Where did the "Wither Away" go?

Several years ago this journal published an article of mine entitled "Wither Away Office Space as We Know It Today?" (1) The concern in the article was with the potential impact of the developing information technologies on office space. Implicit in the title was the notion that this technology could make office space as we know it today irrelevant to the needs of tomorrow's business organizations. The conclusion was that while nothing likely was to happpen over the next couple of decades, significant change was possible and, indeed, very likely beyond that time.

A number of things have happened since the time this article was published, one of which was the publication of a number of substantive analyses of how businesses are or should be responding to the technology as it develops. (2) A careful review of these studies might suggest to some that I underestimated the time that it will take for this "withering away" to take hold, as well as overestimating the amount of withering that will occur. I agree that there is growing body of evidence that suggests no hint of any diminution in the spatial clustering of information-intensive activities, something that bodes well for the office space market as we know it today. Nevertheless, I still see no reason not to expect significant change some time in the future. It may take more time to get there than I expected earlier, but the likelihood that long-term structural changes in the economy will bring about significant structural changes in the office space market has not in my view diminished. What follows spells out why I hold on to this conclusion.

THE NEW ECONOMY: IS IT A MYTH?

The recent bursting of the dot.com bubble in the nation's stock market combined with the disappearance of many if not most of those dot.com firms raised questions in the minds of many as to the reality of what was once called the new economy. The reality, of course, is that there never was a new economy in the sense often described in the hype that accompanied the emergence of the dot.com firms. There is certainly a lot that is new going on right now, but what's happening in the economy can in no sense be characterized as a radical departure from the past.

In the hype that surrounded the rapid growth in dot.com firms, there surfaced notions that were taken by some as the basic elements of such change. One of these was the weakening of brand identification. Another was the disappearance of middlemen. Being first in a world of fast-paced innovation was also considered to be a critical key to success because it was believed that the business world was fast becoming one in which winners take all.

While the business world is changing as it responds to the opportunities being provided by our rapidly changing information technologies, there are no such indications of radical change. Brand identification has not weakened. There are still middlemen and ample illustrations of the disappearance of those who were first in the business implementation of some of the emerging information technologies. (3)

There are also numbers that belie any kind of radical change in the structure of the economy. Employment data broken down by type of industry and occupation give us a rough reading of the structure of the economy and in neither case do we see any indication of radical change. Employment in the nineties continued to shift away from manufacturing into services, but the changes were no greater than those that occurred in the 1980s and denote the continuation of a trend going back a half century or more. Of course, some of the recent shift into services was in activity generally considered to be a key part of the new economy--knowledge-oriented activity. But a careful examination of the data indicate that close to 75% of the nation's workforce remains in occupations that aren't in that class, e.g. personal services, factory workers, artisans of various kinds, and low-order white collar positions.

Furthermore, activity in which the economic revolution is taking place--in the area of information technology--is still small relative to the total, currently accounting for only a little over 5% of the nation's employment in year 2000.

There is no new economy as envisaged by some at the height of the dot.com boom in the late 1990s. Yet there are, at the same time, visible signs of important changes taking place throughout the economy. Innovation lies at the core of what's been happening in the economy. While innovation in business has long been a part of our economic history, the pace of such activity accelerated during the last part of the 20th century. This shows up in business research and development activity which more than doubled during the decade of the nineties, increasing from 1.4% of GDP in 1990 to 1.8% by year 2000. It is also reflected in patent data, which shows that the number of patents being issued almost doubled in the 1990s and increased significantly in terms of the number being issued per 1000 firms.

There are also literally tens of thousands of reported changes in how firms now do business with their customers and other businesses, the main thrust of which has been in the development of communication systems. These are changes that have had the effect of reducing transaction costs with both customers and other firms; bringing about increased management efficiencies that so far have been concentrated in supply chains; making markets more competitive; and fostering innovation as the competitive tool of choice. Most firms are now more exposed to competitive pressure and devote more of their resources to knowledge-oriented activities aimed at generating more innovation. Illustrations of how this is working out in industries that constitute roughly 70% of the total are to be found in a Brookings task force report on the Internet. (4) That our economic world is changing clearly shows up in what is reported here. But this report also makes clear that what's happening is a part of a process of change that is in its early stages. Much of what we now do as actors on the economic stage is not much different from what we have been doing for sometime now. But there can be no doubting the fact that what we are doing is changing and in time we will probably be able to talk about radical change or operating in a new economy.

ORGANIZING INFORMATION-INTENSIVE ACTIVITY WHEN INFORMATION COSTS ARE DIMINISHING

In an economy in which information costs are diminishing, one would expect dispersion in information-intensive activity. The earlier spatial concentration of such activity, as noted in my earlier paper, was largely the result of efforts to minimize information costs. Given the information technologies of the times, being close to one's co-worker was the cheapest and most effective way of getting and using much of the needed information.

Reductions in information costs, of course, are not new, and have resulted in the dispersion of information-intensive activity in times past. What's happening now to those costs hints at the possibility of dispersion, the likes of which we have never seen. (5) But, as noted in my earlier paper, this won't happen quickly largely because of the setting in which more and more firms now operate. The environment is one of fast-paced change and growing complexity. Dealing with the many problems that arise in such a setting apparently requires collaboration, with collaborators working in close physical proximity to one another.

What we have been given from recent research and interpretations of its results is more insight into how firms are responding to these problems with the new tools our technologies are providing. Clearly those activities that can be carried out on the basis of instructions written into computer codes are being dispersed. They are headed to where non-information costs are less. There is nothing new about this. Our current information technologies have just accelerated the movement. But there is much activity that continues to be geographically concentrated and housed in office buildings as we know them today for what we are now told to be several good reasons.

The first of these has to do with the mechanisms being put in place to connect people, the most important of which is the Internet. Through the Internet folks in business now have many more connections with many more people over much greater distances. Significantly, these are also connections that are both quick and cost efficient. But to make such connections, there must be standards that enable the computers or any other media involved to connect up with one another. There must also be rules or standards that foster efficient use of the hardware and software that underlie these connections. And then there is the matter of the rapid pace of change in the technologies that underpin these connections. Incorporating such changes into the infrastructure requires effort and vigilance. What firms have apparently found is that all this activity involves work that is best done when carried out at some centralized place.