ICT – One of the key sources to improve productivity – why we are under investing in it?

by Marco Tapia

in management-it-consulting,

August 17, 2011

ICT – One of the key sources to improve productivity – why we are under investing in it?

As detailed in my previous two postings, our productivity is weakling and has been doing so over the last few years. The experts (The Productivity Commission, the Grattan Institute and many others) can explain this drop in productivity much better than I, however, one thing is certain, one of the sources of productivity growth is ICT and its investment is also declining.

I just want to quote three references, in order to prepare the ground for further discussion (on future postings) on what can ICT do to increase productivity.

1) According to Wikipedia, the free encyclopaedia, the sources of productivity growth are:

· the available technology or know-how for converting resources into outputs

· desired in an economy; and

· the way in which resources are organised in firms and industries to produce goods and services.

  1. According to Randstad (World of Work Report 2011), the biggest factor in driving productivity is people believing in what they are doing, having the right machines and technology

  2. And finally, according to Grattan Institute (Eslake, S and Walsh M, 2011, Australia’s Productivity Challenge, Grattan Institute, Melbourne.) one of the reasons for the latest drop in productivity is the “lessening in the take-up of ICT”

The article goes further:

“The importance of information and communications technology (ICT) as a driver of productivity growth is well documented in overseas.

Australian evidence is less compelling, in part because Australia produces very little ICT itself and thus has not shared in the very substantial gains in ICT equipment manufacturing experienced in those economies which are significant ICT producers (although Australia has of course gained substantially from the dramatic declines in the prices of ICT equipment over the past two decades). Productivity Commission research into the causes of Australia’s productivity acceleration in the 1990s suggests that while the take-up of ICT contributed to labour productivity growth by increasing the capital-to-labour ratio, it had very little role in the acceleration in MFP growth during this period (Parham, Roberts and Sun 2001; Productivity Commission 2010). However, research commissioned by Telstra (2009) cites Australian studies showing ‘significant productivity impacts from ICT at the firm level’.

Whatever the precise impact of ICT investment on Australia’s productivity performance, it is apparent that Australia’s relative position in this dimension has slipped over the past decade. In the late 1990s, Australia ranked 4th among OECD countries in expenditure on ICT as a proportion of GDP, and typically ranked behind only the United States and the Nordic countries in various indicators of the take up of ICT (For a useful summary of this research see Telstra (2009). World Economic Forum or IMD of the number of computers or internet hosts per capita).

However, towards the end of the 2000s, Australia typically ranked behind not only the US and Nordic countries, but also a growing number of continental European and Asian economies on scales such as these. In 2008, for example, Australia ranked 25th out of 132 countries in descending order of internet users per 100 of population, and 17th out of 127 in order of fixed broadband subscribers per 100 of population; while Australian businesses ranked themselves only 16th (behind not only the US and all five Nordic countries but also Japan, Korea, Taiwan, Singapore, Switzerland, Austria, Germany and the UAE) for absorption of new technology (World Economic Forum 2009).

In future postings I will publish my own thoughts as to what can we do, from very simple to very complex activities, to increase productivity by investing in ICT.

Marco Tapia