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Information capitalism

Chapter · June 2017

DOI: 10.1002/9780470670590.wbeog299.pub2

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Information Capitalism
Gabe Ignatow
University of North Texas
ignatow@unt.edu
Word Count: 1961

Information capitalism refers to the increasing importance of information within

capitalism under conditions of globalization and rapid technological development. The idea of

“information capitalism” is closely related to similar concepts such as knowledge economy

(Drucker 1992), postindustrial society (Touraine 1971; Bell 1976), information society (Webster

2002), and network society (Castells 2000).

One of the earliest contributions to scholarly understanding of the role of information in

capitalist economies is the American economist Fritz Machlup’s 1962 study “The production and

distribution of knowledge in the United States” (Machlup 1972 [1962]). Machlup introduced the

concept of the “knowledge industry,” and argued that as early as the 1950s a large proportion of

the Gross National Product of the United States was based in knowledge-intensive sectors such

as education, research and development, mass media, information technologies, and information

services. Around the time of Machlup’s study, management consultant and writer Peter Drucker

was beginning to argue that modern societies were transitioning from economies based mainly

on material goods to ones based mostly on knowledge (e.g. Drucker 1992 [1969]).

While writers like Machlup and Drucker were early proponents of the idea that

knowledge was becoming more central to capitalism, most analysts today argue that information

capitalism as such began to evolve out of industrial capitalism in the 1970s, when computer

technology began to enter homes and offices in economically and technologically advanced

nations. With this technology came a new class of “symbolic analysts” (Bell 1973; Reich 1991)

who were able to implement and take advantage of these technologies in many settings: within
capitalist firms, and in government, education, and the home. In his 1973 book The Coming of

Post-Industrial Society, Daniel Bell described the social patterns associated with an emerging

form of capitalist society that was based economically on services rather than industrial

production, in which “a majority of the labor force is no longer engaged in agriculture or

manufacturing but in services, which are defined, residually, as trade, finance, transport, health,

recreation, research, education, and government” (Bell 1976: 15).

Information capitalism evolved in a dramatic new way in the late 1990s as capitalist

firms’ investments in information technology began to contribute to productivity increases on a

grand scale (Jorgenson 2001). By the 1990s information capitalism was in no way limited to an

occupational caste of knowledge workers or to the high-tech sector. Rather, information

technology had infiltrated virtually all industries and government sectors. The most prominent

theorist of this recent developmental phase of information capitalism is Manuell Castells, who

argues that information technology has led to a new “network logic” of social organization, the

culmination of a historical trend in which major functions and processes of advanced nations are

increasingly organized around networks. Networks “constitute the new social morphology of our

societies, and the diffusion of networking logic substantially modifies the operation and

outcomes in processes of production, experience, power, and culture” (Castells 2000: 500).

The transition to information capitalism has affected economic growth and social

inequality worldwide, altered patterns of migration and urban growth, had a major influence on

family life, and changed how governments interact with their citizens. These consequences of

information capitalism are discussed in turn below.

[a] Economic growth. The transition from industrial to information capitalism is widely viewed

as having contributed positively to economic growth through increases in the speed and

efficiency of economic transactions, and by elevating worker productivity. Advances in

semiconductor design and production led to a dramatic price decline of information technology

in the mid-1990s, and this price decline, and the resulting incorporation of information

technology into ever more sectors of the economy, is seen as a foundation for subsequent

productivity gains and economic growth (Jorgenson 2001). By the late 1990s, most of the

world’s stock markets had converted to all-electronic trading formats; billions of dollars were

being transacted across national borders instantaneously and electronically; and efficient

communications technology, email in particular, had become commonplace for a large portion of

the world’s population. The result was an acceleration of the productivity growth of both

workers and of advanced industrial economies on the whole.

[a] Social inequality. Information capitalism is characterized by accelerating economic growth

based on increases in worker productivity. It is also characterized by increasing socioeconomic

inequality within and between nations, and by new patterns of inequality based on knowledge:

the so-called “digital divide.” The information technology revolution has proven to be “skill-

biased,” rewarding those with the education and cognitive skills who are best positioned to take

advantage of technological change. Information capitalism has led to a sharp decline in the

demand for less skilled workers in advanced industrialized nations, and to a concomitant

weakening of unions and collective bargaining. By virtually all measures, income inequality in

industrialized nations has risen sharply since the end of the era of industrial capitalism in the

1970s, resulting in a hollowing out of the middle classes of both advanced industrialized nations

and developing nations (Parayil 2005: 45). Rather than working in unionized factories, middle-
class workers are increasingly resigned to service sector work that offers few benefits or

opportunities for advancement.

At the firm level, information capitalism rewards knowledge-intensive companies that

specialize in computers, information, communication, and technology. These “increasing returns

firms” (Parayil 2005) specialize in products with high initial production costs. But after investing

in the development of knowledge-intensive products such as operating systems, computer

hardware, or patented drugs, the manufacturing costs are relatively negligible, and firms may

bring in revenue for years based on their copyright-protected intellectual property.

Partly because of the high up-front costs of producing knowledge-intensive products, and

the winner-take-all nature of competition in information capitalism, developing countries appear

to have little chance to compete on the world stage. The globe is increasingly divided between

technology haves, who reap the benefits of technological development and economic growth,

and have-nots who are technologically backward and excluded, unable to either innovate or

adopt and adapt new technologies (Castells 2000; Sachs 2001).

[a] Migration and cities. Information capitalism has increased demand for knowledge workers,

and has led to “brain drain” of educated workers from developing countries to developed

countries where they can make far higher salaries than in their home countries, and stay up to

date in terms of cutting-edge research and technological development. The geographies of

metropolitan areas in advanced industrial nations show the effects of skilled migration. There is

in “global cities” such as New York, London, and Hong Kong a new geography of centrality and

marginality (Sassen 2001), in which skilled international knowledge workers cluster in gentrified
neighborhoods in city centers, raising prices in central areas and pushing working-class residents

out to peripheral areas.

[a] The domestic sphere. While information technology has spurred increases in worker

productivity, some of this productivity growth is likely due to changing social patterns that have

attended the transition to information capitalism. With the wide availability of internet

connectivity, portable computers, and email, knowledge workers are able to work at home more

easily. They may “telecommute,” working from home almost exclusively; or more often,

workers bring work home with them, sacrificing hours that might otherwise be spent with family

and friends (e.g. Putnam 2001).

[a]Political dimensions. There are many political dimensions of the transition to information

capitalism. For example, researchers such as Strange (1996) have focused on the potential of

global financial flows to overwhelm the ability of many states to manage their own economies

(the 1997 Asian financial crisis is a prime example). Castells has focused on a transition in

advanced capitalist countries from “party politics” to “informational politics” in which

traditional political parties’ monopoly over political organization and citizens’ political identities

has dissolved. Many countries have harnessed information technology in E-government

strategies that attempt to make government services more accessible to citizens, or at least to

citizens who have internet access. At a global level, information capitalism has been embraced

by the United Nations system (Leye 2007), which encourages developing countries to participate

in the global information economy. An alternative approach to the mostly neoliberal model

adopted by the UN has been for some developing countries to invest in “informational welfare

states” (Castells and Himanen 2002) in which governments make strategic investments in the
educational system and in public institutions that make Internet access and other information

services available to the public, generally free of charge.

[a] Future directions for research. A number of academic journals specialize in research and

theory on information capitalism and related topics, and a wide variety of issues are debated

within the pages of these journals. Several topics might be singled out as especially worthy of

research in the near future, however. Within advanced capitalist democracies, social and political

realignments stemming from the transition to information capitalism have not been well

explored. For example, do neo-nationalist and right-wing populist movements in Europe, North

America and elsewhere result from the growing schism between the information-rich and

information-poor? At a global level, there would seem to be a need for a more detailed

understanding of the global knowledge race, the competition between countries to develop their

human capital so as to produce more knowledge-intensive (and profitable) goods and services. Is

there a level playing field on which countries can compete? Is it worthwhile for developing

countries to invest in information infrastructure (see e.g. Kuriyan, Ray, and Toyama 2008)? And

if so, why do they choose to make such investments, or else not to do so? Finally, while there is a

great deal of high-flying theory on the relations of information technology to capitalism, there is

arguably a need for more rigorous empirical, ethnographic research, as well as more historically

grounded comparative research. While there is widespread recognition of the profound impact of

information technology on capitalism and on human life generally, the complexity of

contemporary global financial and social systems makes it very difficult for any one scholar, or

one theoretical paradigm, to produce a comprehensive analysis.

SEE ALSO: digital divide, world cities, global inequality, networks, post-industrialism

REFERENCES AND SUGGESTED READINGS

Bell, D. (1976) The Coming of Post-Industrial Society. Harper Colophon Books, New York.

Castells, M. (2000) The Rise of the Network Society. Blackwell, London.

Castells, M., & Himanen, P. (2002) The Information Society and the Welfare State: The Finnish
Model. Oxford University Press, Oxford.

Drucker, P. (1992 [1969]) The Age of Discontinuity: Guidelines to Our Changing Society.
Transaction Publishers, New York.

Jorgenson, D. (2001) “Information Technology and the U.S. Economy.” The American
Economic Review 91(1): 1-32.

Kuriyan, R., Ray, I. & Toyama, K. (2008) “Information and Communication Technologies for
Development: The Bottom of the Pyramid Model in Practice.” The Information Society 24(2): 1-
12.

Leye, V. (2007) “UNESCO, ICT Corporations and the Passion of ICT for Development:
Modernization Resurrected.” Media, Culture & Society 29(6): 972-993.

Machlup, F. (1972 [1962]) The Production and Distribution of Knowledge in the United States.
Princeton University Press, Princeton, NJ.

Parayil, G. 2005. “The Digital Divide and Increasing Returns: Contradictions of Informational
Capitalism.” The Information Society 21: 41-51.

Putnam, R. (2001) Bowling Alone: The Collapse and Revival of American Community. New
York: Simon and Schuster.

Reich, R. (1991) The Work of Nations: Preparing Ourselves for 21st-century Capitalism. Knopf,
New York.

Sachs, J. (2001) A New Framework for Globalization. In: Porter, R., Sauvé, P., Subramanian, A.,
& Zampetti, A. (eds.) Efficiency, Equity, Legitimacy: The Multilateral Trading System at the
Millennium. Brookings Institution Press, Washington, D.C., pp. 63-77.

Sassen, S. (2001) The Global City: New York, London, Tokyo. Princeton University Press,
Princeton, NJ.

Strange, S. (1996) The Retreat of the Sate: The Diffusion of Power in the World Economy.
Cambridge University Press, Cambridge.

Touraine, A. (1971) The Post-Industrial Society. Tomorrow's Social History: Classes, Conflicts
and Culture in the Programmed Society. New York: Random House.
 Webster, F. (2002) Theories of the Information Society. Routledge, Cambridge.

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