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Devil's Advocate: Has IT made us richer and happier?
The answer is not clear cut...

By Martin Brampton

Published: Tuesday 29 June 2004

Yes, IT spending is on the rise. But that doesn't necessarily mean we're more productive or have a higher quality of life. In fact, says Martin Brampton, it could mean just the opposite.

It is amazing how many doubtful assumptions can be implied by a single sentence. In a recent interview, Cisco chief executive John Chambers asserted "productivity is tied in almost a perfect relationship to investment in IT". What does this mean and is it true?

Chambers derives his claim partly from the fact that gross domestic product (GDP) is rising quite fast in the so-called developed countries. He takes it that increased GDP is directly related to higher productivity. He also assumes that increased GDP equates to a higher standard of living.

Neither of these superficially plausible assumptions stands up to examination. If by productivity we mean something like the added value per hour worked, then it is obvious that an increase in GDP may well be linked to other factors. If a higher proportion of the population becomes engaged in paid employment, GDP can rise without any change in productivity. Likewise, a longer working week may increase GDP without changing productivity.

A further complicating factor is that wealthy countries can achieve an increase in productivity by outsourcing jobs to poor countries. It is difficult to decide whether this is a good thing for either party, in general.

Then we might ask how GDP translates into standard of living, unless we are simply defining living standard to be GDP per head. Otherwise, there is the question of the distribution of the increased GDP. In many wealthy countries, the gap between rich and poor is growing. Many people do not see a rise in their living standards to match the increase in their country's GDP.

Even if wealth were distributed evenly, there would still be the question of what counts as a high standard of living. On wider measures of how satisfied people are with their lives, there is scant evidence that rapid increases in GDP over the last 30 years have led to any improvement in the quality of life experienced by most people.

What of the tie between investment in IT and GDP? Certainly there is a link. The proportion of GDP spent on the IT sector has generally been stable over many years, showing a slow but steady increase. However, every statistician knows that this is by no means enough to establish cause and effect.

After all, over the period in which spending on IT has been steadily growing, there has been a marked increase in the incidence of deaths from cancer. Does this mean that IT causes people to die from cancer? Obviously this is unlikely, although we may want to look at whether there may be underlying causes that affect both figures.

There are undoubtedly cases where IT has been the basis for dramatic increases in productivity. For example, the volume of transactions now handled by the banking system would have been impossible using manual systems. And a much higher proportion of the population has a bank account, compared with the early days of computers forty years ago. Even that has a sting in the tail, though, as the facilities left for those who do not have access to banking become less and less satisfactory.

However, whether IT investment in general boosts productivity is extremely uncertain. Many believe that the link between GDP and IT spending actually works the other way round. That is, people like to spend on IT and as individual components fall in price, the increased volumes bought more than compensate for the lower price. As IT permeates more and more areas, so the total spend increases in relation to GDP.

Anyone who has run an IT infrastructure knows that each year more has to be done with a budget that increases slowly. The indicators, such as transactions processed, emails sent and data stored, all increase rapidly and apparently inexorably. This is taken for granted, and the infrastructure must change to support it.

But does our quality of life improve as a result of increased use of IT? Sometimes it does and sometimes it does not. There is no simple formula for making people happy.