INFORMATION AND ENERGY INFRASTRUCTURE

The Economist this week has an article on information technology spending. It describes a theory of technological waves in the industry which it attributes to Steven Milunovich. (Of course technological waves have been around for quite a while.) The idea is that the computer field went through waves: mainframes, minicomputers, PCs, workstations, and the Internet, and is now due for another wave. IT spending has increased over the long run, but it tends to increase faster as a new wave gathers force, and plateau between waves. Thus:

“IT spending (in the 1970s to 1980s) soared from less than 2% of GDP (in the United States) to about 3%. It then stayed at that level for almost a decade, as firms worked out how to get the most out of their machines. In the 1990s, they started investing again, this time in the new technology of client-server systems. By 2000, tech spending was almost 5% of GDP. Since then, it has fallen back to about 4% of GDP.”

The periods of rapid IT spending growth are called “hot tech”, and those of reduced growth or fall-back are called “cold tech.” In the hot tech periods, firms invest in the new hot technology. In the cold tech periods, they invest in systems to make the most of the hot tech they have acquired. Today the interest in Linux systems is illustrative of the cold tech emphasis on value for money.

It also has an article on the electricity infrastructure, and its recent blackouts. It ascribes the fragility of the grids to “half-baked reforms” in deregulation of the industry, that resulted in underinvestment in the grid. Reliability comes from redundancy, and there has to be excess capacity distributed in the system to handle critical conditions. Excessive cost control, or excessive emphasis on paring costs to a minimum result in systems that can’t handle emergency loads, and go into blackout. I suspect the same kinds of problems will confront regulators for the convergent internet based information infrastructure.