U.D.C. 330.47:338.2

INFORMATION ECONOMY AND THE INFORMATION SOCIETY

Elshan Mahmud Hajizadeh

Prof. Dr, State Economic

University of Azerbaijan. Istiglaliyyat, 6, AZ1001.

elshan@hajizadeh.com

Abstract

Purpose - describing scientifically the origin and evolution of the specific and different aspects of the information economy to justify its special role in finding a foundation of the information society and the global economy.

Methodology - retrospective, comparative methods and factor analysis;

Findings: finding its global rapid development of the information economy doomed to convert segmental global economic system and the formation of new economic relations.

Research limitations - continuation of the general approbation of the information economy and the incompleteness of its cycle.

Practical implications - in expanding the use of research in the direction of the concept of knowledge-based economy as a business and research activities, as a theoretical source of information and communication technologies.

Originality - study the information economy as the basis of the information society, and this "economy of human capital" approach, based on knowledge, high innovative technology, intellectual work.

Key words:information economy, information society, information and communication technology.

JEL Classification Codes: A13, D8, D83, E21, L86

1.Introduction

One of the major issues in the economic theory is to find a solution for meeting unlimited needs of the households with scarce resources. In the contemporary economics this problem is studied in the context of socioeconomic evolution of complex macroeconomic systems. This process is further complicated by uncertainties around outcome of the households’ behaviour. However, acquiring relevant information may decrease these uncertainties; because information has recently become an important production factor. This importance comes from its distinctive characteristics such as perpetuity, rareness and speed of dissemination. On the other hand, like economic resources, information is also scarce.

It is worth mentioning that information resources in conjunction with technical tools for information dissemination have created “information society theory”. Furthermore, information resources bring revolutionary influence to production, industry, transportation, communication, trade, and financial sectors. These factors make it vital to study information as a separate economic category. Consequently, information resources have become a subject of study for theories of economic growth and development, formation of civic society, economic and information security and economics of information.

2.Economic information and its interpretation

Information has been an important factor for economic researchers for more than 50 years. American economists Claude Shannon (1916-2001) and Norbert Wiener (1894-1964) established the quantity theory of information in 1940s [1, 4, 12]. However, it is still difficult to give a unique definition of “information”.

Encyclopaedias show that the origins of this word date back to Latin word “informati”. From the perspectives of materialist philosophy, information is a tool for comprehending the real world based on data and facts acquired through communication. This communication process may happen through oral, written, graphical, digital, visual, table or in other forms.

Currently, information has become one of the major factors driving the developments in societies. Almost all sectors of the science take into account the current developments and processes in information. However, separately, it is a subject of informatics. This subject was separated from cybernetics in the mid-twentieth century and became an independent science. It studies the creation, processing and dissemination of information.

Historically, information has been defined as data exchange between humans, and between humans and machines and signal exchange among representatives of the wildlife. However, contemporary literature gives different definitions. Prominent American sociologist Manuel Castells (1942) provides a basic definition: “information is a disseminated signal”[9, page 39]. The founder of cybernetics Norbert Wiener mentions that “information is neither materia, nor energy, information is information.”

Famous Russian philosopher Arkadiy Ursul (1936) provides definition of informatization as follows: “it is a process of improving intellectual quality of the civilization as a result of which the full dissemination and acquirement of information takes place” [4, 14].

Economic information is obviously one of the most important information types. The most distinctive characteristic is that it is circulated in the management and decision making process. It accompanies the production, exchange and consumption processes. Its major part, production information is closely linked with public production.

Moreover, in the highly developed economies across the world the terms such as “information society”, “economics of information” started to emerge. Soon they became synonyms for “innovation economics”, “open society”, “knowledge society”, “knowledge economics” etc. [9, 12, 15].

These definitions bring about the following conclusions [12, 15, 18]:

1. Information has become one of the most important production factors and public and social resources.
2. Information has become a synonym of knowledge. Or in other words, knowledge is in the base of information.
3. Modern information systems and technologies and their globalisation have brought about unique information space, and globalisation of education, cultures and economies.

This topic has been well-studied in the works of Nobel Laureates- American economist Joseph Arroru (1921), Herbert Simon (1918-2001), Robert Lucas (1937), William Vickrey (1914-1996), George Akerlof (1940), Michael Spence (1943), Joseph Stiglitz (1943), Robert Marton (1944), English economists William Luis (1915-1991), James Mirrlees (1936) and other prominent economists. 1994 Nobel Prize winner John Harsani (1920-2000) had put a foundation for the theory of economics of information [18].

Information and information technologies define the growth of GDP. It also increases the quality and maturity of the civil society. This per se contributes to economic growth and development.

Economic information should be precise, accurate and dynamic. Precision ensures that all information consumers accept it. Accuracy makes sure that economic information affects keeping the effectiveness of the current system. Dynamism shows that in changing economic landscape information keeps its topicality. 

Analysis of economic information is the key for ensuring correct management decisions. In cybernetics for example, information is perceived as a set of signals and data received from external sources and utilised in the process of management [4, 7].

At the same time, decision making process in the presence of incomplete information may bring about some unwanted results. The things don’t always work the way we forecast. The decisions made are sometimes wrong, the benefits are sometimes lower and the expenses are usually higher than expected. As a result we get punished for these mistakes. Uncertainty ends up being an obstacle for effective markets. It results in waste of resources, time and energy, and ineffective distribution of the goods and resources. Hence, the accuracy and correctness of the information bare special importance in the economics sphere.

To sum up, economic information refers to socio-economic processes and their management, and the aggregate information received from production and non-production services. Information resources and knowledge and information included in them, forms human capital. Hence, information together with human capital has become one of the most important production factors in global economy.

3. Foundations and development of information society

During last few years one could easily see the coming of the “new economics”. The main indication of this evolution was replacement of established “industrial rules” with new information technologies and internet driven learning process.

Based on fast development pace of the information technologies, this new chapter in economics is more elastic to the changes. From technological perspective, this period could be considered as the next step of scientific-technological development. However, it would be better idea to classify this as a scientific revolution, as it affected the processes of creation, processing and dissemination of the information. Consequently, there have been significant transformations in economics, politics and cultural spheres, which have affected people’s mindsets. This resulted in establishment of the new post-industrial society-information society emerged [7, 8].

American economist Fritz Machlup (1902-1983) and Japanese sociologist Umeasao Tadao (1920-2010) were the scholars who mentioned the information society in their works. Based on these works, Japanese sociologist Yonedzi Masuda (1905-1995), American economist Mark Porat (1932), English scholar Tom Stouner (1929) and other scholars contributed to the development of this concept. As a result, the researchers started using new terminologies, such as “technotronic society”, “knowledge society”, “post-industrial society”, “open society” etc.[1, 10, 11, 15, 16].

Based on technology development level, American economists John Galbraith (1908-2006), Simon Kuznets (1901-1985), french economist and sociologist Raymond Aron (1905-2011) and Walt Rostou (1916-2003) divided economic system into different groups. Furthermore, American sociologist Daniel Bell (1919-2011) and Walt Rostou (1916-2003) differentiated among pre-industrial, industrial and post-industrial societies [2, 5, 6, 9].

We can also call the pre-industrial society as agrarian or traditional society. The main production sectors were agriculture, fishing, mining, and the main producer was the nature itself. Hence, almost 90% of the employment was somehow related to the agriculture. The economic system’s key objective was to provide the people with food.

It is worth mentioning that, pre-industrial society is the most consistent and continuous among all economic societies, with its history dating back to thousands years ago. Even nowadays majority of the countries in the Latin America, Africa and Southeast Asia are still living in this society type.

The term “industrial society” was first used by French philosopher Sen-simon (1760-1815). In this type of society all the resources were directed towards industrial production. Establishment of this society is closely related to the urbanisation, machine production, market economy and formation of social groups such as entrepreneur (bourgeoisie) and workers (proletariat) [1, 16].

According to existing theory, the industrial period is replaced by post-industrial in the late twentieth century. The founder of the post-industrial society concept is considered D.Bell. In his “The coming of the post-industrial society” book (1973) the author touches the foundations of the post-industrial society concept, and discusses the major trends in changing relations among production sectors, and highlights the importance of the scientific knowledge as a basis for development and growth [2, page 121]. However, the notion of “post-industrial society” per se was firstly used in mid-twentieth century, when it was clear that American capitalism is no longer the industrial capitalism that used to be in the USA till Great Depression.

The quality of the post-industrial society is affected by the education level of the workers, the level of professionalism and creativity. The countries with more than 50% of the GDP coming from service sector are considered as post-industrial economies. Under this condition, the USA (with 80%), the members of the European Union (more than 70%), Japan (75%) and Canada (70%) may be considered in this group of countries.

National information resources play a key role in the formation of national wealth in post-industrial countries. The services sector significantly outweighs industrial production for the wealth created and employment. And the major part of the services sector comes from information processing.

In his “The third wave” book American futurist, economist and sociologist Alvin Toffler (1928) describes three types of societies, based on the concept of 'waves' - each wave pushes the older societies and cultures aside [13]:

r The First Wave is the settled agricultural society which prevailed in much of the world 10 thousand years ago;

r The Second Wave is Industrial Age society, which lasted about 300 years;

r The Third Wave is the post-industrial society, which was established in 1950s and it is currently in its expansion period.

Toffler considers that the formation of the third wave was a result of the superiority of economics of information over traditional sectors of the economy- agriculture, industry and services sectors. Nowadays information is of more importance and more than half of the employed people provide information related to information. Therefore, Toffler concludes that information society is the one where the knowledge factor is key for the development of the society.

Y. Masuda defines following distinctive features of the information society in his writings [10]:

q Development of computer technologies that helps people with brain work;

q Mass-production of the cognitive information and knowledge;

The major aim of the New Society is to stressthe value of the time.

French sociologist Alan Touren (1925) has different opinion about forms and transformation of economic systems. The author links transformation of economic systems with social transformations. According to Touren, this transformation may be motivated by different factors such as trade, production, communication and culture.

Furthermore, in 1970 prominent sociologist and American politician Zbigniew Brzezinski (1928) published a book called “Between two ages: America’s role in Techtronic era”. In this book he mentions that the development could only happen through advances in science and technology, not through social revolutions. According to Techtronic theory by Brzezinski, this qualitative improvement happens via evolution from agrarian society to the industrial and then to Techtronic era. The key role is implemented by computers and cyber systems. The key function is science. However, the author believes that the divide between developing and advanced economies will remain. Therefore, the developed countries should support those developing countries that are close to “Techtronic era”[3, 18].

As it is seen, both Touren and Brzezinski consider information and communication Technologies as the major driver of the formation of societies.

Currently post-industrial society is characterised as information societies. This is a valid characteristic, as information has become the main factor of social development and it defines the existence and development path of societies. The process of information Exchange has become more important than information itself. This once again, proves that technological determinism is being replaced by information determinism. Moreover, information determinism has been the priority for concept such as “information society”, “post-modernism”, “fourth formation age” etc.

4.Economics of information: characteristics

According to classical economics, the capital is sum of the means (land, buildings, machinery, natural resources) that are used for increasing the wealth (generating income). However, the next stage of the economic history when money became more powerful, capital was also perceived as the means of acquiring labour force and tools. As a result of scientific advances this was accompanied by increasing proportion of intellectual property and decreasing tangible property types. This brought about more innovative economics. Innovation is a reflection of the knowledge utilised in the economy. It is influenced by: the knowledge of the entrepreneur and the worker; technological knowledge of the experts; and the way how the business is run. In this type of economy the workprocess is not only based on professional habits, but also builds on individual knowledge and skills [7, 8].

Nevertheless, contemporary economy is multi-sectoral and it includes sectors such as traditional industrial economy, innovation economics, economics of information, venture business and other clusters. However, the basis for systematic operation of the public and private sector is obviously information sector.

Information is an integral part of economics and this is because:

• Ø Production of information is a production sector like any other sector of the economy;
• Ø Information is the factor of production- one of the fundamental resources of any economic system;
• Ø Information is tradeable, in other words it can be a good;
• Ø Part of the information is a social good that is consumed by all members of the society;
• Ø Information is the element of the market economy that affects equilibrium in the markets;
• Ø Information is gaining more power in the light of competitive markets;
• Ø Information is a tool for decision making and PR for businessmen and government officials.

Consequently, the information economy is utilising not only labour, land, and capital for production, but also relevant information in this process. It is very vital production factor in today’s world. It ensures the accuracy of decisions made, develops entrepreneurial skills and increases the effectiveness of production process. Its existence reduces the risks coming from external uncertainties.

Currently, “economics of information” is interpreted in different ways and thus these definitions affect its goals. For example, there is a trend in the West that considers information economy as a computer industry.

Economics of information is the field that studies the role of electronic technologies (information-communication) in creation, division and consumption of public wealth. It is characterized by mass and global usage of its products. Unlike traditional economic sectors, economics of information is based on innovative entrepreneurship, management, information engineering and automation of the economic processes [8, 12].

Its main objective may be divided into macro and micro levels. In macro level, economics of information deals with choosing development path of the societies in the light of global transformations. In the micro level, its goal is creating algorithms for entrepreneurs for creating employment [7, 8].

Economics of information has the following development stages [12]:

1. Production process of information technologies;
2. Mass application of information technologies and standardization;
3. Production of information and increasing productivity as a result of application of information technologies;
4. Shift to the production of information and knowledge.

Above mentioned stages prove that information and information technologies have become an integral part of the production and have ensured sustainable development in the other sectors of economy. The results of research reveal that following two groups of countries are considered advanced in information technologies [17]:

1. Advanced economies with fundamental scientific potential (USA, UK, Germany, Japan etc.)
2. The group of countries utilising the knowledge and innovation of advanced economies (Taiwan, China, South Korea etc.)

These two groups effectively complement each other and possess the biggest market share. However, there is the third group of countries that is emerging. Norway, Finland and Israel are in this group. These countries can maintain competence in international markets. High quality education and training, as well as effective modernization of information technologies are the key elements of the success in this group of countries [16, 17].

The researchers conclude that at the information era, the economics of information has become very important and it is reaching global level by very high growth rates. In the light of above mentioned developments, we are witnessing a formation of new economic system. The major distinctive characteristic of this system is existence of expense component called “information”. This production factor apart from being an element of the market economy is also a type of economic activity. It is also a good and can be consumed. Economic information is also used as a tool by government officials and businessmen for decision making and PR.

5. Conclusion

Fast growth pace of information resources has brought revolutionary changes to almost all sectors of economy. The role and importance of information as an economic category has significantly increased over the past decades. The researches reveal that economics of information brings significant social transformations in the economic, politic and cultural sectors. It ensures the establishment of post-industrial society by affecting the thought process of the people. The process of information exchange is becoming more important than information itself. In other words, technological determinism is being replaced by narrower concept- informational determinism. Hence, from the socio-economic perspective, we could define economics of information as economics of human capital, which is based on intellectual labour, knowledge and innovative technology.

References

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183.Information economy and the information society [İnformasiya iqtisadiyyatı və informasiya cəmiyyəti] Tax Jurnal of Azerbaijan. Baku: 2013. 0,8 p.sh.