat ICT’s impact increased as broadband became moreprevalent. These results are driven by the data for nonmanufacturing industries.Overall, the results imply that advances and investmentin ICT will continue to reduce the forces that formerlynecessitated large clusters of a firm’s and an industry’semployment to be in the same physical location. Jobs inoccupations that can be performed remotely also willcontinue to spread out among regions. However, clustersof other functions and occupations may persist becauseof the need for face-to-face contact and the tendency ofworkers with specialized skills to live where they are morelikely to find employment—factors that may be resistantto the impact of ICT on the organization of firms.
16 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgMeasuring the Impact of ICT onthe Public Sector Performanceby Robbin te Velde (Dialogic)Highlights• There is only a weak correlation between the supply ofe-government services and their use. Thus, governmentshave shifted more and more to a citizen-centric, demanddriven approach, which recognizes the importance of factorssuch as awareness, digital skills, and trust.• Online interaction of citizens with government drivesa reduction in corruption and an increase in perceivedICT-efficiency.• Online citizen interaction with government is correlatedto general frequency of internet use, as well as specificuses for banking and social purposes.• Government prioritization of ICT is a readiness factorthat drives uses through improvement in the telecominfrastructure. While this prioritization improves perceivedICT efficiency, it does not guarantee high use of online publicservices, unless the necessary computer and ICT skills arepresent in the citizenry.Hope for a Magic Bullet for GovernmentTechnology is always introduced against the backdrop ofexisting social patterns. As a result, the adoption of newtechnology is never straightforward. Established socialpatterns are resilient and there is often outright resistanceto a new technology because it embodies change andnew patterns of use. Eventually, though, new technologybecomes embedded into social patterns and changesthese patterns from within. Within this assimilationprocess, a remarkable pattern seems to recur: the shortterm effects of the changes tend to be overestimated, andthe long-term effects underestimated. Information andcommunication technology is no exception to the rule.The new social patterns that arise from the assimilationof a new technology in turn influence technologicaldevelopment, for instance via changes in market demandand supply. In the case of the widespread adoption ofThis study analyzes how ICT inﬂuences the efﬁciency, effectiveness,and quality of government services in countries around the worldfrom the point of view of the citizens and enterprises using thoseservices. There are key factors (drivers, enablers, and bottlenecks)that determine ICT impact on public sector performance. This sectionintroduces a model that posits that digital readiness (both generaland government) leads to digital use (public and private); and use ofe-government services leads, in turn, to changes in quality, efﬁciency,and public opinion of government services.e-commerce, there have been, at least in the Netherlands,significant shifts in consumer mobility patterns (e.g., funshopping in the old city centers; e-commerce warehouseson the outskirts) and in entrepreneur demography (e.g.,many small online shops are run at home by women).Like societal resistance, there is also technologicalresistance. Technological designs and systems cannotsimply be moulded in any direction. They have certainrigid, pre-structured elements that make them lesssuitable for certain types of social use. In this respect,technology is not neutral. There are also certaintechnological bottlenecks to societal change. Theintroduction of ICT into an organization’s processesrequires the digitization of these processes. This entailsrationalization of these processes, often with a biastoward an increase in efficiency. Since most governmentalbodies are essentially information refineries, in theorythey are exceptionally well-suited to using ICT. Yet inpractice it is precisely in the public sector that existingsocial patterns—especially the special status of civilservants—inhibit the thorough implementation of ICT.E-government development has been part of thepolitical agenda of OECD countries since the 1990s.Expectations ran high: the quality of services wouldincrease, transparency would improve, and there wouldbe fewer inefficient front offices. The transformationwould eventually lead to the rise of an entirely new kindof government that would be in a better position tocarry out public tasks to the satisfaction of all relevantgroups. During the last decade the public demand formore responsive, efficient, effective, and participatorygovernment has gradually increased. This has put muchmore weight on e-government as many governmentssaw the use of IT as the “silver bullet” that couldsimultaneously improve the quality, effectiveness, andefficiency of public service delivery. Especially in theEU, this had led to a strong and successful push towardputting public services online. By 2009, crucial servicesfor enterprises like value-added taxes, corporate taxes,customs declarations, and social contributions were fullyavailable online in almost every EU country.
www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economies 17In practice, though, there is only a very weak correlationbetween the supply of relatively sophisticated e-governmentservices and the use of those services. The obviousconclusion is that the provision of electronic service deliverychannels on its own is not enough to meet the needs anddemands of citizens. Since the mid-2000s, therefore, therehas been a gradual shift from a government-centric/supply-driven paradigm to one that is citizen-centric anddemand-driven. This puts more focus on the context (e.g.,social, organizational, and institutional factors) in whiche-government is developing and on the outcomes for users.These factors include “soft” factors such as awareness,digital skills, and trust. Thus although from a technologypoint of view many countries have reached a high degree ofreadiness to use ICT, from a social point of view they havenot. The issue of the digital divide is still an overarching issueregardless of a country’s stage of e-government development.Researchers developed a general framework for thisstudy that describes the effect of ICT on public sectorperformance in terms of three stages: readiness, use, andimpact. Readiness refers to preconditions for use, suchas physical access to the internet, and use is the extentto which citizens and businesses use the internet indealings with public authorities. Impact covers both thedirect effects—such as cost savings—and the indirecteffects, such as changing relations between citizensand their government, of using ICT. The objective is todetermine which of the various readiness factors—goodtelecommunications infrastructure, size of governmentspending, the priority placed on ICT by a government,and the quality of online public services—has the mostand least impact in terms of improved governmentservice, more efficient service, and higher citizen trustin government. These are all mediated by various usefactors, such as the frequency of internet use, accessibilityto broadband connections, and the ages and educationlevels of users.As noted earlier, the provision of online public servicesitself does not necessarily lead to the use of such services.One critical element is the overall IT strategy into whichthe provision of online public services is embedded.Some e-government initiatives fall short of their goalsas a result of being conceptualized and implementedin a piecemeal manner, rather than comprehensivelyand from a “whole government” perspective. Whenexamining readiness, there is a distinction between generalreadiness and government readiness. General readinessconsists of both “hard” (e.g., telecommunications) and“soft” infrastructure (e.g., skills and trust). Governmentreadiness refers to the general modernization strategyof a government, regardless of its use of IT.E-government use is, in a sense, preceded by generaluse, which is in turn assumed to be driven by generalreadiness. General use (for example, the percentage ofcitizens that use the internet) alone might explain a largepart of commercial and social use and of e-governmentuse as well regardless of the overall IT strategy and theactual provisioning of online public services, so it is alsoan important control variable.The results of this study show that the quality of the basictelecommunications infrastructure alone explains muchof the variance of most impact indicators. Next to thequality of the basic telecommunications infrastructure,other relevant readiness factors are prioritization of ICTby a government, broadband penetration, and computerand ICT skills.Use comes into play in the basic indicator of thepercentage of individuals that regularly use the internet,which also explains a lot of the variance. This is similarto the role of the basic telecommunications infrastructurefor readiness. If controlled for the number of internet users,results show the relations between use and two impactindicators, online participation and ease of doing business,appear to be completely spurious. In the first case, only onecorrelation with a use indicator remains: the educationgap between internet users. This is a negative correlation,which suggests that online participation is still somewhatan elitist activity.The single most important policy indicator is theprioritization of ICT. Not only does it drive the qualityof the basic telecommunications infrastructure andbroadband penetration, it also has a strong impact on theuse of online public services by citizens and is directlyrelated to ICT-induced efficiency improvements. A strongprioritization of ICT alone already has an effect on theperceived ICT-induced efficiency improvements but doesnot guarantee a high uptake of online public services.For the latter to occur, there must be a strong presenceof computer and ICT skills. These skills are the strongestdriver of use of online public services and are relatedto the frequency of internet use, provided that they arecombined with government priority on ICT. It is thisemphasis that should make government and policymakersinterested not just in installing the technology intogovernment functions, but also in making sure that itis explained to the public so that it can actually be usedeffectively by citizens, who are the ultimate recipientsof government services.
18 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgMeasuring the Impact ofICT on Health Careby Robbin te Velde, Jesse Bos, and Reg Brennenraedts (Dialogic)Highlights• Physicians believe that ICT has a neutral impact on diagnosis,causes increased workload, and results in deteriorationof the scope of services offered and the doctor-patientrelationship. On the other hand, patients value the reductionin waiting times that more efficient scheduling allows.• E-health use is positively correlated with national healthcare expenditures in the multi-country dataset, indicatingthat simple expenditure-reducing efficiency gains maynot be significant; this finding is confirmed by the dataon Denmark.1• Lifestyle and diet overwhelm e-health as a determinant ofhealth outcomes.• Telemedicine has not grown as fast as other e-healthapplications, perhaps because of cultural resistance andprocedural roadblocks.• The doctor-patient relationship has changed as a result ofmedical information from the internet, which has greatlyempowered and emancipated patients. Patients mostconcerned about their own health are the most avid usersof such information and the group that mostly closelyquestions doctors’ quality of diagnosis and treatment.The Health Care ContextTwo of the most important societal trends drivingdevelopments in health care in general are the agingof populations around the world and the continuousincrease of chronic diseases such as cardiac and vasculardiseases and diabetes. They are of course related: old agehas its infirmities, and aging alone is directly related toincreasing expenditures on health care.Because of these trends, health care expenditures arerising faster than GDP in many countries, offsettingefforts to control those costs. Many developed countriesare attempting to shift from expensive inpatient care tooutpatient care, a move that could take great advantageof so-called telemedicine. At the same time, countries arebecoming more focused on preventive care, an area thatcould benefit from the use of data mining of electronicNations in the data set include: Australia, Austria, Belgium, Canada, the CzechRepublic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland,Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway,Poland, Portugal, Republic of Korea, Slovakia, Spain, Sweden, Switzerland,Turkey, the United Kingdom, and the United States.health records and statistics to target preventive caretoward specific population groups.The most important technological trend for e-health hasbeen the widespread use of the internet. Its effect hasbeen so great that the term e-health (internet-based healthcare practices) has become more or less interchangeablewith health care informatics. In the traditional healthcare information systems, there has been a rapid increaseof the use of networked systems, that is, the interorganizational exchange of medical data; although manyare standalone systems that have yet to be tied into anational health records system. As for consumer healthinformatics, that service hardly existed before the riseof the internet. Yet today, patients can find abundantamounts of information—some reliable, some not somuch—about their conditions, they can link up withfellow patients around the world, and make judgments,for better or worse, about the efficacy of their physiciansand treatment plans.The information and communication possibilities ofthe internet not only apply to patients but to doctors.This could directly and indirectly (via improvedcommunications between medical professionals) lead toan improvement of the quality of health care, and thus animprovement of the health situation in a country, sincepresumably better informed medical professionals makebetter diagnoses. Whether the application of ICT leadsto an improvement in quality at all is, however, to a largeextent dependent on the quality of the implementation;that is, how ICT is actually being deployed in practice.This is true in any domain but seems to be even more soin health care, due to greater socio-technical complexity.This section addresses the impact of ICT in the domain of healthcare in advanced economies by using three data sets: a survey of EUgeneral practitioners; factors derived from various merged databasesfor a broad set of countries; and detailed data for three case studycountries—Canada, Denmark, and Spain. The ﬁrst IT systems wereused in the United States in the 1950s, primarily for the managementof medical records and for the support of diagnosis. Today ICT is beingused in nearly every stage of the health care process, from remotemonitoring of patients and distance collaboration between specialiststo the use of medical imaging systems and electronic invoices formedical care.1
www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economies 19The improvement of efficiency is the second and mostoften mentioned advantage of the use of ICT in healthcare after the improvement in quality of health care. Theautomation of patient administration, for instance, leadsto a reduction in costs and would be expected to indirectlyimprove the quality of health care since it frees time forprimary clinical processes (e.g., actual interaction withpatients) and other secondary processes (e.g., self-studyby medical professionals, which is also greatly facilitatedby the internet).Yet there also is evidence that some primary clinicalprocesses may be made less efficient. The results of a pan-European survey of general practitioners seem to suggestthat the use of ICT does indeed give rise to efficiency gainsbut that these gains lead to adverse effects in terms ofquality. For example, the use of ICT leads to more efficientscheduling in doctors’ offices. In addition to this, morepatients are deciding to visit their physicians because ofinformation found on the internet, so doctors are ableto see more patients in a given day. But some physiciansfeel that the increased demand for their services and theefficiency with which patients are moved through theiroffices leaves them with less time to treat each patient,causes a reduction in the range of services they offer, andmakes their relationships with patients more impersonal.There are also mixed results on the benefits of internetinformation for patients. Researchers have found thatthe more serious an illness is, the more likely people areto perceive the quality of information on the internetas higher and the quality of the information given bytheir physician or GP as lower. This stands in sharpcontrast to the perspective of the physicians, who thinkthat internet information is quite beneficial to regularpatients (though few physicians refer their patients tointernet sites) but rarely or never helps the chronically-illin self-management.In summary, the use of ICT in health care may increasethe efficiency of secondary processes, but the impacton primary processes is less clear. At the same time, theprivileged position of medical professionals is underpressure from the increased empowerment of patients.The research for this study used the same general modelas in the study of the impact of ICT on government.The model distinguishes three stages of ICT deployment:readiness (mostly referring to the supply side), use (mostlyreferring to the demand side), and impact.Figure 6.1Individuals using the internet to seek healthinformation, selected countries, 2008Citizens’ use of e-health is a substitute for, ratherthan a supplement to, regular face-to-face health care.In the particular case of Canada, the apparent lackof physicians seems to push citizens toward usingthe internet to ﬁnd medical information.CanadaFinlandNetherlandsLuxembourgNorwayGermanyFranceIcelandDenmarkAustriaSwedenHungaryUnited KingdomSpainSloveniaBelgiumPortugalIrelandPolandItalyCzech RepublicGreeceTurkey0 10 20 30 40 50 60%Note: Dark blue shade denotes countries that were the main focus of this study.
20 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgUsing various databases researchers calculated theindirect and direct correlations among various indicatorsof readiness, use, and impact. They found that ICTinfrastructure is positively correlated with various usecomponents, for instance with the use of e-health by citizens.This means that in countries with a more developed ICTinfrastructure people are also more avid users of ICT,including for health purposes. They also found that the useof expert systems and business-to-business interactions arethe most advanced uses of ICT among health professionals.An interesting negative correlation was found betweenhealth infrastructure and use of e-health by citizens. Itsuggests that, at least at the moment, the use of e-healthis partly a substitute for the use of regular health care.However, the causal direction is unknown and therelationship might work both ways. Thus, it could be thatthe more doctors and specialists there are available theless need there is for a citizen to resort to e-health—or, theother way around, countries with a less developed healthsystem have chosen to modernize their infrastructurevia e-health.Economic strength still has the greatest impact on theoutcome of health care systems. This simply means thatthe contribution of ICT to the outcome is (still) relativelymodest. For instance, life expectancy is directly related tothe welfare of a country. Similarly, inhabitants from richercountries tend to think that the health care system in theircountry performs relatively well.The impact component that stands out most is theperception people have of their own health. This is theonly impact component that is directly linked to oneor more use components. The fact that it is negativelyrelated to the use of ICT is entirely explained by selfselection: the most avid users of medical information on theinternet are also most concerned about their own health.Interestingly, this group is also the most skeptical of thequality of diagnoses and treatment by physicians. Given thisfinding it is not surprising, then, that physicians think theuse of internet rarely or never helps this particular group ofchronically-ill people. This is the most succinct example ofthe changing relationship between doctors and patients.Of some surprise is the finding that the use of e-healthincreases rather than decreases the expenditure on healthcare. Thus the presumed efficiency gains do not occur,or at least not at the macro level and not in the short run.This may, however, be the result of a transition periodtoward what “best practices” would indicate as a systemwith efficiencies and cost savings. But in order to getthe average to the current best-practice level, substantialtemporary transition costs will be incurred. In theshort run, these costs exceed the benefits obtained fromefficiency gains.Some of these links are rather obvious. Health infra-structure correlates positively with long, healthy lives.Thus investments in health infrastructure do pay offbut naturally come at a price: increasing the per capitaexpenditure on health care. The performance of a healthcare system (in terms of long, healthy lives) is furtherimproved by the implementation of national informationpolicies and e-strategy policies, so the importance ofhaving a clear strategic vision seems to apply to thenational level.Similarly, e-learning in health science policies alsocorrelates positively with long healthy lives, so it doespay to invest in ICT-supported continuous training ofdoctors. Not surprisingly, then, the use of ICT for selfeducation is one of the fastest growing uses of e-healthamong physicians across all European countries.Another relevant finding is that intersectoral and nongovernmental cooperation policy leads to a reduction inthe public expenditure on health care. This is in sharpcontrast to the use of ICT that was previously found.In other words, when a government wants to reduceexpenditure on health care it should invest in streamliningintersectoral processes rather than in ICT.
www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economies 21Among the findings:• Stand-alone and networked e-health applications havedifferent adoption patterns. Stand-alone electronic healthrecords (EHR) were in use since at least the 1970s and theyhave been rapidly adopted by physicians since the 1980s.But the new generation of networked EHRs, and especiallythe uniform national EHRs, have not lived up to their promise.Privacy concerns have delayed the national roll-out in manycountries. In the absence of a national system and becauseof incompatibility among local and regional systems, theelectronic exchange of health records and administrativedata on a national scale remains fraught with difficulties.Where such national systems have been implemented(as in Denmark and Sweden), the use of e-health has grownvery rapidly.• Telemedicine has so far not lived up to its reputation as akiller application for e-health. Technology is supposed to beone of the ways to mitigate rising costs, especially when it issupported by major organizational changes such as a shiftfrom curative to preventive health care. However, the use oftelemedicine has hardly grown during the last few years andadoption rates remain very low, whereas other types of usehave experienced double-digit growth.• The use of e-health is complementary rather thansupplementary to conventional health care. The moredoctors and specialists there are available in a country,the less need there is for a citizen to resort to e-health,as seen in Denmark; and the other way around, as seenin Canada, which has a shortage of physicians. It may bethat countries with a less developed conventional healthsystem have an urge to modernize their infrastructurevia e-health (e.g., the “leapfrogging” argument). In anycase, at least at the moment, the use of e-health is partlya substitute for the use of regular face-to-face healthcare. On the other hand, because e-health can also bea complement rather than a substitute, it increased thereach of health care provision to a country’s population.This means that without e-health, fewer people wouldreceive health care, since available medical personnelwould be the only resource to provide this care.
22 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgPaying Attention toSociety and Cultureby Katherine Schinasi (The Conference Board) and Ivy Schultz (The Conference Board)Highlights• New relationships that technologies engender can encourageand support innovation and enable the integration of ideas,values, and cultures in ways that move societies forward. Buttechnology also can reinforce the isolation of individuals.• Social and cultural factors play a part in one of the mostexciting, complex, and controversial issues of the 21stcentury: translating data into socially valuable knowledge.Technology is blurring the line between knowledge producersand consumers.• Traditional intellectual property laws presume that the wayto get private parties to invest efficiently in innovation is togive them exclusive ownership rights. Some have argued thatnew laws should be developed to promote commons-basedproduction of intellectual and social capital.• Privacy and the ownership of personal information hasbecome a major concern.Changing How We InteractThe interactive nature of modern information andcommunication technologies marks a new stage ofinnovation. These technologies are being used in waysthat reinforce existing relationships, alter existingrelationships, or create entirely new relationships. Newrelationships that technologies engender can encourageand support innovation and enable integration of ideas,values, and cultures in ways that move societies forward.But technologies also can reinforce the isolation ofindividuals and groups who lack access and skills in waysthat hamper not only their economic development, butalso their understanding of and participation in societyand culture.While today’s communication technologies have beenlauded for creating new economic and social relationships,technology change can have negative effects as well.Economies of scale are often mentioned as a positiveeffect, but large, interdependent networks can also create“bureaucratic gridlock.” Negative effects can also be seenThis section examines why the study of culture and society isimportant in the pursuit of understanding the impact of informationand communications technologies. Technologies are shaped by theiruses, which are in turn shaped by their cultural antecedents and thesocial structures into which they are introduced.in the social realm—isolation, cyber bullying, and activeexclusion are some examples. As these effects are studied,and as technology changes, many traditional concepts oforganization and knowledge accepted by society comeinto question.Social networking sites are relatively the latest massphenomenon to arise as a result of ICT. They have become,in effect, a cyber “third place” in our social environment;a focal point for the creation of communities beyondthe home and the workplace. Social networking sitesprovide non-threatening environments or “locations”for casual assembly, conversation, meeting new people,and stimulating creativity. A “user” can to communicatewith his or her “public” and share some basic features:people can present themselves through a defined profile;create a public list of connections to other users ofthe service, or “friends”; and post public messages orcomments. These sites allow the creation and maintenanceof a group of individuals with shared interests or socialconnections, which can be sustained through constantcommunications with all participants at once. Unlikeother forms of computer-mediated communications, thisonline interaction largely supports offline relationships.That is, users spend their time searching for people theyalready know rather than establishing new connectionswith strangers. The popularity of social networking sitesrepresents a shift away from online communities organizedaccording to common interests to communities organizedaround networks of people. The community that nowmeets in the marketplace is one in which everyone whois there—or everyone in the village—is visible.Social and cultural factors will also play a part in one of themost exciting, complex, and controversial issues of the 21stcentury: translating data into socially valuable knowledge.Technology is blurring the line between knowledgeproducers and consumers. At the same time, collectiveinnovation, the hallmark of 21st century informationand communications technologies, blurs the lines ofindividual contributions. Developers who start out inthe non-commercial world often, although not always,seek to turn a commercial profit from their ideas.
www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economies 23Definitions themselves are a matter of debate. For example,inventions, which can be captured by intellectual propertyprotections, are sometimes conflated with innovation,which contains an element of commercial success.Patents, copyrights, and trademarks form the protectivebasis for intellectual property rights. Over time lawshave almost always changed in the direction of expandedprotection. For copyright owners, the number of worksthat are copyrightable has increased, as has the durationof copyright protection. Likewise, patent protection hasexpanded beyond the historical legacy of controls onmanufactured goods to include naturally occurring itemssuch as plants, as well as ideas and concepts heretoforeconsidered part of the public domain. In part because ofthis expanding coverage of intellectual property controlsand in part because of their expanding geographic reach,a theoretical debate is taking place about whether thecurrent balance between private ownership and the publicdomain in fact confers the benefits that were originallyanticipated in putting existing restrictions in place.The debate turns on the following key questions:• Does intellectual property share enough characteristicswith real property so as to use the same justification forownership and control?• Does conferring exclusive rights to information contribute toor detract from the public domain, by 1) providing incentivesfor creativity and exploration; and 2) offering a greaterprobability of advancement through greater access?• If current laws and standards are not sufficient, what shouldreplace them?Global assessments of the relative costs and benefits ofintellectual property in an international setting have, forthe most part, looked at measures of economic wellbeing.Some have argued that the international regulatory regimeis in fact sorely lacking because it is focused not so muchon overall economic well being, but on the economicwell being of only a few actors. Intellectual propertylaws presume that the way to get private parties to investefficiently in innovation is to give them exclusive ownershiprights in what they produce. According to this view, theefficient thing to do is to confer strong property rights onintellectual property creators, encouraging them to investenough (but not too much) in identifying, developing, andcommercializing new inventions. Further, if one postulatesthat transactions involving intellectual property arecostless, society as a whole should benefit, since the ownersof intellectual property rights will license those rights toothers whenever it is economically efficient to do so.A study examining the effects of changes in the U.S.treatment of inventions found that the number ofsoftware patents grew dramatically beginning in the1990s.2However, firms in the software industry acquiredrelatively few patents; instead, most were obtained byfirms in electronics and computer industries known forstockpiling large arsenals of patents to use as bargainingchips. In fact, the firms that acquired relatively moresoftware patents tended to actually reduce their level ofR&D spending relative to sales. The results counteredthe simplistic arguments that patents universally spurinnovation and economic growth. The direct comparisonof estimated net incentives suggests that for public firmsin most industries today (and especially in the softwareindustry, which represents a special case), patents mayactually discourage investment in innovation.As stated at the beginning of this section, the adventof 21st century information and communicationstechnologies has transformed social relations in ways notalways understood. And the costs and benefits to societyand culture are not as easy to measure as economic ones.A balance between ownership and control by and for thebenefit of the individual and by and for the greater socialgood cannot be quantified. So, how does one calculate whenwe are “out of balance?” This is where it might be helpfulto turn to some practical examples of non-economic valuearising out of socially created knowledge. The third of thethree questions that are at the heart of the debate has notbeen sufficiently addressed in theory or by governments.In the absence of an answer, individual activities areestablishing new forms of ownership and control.Disruptive innovations enabled by ICT often rely oncommon ownership of knowledge. The health care fieldprovides numerous examples of how ICT is changing thebalance of power and expertise due to increasing accessto knowledge. Advances in ICT, combined with advancesin genomics, nanotechnology, robotics, moleculardiagnostics, and micro-fluidics, are driving a shift inhealth care away from a centralized model that puts thephysician at its core to a more decentralized approachcentered on the patient.“Patients Like Me” is a networking site that was established to collect data directly from individuals withsimilar ailments. Individuals put their own individualsymptom-related data into the network and also recordany medicines or supplements they are taking, the doses,their reactions, and other pertinent medical information.2 James Bessen and Robert M. Hunt, An Empirical Look at Software Patents,Working Paper 03-17/R, Federal Reserve Bank of Philadelphia, March 2004.
24 Research Report the linked world: How ict is transforming societies, cultures, and economies www.conferenceboard.orgThe groups are testing the results of various medicinesand dosages through the internet in patient self-organizedclinical trials that would not be officially available throughgovernment, drug company, or lab-sponsored trials foryears. This experiment is the real-world application ofthe theoretical construct that market economics can beovercome by social production. The concept representsboth huge power and huge risk. The experiment is openingup research that heretofore has been kept secret. Suchpatient-to-patient exchanges of information changethe very nature of intellectual property and knowledgeownership in the health care field. In this case, it is notjust a company’s interest in protecting proprietary datain which it has invested significant time and money thatworks against “sharing for free.” University researcherswant to preserve ownership of their knowledge to gettenured teaching spots or to advance their reputationsand governments have public safety-related responsibilitieswith stringent efficacy standards to maintain.The scholarly debate surrounding the ownership and controlof knowledge created by and through 21st century ICT isslowly expanding beyond that traditionally conducted bylegal scholars challenging or defending positions within thecontext of national laws and regulations and internationalconventions. Driven in part by the power of ICT, thetraditional analytical context for developing arguments ofeconomic costs and benefits has been supplemented by anattempt to establish cultural and societal costs and benefits.By examining the challenges to ownership and controlthat are actually taking place, however, it seems that thisfocus on laws, regulations, and international institutionsmay prove to be ill-advised for the future. The advent ofinformation and communications technology used in socialnetworking applications is forcing content into the open—separate and apart from the underlying legal and regulatorystructure. Thus the guiding principle behind decisionson balancing intellectual property constraints (i.e., willconferring greater or lesser rights of ownership today leadto development of more or less knowledge in the future?)may in fact be sidestepped as access to and development ofinformation continues apace. Neither markets, nor courts,nor the governance structure currently in place may in andof themselves be able to identify, let alone address with anyagility, problems that are driven by the rapidly changingpace of technology itself.Figure 7.1The cycle of new technology in a social environmentIndividualCommunitySocietyNewtechnologyintroducedAdoption oftechnologyUse ismodiﬁedNew needs,ideas, contextarises
www.conferenceboard.org Research Report the linked world: How ict is transforming societies, cultures, and economies 25The Long Tail of Digital Exclusion:A Comparison between the United Kingdom and Chileby Ellen J. Helsper (London School of Economics) and Sergio Godoy-Etcheverry (Universidad Catolica de Chile)Highlights• Survey data show similar patterns across countries, e.g.,the young use the internet more intensively than the oldand the most educated more than the least educated;yet there are significant, unexplained variations acrosscountries in the size of these differences.• Non-users in the UK cited lack of interest as a relativelyimportant reason for non-use, regardless of education level.In Chile, lack of access and skills were cited more often,especially among middle-aged and less educated people.• Chilean parents were more positive, seeing ICT as a way toa better life, while UK parents saw more negative impacts,including pressure to engage in order, for example, to savemoney on purchases of goods and services.• Although in both countries parents depended on help fromtheir children in their use of the internet, Chilean limited usersfelt more ashamed and inhibited about this dependence.• In both countries, participants thought that exposure toan “overdose” of online content led people (especiallychildren) to expect things to be instantly available and toless creativity, because people did not need to figure thingsout for themselves (i.e., a “copy and paste” culture).Many Commanalities, but CriticalDifferences TooIt has long been established that social disadvantage anddisengagement from information and communicationtechnology (ICT) are linked. Less clear are the main areasthat explain digital exclusion among the range of differentfactors associated with socioeconomic disadvantages. Itis not really certain why some people from disadvantagedbackgrounds engage in use of ICT while others with thesame background disengage.To examine that question this study used both survey dataand focus groups. The survey data covers 29 countrieswhile the focus groups were used in just two, the UKand Chile. Both countries have been leaders in digitalinclusion in their region, but have different cultural andICT use backgrounds.Research shows that education and socioeconomic status play amajor role in explaining access, skills, and attitudes toward ICT acrossthe world, but it is not understood why some people from certainbackgrounds engage with ICT and others do not. This section presentsanalysis from surveys and focus groups to delve more deeply intoreasons for lack of use of the internet, with an emphasis on comparisonsbetween the patterns of use in the United Kingdom and Chile.It is assumed that those who are excluded socio-economicallyare likely to be disengaged from the economic aspects ofengagement with ICT. Similarly, those with weak socialresources offline (e.g., family and friend networks) are unlikelyto engage with social and communicative aspects of ICT.Additionally, this study assumes that social aspects of lifeinfluence how people access and develop skills and attitudestowards ICT, which in turn relate to how they use them.Figure 8.1Percentage of internet users in selected countriesof the World Internet Project (WIP)There is a north-south divide both within continents and globallyin terms of internet use. More than half of the population in theUnited States and Canada, along with Northern Europe, is online—as opposed to countries in the Southern Hemisphere, in whichless than half the population uses the internet.Sweden**United States**New Zealand*Canada*Australia*United Kingdom**Israel*Urban China*Singapore*Chile (Santiago)**Czech Republic**Chile**Italy**Columbia**Hungary*Portugal**Mexico**0 10 20 30 40 50 60 70 80%Note: The UK data are from 2009, from a custom analysis of the report data.Source: WIP International Reports 2009(*) and 2010 (**).