Nokia Siemens Networks

Productivity, connectivity - one and the same thing?

Research is validating what people have guessed all along: connectivity and productivity go hand-in-hand.

A recent publication by the World Resources Institute and the International Finance Corporation in conjunction with the World Bank states, "It may seem obvious, but [people at the bottom of the economic pyramid] cannot join the global economy, and benefit from it, until they are connected to it."

 
Linking connectivity and productivity makes sense, intuitively - after all, how can you do business with anyone without communicating? - but is there any real, quantifiable, relationship between connectivity and productivity?

Connectivity affects productivity

A global network of academics and industry professionals, led by Professor Leonard Waverman of the London Business School, has been working to understand the relationship between connectivity and productivity, and together they have produced a Connectivity Scorecard, to measure the level of connectivity in 25 countries.

Following the lead of the World Economic Forum, the Scorecard divides nations by their “innovation-driven” or “resource and efficiency-driven” economies.

The Connectivity Scorecard is unique because it:

• Ranks countries not only on deployment of telecom and IT infrastructure, but also on extent to which they are put to good use.
• Divides economies into three pillars -- business, consumer and government -- and assigned weights to these pillars.

The greatest weighting was assigned to the business pillar since it’s so crucial to productivity.

Novel approach leads to surprising results

According to the authors of the Scorecard, “Existing research on connectivity has many merits, but it does not articulate the benefits of connectivity explicitly in terms of economic contributions. Previous indices have focused largely on infrastructure measures (e.g., number of main telephone lines) in assessing connectivity.

"There has been little attempt to assess the extent to which people are able to employ ICT infrastructure effectively in pursuit of economic development and growth.”

The Connectivity Scorecard, commissioned by Nokia Siemens Networks, measures the extent to which governments, businesses and consumers make use of connectivity technologies – the copper wires, fiber-optic lines, mobile phones and PCs that underpin today’s information economy – to enhance social and economic prosperity.

For each component of the Scorecard, countries were benchmarked against the best in class in their tier; thus if a country was best in all dimensions, it would score a maximum of 10.

Who’s on top, who’s not

Countries typically considered to be highly connected achieved only modest scores on the Scorecard – the average score for a group of 16 countries that include the U.S., Sweden and Korea was 5.05.

And, not surprisingly, the Scorecard shows a strong correlation between connectivity and GDP. Among countries with innovation-based economies, it also shows a high correlation with literacy rates.

The United States is #1 in GDP among the innovation-driven countries and ranks #1 on the Scorecard as well.  Other top performers in this category include Canada, Finland, Sweden, the UK and Japan.

Among the resource and efficiency-driven economies, Russia and Malaysia scored highest.

According to the authors of the Scorecard, “Previous indices have assumed weightings rather arbitrarily or utilized statistical methods that despite several desirable qualities have little relation to economic realities. These indices have either never made, or have simply lost, the tight linkages between Connectivity and economic performance […] that we have strived to make.”

Connectivity in action

On a much more concrete level, the economic benefits of connectivity have been well documented by Harvard University’s Robert Jensen, whose research was published in The Quarterly Journal of Economics [Ref: http://www.mitpressjournals.org/doi/abs/10.1162/qjec.122.3.879], looking at connectivity on the micro-economic level – specifically, how the advent of mobile telephony impacted a group of fishermen in Kerala, India.

During the course of Jensen’s study, fishermen’s profits rose by 8% at the same time consumer prices dropped by 4%.

Said one fisherman, quoted in a Washington Post article that came out around the same time Jensen’s report was published, "The two crucial changes that have happened in my lifetime are the inboard motor and the mobile phone."

Connectivity and productivity are not identical, but as time goes on the nature of the relationship is revealing itself to those who are willing to learn.