Programme objectives

The Leverhulme Digital Transformations Programme addresses the socioeconomic impact of information and communication technologies, an area of study first popularized by the famous statement in 1989 by Robert Solow, Nobel Prize winner in economics, that he saw computers everywhere in the economy except in productivity statistics. Ten years later, Alan Greenspan, the Chairman of the US Federal Reserve Board suggested in his speech, 'The revolution in information technology' to the Boston College Conference on the new Economy (6 March, 2000) that Information and Communication Technology (ICT) had created the 'New Economy', an economy with high productivity gains, high economic growth and low inflation.

The inquiry we propose is timely and important, as much of the evidence on the performance-enhancing effects of ICT is anecdoctal or incomplete. Moreover, other than limited evidence for the UK, little of the marvellous effects of ICT appear in Europe. Why? Is it that the US is so much more ICT-intensive? Is it that, the US already has an industrial structure which is compatible with the spread in ICT increasing productivity?Or, rather, is ICT affecting the US in a different way than it is affecting the rest of the world, perhaps due to the management structure of US firms? What about developing countries? Are they late, last, left behind or can they benefit from leap-frogging? And if they benefit, what management and industrial structures are conducive to catch-up?

To address these questions, we have designed a programme with components that build upon and complement each other.

The work is divided into 5 themes. These correspond to the different research questions shown here:

What is ICT?

How do we measure ICT?

Theme 1: Digital Divide in the spread of ICT

Theme 2: Digitization, growth and productivity

Theme 3: Industry-level impact of ICT

Theme 4: Firm-level impact of ICT

Theme 5: Digital divide and Public Policy

The acronym ICT is used to denote a new concept which is a combination of two previously unrelated concepts, (1) information technology and (2) communication technology. Information technology (IT) is the term used to describe the equipment and software elements that allow us to access, retrieve, store, organise, manipulate and present information by electronic means. Communication technology (CT) is the term used to describe equipment, infrastructure and software through which information can be received and accessed, for example phones, faxes, modems, digital networks, and DSL lines.

ICT is then the result of the convergence of IT and CT technologies. One early example of ICT convergence is the crossing of photocopy machine and telephone, leading to the creation of fax. But perhaps the clearest example in this area is convergence of computer and telephone that resulted in the upsurge of the Internet.

For further discussion of what ICT means visit the links below:

Defining the Information and Communications Technologies Sector
A new industry structure for information, Albert Jacques, Statistics Netherlands
Some concepts for information economy measurement (download PDF 72KB), Aufrant, M. and Nivlet, Jean-Marie.

"ICT" is supposed to contain all "Information and Communication Technologies". Delineating which economic activities are actually embedded by this terminology is an elusive, if not impossible task. A typical list would include:

• computer workstations
• display facilities
• software
• specialist hardware
• technology-based recording and processing systems for sound
• still and moving images
• graphic calculators
• and a wide range of associated communications facilities.

Most of these "official" inventories unavoidably end with deliberately vague categories, as if no consensus were possible as to a rigorous definition.

Definitions do not always matter. In the case of ICT, however, they do. Assessing the impact of a burgeoning phenomenon on firms' profitability, on the economy as a whole and on society is hard enough without having to struggle with a definition of the phenomenon itself. Most of the research on "The Effects Of ICT" has borrowed from the old macroeconomic concept of production function, whereby value creation arises from the combination of capital, labour and technology. The general methodology has consisted in estimating the contribution of an "IT" content of the capital stock to productivity, either in the firm, the industry, or in the whole economy. So of course, what is included in "IT content" matters.

The researchers involved in this project propose to alleviate this conundrum, in a variety of different ways. Some of us choose to deliberately focus on specific components of ICT, such as computers and the speed of their processors, or mobile phones. The approach may be narrower (although most certainly no more arbitrary), but it does afford richer questions. For instance, we investigate whether quality changes in (some components of) ICT matter any differently than quantity changes. We document the determinants for the adoption of (some) new technologies. We establish whether (some parts of) ICT participate in a wave of creative destruction. All this can be done outside of the standard "production function" accounting methodology.

Others among us choose to let practitioners decide what they mean by ICT. Our investigation of "The Effects Of ICT" on the nature of the firm, and society at large, is indeed based on extensive and international survey evidence. Thus, rather than basing our studies on arbitrary a priori-s, more than likely to bias our results systematically, we choose to rely on professional opinion. After all, CIOs know what "ICT" means at least as well as what it does to their businesses.

Our first theme in the Digital Transformations Programme addresses the concept of the 'Digital Divide', its definition and measurement. The term 'Digital Divide' is an evocative phrase which emerged from questions of entitlement across socioeconomics groups and which has since been expanded to address the impacts of ICT on productivity and economic growth across nation states.

In addition to the lack of clarity in definition, there is a growing international consensus that empirical studies of the Digital Divide, particularly in developing countries, are severely constrained by omitted and misleading data. The reason these studies do not use, or have not been backed up with extensive evidence on ICT use and access by individuals, households and enterprises is simply that matching comprehensive data sets, let alone comparable ones do not exist for the vast majority of developing countries, and indeed will not exist for some time to come. In their absence, data on user access are often inferred from multiples of the number of subscribers (derived from administrative records), or simply missed out. The ITU in conjunction with OECD and UNCTAD have launched a major international initiative, "Partnership on Measuring ICT for Development" to attempt to standardise and collect survey-based ICT access data, but this will take time to come to fruition, and past years' data are clearly also water under the bridge.

We are exploring the concept of the 'Digital Divide' from a productivity perspective, researching alternative approaches to measure the 'Digital Divide', employing different theoretical lenses to explore the phenomenon, undertaking survey work at the firm level comparing the adoption and use of ICTs in India, Brazil and the UK and a focused study on the uptake and use of mobile telephones. Our survey work on ICT use is undertaken with our partners, the Centre for New and Emerging Markets at London Business School, led by Dr Simon Commander.

Our second theme focuses on the implications of ICT at the macroeconomic level. We are exploring the impact of ICT on growth and productivity at the aggregate level in several OECD countries. We also explore the statistical regularities (or lack thereof) between the price of ICT and its use, and between the use of ICT and the process of economic adaptation and the intensity of economic cycles.

From this research, we aim to better delineate the 'productivity gap' between the US, the UK and wider Europe. In their 2001 paper in the American Economic Review ('The Impact of Telecoms Infrastructure in Economic Growth'), Hendrik Roeller and Leonard Waverman provide the first theoretical and empirical evidence that telecommunications infrastructure has strong externality effects on economic growth, but only after a critical mass of near universal service has been achieved. This important paper provides evidence that there are important non-linear externalities in the growth effects of network infrastructure. The research calls into serious question the traditional growth accounting approach to measuring the impacts of ICT on growth and productivity. This theme's programme of work seeks to build on the Roeller and Waverman framework and to extend this research approach to explore the impact of ICT in OECD economies, but specifically addressing the impact of ICT in the UK in contrast to the US.

As part of this research effort, we also explore the impact of relative prices on ICT adoption and diffusion and its interaction effects with productivity growth using a novel macro-econometric approach. The third element to this theme involves a set of two linked macro-level studies aimed at addressing how rates of change affect economy-wide performance. In particular, we will address three questions:

1. Is creative destruction any more present in IT-intensive sectors?,
2. Are some countries and some sectors able to 'do' better out of recessions, and what are the characteristics that appear to make that possible?
3. Is IT modifying the effects of fluctuations on growth?

One of the least analysed - but arguably most important - aspects of the impact of ICT on economic activity is the impact of ICT at the industry level. The third theme of the Digital Transformations Programme considers how ICT has redefined firm and industry boundaries, creating digital winners and losers along the way.

ICT's impacts on the structure and the nature of industries are indelible: value chains are being transformed; business that used to be integrated can now be unbundled with the help of IT; ICT-enabled cyber-mediaries, such as B2Bs, are driving new structures in numerous value chains. Industry definitions are changing quickly. Banking, for instance, has become a collection of specialised businesses focusing on risk management, liquidity provision, account handling, data management, customer relations, payment fulfilment and ancillary services, all independently done and connected through ICT-powered interfaces.

Building on recent theoretical work and on a pilot study on the dis-integration and reconfiguration of the mortgage banking value chain in the US, this theme comprises two key elements of theoretical and empirical study. The first element of this work programme is a theoretical assessment of ICT impacts at the micro level on the structure of business (and hence productivity) by examining how ICT affects the boundaries of the industry and how it shapes the resulting value chain structure. The second element includes empirical studies of the financial industry, in particular Mortgage Banking, Retail Banking, Pensions/Defined Benefits Insurance in the United Kingdom, the United States and France.

Research at the firm level allows us to observe the characteristics, internal dynamics and strategy-making processes of organisations. This is particularly important when assessing the impact of ICT. A firm's market positioning within an industry, internal capabilities, and strategy typically influence the decision to deploy ICT systems. But ICT deployment has significant effects within the organisations, some of which we are just beginning to explore. For instance, research has shown that computer enabled work redesign is important when investing in ICT (Hammer and Champy 1993). However, the evidence of correlation between productivity and ICT at the firm level is mixed. On the one hand, multifactor productivity has grown by 2.7 percent per annum in the last two decades (Brynjolfsson and Hitt 2000); on the other, the improvement has mostly come from computer producing industries (Gordon 1999). This apparent disparity raises several questions for further research; for instance, whether there is a lack of consistency in measuring productivity or whether we have been ignoring other variables relevant to a firm level study.

The Leverhulme research program will attempt to shed light on these important issues through two linked studies and complementary perspectives. The first study addresses how new and existing organisations are using ICTs and coping with the challenge of the ICT-based organisation cannibalising their old methods of production. The second is a more extensive study to consider the factors that determine ICT's impact on firm performance, focusing on national differences that explain why, at the firm level of analysis, ICT does not seem to have the same implications on profitability and productivity and why the marginal impact of ICT seems to be more pronounced in some countries. The empirical work will involve a study of the printing and publishing industries in the United Kingdom, the United States, China and Brazil.

For this theme, we will draw together the findings and evidence from the other four themes to explore the following issues:

Macro-level policy implications

• General subsidy of infrastructure
• Subsidy of specific kinds of infrastructure
• Industry specific incentives
• Removal of regulatory barriers
• Capital market incentives

Micro-level policy implications

• For business strategy as well as for public policy
• Mapping of the structural implications of ICT on industry structure and business model evolution
• How ICT is changing the business proposition of a firm or the nature of the industry
• Impacts of ICT on welfare analysis, competition