INFORMATION TECHNOLOGY AND ECONOMIC DEVELOPMENT
Hwang Eui-Hwan, Director, Technology
Ministry of Information and Communication, Republic of Korea
27 April 1999
The presentation focuses on the following three issues: relationship between information technology and economy; the influence of information technology on the Korean economy; and Korean Government's policies for promoting the development of information technology, information infrastructure and information industry.
There are three fundamental changes that the world economy is now facing. First, tariff and non-tariff barriers are falling down under the WTO regime. Second, business activities are being globalized. As a result, cross-border investments are actively taking place. And then, as trade and overseas investment increase, one nation's economic policies and conditions greatly affect those of the other nations.
In such a global economy, information technology plays a more important role than labour and capital do. Microeconomic globalization is a phase at which companies are establishing a global mechanism of production and marketing by means of the computer and communication. Macroeconomic globalization is closely related with global diffusion of information.
As the world economy is integrated, now is the time we have to think about the new role of each nation and region. Considering the key role of information technology in the world economy, we will have to find solutions in the information technology, information infrastructure, and information industry. From this viewpoint, it is important to analyze the effects of information technology on the economy in general, and find the directions we should move towards.
II. RELATIONSHIP BETWEEN INFORMATION TECHNOLOGY AND ECONOMY
Information technology has shifted the paradigm of the economy. In a macroeconomic sense, information technology affect the patterns of production, investment and employment. In a microeconomic sense, information technology changes business activities. In other words, thanks to advanced information technology, knowledge-based workers, who create and utilize information, play a key role in economic activities.
In addition to yields and value added, it becomes important how much information can be converted into useful knowledge. Knowledge itself, not a physical good, will be a valuable product. So, we can easily infer that knowledge-creating organizations like research institutes and universities, will find their increased roles as a place for economic activities.
1. Information technology and macroeconomic changes
Most of all, let me take a look at the macroeconomic changes that information technology has brought about.
(a) Changes in production structure
As the information technology evolves, the world is now in paradigm shift from the industrial age to the information age. As a result, there is a growing demand in the service fields that require expert knowledge and information. In Korea, the share of service industry in GDP is growing from 50 per cent in 1995 to 67 per cent in 1998.
Thanks to information technology, existing service industries such as banking and distribution are enhancing efficiency and expanding their business areas. New industries on the basis of information technology such as software industry and information processing service are rapidly growing.
(b) Changes in investment structure
As information technology changes the aspects of competition, investment is made more in the area of information and communications that promotes productivity and expedites decision-making process than in the facilities increasing the production capability. The investment ratio in information and communications out of the total investment activities soared to 21.4 per cent in 1995 from 15.5 per cent in 1990 in Korea. The rate is expected to continue to grow.
(c) Changes in employment structure
The number of workers in manufacturing sector is drastically reduced by shrinking share of its production. But employment in information and knowledge-intensive service sector is increasing with automation and investment in information technology. In the occupational categories, there are more demands for experts with creativity and information technology. In Korea, employment of experts increased up to 11.3 per cent from 1985 to 1996.
It is anticipated that telecommuting works and SOHO business will increase in the future due to the development of information technology. In the U.S., the number of telecommuting workers increased from 4 million in 1990 to 11 million in 1997 which accounts for 10 per cent of the total employees.
2. Information technology and microeconomic changes
Now let me move into microeconomic changes caused by information technology.
Information technology has great influence on business activities. Changes take place in every part of the business; development of goods and technology, procurement, production, sales, distribution, and post-sale services. Due to CAD and CASE, enterprises lay great importance on rapid development of diverse goods and technology in order to satisfy customers. Time to market is also getting an important factor in this economic environment.
Meanwhile, enterprises change production system from mass production under economy of scale into production on demand by CAM and ERP. In competition with large companies to increase the market share, venture companies are successfully deploying "maximization of profits" strategy.
III. INFLUENCE OF INFORMATION TECHNOLOGY ON KOREA'S ECONOMY
Information technology not only has direct effect on a nation's economy by developing information and communication industry but also indirect effect on other sectors.
Korea has been the value added amount of information and communication industry increase from 30 trillion won in 1995 to 43 trillion won in 1998. Consequently, its share in GDP rose from 7.9 per cent to 9.6 per cent. Employment in that industry increased to 507 thousand in 1998 from 395 thousand in 1995, and its share in the total employment rose to 2.4 per cent from 1.9 per cent. In 1998, the amount of export in information and communication industry was about 30 billion dollars and its share in the national total export was down to 23 per cent. Price increase rates in information and communication services and equipment are respectively - 0.2 per cent and 6.7 per cent in 1998, which is lower than the national average.
Bank of Korea reported that the production multiplier in information and communication industry/rose to 1.436 in 1995 from 1.286 in 1985. The employment multiplier in the industry reached to 22.2 in 1995. The industry contributed 0.097 per cent to the stabilization of total prices in 1995.
IV. KOREA'S POLICY TO PROMOTE THE GROWTH OF INFORMATION TECHNOLOGY, INFORMATION INFRASTRUCTURE AND INFORMATION INDUSTRY - CYBER KOREA 21
The role of Government is changing from solving market failure into solving system failure. The system means the relationship between players and its environments. Players include individual person, corporate, research institute, university, government and so on. Environments include banking system, labour market structure, level of education, law and regulations. It is necessary for the Government to create, diffuse and utilize the information technology by removing bottleneck of the system.
From this perspective, the Ministry of Information and Communication of Republic of Korea recently set up Cyber Korea 21, a vision for a knowledge and information-based society. Cyber Korea 21 designs the creation, diffusion and utilization of information technology at the level of national system. Its goals include reinforcement of information infrastructure, growth of national productivity based on information technology, and boosting of new businesses. To achieve this goal, Korea plan to invest 23 billion dollars from 1999 to 2002 in order to create one million jobs and about 100 billion dollar production.
1. Strengthening information infrastructure for a creative knowledge and information based society
(a) Upgrading telecommunication networks
In Cyber Korea 21, high-speed communication services will be available to anyone, anywhere, at any time. By the year of 2002, 144 call zones in Korea will be interconnected by fiber-optic cables which have a velocity of 150 Mbps~2 Gbps. Digitalization of local exchange networks will be completed by 2002. In the new circumstances, Internet services can be provided 100 times faster.
A variety of networks such as fiber-optic cables, ADSL, CATV, ISDN, WLL and satellite communication will be utilized to provide subscribers with high speed services of 1.5~2 Mbps at a reasonable rate.
(b) Information education and legal/institutional reforms
We can say that in promoting positive interaction between information technology and economic growth, telecommunication networks are hardware infrastructure, whereas education and laws are software infrastructure. An information education plan targeting the entire population will be drawn up. The plan will have various programmes designed to meet the needs of each group of citizens, ensuring a society without "information-have-nots". In particular, 10 million students and 900 thousand civil servants will take computer courses. 600 thousand men in military service will also receive special education programmes on computer.
In preparation for an era of Internet and electronic commerce, Korea has already revised computer programme protection law to reinforce the copy right on Internet. We have also enacted electronic signature law to ensure safe electronic transaction and document circulation.
2. Increasing the national productivity by utilizing information technology and infrastructure
(a) Digitalization of administrative work to boose government productivity and transparency
All the administrative work will be digitalized for paperless administration and electronic documents interchange. Under the plan, we will establish database that contains information on residence, real estate and automobiles. Civil Service Kiosks will be installed in public places such as transportation terminals, subway stations and post offices. Major fiscal affairs including revenue, expenditure and management of government properties, will be integrated into a national fiscal information system.
As information technology make public administration move transparent and efficient, economy is more sound and potential for development.
(b) Enhancing corporate productivity by using information technology
Also, using information technology, the existing industries such as agriculture, fishing, manufacturing and service industries will be revamped as knowledge-based industries to raise productivity and create high value added. Government procurement activities will be done by EDI to promote corporate information. By the year of 2001, CALS will be introduced to subcontracting businesses. Korea will strengthen the joint utilization of customer's credit information in the financial sector, and open Internet shopping mall for the agricultural and fishing products.
We will also establish an Integrated Logistics Information System and a National Geographical Information System in SOC.
3. Promoting new business by utilizing information technology and infrastructure
(a) Creating new jobs by Internet industries
By boosting Internet-based new industries such as and ISP, we will attempt to provide contents to the information super highway, create new jobs and vitalize electronic market place. We will back up software and multimedia contents such as games and animation. Especially, we will establish Seoul Soft Town which becomes a centre for the growth of new industries.
(b) Promoting R&D and international cooperation in information technology
We will focus R&D investment on core information technologies such as CDMA, IMT-2000, ATM switches, ASIC, and satellite equipment. For economic growth, we are prepared to take a positive action to introduce advanced information and communication services and to provide an environment where various information technologies can be used. For example, digital television broadcasting service will be launched in 2001.
The Asia Pacific region had made a rapid economic growth in the latter half of the 20th century. But, many countries in the region are facing serious economic crisis. Cyber Korea 21 is Korea's strategy to overcome the current crisis and cope effectively with paradigm shift of the world economy by utilizing information technology.
I am sure that only if Asia Pacific region collect wisdom and experiences to collaborate one another in information technology, infrastructure and industry, this region will become the centre of the world economy and information technology in the 21st century.