Anthony J. Pennings, PhD

WRITINGS ON DIGITAL ECONOMICS, ENERGY STRATEGIES, AND GLOBAL COMMUNICATIONS

Origins of the “Information Economy”

Posted on | March 16, 2014 | No Comments

The economic understanding of knowledge’s contribution to the economy accelerated in the 1970s and terms such as “information society” and the “information economy” began to achieve high rates of circulation by the next decade. When I was at the East-West Center in Honolulu as a graduate student during the 1980s, I was part of a team of economists studying the roles of communication and information in the economy. Headed by Meheroo Jussawalla, we were primarily looking at the Asia-Pacific region, although necessarily attuned to the global technological and theoretical trends of the time.

The proliferation of microprocessing technologies, particularly “microcomputers” such as the Apple II and the IBM PC, as well as the commercialization of communications satellites and other digital technologies, stimulated ideas about the social impact of “high tech” and formulations about a new type of society taking shape. Competing characterizations included the “post-industrial economy” introduced by Daniel Bell in his The Coming of Post-Industrial Society (1973). Also, the “knowledge economy” by Fritz Machlup in The Production and Distribution of Knowledge in the United States (1962) that was expanded upon in later volumes in a series called Knowledge: Its Creation, Distribution, and Economic Significance. The “knowledge society” was also popularized by Peter Drucker in his Age of Discontinuity (1992) that included a chapter with the same name.

Marc Porat‘s doctoral dissertation was an important voice in the emerging discourse that recognized the increasing importance of information as a cultural and economic phenomenon. Porat’s doctoral work at Stanford University is noted for the measures of the information economy that he created to analyze U.S. Department of Commerce employment data. It has often been cited as empirical proof that agriculture and manufacturing industries were on the decline and that the “information economy” had arrived.[1]

By focusing on the activities that workers performed rather than their explicit job titles, Porat was able to argue that, by 1980, more people in the United States were engaged in information work than any other kind of work. About 48 percent of the U.S. population were employed in one form or another of information activity, as compared to only about 3 percent in agriculture and slightly more than 20 percent in manufacturing. About 30 percent were engaged in providing services – an important category because information work and services were often statistically combined, whether flipping hamburgers or arguing a legal case. Porat helped establish information work as a separate category.

Porat and the others helped develop a conversation about a new economy based on the dynamics of information in a high-tech environment. Many saw the changes as a harbinger of a post-industrial revolution which would democratize wealth because the “nature” of information made it intrinsically undepletable and infinitely shareable. Information was also a crucial part of the automation process and would help relieve humanity of the drudgery of work. These ideas persisted well into the 1990s with the “new economy” and its resultant dot-com bubble.

Many economists did not share this utopian view. Although classical economists had based market theory on assumptions that information was free and readily available, information economists saw through this simplistic rendering. Machlup was, in fact, a student of Ludwig von Mises, and supervised his doctoral dissertation. Von Mises is better known today as the founder of the so-called “Austrian School of Economics.” With other disciples such as Friedrich von Hayek, who wrote The Road to Serfdom (1944), a critique of government planning; von Mises’ group of economists examined the role of information in markets. In particular, they focused on the use of prices as communication or signaling devices in the economy. The process of exchange, they argued, is a knowledge producing and sharing activity.

The Austrian school seemed to stumble on to the role of information in the economy while targeting their main nemesis, socialism. It was the planning activities of communist and socialist governments that drew their ire. Their targets included modern democratic political economies after nearly all non-communist countries adopted the macroeconomic ideas of John Maynard Keynes. The Austrians would be instrumental, in fact, in the Reagan-Thatcher turn to market ideology in the 1980s after a turbulent decade of inflation and economic stagnation.

These liberal-minded economists had their critics. For the less enthusiastic, usually Marxist-informed interpretations, “information” and related technologies were seen in terms of enriching the rich and expanding the global sphere of capitalist control. They saw information as a way for corporations to extract surplus value from the production process without extensive investments in additional equipment, labor, or raw materials. Information was a way to enhance productivity, but usually at the expense of the workers involved. 

Herb Schiller in his Who Knows: Information in the Age of the Fortune 500 (1981) pointed out that information technologies were primarily being used by a few thousand “super-corporations” to form a transnational web of cultural hegemony and economic control. The Canadian take on communications and information, arguably started by Harold Innis and Marshall McLuhan also undertook a theoretical investigation of the economics of information. Canadians were especially sensitive to the trade in information and cultural products across the border with the USA. For instance, Thomas McPhail‘s Electronic Colonialism pointed to the globalization of a new type of empire due to the proliferation of mass media messages. This new media empire would operate by influencing the attitudes, values, and languages of people around the world.

For liberal theorists, the new information environment would also upset previously dominant structures of power and democratize society by providing information composed not from the “top”, but from diversified and autonomous sources. These would combat the dominant one-way, industrially produced, mass media messages with interactive technologies. Ithiel de Sola Pool for example, in his Technologies of Freedom, mirrored this view with a “soft” technological determinism arguing that the new converging communication and information technologies are “conducive to freedom” and are more “pluralistic and competitive.”

Peace scholar Majid Tehranian, a Harvard-trained political economist, wrote Technologies of Power in response to Pool. It remains one of my favorite books because it not only addressed the issues of economics and freedom but connected information “machines” to the complexities and importance of democracy, as well.

The above is only a cursory overview of the ferment that characterized the time. Hopefully, it points to some of the names that struggled to come to grips with the increasingly important roles of communications and information in the economy. It was an intellectual period in which the impact of information technologies was not at all as apparent as it is today.

As for me, I did my doctoral dissertation on electronic money and dystopias, because if there is one thing economists find inconvenient, it is money. Money is the Achilles heel of free market economics.

Notes

[1] Porat, Mark Uri (May 1977). The Information Economy: Definition and Measurement. Washington, DC: United States Department of Commerce. OCLC 5184933.

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AnthonybwAnthony J. Pennings, PhD is Professor and Associate Chair of the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

Category: democratic political economies, digital media economics, dystopian economies
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    Professor at State University of New York (SUNY) Korea since 2016. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, digital economics, and strategic communications.

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