Hayek's Idea of Information Use and Its Use in 21st Century - Essay Example

?Hayek’s Idea of Use of Information and Its Use in 21st Century Introduction: Friedrich Hayek, in his famous article “The Use of Knowledge in Society”, published in September 1945 in American Economic Review, expressed the view that a market in a centrally planned economy cannot achieve the efficiency of an open market. The main functioning of any market depends on the achievement of efficiency in terms of outcome and also in terms of other economic variables, political variables and also societal variables. According to his view, in a centrally planned economy every individual or economic agent knows only a small fraction of the aggregate knowledge (Hayek, 1944, p. 3). Hence, it becomes difficult for him to achieve the optimum that is consistent with the open market. According to Hayek, the more decentralized the economy is, the more variable the information is (spread throughout the society). In his own words, “The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction” (Hayek, 1945, p. 6). Hayek has pointed out the danger of tyranny that lies in a centrally planned economy resulting from the control of economic decision making by the government (Hayek, 1944, p. 4). In this article Hayek also marked a difference between two categories of information or awareness. One is scientific or technical information and the other is the information about individual’s capacities on the other (Hayek, 1945, p. 6). This paper tries to relate these ideas to the 21st century growth in information about individuals and their wants, needs, capacities and the making of new markets such as eBay (Williamson, 1985, p. 17). Structure and Analysis of the theme: The concept: The structure of the theme is very much dynamic. This is because the answer of the question of how Hayek’s idea of distinguishing the nature of information or knowledge is used by the individuals in an economy is 21st century requires a detailed analysis of the theme that Hayek has pointed out (The World Economy in the 21st Century: Challenges and Opportunities, n.d.). The functioning of any market depends largely on the nature of the information that the economic agents interacting in that economy possess. According to Hayek, there are mainly two types of information that are available to an economic agent (Hayek, 1945). On the one hand there is the scientific information and the technical information. This is basically the theoretical information regarding any activity, related to production or distribution the goods and services or related to the allocation of scares resources. And the other is related to the information that an individual possess regarding his capacities on the other individual(s). The first type of information is basically of theoretical type. In this information an individual acquires information necessary to the make economic decisions, such as production, distribution etc. The other type of information relates to the practical exposure of all the theoretical information those are available to the individuals. These are basically the useful and realistic information (Hayek, 1945, p. 3). Types of information: According to Hayek, all the theoretical information is related to the specific section of the society that are related to the generation and the development of those theories. These individuals are responsible for the invention and the study of those theories. Again in other sense of the explanation of this information this kind of information is not the aggregate of all available information. Rather this is the information of specific circumstances of specific time and place. In this respect it is said that every individual in any economy possess some unique information which give him some kind of advantage while taking economic decisions or while interacting with others (Hayek, 1945, 4). For instance, the concept of homoeconomicus (B & G, 1992) relates to this point of view. Homoeconomicus is not a man of exchange, but an entrepreneur who is capable of taking care of his self. By using the information, available to him, regarding the technology and science of cost-benefit to allocate scares resources to satisfy his own activities. In other words he is the organizer of his own life. He possesses some information those are not available to any other individual(s) and hence he makes the perfect or optimum decisions for his self. This kind of knowledge is entirely related to the satisfaction of self esteem and self wants. According to Hayek, in general, this kind of information mainly influences the approach toward commerce rather that the attitude toward production (Hayek, 1945, p. 3). On the contrary, the practical information is related to the benefit of the entire society or to the entire economy. These are basically the set of information that relate to the fulfillment of satisfaction of all the individuals of the economy. According to Hayek, if the knowledge of practical types then it is expected to get spreaded among all the individuals of the economy. Hence, the entire economic variables act in ways those are consistent with the fulfillment of all wants and choices, which are again part of each ‘individual’s plan’ (Hayek, 1945, p. 3). The entire market will then work as a single market and all the economic decisions, such as the determination of output price will work in favour of all the individuals of the economy (Hayek, Colonna, Hagemann & Hamouda, 1994, p. 48). Economy and information: Hayek has pointed out the fact that the nature of the economic organization is closely related to the type of information that is being used by the individuals. Not only the functioning of the market, but also the welfare of all the individuals also depends upon the type of information being available and used. He asserted that the particular nature of a centrally planned economy is that, there it is very difficult for an individual to have all the information those are available collectively to all the individuals. Hence, it becomes very difficult for a centrally planned economy to achieve the market efficiency (Dransfield & Dransfield, 2003, p. 88). Again in a decentralized economy information is much more variable compared to a centrally planned economy. Hence, the later is more expected to achieve open market efficiencies (Hayek, 1945, p. 4). Hence, the nature of markets and the economies of the 21st century are also needed to be judged in terms of all criterion (Thomsen, 1992, p. 30). Market and information: In order to talk about the nature of markets, economies and information of 21st century, one needs to be much more flexible. Flexibility here means that all those aspects need to be defined and described in some broader concepts. The markets are much broader in 21st century compared to the past centuries. The happenings of globalization (it means that there is single world market) and liberalization (it means all markets are opened now to other markets) have opened up a country to another country. For example, in this 21st century there is a single world markets where all goods and services are getting sold and bought. And the most striking thing is that individuals across all over the world have knowledge or information of these transactions. This situation was not much present before 21st century. The market model of 21st century has been shifted from Traditional Market Model to E-Commerce Market Model. The E-Commerce Market Model has changed the nature of the product type from data to information. The businesses of this market have become more globalised (happening across the globe). One particular good or service is now available in markets all over the world (Defining The Market Environment In The 21ST Century, n.d.). This is the major difference of markets that the 21st century has made. This is the particular area where the best use of Internet needs to be applied. Here the best possible example is eBay, an online auction and shopping website where people across the world can buy and sell goods and services through internet. Here in this website an individual can have same kind of information those are necessary for satisfaction of his own wants and needs. This individual can interact with the market according to his own choice and capacity. This is the area where the nature of information has been shifted from scientific information to practical information or form the individual information to universal information. This is much broader concept than what Hayek tried to explain (Hayek, 1945, p. 3). World economy and information: Regarding the changes in the nature of the world economies, it can easily be said many significant changes have occurred compared to the past. The most striking feature of these changes is that changes in the form or nature of information those are now available to individuals around the world. Increase in the income of all individuals, reduction in poverty and increase in the integration of world population as a single entity etc. (Vives, 2008, p. 2) are mainly because of this informational shift. In this 21st century, there is a single world having the same set of information and the same dimension of thinking that enables individuals to get benefited significantly. Internet has made it easier to access goods and services very easily across the world. Hence, an Indian can easily buy an American product simply through Internet. The most important fact is that there does not arise any asymmetry in those information, all individuals have the same information regarding anything. This feature helps them to attain optimum level of satisfaction or wants. Growth of information: The growth in information has occurred in respect to two dimensions. Firstly, the nature of markets and economies has caused the growth and secondly, the growth in information has caused the markets and the economies to change their nature. The first dimension can be explained in the fact that those markets and economies become so much open and flexible to change that the form of information, consistent to those markets and economies, are bound to change. This change has occurred mainly through the nature of dispersion. Information is now much more variable and dynamic (dynamic in the sense that the changes in the quality and quantity of information are quicker now). The second aspect deals with the fact that the nature of the information has caused significant changes in every field of human life. Hence, the form of markets and economies become bound to change. This change has occurred mainly in the respect of varieties of goods and services that are being produced now and the nature of determination of prices and outputs of these goods and services produced, bought and sold (Vives, 2008, p. 2). 21st century and information: In the 21st century, not only the nature of information has changed to be more variable and dynamic, but also the nature of individuals’ wants, needs, choices and capacities have also changed. These changes are also closely related to changes in information or knowledge. In this 21st century, wants and needs of an individual are much higher than that of an individual of past centuries. People now want or demand more goods and services and their needs have become more variable now. People now can easily get the information regarding which goods they need or which good or service will give them the maximum level of satisfaction. This has happened mostly because of the availability of larger information set. The availability of mobile phones, computers are mainly because of these facts. The economy has shifted from Individualism, where an individual is free to take decisions to develop own benefits, to Socialism, where all individuals are entitled to take decisions in favour of the entire society (Hayek, 1944, p. 2). Again the capacities of individuals of 21st century have changed remarkably. They are now much more capable of buying larger amounts of goods, enjoying better-quality services. The overall production capacities of the world have changed too. Producers are now much more capable of producing better-quality products in larger amounts. The important fact is that the buyers are now more capable of buying these changed goods and services, since they have higher incomes and greater information. This fact is even true for the producers also. In the 21st century, the form of the world economy has largely changed from centrally planned economy to open market economy. Hence, the nature of information set has changed accordingly to more dynamic and variable. If a person has more information regarding the nature of goods that are available in the market, he is more likely achieve higher level of satisfaction as he is supposed to choose from a wider range of products. Again if a producer has the information of a larger volume of buyers of his product, he is also supposed to be better off (Wahid, 2002, p. 79). And the changes in the information set have made all these changes possible. Some other facts related to this topic are also needed to be discussed. The price system is also a method of communication of information. The changes in the nature of the market and the form of the world economy have made it possible for the price system to act more freely in a competitive environment. These changes have made prices of goods and services to become much more rigid (Hayek, 1945, p. 6). The most important fact is that the nature of information has also helped the price system to work properly. In 21st century, every individual is more willing to share all information that he has to the entire world, because it is beneficial for him also as someone else will then share his or her knowledge that will be beneficial for him also (Hayek, 1945, p. 6). Again form of new markets that have opened up in the 21st century largely dependent upon the nature of information that is available to individuals. New markets include online markets for goods and services, the large media market, global markets for education through distance learning etc. Online markets for goods and services have opened up being largely dependent upon the information that is basically of global type, i.e., variable information. The 21st century has introduced the concept called global market. This market deals with information that are globally available about the features of markets and this market helps individuals across the globe to acquire more and more knowledge easily and in lesser time (Craig & Douglas, 2008, pp. 1-2). The online marketing method is more useful in this century. This includes use and accession of wide variety of information around the world. eBay is an outcome of this market. Markets for education have also been affected positively by this change in information set. People across the world now can get the same quality of education from their home. All these facts have greatly benefited 21st century (Craig & Douglas, 2008, pp. 1-2). Concluding remarks The use of information or knowledge is increasing over the years. Hayek pointed out the fact that the more is the use of information, the more benefits an economy (or society as a whole) will be able to achieve. He also pointed out the fact that the more dispersed information will be able to provide more benefits to the society which will be consistent with the outcomes of an open economy. Considering this point of view of Hayek it can be said that the present society is more capable of t\getting these benefits, since the economies in today’s world are much more open. There are less barriers in the exports and imports of goods and services as well as less restrictions on making relationships across the world. These features are continuously helping the world economy to achieve the efficiencies from its openness. Modern day technologies, like televisions, Internet, mobile phones, IPods etc. are stimulating this growth process of information and hence stimulating the growth process of world economies. At the same time these economies are getting more and dependent upon the use of information. If there is a lack of a part of any information due to technical difficulties, then the whole system is getting collapsed. Again the validity of information is also getting doubtful. Again the bad uses of information are also threatening the betterment of societies and economies. The most significant challenge with this widespread availability of information is that if one particular society or economy faces any problem or crisis situation, then it becomes a universal phenomenon within a very short period of time. The cases of revolution of Libya, Egypt, Sudan or the Global Financial Crisis of 2007-08 are the examples of use of the dispersed information. Sometimes it is good for the society (in case of revolution of society), sometimes they are harmful (in case of economic crisis) (Wahid, 2002, p. 79). Yet, one cannot really overlook the benefits. References 1. Bowles, S. & Gintis, H., (1992), The Revenge of Homo Economicus: Contested Exchange and the Revival of Political Economy, Journal of Economic Perspectives, 7, 83-102 2. Hayek, F. A., (1944), The Road to Serfdom, London: Rutledge 3. Hayek, F. A., (1945), The Use of Information in Society, Institut Hayek: Liberalisme & altantisme, XXXV (4), 519-530 4. Defining The Market Environment In The 21ST Century, (n.d.), available at: http://www.fgdc.gov/library/whitepapers-reports/sponsored-reports/stia/stia_sec_9.doc (accessed on November 23, 2011) 5. Craig, C. S. & Douglas, S. P. (2008), Responding to the challenges of global markets: change, complexity, competition and conscience, available at: http://www.vuw.ac.nz/~caplabtb/m302w07/CRAIG_DOUGLAS.DOC (accessed on November 23, 2011) 6. The World Economy in the 21st Century: Challenges and Opportunities, (n.d.), available at: www.mtholyoke.edu/acad/econ/World_Economy_files/intro.pdf (accessed on November 23, 2011) 7. Hayek, F. 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