'How IT Matters', 21 June, 2004.

‘Information technology’ (IT) would be broadly understood as referring to the technologies for processing, storing, and transporting information in digital form. Though somewhat diminished in its lustre after the dotcom bust, IT retains a cachet of its own. And especially so in India where a technocratic value-system has surely replaced the Fabian dreams of the early post-Independence elite. The leaders of IT corporates are the heroes of our educated middle classes, and not entirely without reason. However, even after discounting the traditional Indian admiration for those who have newly-created wealth, it is clear that some of the aura adheres to the technology itself. Part of a world-wide club, many in India see IT as the medium of the future. Naturally now any expression of doubt regarding its potential would be received with the derision considered fit for losers. Unless of course some of this doubt emanates from the United States, the intellectual home of IT afficianados. Nicholas Carr has not just cast doubt on the potential of information technology, but in an article in the Harvard Business Review has written that ‘IT Doesn’t Matter’. Though his views have been known in academic circles for some time now, the editor-at-large of this prestigious journal was reportedly spreading this very message at the third regional World Infocomm Conference at Singapore recently.

Carr adopts the right, and relatively rare, perspective when he says that IT is "… best seen as the latest in a series of broadly adopted technologies that have reshaped industry over the past two centuries …". One might only add that the sphere of influence ought to be extended to encompass the economy rather than be confined to industry. Of course, the perspective itself stems from seeing the Industrial Revolution as the origin of a modern economy and discounting, at least implicitly, all human ingenuity preceding that date. But seeing IT as part of the flow of technology is indeed correct. Also, a priority in the adoption of this perspective on IT as the most recent of the general purpose technologies may be granted to economists – as opposed to management gurus – who had in the true spirit of the dismal science queried a bit the early hype surrounding the commercial emergence of the Internet about a decade ago. My reference to this intervention by economists is not so much as to establish their claim to precedence as much as to revive a focus different from that of Carr. This is a focus on the economy, and thus on the consequence of IT for the economy, as opposed to the focus on the firm, being the traditional field of management studies. But what is Carr saying?

To make his argument that we are witnessing the fast vanishing advantage of IT, Carr draws a parallel between expansion of IT, especially the Internet, and the rollout of earlier technologies from the steam engine and the railroad to the telegraph and the telephone. He points out that for a short time these technologies offered hitherto unimagined opportunities to forward-looking firms that had adopted them early enough. However, as these very technology inputs became "commoditised’ in that they could now not only be produced at low cost but also they had been homogenised, their adoption no longer offered an advantage to any individual firm in the market. In that telling phrase of Carr’s "they became invisible" from a strategic point of view. Or, as IT turns ubiquitous it does not offer the firm a competitive advantage.

In evaluating the potential of IT, however, the point is to see beyond the individual firm. Therefore, if we take an economy-wide view we need not be deterred by Carr’s thesis that IT is a spent force. Far from it. It has huge potential for profitable application in India. To draw a parallel from astrophysics, an economy with such low IT penetration may be seen as a veritable blackhole with respect to this technology. Central to a critical appraisal of Carr’s interesting but limited thesis is that an economy is not a firm. The concept of a zero-sum game that captures perfectly the struggle for market share by firms is hopelessly unsuited to analysing the consequences of a new technology for an economy. Unlike two firms in the same market, two sectors of an economy buy from one another thus raising the level of aggregate output. Thus as IT raises the level of productivity of all firms, it also raises the level of aggregate demand in the economy. Whether IT significantly raises productivity is a moot point of course and has been the topic of an international debate among economists. However, we can see, there is a channel whereby IT matters for the economy independently of Carr’s scepticism on whether it any longer bestows a competitive advantage on firms.