Economy in the knowledge society

Published : Dec 23, 2001 00:00 IST

An excessive emphasis on information technology holds the danger of diverting resources away from the basic economy, which is the very foundation for IT to take off. The lack of a judicious balance in this area can prove disastrous for India.

EXTENDING one of Karl Marx's famous and oft-quoted out of context statements that "the hand mill gives you society with the feudal lord and the steam mill gives you society with the industrial capitalist", one commentator, noting the epochal shifts under globalisation, added that "the microchip gives you society with the global capitalist". 1 Undoubtedly, the revolutionary advances in information technology (IT) have transformed the world. But it would be erroneous to conclude that these technologies are in any way creating a situation (like the transition from the hand mill to t he steam mill) that would provide any reprieve from the intensifying degree of exploitation under capitalism. These advances by themselves are the result of the internal dynamics of the capitalist system. By saying so, one does not in any way seek to und ermine the scientific advances in this field as a mere corollary of capitalist development. Neither does one seek to negate the possibilities that these advances open up for the democratic forces to advance their struggles. For, after all, knowledge and information do have their liberation potential. However, the concrete manifestation of these possibilities in any given actuality depends on the struggle between contending forces at the ground level.

In the very process of development, capitalism creates the internationalisation and concentration of capital on vast scales. These developments, in turn, require speedier communication and massive levels of information in order to allow capital to conduc t its global operations. The development of capitalism to this stage of a highly concentrated internationalisation of capital which is globally mobile required a highly developed information and communication network. There is thus a dialectical linkage between the development of capitalism and the present-day scientific advances of the IT revolution.

The present-day rapid strides in information, communication and entertainment (ICE) technology have created an enormously large global industry. The convergence of these technologies, as someone commented, is more "fiscal than digital". 2 The present-day emergence of giant corporations in the entertainment and information industries reminds us of what Karl Marx had said nearly 150 years ago: "Production not only provides the material to satisfy a need, but it also provides th e need for the material. When consumption emerges from its original primitive crudeness and immediacy - and its remaining in that state would be due to the fact that production was still primitively crude - then it is itself a desire brought about by the object. The need felt for the object is induced by the perception of the object. An objet d'art creates a public that has artistic taste and is able to enjoy beauty - and the same can be said of any other product. Production accordingly produces not only an object for the subject, but also a subject for the object."3

The entire raison d'etre of the advertisement industry today had not only been anticipated long long back, but predicted as being a consequence of the internal dynamics of capitalist development.

The present-day information technology revolution, apart from its impact on vast areas of human activity, has three aspects that we wish to take up here. The first is a narrow one as an industry; the second, its impact on society in terms of social and e conomic inequalities; and finally, its impact on the quality of life.

It will be useful to recollect at the outset the hopes and possibilities raised by the rapid technological advances in this sector for overall economic growth. Gordon Moores' prediction, which has virtually become a law in this field, saw the number of t ransistors on a microchip increasing from 2,300 on a 4004 in 1971 to 26 million on a Pentium III. In terms of costs, those of one MHz computing power declined from $760 to 17 cents during this period of three decades from 1970. Similarly, the cost of sto ring one mega bit of information declined from $5,257 to a mere 17 cents. The cost of transmitting a trillion bits of information declined from $150,000 to 12 cents.4

These advances in microprocessor technology have a vast indirect impact. New advances from micro-waves to mobile telephones have come into being as a result. These technologies have the potential to transform the industrial base through numerous design a nd manufacturing possibilities. Further, in the services sector, ranging from banking and insurance to entertainment and information, these technologies have opened up hitherto unknown vistas of development.

The immediate impact of these developments on India has been estimated by various agencies. In the last six months alone, software exports from India increased by 63 per cent to reach $2.4 billion or 12.5 per cent of the total exports.5 In ter ms of foreign direct investment (FDI), in the first six months of this year, the computer software sector attracted as much as Rs.3,907.45 crores. Compare this to Rs.445.43 crores in the automobile sector and Rs.202.01 crore in the oil refining sector. T he telecom sector, which directly benefits from the IT advances, attracted Rs.1,658.13 crores.6

Given this, large hopes have been generated in India. The IT sector is being projected as the vehicle of India's entry into the advanced world. NASSCOM (National Association of Software and Services Companies) expects that by 2008 the overall turnover of IT-enabled service opportunities for India would be to the tune of $140 billion. The projections for export earnings are up from $4 billion in 1999-2000 to $50 billion in 2008. The size of the industry during this period is expected to increase from $3. 3 billion in 1998 to $87 billion, an astounding compounding annual growth of 40 per cent. Its share in gross domestic product (GDP) is expected to grow to 7.5 per cent from the present less than 2 per cent, and in terms of exports its share is expected t o grow to 30 per cent. In 1997-98 the IT sector employed 1.8 lakh people. This is expected to grow to 2.2 million, that is, more than the growth in public and private sector employment between 1990 and 1998. The total number of people who will be directl y and indirectly employed in the IT sector is estimated to be seven million by 2008.7

Is this all hype, or can this be translated into reality? In order to answer this question, it is necessary to understand the constraints within which this industry is operating in India.

Two-thirds of the domestic IT industry is accounted for by hardware and packed software that comes in from abroad. Only 8.9 per cent of the software services originate domestically.8 The growth potential of this sector and its impact on overall economic development must be tempered with the fact that this sector has a very high and growing import intensity. This reality must also be seen in the background of the unbridled liberalisa tion process going on in the country. Import liberalisation in this sector has virtually led to a situation where domestic producers are unable to face the competition. Unless this trend is reversed, India may produce only domestic sales agents for inter national firms. Hence, India's hopes of channelling the potential of this sector to change the overall Indian economy rests mainly on the export of software services. Here again, out of the 1,250 firms that are operating in the country now, only 37 expor t software services of a value greater than Rs.100 crores annually.9

In the sphere of computer hardware, there is a global monopoly in the hands of a few firms, such as Intel, Motorola and AMD. The process of assembling in India contributes very little to the value added domestically. It is estimated that of the global in formation technology market of $750 billion, the Third World contributes only 27 per cent. What is worse is that less than 5 per cent of the world's population participates in the Internet, which currently involves over 330 million users.10

HENCE, given the highly unequal and monopolised ownership and control of this technology globally, the hype about the IT sector liberating India from economic backwardness must be taken with more than a pinch of salt. Major problems for India lie elsewhe re, that is, in the sphere of socio-economic infrastructure. In 1998-99, the ratio of personal computers to the population in India was three per thousand and the ratio of telephone access was 22 per thousand. The corresponding global figures are 60 per thousand and 125 per thousand. According to the projections of the government of India, by 2008 these will grow only to 20 per thousand and 100 per thousand respectively. 11 Further, the advances that India had made in this sector are based on the educational system that produced the necessary intellectual manpower. But it is precisely this sector that is coming in for heavy erosion owing to measures taken in t he name of "doing away with subsidies". Therefore, the future potential of India's capacity to utilise the IT revolution is being seriously undermined by the present policies. It must be noted that the IT industry in India would not have taken off as it has today, if education, particularly technical education, had been the privilege of only the rich.

Thus, unless the problems with respect to the basic economy are addressed, the information technology advances may well end up in expanding inequalities rather than bridging them. The e-brick and e-mortar economy cannot replace the brick and mortar real economy which remains the basic driving force behind economic development. IT through e-commerce can at best cut down trading costs. The economic value still remains in the strength of the basic economy. There is a danger that with all this hype of IT, t he focus of attention may be diverted away from tackling India's industrial slowdown.

Thus, in terms of impact on the quality of life, while at the margin IT does enhance the accessibility of information and expands the possibilities before human beings, the catchment areas of the population that can benefit from this is directly dependen t upon the strength of the basic economy. If this does not improve, then the IT revolution may well end up exacerbating global and domestic inequalities. No less a person than Bill Gates had to say, "We are all created equal in the virtual world", but "v irtual equality", he states, "is far easier to achieve than real world equality".12 On the information highway, tens of millions of poorer individuals in the United States, not to mention the great majority of the population in the world econo my, will simply be left behind.

In the Indian context, it should be noted that according to a published report on basic education in India, at the time of the 1991 Census and the National Family Health Survey 1992, half the country's population (61 per cent of women and 36 per cent of men of age seven and above) is unable to read and write. Less than 30 per cent of all adults had completed eight years of schooling, one-third of all children in the age group of 6 to 14 years (about 23 million boys and 36 million girls) were out of scho ol.13 This, in itself, in a telling manner demonstrates India's capabilities of utilising the IT revolution for its overall economic development. We may well end up in a situation of widening the social divide between the educated info-rich an d the under-educated info-poor.

The biggest of myths is generated by seeking to replace human teaching by IT. The neurons in the human brain process as much as 11 million bytes per second. The present technology cannot even remotely reach this speed. IT provides information divested of its richness. The classroom and the teacher are central to teaching and can at best be complemented by IT and by no means substituted.

IT has also provided opportunities for e-governance. Certain initiatives in the country - such as the disaster management project in Maharashtra or the mandal revenue officers' network in Andhra Pradesh or the "Wired Village", a village level project be ing implemented in Waranagar in Maharashtra - are all efforts to provide greater transparency and accountability to governance apart from providing information to the people on various administrative matters. Laudable as they are, constraints in utilisin g these for India as a whole must be underlined. For instance, the 70-village cluster in the Waranagar project costs $6,000. If a similar project were to be considered for all the 5,50,000 villages in India, then it would cost $4.7 billion or 12.5 per ce nt of the GDP in 1998-99. Consider this in the background of the fact that India has never spent the universally accepted 6 per cent of GDP on education.

As far as India is concerned, there is an apparent dilemma. Not investing in IT implies forgoing the possibilities for economic development. However, an excessive emphasis on IT holds the danger of diverting resources away from the basic economy, which i s the very foundation for IT to take off. While a judicious balance is required in this direction, it must be emphasised that the present hype over IT, neglecting the basic economy, can only prove disastrous for India.

Kerala, however, is uniquely placed to take advantage of IT. Its high levels of literacy and social quality of life place it in a position to take full advantage of the IT revolution. With the paucity of mineral and other resources required for heavy ind ustry, Kerala should attach a high priority to take up the IT advances in a big way for the State's development. In the spheres of e-governance Kerala is, once again, best equipped to provide the people with access to information on developmental program mes with transparency and accountability of its implementation through the People's Plan. Kerala, in this context, rightly seeks to improve the livelihood and quality of life of its people through the IT revolution.

Finally, we can only conclude by asserting that the economy in the knowledge society, however radically impacted by IT, has to develop by strengthening the real brick and mortar fundamentals and cannot afford to be hijacked into the virtual reality of e- brick and e-mortar. While utilising fully the potentialities and possibilities unleashed by the IT revolution, proper attention must be paid to the limitations and constraints noted above. Unfortunately, the mindless and reckless policies of liberalisati on currently being pursued in India by the Atal Behari Vajpayee government prevent the tapping of the full benefits of IT. These policies are, in fact, axing the tree on which we are sitting.

* * *Monthly Review

2. For instance, consider the fact that three of the world's far largest media giants now own the three largest global book publishing companies. Such convergence is dramatically illustrated in film-based industries. Disney or Time Warner, when they pro duce a film, can simultaneously guarantee the showings on pay television channels and networks, produce and sell audio sound tracks, produce related amusement park rides, CD-ROMs, books, comics and related material. Consider that Disney's Hunchback of Notre Dame raked in a disappointing $200 billion at the global box office. Yet, according to Adweek magazine, it is expected to generate $500 billion in profit (not just revenues) through other streams. For more details on this consequence, s ee Robert N. McChesney, "The Political Economy of Global Communication", in Capitalism and the Information Age, Monthly Review Press, 1998.

3. Karl Marx, A Contribution to the Critique of Political Economy, Moscow, 1970, p. 197.

4. For a descriptive survey of computing and information technology, refer

5. Jayati Ghosh, People's Democracy, November 5, 2000.

6. The Hindustan Times, November 19, 2000 (New Delhi edition)


8. Dataquest, New Delhi, Vol XVIII, No. 13, July 15, 2000.

9. The Economic Times, July 4, 200010. The Economic Times, July 21, 2000

11. GOI, Ministry of Information Technology, Annual Report 2000, New Delhi.

12. Bill Gates, The Road Ahead, p. 183.

13. The Probe Team, Public Report on Basic Education in India, New Delhi, Oxford University Press, 1999.

Sign in to Unlock member-only benefits!
  • Bookmark stories to read later.
  • Comment on stories to start conversations.
  • Subscribe to our newsletters.
  • Get notified about discounts and offers to our products.
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide to our community guidelines for posting your comment