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Tuesday 22 Aug 2017 | 21:51 | SYDNEY
Tuesday 22 Aug 2017 | 21:51 | SYDNEY

Is the internet an economic engine?

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4 August 2011 10:02

As you might have seen yesterday, a new report, 'The Connected Continent: How the Internet is the transforming Australia's economy', claims the internet is now one of Australia's most valuable economic engines:

 

This reflects the consensus view, one Australia's politicians strongly endorse. Yet an alternate view is starting to come from the US, where the internet, for all its cultural and social value, is being seen as economically deflationary. As Tyler Cowen argues in 'The Great Stagnation', the web is an unusual technological advance:

Most Web activities do not generate jobs and revenue at the rate of past technological breakthroughs. When Ford and General Motors were growing in the early part of the twentieth century, they created millions of jobs and helped build Detroit into a top-tier U.S. city. Today, Facebook creates a lot of voyeuristic pleasure, but the company doesn't employ many people and hasn't done much for Palo Alto; a lot of the 'work' is performed more or less automatically by the software and the servers. You could say that the real work is done by its users, in their spare time and as a form of leisure. Web 2.0 is not filling government coffers or supporting many families, even though it's been great for users, programmers, and some information technology specialists. Everyone on the Web has heard of Twitter, but as of Fall 2010, only about three hundred people work there.

That is, people are going online for cheap (if not free) fun, and companies are using the technology to reduce overheads. Hence the struggle for growth in Silicon Valley, and perhaps also some of Australia's own retail slowdown.

Likely, these are just the growing pains of a technology that is already leading to more efficient and effective markets, with consumers the main beneficiaries. But for all the benefits this report identifies, the internet is not the economic engine the developed world sorely needs. At least, not yet.

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