Informatization and iconomy

(This is the text of my conference at the 5th World Congress on Information and Communication Technologies, December 14-16, 2015, Marrakesh, Morocco)

Texte en français

We would like to propose here an explanation of the current economic crisis, of slowing growth and of the unemployment that hit several countries. Our thesis is based on the one Bertrand Gille offered in its Histoire des Techniques, published by Gallimard in the collection “La Pléïade” in 1978.

Bertrand Gille proposes to cut the history into several periods, each period being characterized by a technical system, the synergy of a small number of fundamental techniques.

From the Paleolithic, humans were indeed able to develop tools to complement the work of their hands, and since then many technical systems have succeeded.

Consider the last four technical systems: the agricultural system of the feudal regime gave way, from 1775, to the "modern technical system" that relies on the synergy of mechanics and chemistry. Around 1875 these two techniques were supplemented by the control of electrical energy, as well as the control of oil, creating the "modern developed technical system" whose the great firms are the most illustrative creatures. The electric motor was invented by Gramme in 1873, electric lighting by Edison in 1879, the internal combustion engine by Otto in 1884.

The "contemporary technical system" arises around 1975. It is based on an entirely new synergy: that of microelectronics, software and the Internet. The informatization of business is organized around an information system in the 1970s, the microcomputer is spreading in the 1980s, the Internet and mobile phone in the 1990s, the "smart" phone (which is in fact a mobile computer) in the 2000s. In factories, the robotics automates the repetitive tasks that were previously entrusted to the workforce.

The next steps are already underway with the synergy of mobile broadband, cloud computing and the Internet of Things; the human body is informatized with the mobile computer, implants and prosthetics; various tools (3D printer, scanner, etc.) are used to move from the virtual world to the real world and vice versa.

e-conomy

(Translated from e-conomie).

This book was published in 2000 by Economica, 49, rue Héricart, 75015 Paris, ISBN 2-7178-4073-7

The "e-conomy" is based on the synergy between microelectronics, software and network. It is also called "new economy" because it changes the competition on the market, the internal organization of firms and their cooperation.

This is certainly an "immaterial economy" but this characteristic stems from another, more fundamental: the cost of production being virtually independent of the volume produced, it is paid from the initial investment: e-conomy is a "sunk cost economy."

This has profound consequences on the economic equilibrium. The plants are automated, employment lies in design and distribution. The distribution of income is not connected to employment. Enterprises are organized around their information system and differentiate their products to build niche monopoly. Trade occurs through electronic intermediation. The investment being risky, competition is global and extremely violent.

Modeling the "e-conomy" enlightens the game of competition in microelectronics, software, network and in the sectors that use these technologies: broadcasting, airlines, trade. This allows to interpret the evolution of information systems and to diagnose some obstacles.

The "e-conomy" is highly effective but its power can lead to disaster if it is treated in the manner of "laissez-faire". It is therefore necessary to go beyond the economic dimension to consider the requirements of ethics and social cohesion.

Table of Contents: full text access.

List of my books

Table of contents of e-conomy

This book was published by Economica in October 2000. Some details would of course need to be updated, but the structure of the model and of the reasoning remains relevant.

Most of the texts are in French. I shall translate them progressively into English.

Foreword
Acknowledgments
Preface

Part I: The model
1 - Overview (in English)
2 - Increasing Returns
3 - Contemporary technical system
4 - Monopolistic competition
5 – Layer Model

Part II: Areas
6 - Computing
7 - Audiovisual
8 - Dimensioning
9 - Telecommunications
10 - Airlines

Part III: Uses
11 - Information System
12 - Obstacles
13 - E-commerce
14 - Relationship between nations
15 - Putting in perspective

e-conomy, Chapter I : Overview

(Translated from Vue d'ensemble).

Nota Bene: we use here the term "model" in a sense different from that given to it by econometricians. We want to draw the consequences of a few simple principles (CTS, production function with fixed cost) and compare them with observational data: this allows us to use some mathematical tools and terms such as "exogenous" and "endogenous". By cons we have not built a quantitative model involving a detailed and complete formalization of assumptions and allowing to test them systematically: this work is a preliminary to such a formalization.

CTS, automation and fixed costs

Following an approach inspired by the work of Bertrand Gille¹, we consider the synergy proper to the "contemporary technical system" or CTS (microelectronics, automation, computer) that characterized the economies of rich countries from the 70s.

This synergy gives the production function a "fixed cost" structure, which means that the cost (almost) does not depend from the quantity produced: it is easy to check that in the case of electronic chips or of software which are essential and fundamental products of the CTS.

Differentiation and monopolistic competition

The “fixed cost production” function would imply for the market of each product a natural monopoly structure, where only one company can survive. In order to avoid this risk companies seek to differentiate the product as much as they can, that is to say as much as the demand can handle (for a product to be differentiated, it is obviously necessary that there exist a demand for different varieties of this product).

The existence of cross-trade between countries reflects this differentiation. Let us quote one of the favorite examples economists use: if the cars were not differentiated, trade in cars would not exist between France and Germany because for the same price clients would not go looking abroad a model identical to the one they can find at home. Undifferentiated goods (pig iron etc..) are not subject to cross-trade.

Companies enjoy on each variety a niche monopoly on the border of which they compete with suppliers of other varieties. Monopolistic competition is endogenous to the model: at the equilibrium the number of varieties produced is determined, as well as their price and the quantity sold of each variety.

The peaceful symbolic of any equilibrium model should not conceal the potentially violent phenomena of creation and destruction that renew the actors. These phenomena will be illustrated by sectoral examples.

Understanding the iconomy

(Translated from: Pour comprendre l'iconomie)  

Notice to the Reader: This text is well suited for those who accept the austerity of abstraction. Others will deem it probably poor and too assertive.

*     *

To understand today's economy, which is obviously complex, one must define a few simple concepts that will allow to build an argument (see What is a "concept"?).

To generate these simple concepts requires a complex meditation fed by experience, conversations and readings. The long journey of this meditation leaving no trace in the dryness of the concepts, only the comment can provide them a little heat.

We will therefore proceed more geometrico. We first present six concepts that provide a theoretical framework for modeling today's economy, then nine concepts that give a content to this framework. Then we cite each concept followed by the comment that explicit it.

*     *

Six economic concepts

1. the purpose of economy is the material well-being of the population;
2. any action deemed necessary or advisable by society is carried out by an institution of which it is the mission;
3. the mission of the enterprise, economical and industrial institution, is to effectively produce useful things; it ensures in the biosphere the interface between society and nature;
4. the fulfillment of the mission of an institution requires an organization that has a dialectical relationship with the mission;
5. the State, institution of the institutions, define their missions, instigates their creation and regulates the dialectic of the mission and the organization;
6. an industrial revolution transforms the nature, and therefore the mission of the institutions and the practical conditions for their organization.

Nine concepts for understanding the contemporary economy

1. the production system is based on the contemporary technical system (CTS), whose fundamental techniques are microelectronics, software and the Internet; the CTS succeeded in 1975 to the modern technical developed system (MTDS);
2. the emergence of the CTS sparks a cascade of anthropological consequences;
3. repetitive work is automated;
4. the bulk of the effort required by the production is achieved during the initial investment;
5. market obeys the regime of monopolistic competition;
6. products are packages of goods and services, each developed by a network of partners;
7. the material well-being of the consumer depends on the quality of its consumption;
8. predators are skilled users of CTS;
9. the crisis is due to the inadequacy of the behavior of economic agents to the productive system that the CTS brings out.