The information society landscape
Phuah Eng Chye (8 June 2019)
Major societal transitions are distinguished by the emergence of new landscape features that differentiate the latest phase from the previous one. The industrial landscape was notable for expanding populations, factories, mercantile trading and bank lending. The transition to an information society features shrinking households, intangible services, intellectual property and global financial markets.
There is an underlying logic to the different landscapes. In the industrial economy, organisations are structured to maximise production due to scarcity. This tightens the relationship between work/income and production. In the information society, abundance weakens the relationship with production and instead strengthens the relationship between work/income and social activities. The landscape features are discussed in greater detail below.
- Organisation of households. Large families and expanding populations are suitable for a physical environment that requires manpower for war, agriculture and industrial production. In contrast, large families appear incompatible with a virtual and networked environment with monetisation of support costs (e.g. education, health and infrastructure while increasing time costs). Hence, the information society is characterised by demographic aging and shrinking and diverse households; in effect turning society into a community of individuals. The implications of modularity are widespread. It marks the end of the community support system based on large families – in relation to supporting production (labour for SMEs, farms) and social risks (food, lodging, healthcare and social interaction). Many new activities (such as take-aways, video gaming, social media and pets) effectively replace family relationships and non-monetised activities. Aging creates a demographic air pocket which dampens household and business formation. Social cohesion is also weakened by the loss of traditional order and relationships and the expanding diversity of beliefs and cultures.
- Organisation of work. Information jobs differ from work on farms or factories. Information work is less physical and overlaps with the social and experience-based travel, leisure, entertainment and lifestyle activities. Value is derived from mass participation, cumulative knowledge and exchange in a global network rather than from vertically-organised production. Overall, information expands the proportion of work that is virtual, fragmented, transacted and transient. These changes result in wage stagnation, polarises income distribution, reduce labour share of income, and increase household uncertainties and risks. Increasingly, there is a vacuum in terms of job creation. The largest companies do not create as many jobs. In the meantime, SMEs and traditional firms find it difficult to survive in the new environment. These trends suggest work and income distribution challenges confronting the information society require different type of solutions from those in the industrial era.
Macroeconomic changes over the past three decades suggest that the landscape is being rewired. The outcomes of tax cuts, fiscal spending and monetary stimulus have varied substantially from past and textbook experiences. I have framed the macroeconomic challenges within the paradigm of the anorexic and financialised economy.
- The anorexic economy reflects a landscape where corporations need less capital or are net savers. Economic growth tends to be profit-driven. Corporate profit expansion become reliant on fiscal deficits, household debt and rising asset prices even as wages and capital formation stagnate. Profit-driven growth raises questions in relation to how governments will organise the distribution of the benefits from growth and manage household risks. Traditionally, governments ensured widespread availability of public goods and welfare to make industrial employment and profits socially palatable. As costs mounted, governments relied on privatisation and markets to reduce the fiscal burden. While attempts have been made to pare government welfare costs but governments find themselves caught between a rock and a hard place. Cost pressures have continued to rise and made it difficult to find affordable public or private sector solutions. This is the policy dilemma of the anorexic economy. Cutting public welfare or withdrawing subsidies would not only affect the population’s access to public goods but it could cause private sector profits to fall as well. This situation reflects a breakdown in the traditional public policy framework. There is a need for a complete makeover of the government’s role and organisational structure and its system of incentives and expenditures.
- The financialised economy. Financialisation relates to the organisation of capital (e.g. savings, financial assets, debt, interest rates and currencies) to facilitate monetisation and exchange. Though financialisation is often maligned, it is an integral aspect of development reflecting increasing monetisation of activities, corporatisation of business enterprises and the institutionalisation of savings. Since the 1980s, the financial landscape has been dominated by a few central banks, a large asset management industry and financial markets. The global banks sit at the centre and their trading activities ensure asset substitutability and market connectivity. But monetary policy, or the policy narrative, seems to be largely conducted within the mindset of bank credit. The risk of using the bank credit model is that it may misunderstand the information-based financialisation process and lead to inappropriate policy responses. Overall, financialisation expands the role of asset prices in influencing profits and growth and changes the interaction of the domestic economy with international capital flows. Financialisation increases the linkages between costs, profits, GNP growth, financial fragility and foreign capital flows. This increases the importance of sterilisation operations and asset prices for the central bank. Financialisation can also has dislocation effects since it can increase the disconnect between financial markets and the domestic economy. The social impact is that financialisation can aggravate the consequence of “not having money” or inequality.
Societies advance along a path based on their ability to use information. The landscape change should therefore be analysed within the context of a shift from a low-information to a high-information environment. The landscape is being reshaped to align economies to the new information capabilities. For example, production facilities are being re-modelled on networks to increase their agility in responding to a demand-driven environment. These transformations disrupt traditional organisations, processes and jobs.
The business aspects of the information-induced changes are well explored. But these changes have not filtered into the mainstream economic models; leaving economic theory at odds with landscape realities. As a result, economic policies only paper over the widening cracks. For example, fiscal stimulus hides the deflationary and inequality consequences of an information society. Monetary stimulus postpones capital destruction but increases financial fragility over the long-term.
In my view, the same old policies will not work because organisational structures and social needs have changed in the new landscape. Matured economies need to identify and leap across the hurdles to advance to the next stage. There is thus a need to replace the paradigms used to formulate policies and to view the information society landscape not as a problem but as an opportunity.
Phuah Eng Chye (2015) Policy paradigms for the anorexic and financialised economy: Managing the transition to an information society.
Economicsofinformationsociety.com: Articles (July 2017- March 2019) (23 March 2019) http://economicsofinformationsociety.com/economicsofinformationsociety-com-articles-july-2017-march-2019/
Phuah Eng Chye (27 April 2019) “Defining the information society”.
Phuah Eng Chye (25 May 2019) “How information alters economic concepts”.
 See earlier series of articles on the organization of households.
 See earlier series of articles on the organization of work.
 Phuah Eng Chye (2015) Policy paradigms for the anorexic and financialised economy: Managing the transition to an information society.
 Since private firms are major beneficiaries of fiscal spending. E.g. the withdrawal of government-sponsored student and housing loans and medical and insurance subsidies would trigger a downturn in those sectors.