Introduction

Our aim is to understand the new knowledge-based economy. However, it is also to identify the major challenges that this economy presents for policy makers and to suggest tools which they might use for monitoring change and for steering social and economic transformation.

Policy makers have hailed the new economy as an engine of dynamism and innovation, productivity growth and competitiveness. Thus, for example, the policy statements developed within the Lisbon process, leading to eEurope 2005, characterise Europe as suffering from a competitiveness gap with the United States and Japan. This is said to arise from an inadequate productivity record, including the use of ICT: “The EU rate of ICT has been gradually rising over the last years from 5.4% of GDP in 1996 to 7.1% of GDP in 2001, almost narrowing the gap with US figures which suffered a marked decline in 2001. However, the increase in ICT spending of the last few years has yet to translate into productivity gains” (European Commission, 2002i). Differences remain in both productivity growth and in levels of investment in ICT, even if within the EU both have been increasing (Jorgensen, 2003a).

Nevertheless, it has long been realised that the connection between ICT investment and productivity is far from simple. Solow's aphorism, “You can see the computer age everywhere but in the productivity statistics” (Solow, 1987), suggested that applying computers to organisations structured and managed in traditional terms would not in itself lead to substantial benefits (see Dedrick et al, 2003, for a survey of the debate). Productivity during the 1980s did increase in most parts of the developed world, but apparently by less among the more intensive users of ICT – services – than in the less intensive users, notably manufacturing (Triplett, 1999). Since then, however, the productivity effects of ICT do seem to be showing through, at least in the US economy. The rapid growth of output per capita in the US during the 1990s has been attributed to the use of ICT to effect qualitative improvements in the performance of companies through business process change, integration of supply chains or substantial reduction of inventory (Triplett, 1999).