The past few decades have seen a revolution in computing and communications, and all indications are that technological progress and the use of information technology will continue at a rapid pace. Declining costs of communication accompany and support dramatic increases in the power and use of new information technologies as a result of technological improvements and increased competition. According to Moore's Law, the processing power of microchips doubles every 18 months. These advances present many important opportunities but also pose major challenges. Today, information technology innovations are having a profound impact on many areas of society, and policymakers are working on issues of economic productivity, intellectual property rights, privacy protection, and affordability and access to information. Choices made now will have lasting consequences, and attention must be paid to their social and economic impacts.
Perhaps one of the most important results of the development of information technology is electronic commerce through the Internet, a new way of conducting business. Even if it is only a few years old, it can radically change the economic activity and social environment. Already, it affects large sectors such as communications, finance and retail, and may expand to sectors such as education and health services. It refers to the smooth use of information and communication technology across the entire value chain of an electronically operated business.
Information technology and electronic commerce have impacted business models, commerce, market structures, workplaces, labor markets, education, personal lives, and society as a whole.
1. Business model, business and market structure
One important way information technology affects work is by reducing the importance of distance. In many companies, regional distribution functions are highly variable. For example, some software companies have found that they can overcome the tight local market for software engineers by sending projects to India or other countries where wages are much lower. Moreover, such systems can take advantage of time differences so that critical projects can be worked on around the clock. Firms may outsource their production to other countries and rely on telecommunications to keep marketing, research and development, and distribution teams in close contact with manufacturing groups. Technology can thus enable the division of labor between countries, affecting the relative demand for different skills in each country. Technology enables different types of work and employment to be separated from each other. Firms have greater freedom to locate their economic activities, creating greater competition between sectors in infrastructure, labor, capital and other resource markets. It also opens the door to regulatory arbitrage: firms can choose which tax authorities and other rules apply.
Computers and communication technologies promote production and distribution, as do markets. An infrastructure of computing and communication technology, providing low-cost 24-hour access to virtually any type of price and product information buyers desire, will reduce informational barriers to efficient market management. This infrastructure can also provide a means to execute real-time transactions and make intermediaries such as sales clerks, stock brokers and travel agents, whose job it is to provide the necessary information link between buyers and sellers, redundant. Eliminating middlemen will reduce costs in the production and distribution value chain. Information technology has facilitated the development of advanced mail order retailing, where products can be ordered quickly using the telephone or computer network and then shipped via transportation companies coordinated by suppliers who rely heavily on computers and communications technology to control their operations. Intangible goods, such as software, can be shipped electronically by eliminating the entire transportation channel. Payment can be made in a new way. The result is diversification across distribution channels, cost reduction, lower end-consumer prices and higher profit margins.
