Wednesday, June 15, 2011

Digital Economy: Promise or problem

Ross Gittins in the SMH today shares some interesting research on why cities play an important role in the history of economic development.

He mostly quotes from a book called Triumph of the City.

The city is explained as a place that allows the social being that is man to magnify the economic benefits from working together - and from specialisation. This works to one of the strands I think is under played in the whole Digital Economy discussion - the consequence of new communication technology is to facilitate centralisation rather than decentralisation.

Gittins cites a study that compared the problem solving ability of a group meeting face-to-face versus only through electronic communication. Indeed the infamous "Silicon Valley" - home of much of the technology innovation that spurs the ongoing Digital Revolution - is cited in the book as an example of how cities facilitate knowledge development.

This is one of the themes I pick up in my recent working paper Digital Economy: Promise or problem?". As Glaeser says in his book;

Statistical evidence also suggests that electronic interactions and face-to-face interactions support one another; in the language of economics they are complements rather than substitutes. Telephone calls are disproportionately made among people who are geographically close, presumably because face-to-face relationships increase the demand for talking over the phone. And when countries become more urban, they engage in more electronic communications.

Establishing a Government policy that just assumes going on-line faster is better is an error. That was part of my comment earlier on bookstores, the sense that Government is just saying "do more" without inquiring into why or how.

(Note: This of course is one of the places where e-books do win hands down. Having read Gittens article I purchased the kindle edition of the book and had it in seconds.)

Novae Meridianae Demetae Dexter delenda est

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