Sunday, 29 August 2010

The Internet vs Washing Machines

Ha-Joon Chang in the Guardian
The internet may have significantly changed the working patterns of people like you and me, but we are in a tiny minority. For most people, its effect is more about keeping in touch with friends and looking up things here and there. Economists have found very little evidence that since the internet revolution productivity has grown.
The internet has reduced the time of sending, say, three or four pages of text from the 30 seconds you needed with a fax machine down to maybe two seconds – a reduction by a factor of 15. Unless I'm trading commodity futures, I can't think of anything where it's really so important that we send it in two seconds rather than a few minutes.

I might suggest that Mr Chang is ignorant, and perhaps needs to do some more research.
Yes, you can send a fax at almost the same speed as an email, but can you send a customer's transactions in a machine readable form, or information about parts that are going to be delayed in an order, including when it will be available.
Behind the Facebooks, eBays, Amazons, Ocados and iTunes is a whole world of the internet that is unseen by most. They're like the little internet gnomes. Even most employees in companies never see them. There are companies running computers connected to the internet telling the computers of other companies what's going on. These are known in the trade as "web services".
Imagine you're a company making laptops. A customer orders a laptop from you. You can instantly check stock levels and manufacturing time and give them a delivery date. But what you also do is to then consider the impact on that stock reduction.
OK, you need more stock of say, blu-Ray drives in laptops. How do you do that? Does a man phone around to order more? No, your computer automatically trips something which then sends out multiple messages to suppliers to get prices and delivery times and can then automatically select the supplier and place the order.

Having placed the order, the customer will then receive updates on the order of parts. Not by email, but by the supplier computer sending a message to the customer computer to update it. The customer can then factor this into their manufacturing schedule. They might, for instance, decide to increase their staff overtime. Oh, and  this could all be worked out and supplied to a  manager. 

The supplier, having received the order will then factor the order into their stock levels. Again, the computer will automatically do something similar in terms of prices/supplies to the suppliers of lasers, resistors/wiring used to make the blu-ray drive.

Mr Chang seems to think that the internet doesn't make much difference to globalisation, but the fact is that you just can't have this sort of thing without it. You can't have these sorts of complex manufacturing arrangements with faxes. You just can't get the sort of detail that you need.


  1. > I might suggest that Mr Chang is ignorant

    You have a big clue. He's talking about economics in the Grauniad.

  2. ACO,

    Yeah. As a rule, they're quite selective about their economists.