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Increasingly Sophisticated Technology and the Dangerous Dreams and Utopias of Our Times - Notes for the Microsoft conference in Prague

English Pages, 1. 2. 2005

Ladies and Gentlemen, Distinguished Guests,

thank you for inviting me to be here with you tonight and for giving me the opportunity to express my views on some of your topics. If I understand it correctly the topic of your important conference, which we are privileged to have here, in Prague, is “The Role of Information Technologies and of the Knowledge Economy in Public Administration”. I accept it, but – to my great regret – this is not a topic I am able to positively talk about. I have to, instead, raise questions. Not about information technology and its recent, almost incredible and breath-taking development, but about various dreams and utopias connected with it or accompanying it. I deliberately do not say created or provoked by it.   

My problem is the following: First, I have serious doubts about the term “knowledge economy”, second, I do not see any aprioristic role for any technology (including the IT), and, third, I am convinced that we have to analytically look at all bureaucratic organizations of the government in all their activities, including their buying of IT.

To be more specific, the term “knowledge economy” is for me an empty, undefined and undefinable, more or less propagandist or lobbyist term, which cannot become an object for a serious discussion. Similarly, there cannot be a general, non-specific, purely technical or technocratic discussion about the use of different types of information technologies in different institutions of public administration in different times with very different and variable costs and benefits of their concrete applications. It is, also, necessary to say a few unromantic words about “public administration” or, in a standard terminology, about the government and its behaviour which is not always rational and welfare enhancing.

Ad 1)  I am, of course, well aware of the fact that there has been in recent years a lot of talk about moving into an information or knowledge economy in various influential intellectual circles all over the world but with all my fantasy I do not know from where we are supposed to be moving. From what kind of an economy? From a non-information, non-knowledge economy?

This is not possible. Any complex economy, which means any economy we know, any economy based on an extensive division of labour, on specialization, and on a widespread exchange of goods and services, has had – at any moment in human history – to optimally use the existent, but dispersed knowledge in society (here I use the title of Hayek’s famous, already classic article: “The Use of Knowledge in Society”, which was published already in 1945).

I purposefully used and stressed the words existent, but dispersed knowledge. According to Hayek and the whole Austrian School of Economics the problem is in dealing with a necessarily dispersed knowledge, with knowledge which – because of its very nature – can never be transmitted to and stored in one place – however sophisticated the available information technology could be. As a reaction to this the evolution of human society has been associated with a permanent search for ways how to make the economy informationally efficient and how to minimize the inevitable transaction costs, which means costs of sharing and using information.

By trial and error and at heavy costs in terms of human happiness and/or suffering it has been finally proved that:

- the informationally most efficient economic system is the free market economy;
- the informational efficiency of a social system increases with its freedom and openness;
- the informational efficiency is not necessarily connected  with this or that technology. 

Has this message been fully understood? I do not think so and I am not sure that all of us here tonight accept this conclusion. I have to ask whether the authors and propagandists of the term information or knowledge economy do it with an intention to replace the crucial adjective “market” in the term market economy? I am afraid that some of them do it with such ambition and have troubles to understand it.  Do they assume – as the old-fashioned socialists – that the more complex the economy is, the more it needs the visible hand of the government and the less sufficient is the invisible hand of the market? That would be another mistake, because exactly the opposite is true. Do they eventually hope that the modern and sophisticated information technology can replace markets? If they think so, their misunderstanding of the nature of human society is even bigger.

I have to, therefore, repeat that I consider the term market economy as correct, most fitting as well as sufficient which means that – in spite of recent enormous technological advances especially in your field – it does not need any innovative redefinition. More than 15 years after the collapse of communism we should not forget old fallacies, we should not return to the world of pre-economic, non-economic or anti-economic ideas and repeat the past, very costly experiences with economic systems which tried to get rid of the market mechanism or at least to suppress it as much as possible. I do not want to proclaim that we are moving there again just now but the irresponsibility and incoherence of postmodern thoughts warn me – and should warn all of us – that it is a possible scenario.

Ad 2)  In regard to the information technology, I am convinced that to assume that the application of modern IT is a priori “good” and, therefore, always appropriate is a similar conceit. The decision to invest in and to implement any technology should necessarily follow the same well-known rules and principles. IT is no exception even if there has been some confusion about the economics of information, about the economics of non-standard goods, about networks and networking. Technology by itself does not mean anything. Its contribution to any outcome, its marginal product, depends on many other things. IT is just another technology and to use it or not to use it is a standard problem of choice, a standard problem of economics. Its use follows the same law of diminishing marginal returns as the use of any other product. As a result, its eventually too extensive application brings low and sometimes even negative marginal returns, which implies the invalidity of a popular maxim: the more of IT, the better. I hope your conference has come to different conclusions.

Ad 3) Finally, a few words about those who buy and use the information technology. The IT experts speak about public administration (or about government) in a neutral or perhaps neutralistic way and I understand that they have to.  Their approach is based on a standard relationship to a customer because IT is a tradable commodity as any other. As any other customer public administration is considered to be a rationally behaving entity, maximizing output (however defined) with a hard budget constraint. It is assumed, therefore, that the demand for IT on the side of public administration is based on a strict and rigorous economic calculation. I am afraid it is not so.

Public administration is by its very nature a typical bureaucratic organization which maximizes not output but its survival and growth and which operates with a soft budget constraint. We know – at least from Janos Kornai – that soft budget constraint leads to excess demand and to the overuse (overutilization) of all kinds of inputs (and resources). This creates, of course, a sort of paradise for suppliers. It becomes easy for them to persuade the customer to buy because the customer does not spend his own money. The amount of money at his disposal is the result of political games which aim at maximizing the number of voters. This is a behaviour which inevitably accompanies the standard democratic parliamentary system. It was demonstrated in the works of the Public Choice School which - in recent decades - became one of the most productive parts of economic science.

To motivate the IT suppliers to behave against their own interests and to supply less would be, of course, a fruitless and irrational activity and I do not suggest it. But this problem of a democratic society remains with us and we should be aware of it.

The modern IT has undoubtedly changed the world and my comments do not imply that I am not aware of that or that I am against its use and further development. I am against something else. I am against pseudo-scientific delusions promising easy solutions to human problems. The belief in the omnipotency of modern IT belongs to them. Delusions of that kind are greeted as new, but they are not. We do not succeed in getting rid of them because the intellectual milieu of the times as well as the vested interests of some technicians and public intellectuals lead us there. We are witnesses of the emergence of another wave of progressism, of scientism, of technological futurism, even of antiliberal mysticism. I do not suggest there is a direct link – or perhaps direct cause and effect relationship – between modern information technologies and such political, cultural and ideological positions and utopias, but because IT is the top of the iceberg of modern technology its role should not be underestimated. For this reason we should warn against the overuse of IT more than against its underuse. Saying it and especially saying it here means, of course, blowing against the wind.

Nevertheless, I strongly believe that in the moment of the 400-years anniversary of the publishing of Don Quijote de la Mancha, we have to blow against the popular myths of our times. And we should try to understand the difference between information, knowledge and wisdom. T.S. Eliot, a British poet of American origin, once asked: “Where is the wisdom we lost in knowledge? And where is the knowledge we lost in information?” I hope this conference gives us some answers even to questions of that kind.

Václav Klaus, Dinner Speech, Prague Castle, February 1, 2005