Wired for Innovation: How Information Technology is Reshaping the Economy

Innovation and Economic Growth, Networks, the Internet, and Cloud Computing and Internet

Article Snapshot

Author(s)

Erik Brynjolfsson and Adam Saunders

Source

MIT Press, Cambridge, 2009

Summary

This book summarizes recent economic research on innovation, especially in Internet and communication technologies.

Policy Relevance

Governments can maximize the benefits of innovation by lowering regulator barriers to allow innovative firms to grow quickly. These benefits are greatest when social benefits are great relative to the potential profit that can be extracted from an invention.

Main Points

  • The strategic value of new technologies to firms—that is, the value of technology in out-competing other firms—is increasing, and despite reduced investment in internet and communications technology (ICT) firms will still require decades to use current ICT to its full potential.
     
  • Gross Domestic Product (GDP), an aggregate measure of the value produced by an economy in a given year, is commonly used as an indicator of economic growth. But GDP does not account for the value consumers derive from the internet and related technologies at no cost.
    • For example, Wikipedia is a valuable source of information on many topics and is used universally, but GDP does not reflect this because no money changes hands.
       
  • In the United States, a more competitive business environment allowed early adopters of ICT to grow quickly and hasten the standard use of technology in industry; countries with less-competitive markets were slower to adapt.
     
  • ICT is a complement to human labor: computers operated by humans work better than either do separately. But it takes some time for humans to learn to use new tools in their profession.
     
  • Firms invest vast quantities of money in training workers in ICT use and reorganizing their departments and processes to exploit ICT, but such investments in intangible capital are not reported in most data sets.
     
  • It is difficult to value information goods, and sometimes hard to commercialize them, but innovations tend to be cheap or free to replicate and valuable to firms, consumers, and society generally. The government can help support innovation likely to be of value to large sectors of society.
     

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