but also to translate a set of e-commerce indicators into policies to achieve specified outcomes. While Colecchia stresses the need for the OECD to take a lead role in setting a framework to:

develop a set of definitions of the transactional and wider economic aspects
develop e-commerce metrics and sectoral analysis
develop new indicators of the electronic marketplace
capture the broader impacts of e-commerce by improving productivity measurement
setting priorities for measurement,

there is little documented evidence of any research into the effects of specific policy interventions that have already influenced electronic commerce uptake. The preoccupation has been, and still generally is, measuring what is occurring.

Recommendation 1: Implement New Zealand-based Performance Measurement Process

That New Zealand will be required to oblige with the provision of performance measurements that comply with standardised OECD guidelines is without doubt - membership of the OECD will ultimately require it. To this end, the New Zealand government probably has very little option but to implement a programme of systematic performance measurement, such as that provided by Australia in the Current State of Play review. However, it is vital that this statistical summary is reviewed, interpreted and reported in the context of the environment in which the data are collected, with strengths, weaknesses and the limitations of each measure and the associated analysis identified. These limitations need to be addressed both from the perspective of the theoretical and practical limitations of the individual measurement instruments, as indicated in sections 2 and 3, and from the perspective of the ways in which the New Zealand economic and social environment differs from those with which it may be compared. Not to do so will result in the status quo: international comparisons by foreign agencies based upon statistics collected in surveys that reflect the dynamics of foreign economies, and interpreted in this context, resulting in misleading perceptions of the absolute and comparative state of application use in New Zealand⁶².

Much of the information provided in the Australian Current State of Play review, as identified in Appendix 3, is already available for New Zealand, either from national statistics or from international surveying companies. Having defined what is to be measured, actually capturing the statistics is a relatively easy exercise (although it is noted that some modification may be required to current New Zealand statistics collection to maintain comparability with Australia), albeit one with some costs of data collection⁶³ and analysis attached. The real value in New Zealand authorities collating statistics of the form presented in The Current State of Play is to determine with more certainty what is happening in New Zealand, as knowing what is happening is the first step in understanding the processes and therefore why it is happening. Furthermore, collation of statistics enabling comparison with Australia provides probably the best benchmark of New Zealand's performance, given the very similar economic, legal, social and structural environments of the two countries. As New Zealand is more like Australia than anywhere else, Australia provides the natural first point of international comparison.

New Zealand also has to be active in advocating for improved conceptual research conducted at an international level. While New Zealand may not have the resources to finance comprehensive theoretical research alone, it has a role as a participant in financing research and development of the methodologies for collecting and analysing the core performance and uptake statistics, via organisations such as the OECD. New Zealand also has a role, via projects such as these, in advocating for new directions in the course of such research, if the outcomes of existing collaborative research are not meeting the needs of the member countries.

Recommendation 2: Investment in Systems-Based Research of Information Uses in New Zealand

The real challenge for policy-making in New Zealand is to determine what these statisticsactually mean for New Zealand. The previous sections provide an analysis of what the vast range of existing literature-based measures can and cannot tell us about the state of e-commerce in New Zealand. But they are still largely just explanations of what is happening. There is still much more to be understood about why we are witnessing the statistics we observe. If we don't know why we are witnessing the patterns we see in these statistics (that is, we do not know what the fundamental drivers of the existence of the statistics we see actually are), it is extremely difficult to see how effective policies to change the balance of these statistics can be developed and successfully implemented.

While it is possible to some extent to utilise the findings of similar research in other jurisdictions, it must be noted that the things that make New Zealand different (Section 4) result in different interactions in many sectors than those witnessed elsewhere. Only New Zealand-based decision makers have the incentives to invest in research that specifically applies the findings of such research in the context of New Zealand. Thus, it is vital that any conceptual or empirical research commissioned specifically addresses at a minimum the demographic, geographic, business profile and practice, social and lifestyle differences identified above, and is cognisant of the fact that other differences will most probably be surfaced in the course of such research.

It is noted at this point that the limitations of current statistical research have also been encountered by NOIE. Given the many similarities between Australia and New Zealand, there may be common benefit from joint research that accounts for both the similarities and the differences between the two countries⁶⁴. However, it also noted that this research needs to be conceptual rather than empirically based, as it is clear from the balance of the paper that it is in the conceptual area that research is lacking. There is no shortage of methodologies to measure what moves, but very little information-grounded work explaining why it is doing so, or why this might improve or degrade ultimate economic and social performance. Thus it is recognised that there are few research precedents to follow in this area. However, in the absence of any definitive conclusions emanating from the existing research, and with a limited budget to spend New Zealand may stand to gain more from investing in some research that differs from that being undertaken elsewhere, rather than merely replicating foreign studies. While some degree of comparability may be sacrificed, the end result may be greater insight. This is one area where New Zealand may be able to take a world-leading position, for an ultimate competitive advantage.

Justification of a Systems Approach

In selecting the priorities for investigation, there is still no unequivocal conclusion that all or any of the performance measures analysed above of themselves represent an improvement in overall economic or social wellbeing, and hence warrant policy intervention and manipulation. Evidence is still patchy about whether the improved growth rates observed in the US economy in the late 1990s are attributable to computers and electronic commerce. If, as claimed by Oliner and Sichel (2000), the improvements in US productivity are almost solely attributable to the computer production sector, then how has Australia achieved a similar rate of growth over the same period without the existence of a computer production sector (Dunt and Harper (2001))? And are universal pricing requirements for voice telephony and specified conditions for dial-up Internet access (with very inelastic demand curves) facilitating the growth in the numbers of people connected to the Internet (OECD Local Access Pricing and E-Commerce (2000)) while at the same time actually slowing the diffusion of the more elastic, and hence more potentially welfare-enhancing, broadband services (Crandall (2001)⁶⁵)?

Issues such as these specifically related to technology connectivity and uptake indicators don't even begin to touch the relationships between educational and resource capability, technology diffusion patterns and wider performance measures, let alone future innovative capacity (Stern, Porter and Furman (2000)⁶⁶). If, as Colecchia indicates, "while electronic commerce is of interest in its own right .... interest is at least as great about the ways that it might affect the economy as a whole", then concomitant with understanding the dynamics of electronic commerce is the need to fully understand interrelationships in the economy in which new technologies and mechanisms such as electronic commerce are inserted. For as with any set of systems, any change will have consequential feedback effects if it impacts beyond the boundary of the subsystem in which it is implemented (Flood (1999))⁶⁷. Knowing where to look for impacts requires knowledge of the system, its subsystem interlinkages, and its behaviour over time.

That we do not know sufficient about the ways in which information flows impact in the economy generally (due to the intangible nature of information and the significant number of parts of the economy which are not measured), indicates that research into the effects of electronic commerce and the "information economy" requires us first to learn about the effects of information in all sectors of the economy. This is imperative if we are to understand why changes in the flows, prices, speed, location and transmission of information generate the results they do. By understanding how we use information in a variety of processes and applications, we can then begin to assess how changes will impact. We can measure the impacts using indicators like those identified above, but knowing what the indicators should be, and where to collect them, requires first that we understand what is happening. This understanding must come not just from a direct cause and effect symptom-monitoring perspective within the subsystem, but also from a wider system interaction perspective, and not just in a static environment, but over multiple time periods.

It is this latter area that is of interest to government policy-makers as custodians of the widest system of interest - the national economy. Yet, it is the sum of all the subsystem actions that creates the system. Understanding of one subsystem is limited to that subsystem, and does not inform of the outcomes in all the other subsystems dependent upon the outputs of that subsystem unless they too are simultaneously analysed. Furthermore, systems are processes, not things. They are constantly changing, and the order in, and timing with which, things happen may be as crucial as the action itself with respect to the ultimate outcome. Thus, it is research underpinning understanding of the minor changes and their impacts, flow-on and feedback effects, and extent, which will be most informative to policy-making (Coyle (1999)⁶⁸).

Justification of Information as the Fundamental Variable

As identified above, the key which links the impacts of information technologies of all kinds back into other sectors of the economy is the use of information. Yet almost all research has focused on the technologies, not the information that they have changed. The rise of ICTs has changed the technologies with which we perform some functions, but more importantly, it has changed the forms, conduits, uses, transmission, cost and utilisation of information. And information is the key linkage between subsystems in any system (Wuagneux (1999)⁶⁹). Not only is it the key linkage, but it is also the "glue" that holds all subsystems of any economy together⁷⁰. All transactions require information as a fundamental input (Coase (1937)). And when any changes are made to the information required by, or produced as a result of, transactions, flow-on effects will roll domino-like through the entire system (some of which will generate subsequent impacts on the subsystem that generated them - feedback effects) - all carried via the currency of information.

Faster flows of information have resulted in more rapid development of newer mechanical, electronic and process technologies, and this pace of change has resulted in more rapid diffusion of technologies than previously observed (Agarwal and Gort(1999)⁷¹). Evans (2001)⁷² notes "while the "laws of economics" remain applicable to understanding the new economy, the static approach of economists that may have yielded insights when change was slower, or perhaps of a different sort, are less relevant to assessing market power and competition in the dynamic new economy". As economies are systems, of necessity, this implies fundamental systems approach to analysis and understanding is required. Yet, a systems approach to analysing information-based change in a modern economy is largely absent from the published research.

At this point it is apposite to recognise that some systems-based analysis has been performed within specific New Zealand companies (see, for example, Brocklesby, et al (1999)⁷³). While these studies have used a systems approach to some extent, they have not focused specifically upon the role of information per se. Rather, the variables examined have been competitive capability, innovative capacity and suchlike. These variables are important, but are themselves comprised of information components, the form and utilisation of which, have been altered by technologies, both electronic and otherwise. If the brief of research is to examine the changing dynamics of an information-based economy, then information must be the fundamental variable of analysis.

This research need not invalidate the findings of other research predicated upon the analysis of higher-level variables. Indeed, this research is complementary, as it may provide further insights into and verification of, other findings. The scope is rather to refine further analysis into the information component of other variables, while simultaneously using information as the vehicle to understand how firstly subsystems in the New Zealand economy interact, and secondly, how changes to information forms, transfer, processing, storage, usage, and speed drive other subsystem interactions that have been observed in other studies. Thus, given information is a variable which touches all subsystems, this methodology may be able to trace effects outside of the subsystem boundaries that have been drawn in other studies (for example, tracing flow-on effects out of the traded market subsystems into the non-traded subsystems), thereby yielding a greater understanding of the wider economic and social effects that are of interest to policy-makers.

Examples of System-Based Information Case Studies

The shortage of research based upon information usage, and the systematic interactions of information exchanges throughout an economy have been identified as key areas for future research. New Zealand has an opportunity to lead world research in these areas. The relatively small size and limited number of trading sectors in the New Zealand economy provide a viable sample for investigating these phenomena. Further, New Zealand's history as an early adopter and high uptaker of computerised technologies such as EDI, the Internet and mobile telephones mean that there is a mature information base available in some sectors to facilitate analysis. Specific economy-wide applications that could be researched on a case study basis for further this research include (but not exclusively):

the role of information in the creation of the central banking network
ubiquitous EFTPOS in New Zealand
effects on information uses and communication resulting from the restructuring of information-intensive industries such as the Crown Research Institutes and the health sector
the role of information in B2B exchanges
the role of information in supply chain management systems
information-based uptake of email and websites in rural New Zealand.

Recommendation 3: Develop Suitable Proxies for Valuing Information Intangibles

If this methodology is to be used, then concomitant with research into understanding the flows of information within systems and subsystems, it is recognised that the problem of the intangibility of information must be addressed. This will necessitate research dedicated to developing appropriate proxies that capture the relative values of information intangibles in order to conduct meaningful analysis. This standardisation is essential in order to translate the effects of changing uses of information across all sectors of the economy.

While initially developing these proxies may appear problematical, already a wide base of information is available in the recorded costs required to build and develop custom databases, premia paid for specific levels of skill in information workers and other such information. The case study approach provides a systematic basis by which these proxies can be progressively developed.

While this may not be a straightforward task, beginning to address it provides a useful refocus from the past emphasis on technology to the new emphasis on information.

Recommendation 4: Research of Electronic Technology Impacts Still Matters

While recommendations 1 to 3 emphasise the role of information as opposed to technologies, this is not to ignore the fact that changes to information technologies are still vitally important as they represent the single most dramatic force changing the ways in which information is used. Thus, they provide both the rationale and the starting point for many research projects. Research such as that being carried out by the FORST/University of Waikato and Victoria University School of Communications project teams is important and valuable in surfacing many of the ways in which these technologies are impacting on information in New Zealand. As stressed above, this work is complementary. However, if such research can also be overlaid with a systems and information component, then the results may prove even more insightful. This may, for instance require firm-based research to be more cognisant of where the information used by firms comes from and where information generated may be used, in order to build better understandings of how information moves amongst firms, communities and individuals. This will inform subsequent analysis.

Recommendation 5: Co-Ordination of Research

Importantly, individual items of research in this area need to be seen as part of a system of research results, where flow-on effects are captured into a bigger "system picture". Co-ordination and sharing of the results is imperative if the "network effects" of the research are to be capitalised upon. The recent meeting of researchers facilitated by MED⁷⁴, and the proposal for a web site where all research projects and their results can be lodged, provide examples of co-operative sharing.

The limited amount of funding available for New Zealand-based research makes it vitally important that the body of research undertaken elsewhere in the world is made available in New Zealand in as timely a manner as possible. Co-ordination of research should thus also address the need for mechanisms to disseminate findings of research conducted elsewhere in the world. It is also recognised that there is a role for communicating New Zealand's research needs, programmes and results at overseas fora, such as APEC and the OECD, as well as in the research arena, in order to capitalise upon interactions with other researchers and projects, and to have an opportunity to influence other research agendas.

Joint Research with NOIE

The most important potential, however, exists in joint research with NOIE. As Australia is the economy most like New Zealand's, the challenges faced by Australia are very similar. Both countries have similar policy, trade, geographic, demographic and economic parameters, so thus it could be expected that the electronic commerce research needs of both countries will have much in common. There is considerable merit in exploring the possibility of jointly sponsored research, co-operative planning to avoid duplication of research and co-operative sharing of research results, thus ensuring that the limited research budgets of each country are employed as effectively as possible.

It is noted that a research partnership with NOIE will provide a wider base of data on which to test hypotheses and analyse data, as well as enlarging the potential number of case studies, research talent and analytical skill available. Recognising the role of networks and clusters in the creation of value in a modern economy, such collaboration offers not just a knowledge enhancement possibility, but also an opportunity for both governments to be seen to be "walking the talk" in underwriting the creation of new knowledge.

Summary

While it might have been hoped that this scoping study could reveal a structured research agenda that would lead directly to informing the formulation of policies to change outcomes for New Zealand's economic and social performance, at the present point in time, too little is known about the effects of "electronic commerce" to even begin to suggest how this might be approached. However, what is clear is that measuring historic "electronic commerce performance indicators" provides very limited scope for informing policy analysis, with its forward-looking objectives. Until we know more about why we see the indicators we do, and how this links to wider economic and social performance measures such as productivity and GDP growth, any intervention will be at best an experiment.

Thus, research effort is best directed to understanding not just what is happening, but understanding why. The best place to start understanding "why" is probably to undertake case studies in specific environments. Some research has already been undertaken at firm level in New Zealand (e.g. FORST/University of Waikato, Brocklesby et al, Campbell-Hunt et al,) but these need to be extended:

from an information perspective within the firm, and
from a systems perspective, involving flows of information between firms and individuals.

Case studies provide a valuable tool. These could be conducted on the basis of individual firms, firms in a cluster (e.g. West Auckland yacht building, Dunedin imaging cluster) or supply chain (e-Government procurement chain), players within an industry (e.g. the electronic banking ATM/EFTPOS system), or even participants within a community network activity (e.g. SeniorNet). Such analysis enables the flows of information across subsystem boundaries to be traced, and analysis of the impacts of changes in technologies tracked even when conventional measures such as dollars cease to be relevant. These studies should assess information needs and usage, investment patterns, as well as assessing the effectiveness of the technologies with which the subjects process information.

Alternatively, specific technologies can be examined in the context of many firm types, in order to assess the relative returns.

The results of these studies can be aggregated across sectors, and tracked into wider economic and social reporting structures. Having then gained some greater understanding of whether specific technologies support or degrade wider performance indicators, more informed policy choices can be made regarding their wider support and implementation in New Zealand. The important point is that information is the key: technologies and infrastructures are merely the vehicles. This enables an integrated approach to be taken to the research, combining both "new" and "old" technologies into the framework of an economy that is an amalgam of both. Electronic applications cannot be examined in isolation - they must be examined as part of an economy where they are being merged in with, substituting and complementing for, other business processes and social activities. By examining this, we will learn a great deal more about a part of our economy that has previously been intangible, but is slowly becoming more and more visible.

There is no "magic bullet" to be found - but there is a great deal to learn.

⁶²It is noted that reports by agencies such as the Economist Intelligence Unit E-business Readiness rankings , by comparing New Zealand with inappropriate and unlike counterfactuals, have sometimes resulted in a negative and false perception of New Zealand's performance being conveyed. The reputation of the agencies printing these reports, and the wide audience they command, means that the damage to New Zealand's reputation resulting from such reports can be damaging and widespread. This can only be countered by the authoritative publication of the consistent story. For example, Australia's meteoric rise in the EIU E-Business Readiness indicators from 16th to 2nd between May 2000 and May 2001 has resulted not because of any significant changes in policy, but largely because NOIE has been measuring and publishing both the measurements and interpretations to the extent that they cannot be ignored. Over the same period, both New Zealand's absolute position (17th to 20th) and its position relative to Australia's (1 behind to 18 behind) has fallen, even though New Zealand's policy environment (e.g. competition law, telecommunications regulatory environment) has become even more like Australia's during this time. Without authoritative statistics to base assessments on, default assessments are made, with potentially very damaging results.

⁶³Purchasing data from agencies, funding more collection of the nature of the FORST/University of Waikato project.

⁶⁴In an informal meeting with NOIE (10/4/01), the points of common interest were discussed.

⁶⁵Crandall, Robert W. Telecommunications Policy and the Evolution of the Internet. Paper presented to PAFTAD 27 The 27th Pacific Trade and Development Conference The New Economy: Challenges for East Asia and the Pacific Canberra, August 20-22, 2001.

⁶⁶Stern, Scott; Michael Porter and Jeffrey Furman. 2000. The Determinants of National Innovative Capacity. NBER Working Paper 7876 http://nber.org/papers/w7876

⁶⁷Flood, Robert. 1999. Rethinking the Fifth Discipline: Learning with the Unknowable.

⁶⁸Coyle, Geoff. 1999. Qualitative Modelling in Systems Dynamics. Paper presented to the 17th International Conference of the System Dynamics Society, 20-23 July 1999.

⁶⁹Wuagneux, Dianna. 1999. Information Physics: Identifiable Patterns and Instrumental Processes. Paper presented to the 17th International Conference of the System Dynamics Society, 20-23 July 1999.

⁷⁰See Jensen and Meckling (1976) for an explanation of the roles and costs of information flows throughout the management and governance subsystems of a company - as an economy can be modelled as a system of interacting companies, the argument can be naturally extended.

⁷¹Agarwal, Ragishree; and Michael Gort. 1999. First Mover Advantage and the Speed of Competitive Entry. University of Central Florida and Buffalo New York. Research paper gort@acsu.buffalo.edu.

⁷²Evans, Lewis. 2001. The New Economy: A force for competition or market power? Paper presented to PAFTAD 27 The 27th Pacific Trade and Development Conference The New Economy: Challenges for East Asia and the Pacific Canberra, August 20-22, 2001.

⁷³Brocklesby, John; Colin Campbell-Hunt, Richard Dunford, Deborah Jones and Pat Walsh. The Evolution of Competitive Capability in New Zealand - A Systems-Based Perspective. Paper presented to the 17th International Conference of the System Dynamics Society, 20-23 July 1999.

⁷⁴April 2001

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Printed: 26/11/2009