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3 The contribution of ICT to the economy

3.1 Features of ICT

Information and communication technology (ICT) has some distinctive features.4 First, ICT is often referred to as a general-purpose technology in the sense that the technology can be applied to many different purposes. Other examples of this are electricity, the internal-combustion engine and biotechnology. Second, ICT benefits are network benefits, meaning that the usefulness of the benefits increases proportionally with the number of users. Third, ICT can be used to produce digital benefits that cannot be produced in any other way. Such benefits can be reproduced without generating additional costs. These features of ICT mean that integrating ICT into the economy can lead to substantial productivity benefits.

Many studies have looked at the significance of ICT for economic value creation. Although historically it has been difficult to quantify ICT's contribution to productivity growth, the conclusion is that ICT has made significant contributions to economic growth. One study5 shows that digitisation account for 30 per cent of Norway's productivity growth between 1995 and 2005 and for around 50 per cent between 2006 and 2013. An international study shows that between 2001 and 2011 digitisation accounted for 30 per cent of GDP growth in Europe.6 Several studies also suggest that strong growth effects can be achieved from investing in ICT infrastructure (broadband).

At the same time, another trend is emerging that is often not captured in official statistics. An example of this is the development that has taken place in the camera and photography industry. Previously this was an industry that had high employment and extensive support services. Much of this industry disappeared with the growth of digital photography and file-sharing services. On the other hand, the products and the taking and sharing of pictures have become virtually free for consumers. The contribution by photography-services related to GDP has most likely declined, while their use has increased dramatically and services to consumers are now far better and cheaper than before.

3.2 The ICT industry

Given the significance of digitisation, it is important to emphasise that Norway has a thriving ICT industry delivering goods and services that support digitisation in both the public and private sectors.

Compared with other industries, the ICT industry has experienced dramatic productivity growth. In 2013 the industry accounted for 4.9 per cent of value creation in Norway and 3.8 per cent of mainland employment. Customised IT services represent the largest component in Norway's ICT industry, with 36.6 per cent of value creation in 2013, followed by telecommunications with 22.8 per cent. Of the four largest Nordic countries, Norway has the largest ICT industry in proportion to its population.7

Because the ICT industry is a major supplier to the oil sector, Norway's ICT industry has also been affected by the downturn in the Norwegian oil industry. For this reason, digitisation of the rest of Norway's business and industry and of the public sector will be a key priority area in the coming years.

3.3 Outlook

In recent years product development in Norway has stagnated after a period of rapid growth in the 1990s and early 2000s. The same trend is found in a number of other countries, and is one that raises concerns for future economic growth and prosperity.

In 2014 the Government appointed the Productivity Commission to examine productivity in the Norwegian economy. In its first report, the Productivity Commission stressed that expanded and improved use of technology would be decisive for increasing productivity in both the public sector and industry (NOU 2015: 1).

In its second report (NOU 2016: 3) the Productivity Commission highlights the need for Norway to restructure from a resource economy to a knowledge economy. Norway's natural resource abundance has generated vast revenues, but it has also had a substantial effect on the country's industrial structure and may have weakened incentives for education, research, entrepreneurship and innovation. A poorly diversified economy is particularly vulnerable to fluctuations in the price of commodities, something which Norway is now experiencing with the drop in oil price. While the Productivity Commission acknowledges that the oil sector will continue to be important in the Norwegian economy, over time Norway will have to make the transition to a more knowledge-based economy. Such restructuring will necessitate ICT playing a key role.

The white paper entitled Long-term Perspectives on the Norwegian Economy 2013 (Meld. St. 12 (2012–2013) emphasises the challenge of Norway's ageing population. In 2060 there will be four people aged over 67 for every ten people of working age, compared with 2.2 people in 2012. This represents almost a doubling of the old-age dependency ratio per working-age person. Simultaneously, Norway is experiencing an increased influx of asylum seekers and refugees. There is reason to expect that the refugees arriving now will have a markedly lower level of labour-market participation than the rest of the population, at least in the short term.8 This will further reduce the proportion of labour-force participants compared with the proportion of non-participants in the population.

These demographic changes entail a need for extensive adaptations. We must become more productive. That is to say we must be able to produce more goods and services from a given resource input. Enhanced automation of communication and case processing procedures within and between agencies and between agencies and citizens and industry can be an important measure. Another example is welfare technology that can address the need for manual assistance by elderly and people in need of assistance. Both the Productivity Commission's report and the white paper on the long-term perspectives on the Norwegian economy emphasise that use of technology is central to improving and modernising the public sector in Norway, and that there is huge untapped potential for rationalising the public administration by means of ICT.

Footnotes

4.

ICT's contribution to value creation in Norwegian industry and the public's role as facilitator for growth towards 2020. Menon publication nr. 26/2015.

5.

ICT and productivity – the importance of ICT for growth in productivity. Ny Analyse AS. 2015.

6.

Unlocking the ICT Growth Potential in Europe: Enabeling People and Businesses. The Conference Board for the European Commission. Van Welsum, D. et al. 2013.

7.

ICT's contribution to value creation in Norwegian industry and the public's role as facilitator for growth towards 2020. Menon publication nr. 26/2015.

8.

Prop. 1 S Tillegg 1 (2015-2016). Norwegian Ministry of Finance.
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