First Monday

Flexible Networking, Information and Communications Technology and Local Economic Development

This paper examines the impact of information technologies on rural communities and suggests new efforts to support local economies with globally connected networks.


Globalization and Local Economies
Local Economies and Technology Opportunities
Using the Net Locally
Strategies for ICT to Support Local Economic Development
Flexible Manufacturing Networks
ICT and Flexible Networking
Some Scenarios for a Flexible Computing Enterprise Network

Introduction: Globalization and the Restructuring of Economic Life

In all directions, for good and for ill, we see the on-rush of global integration; global political interdependence; the re-framing of national economies within a context of global markets; the development of institutions of global economic management; and, the coming into awareness of the "oneness" of global warming, acid rain and the degradation of the ozone layer. To a lesser degree we are seeing the rise of global political forces to respond to these issues through the development of global non-governmental organizations (NGOs) and the global environmentalist movement.

In the economic sphere, globalization is not simply the opening up of new production networks or the penetration of overseas markets; it is also a complete reshaping of the nature and organization of business, along with an overwhelming rush to restructure and adjust the supporting political and legal frameworks. Almost overnight, the size and range of control of individual corporate entities has globalized through media conglomerates, international financial institutions, and "logo" or corporate identity-driven brand name production and distribution.

This evolution of the global economy and the related forced restructuring of national, regional and local economies can be traced in part to the widespread availability of low cost Information and Communications Technologies (ICTs). Instantaneous communication of purchase orders, cash transfers, remote commands to production robots or simply the daily flow of millions of electronic mail messages allows for management at a distance, control from the remote and the accumulation and agglomeration of power at the hubs of the "globalized" economy.

Many in the "real world" are attempting to use technology to create a world where they can participate. Technology provides a new and powerful set of tools to enable participation rather than to create a "virtual world" with frictionless interchangeable parts. The key to this "real world", is "local", fixed (even anchored) in place and time. Technology is not a release from the burden of place, but rather a tool to respond to the challenge and opportunities of the "local". In this context there is an opportunity to be productive and economically vital, not by being "anywhere", but precisely by being "somewhere", and particularly by being part of larger distributed networks where "place" is a "resource" not a burden.

Globalization and Local Economies

Economic globalization "hollows out" local communities. Higher valued, more knowledge-intensive activities are centralized. An artificial specialization is forced onto the local economy. Local production competes globally, where wages and benefits, taxes and utilities are studied and compared. The result is local decline through centralization away from local communities of financial and public servicing, the introduction of "big box" stores in retailing, the increasing emphasis on research-intensive processing and production.

As a result, local communities become ever more subject to external forces over which they have little or no control. As the globalized economy shift into higher levels of technology, the need for capital increases, while the supply of capital available for local investment is stagnant or declining. There are ever stronger pressures towards investing for short-term returns. The life or death of local economies becomes simply a by-product of what many are terming the "Casino Economy". Local investment and with it local production, jobs and economic activity are becoming subject to decisions made in ever more volatile financial markets greatly removed and heavily insulated from local impacts and accountability.

The globalization of even the most remote and small scale of economic activities, the pressures of efficiency and return on capital means that increasingly large elements of society and regions are excluded from productive participation in economic activity except as consumers. Even that is under threat with reductions in the social safety net in many industrialized countries. Whole regions, including their communities and residents, are becoming expendable relative to the overwhelming forces of global economic activity.

The "local" economy by contrast is one where enterprises respond to the issues, conditions and future needs of the local community. Local enterprises, which share the fate and future of the local community, will be more sensitive to local requirements and conditions than a branch plant or subsidiary of a transnational with its headquarters in some distant city or even distant country. This factor is of special significance for communities or local areas undergoing economic difficulties. Where the local economy is successful, the question of where the ownership rests, where the senior management is physically located, where the more specialized or more knowledge intensive activities are concentrated does not matter as much. However, when a community is experiencing difficulties, the absence of "local" enterprises or the preponderance of non-local enterprises means that there are fewer resources with which communities can respond.

Local Economies and Technology Opportunities

Technology can be both a cause of local decline and a possible solution. Information technologies include computers and automated information management but also other related technologies such as scanning, software and databases. Communications technologies refer to telephone-based transmission of digital messages. In the early days, digital transmission was primarily proprietary with information moving back and forth along secure and dedicated networks from remote terminals to centralized mainframes. These networks belonged to large organizations such as governments, the military and global corporations; they are now being superseded in public consciousness and in reality by networks based on personal computers and the Internet.

The Internet started as a network facilitating communication within small scientific communities, particularly those engaged in defense related research. Funded by the U. S. Defense research budget, the initial Internet consisted of restricted electronic links within a small community of American scientists. Over several years these connections spread to link scientists from several disciplines and communities throughout the United States. From there, the network extended even further into the non-scientific community and grew in a decade ago to link thousands of computers.

Research at CERN in Geneva developed a means for the transmission of graphical images over the Internet. HTML (HyperText Markup Language) became the basis for the World Wide Web, which created a virtual revolution in the way in which information is managed and communicated electronically. This means for distributing information gave new resources to many who previously had been isolated from technology such as those living in rural and remote areas.

Using the Net Locally

The Net is used for one-to-one communication (e-mail), one-to-many communication (online Webcasting and Web presentations), many-to-many communication (electronic conferencing), and many-to-one communication (online democratic participation, and electronic commerce). Bypassing conventional telephone networks (possible either through satellite or cellular communication) presents the intriguing possibility of persons in rural and remote areas having equal communications access to those in more central and favored locations. Technology can provide the means for very low-cost information distribution, remote accessing and information processing, distributed electronic publishing and universally accessible and globally distributed electronic commerce and sales.

One intriguing possibility is that in the future there may be significant readjustments in how information intensive activities may be distributed. For example the decentralization of information-intensive public sector activities may lead to an equalization of employment opportunities between rural and urban areas. Emerging business functionalities supported by ICT present significant opportunities and even advantages to local enterprises. At the least these functionalities reduce barriers of distance and of location and give argument to the inevitability of urbanization as a necessary accompaniment of globalization. These functionalities include: distance insensitivity; the opportunity for local ownership and management of local information; the means to work at a distance (thus bringing lower local labor and overhead costs directly into competition with metropolitan locations); the capacity to take advantage of local nuance/accent/timbre in the processing of information and of products; the opportunity to take advantage of economies of disaggregation and the synergies of distributed production networks; and, the flexibility of small scale distributed production.

Opportunities are emerging for reducing the cost of transmission, management and processing of information and of any information-intensive undertaking. There is an enhanced capacity for better quality and more cost-effective education irrespective of location.

Differential access to ICT is likely to become one of the major part of social and economic life in rural and metropolitan areas. As ever larger elements of the productive economy become integrated and infused with ICT, any limitation on access to the technology or to the training required to effectively use ICT will become a new basis for social and economic inequality, the "information rich" and the "information poor". ICT is the new means of production, as were the tools of the early craft workers or the machines of the industrial age of production. Those without access to these tools whether through limited physical access, funds or training will find individual and community advancement restricted.

ICTs also give local communities and enterprises an historic opportunity to participate remotely but directly in the global economy as suppliers of specialty items and participants in production networks as information processors and suppliers. Local enterprises can work with and leverage the entire network of interdependent information processing nodes and inter-communicating hubs to become globalized. The network at least for the moment is open to everyone. Smoothly integrated communications networks, wideband information delivery channels, the capacity for remote and secure management and administrative controls all allow enterprises and individuals to rapidly expand local into national and national into global enterprises.

The promise of the microcomputer is the promise of decentralization. A concentration of computing power and the supporting technical resources characterized the mainframe era. Personal computers allow for enormously powerful yet decentralized computing not only for those who can afford specialized technical support but also for local and rural users. It has been repeatedly noted that economic empowerment and decentralization are the critical opportunities of the PC revolution.

ICTs may support local economies in remote working or "telework". Decentralized computing capacity linked to a communications capacity (the Internet or dedicated and data-lines) allows for work to be done from any networked remote location. There is an opportunity for remote access to skills and training. The playing field for technology-oriented education and training is being leveled.

Strategies for ICT to Support Local Economic Development

In addition to theorists who have invented positive and negative visions of technological change, a growing community of individuals and organizations are actively working to meliorate the effects of technology change. They are working to create economically healthy communities with opportunities for the young to find satisfying work locally and where there is a significant degree of local control of the economy, development and growth.

Organizations are using the new technologies to support local economic development to:

  1. enable local residents to do work that they have always done better, faster, cheaper or more efficiently - thus maintaining their competitive position in the larger economic context;
  2. provide resources for new businesses, new styles of development and initiatives, doing innovative activities at the local level as a base for local economic advance; and
  3. link into larger networks where the local economic activity might not be competitive when undertaken in a fragmented way.

As a "Tool"

The Internet can be a "marketing" tool for small rural businesses, where local entrepreneurs (bed-and-breakfast owners, hammock makers, lobster brokers) develop Web sites and increase their markets. These successes will likely be repeated and extended as the Web expands. At this point, however, it is mostly at the level of anecdote. In rural areas the Net can also be used as a "tool" for product or marketing information or for collaborative business activities (production, marketing). A current project of the University College of Cape Breton's Centre for Community and Enterprise Networking (C\CEN) on contract to the Federal Department of Industry, is exploring the use of the Internet as a business information tool for small businesses in rural Nova Scotia. To date, the results have been mixed as there appears to be only limited interest by small rural businesses in the technology, perhaps due to a lack of knowledge, available resources to undertake such activities, or from access to the Net.

As an "Enabler"

The technology is also "enabling" the mobilization of a much wider and more sophisticated range of resources to support local economic development initiatives than has ever before been possible. Music making and performance has become one of the most significant local industries in Cape Breton where a very pure strain of traditional Celtic music has survived to the present day. The organization of performances and the marketing of performers, music schools and publications are migrating to the Internet. Internet access means that more of the benefits from this industry are being retained in Cape Breton.

How should communities catalyze and elaborate on these successes? How should they develop new ideas and enterprises, rather than simply marketing existing ones?

Distributed Networking

ICT supports the formation of online networks for distributed economic development and production. Technology allows for continuous communication; work sharing; remote administration and management; and, seamless presentation and marketing of multiple centres as a single entity to the world. This follows the highly successful "flexible networking" model found in Emilia Romagna in Italy or in Appalachia ( ACEnet).

Coordinating production, optimizing the selective advantages within the network and using the larger scale capacities of the network to undertake more elaborate activities are being explored. This could be a major opportunity for local economies that previously had been limited by their access to specialized skills and their small and dispersed populations. "Flexible networks" gain advantage from geographic or cultural social distinctiveness and from being a component of a larger network of producers, even when the linkages are largely "virtual".

New types of networked organizations may be created. They could be structured as hubs and multiple self-sufficient nodes. Collaborative specialization, information dispersal and multiple or distributed ownership, decentralized and horizontal support structures, and a high degree of local self-sufficiency (and thus structural redundancy/survivability) characterizes these new organizations. These structures allow for a speed of adaptation, highly efficient (low friction) horizontal rather than vertical information flow, and the economies of mutual rather than functional support. Client needs can be responded to more immediately, both geographically and culturally, creating powerful and globally competitive marketing opportunities.

This in turn would map onto the strengths and competitive advantages of existing local enterprise efforts. Highly adaptive responses to external economic conditions would help the local economy to evolve towards information intensity, increasing complexity and functional elaboration while integrating clients directly into dispersed supplier chains. The resulting disintermediation between user and supplier is precisely what many are predicting as being the organizational model of the marketplace of the immediate future.

Flexible Manufacturing Networks

Through the efforts of Wire Nova Scotia, the Nova Scotia Community Access Committee, C\CEN and regional efforts such as SENCEN and the Annapolis Valley Work Group an embryo "network" of Community Access sites has been established throughout rural Nova Scotia. There exists the possibility, given this network, of the creation of what has been termed "flexible networks". These networks have proven to be highly successful in coordinating the efforts of independent enterprises, often scattered over significant geographical distances, and integrating frequently distrustful former competitors.

They have succeeded in creating synergies and economies of scale based on networked coordination rather than organizational structuring; distributed divisions of skills, responsibilities and efforts within the network; effective marketing, quality control and, even research and development efforts

The very fledgling efforts at coordinated project undertakings in Nova Scotia through Wire Nova Scotia might be seen as the initial phase of a longer term development of a Rural Nova Scotia "Flexible Computing Enterprise Network" - F-CEN.

"What is a Flexible Manufacturing Network?

A flexible network is a group of two or more firms which have banded together to carry out some new business activity that the members of the network could not pursue independently. The network can involve similar firms which band together to share the costs of developing a new product or market, or dissimilar but complementary firms which collectively approach the capability of a vertically integrated large firm. Typically the nature of the cooperation within the network is carefully defined so as to preserve each firm's independence and original lines of business.

The duration of the collaboration may be very short and limited to a particular project for a single customer. A new network may then be assembled with the best configuration to meet the needs of the next customer. This constantly shifting, flexible organization of the production system is typical of flexible manufacturing networks in Italy, and of the new film industry that has replaced the large studios in southern California. Alternatively, a group of firms may form a very long term collaborative effort, as exemplified by a group of Swedish woodworking companies that formed a jointly owned marketing subsidiary 30 years ago.

A flexible production network is not just a joint venture among several firms. nature of the collaboration tends to be deeper in a true network, and one form of collaborative endeavor tends to lead to others. Shared input procurement to get large scale cost breaks may lead to joint bids or a common work force training program.

Examples of flexible networks can be found in both Europe and the United States. In this country, a group of heat treating firms in Ohio have banded together to share information on new technological developments in heat treating, aid members in adopting such technology, and market the capabilities of member firms in regional, national, and international markets. In an effort to improve the availability of qualified labor, the Metalworking Connection, Inc., a network of 50 small metal fabricators in southern Arkansas, has created an apprenticeship program which allows apprentices to rotate through nearby metal shop , adding to their skill and expertise, and to receive certification as a journeyman at the conclusion of the apprenticeship. In Washington, over 100 small wood working firms have banded together into the Lewis County Woodcrafts Cooperative, an organization that markets their products and provides assistance with product design and the acquisition of input stocks as well. Examples of newly formed networks can be found in at least a dozen states.

The network idea may have originated, or at least have been most extensively applied, in the Emilia Romagna region of northern Italy, where very small furniture, ceramic, textile, and metalworking firms organized in flexible networks have been integrally involved in the industrial renaissance of the region. The province moved from a very backward economic status to one of the most affluent regions within Italy concurrently with the development of small business networks as the dominant form of production. This Emilia Romagna phenomenon has attracted international attention thanks to the seminal book by Michael J. Piore and Charles F. Sabel entitled The Second Industrial Divide (New York : Basic Books, 1984). A few network organizations have also arisen spontaneously among metal and woodworking firms in other European countries including Sweden, Germany, and Denmark. In the last two years, over 3,000 networks have been formed among small and medium sized Danish manufacturers as a result of a government program aimed at combating the competitive challenges of the emerging Common Market.

Why Should Manufacturers Be Interested in Starting a Network?

Small firms who want to improve their competitiveness, develop new products, penetrate new markets, adopt new technology, upgrade work force skills while retaining the unique lifestyle of a small business should be interested in the network approach. Significant progress on these fronts can be achieved more easily in a well functioning network than in isolation.

It is often maintained that small firms are run by very busy entrepreneurs who spend long hours dealing with day to day operational details. Lacking a large and diverse management staff, there is little time to worry about long run issues such as new market and product development, or incorporating new technology into the production process. Challenges from far away firms that have become sophisticated international competitors may arrive as devastating surprises since such firms typically lack market scanning capabilities. Surveys of small manufacturers have shown that they typically lag larger firms in adopting advanced technology and therefore have lower productivity levels.

These competitive disadvantages of small firms provide the most powerful rationale for the formation of flexible manufacturing networks. United with firms with similar ambitions, these competitive challenges can be overcome. A major advantage of the network approach is that it allows small firms to remain small. While a great deal of job growth and prosperity can come from very dynamic firms that grow into big firms, the reality is that not all entrepreneurs want to preside over the development of a giant concern, and many of them who do lose their positions of control in the process. For those small business owners that want to remain small, but successful, the network approach offers access to new markets and technology within an organizational arrangement that permits them to control the size of their individual firms."

- Paul Sommers, Northwest Policy Center, University of Washington (July 1996)

ICT and Flexible Networking

A significant new opportunity presented by ICT may be through the formation of flexible networks online, using electronic links to manage and coordinate distributed development and processing of information intensive products.

The capacity of technology to facilitate and accelerate continuous communication, work sharing and remote administration and management, seamless presentation and marketing of multiple centres as a single source to the world (the basis of "flexible networks") is only beginning to be explored. Drawing from the experience of the highly successful "flexible networking" approaches to the production of "physical goods" - as found in Emilia Romagna, extensively in Denmark and increasingly elsewhere in the world - these networks can only be enhanced by means of ICT.

Coordination of production, based on optimization of selective advantages within the network, and the use of the larger scale capacities of the network is only just beginning to be explored but could provide major opportunities for local economies. These economies previously had been limited by access to skills and other factors. A "flexible network" could both draw advantages from the specific nature of a locale and from the economies and efficiencies of scale which derive from being a component of a larger network of producers.

A network could, for all practical purposes, function as a virtual enterprise. Such an enterprise would allow a firm the advantage of ICT's distance insensitivity; provide opportunities for local "ownership" of local information; and, permit lower costs. In addition new types of networked enterprises would emerge that would take advantage of product differentiation (as a result of local nuance and timbre) and the flexibility of distributed and more adaptable systems. In this way it might be possible to achieve economies of "disaggregation" rather than economies of scale.

New types of networked organizations - structured as hubs with multiple self-sufficient but mutually supportive "nodes" - would evolve. These organizations would feature collaborative specializations, distinguished by multiple or distributed information ownership, decentralized and horizontal support structures, and a high degree of local self-sufficiency (and thus structural redundancy/survivability). These structures would have a considerable competitive advantage arising from their ability to adapt to changing requirements. Information in these organizations would flow horizontally rather than vertically, which would also feature economies of mutual rather than functional support. There would also be distinct advantages to respond to client requirements geographically and culturally. As a result, these firms would be highly competitive in larger marketplaces.

These new organizations would utilize the strengths and competitive advantages of existing economies and resources in local areas. In turn, these firms would be highly adaptive to external economic conditions yet assist the development of local economies. On a local or regional scale, there would be an increasing use of information tied to sophisticated market demands, leading to an increasing need for complex elaborations of products and services, and the capacity to integrate clients directly into the supply chains of dispersed producers. The resulting disintermediation between user and supplier fits precisely the organizational model which most appropriate responds to the market demands of the future.

Some Scenarios for a Flexible Computing Enterprise Network

For the Community

Let's take a school in a small economically depressed area, one that has been losing students to a larger consolidated school a short distance away. Assume that the local community organizes to secure a grant to set up, in one room of the soon to be abandoned school, a small computer facility. Part of the grant secures Internet access; other subsequent funds allow the community to hire a local high school student part-time and another local college student to work in the facility during the summer.

The site begins to advertise and quickly acquires a clientele of local kids willing to pay a dollar an hour to play computer games. Pretty soon the kids are so knowledgeable that they are "hired" to train older members in the community about computers and networked information. The facility provides training in word processing and small business bookkeeping. The staff of the community computer center even help a local unemployed electrician put together his resume and assist him in searching for job opportunities away from home. Those using the facility are prepared to pay a dollar or two an hour for using the computers and a bit extra for training.

Eventually the center with its Internet connection becomes a place to search for employment, to check on family histories and to send and receive electronic mail. One fellow comes in who uses computers in the facility to download files from his old job in the city. Eventually he regularly uses a particular computer to store his file; he can afford a computer and an Internet connection, but the center has some useful software that he needs now and again. At some point he is regularly sending files to organizations in the city, earning a living working on different projects remotely.

The local bank recently closed its branch in the community so there isn't an ATM for several miles. Someone gets the bright idea to visit the bank's Web site and access their account online to do simple transactions. Eventually this online banking flourishes so the bank uses the facility to provide online assistance and access. The bank agrees to pay the site a small fee each time a transaction is undertaken through its connections to the Internet.

A young ill girl no longer can commute to a local college. The manager of the facility sets up a way for the student to continue her studies via computers and the Internet. Her success encourages the college to plan a distance education program involving the facility. The college agrees to pay the site for "delivering" courses, including all student training and other online activities.

Thanks to local tourists, the facility turns into a facility where visitors check their electronic mail, confirm future travel plans - all for fees. The local government recognizes the value of the facility by making local job information online. Local agencies pay fees to the facility delivering government information to citizens.

These events in one way or another are currently happening in rural areas in Nova Scotia:

For the Region

Several community access sites in a local area decide to work together as a "regional network". The network make its possible to take on larger projects on a contractual basis. Thus for example two sites working together received a contract to undertake a digital project which required the use of both French and English. One site undertook its work in English using local staff while the other site undertook the French component, reconciling and integrating the two sides of the project by e-mail as necessary.

The regional network in turn provides other services including technical support for specialized purposes, marketing of regional services and promotion and administration of activities for each site. While individual sites may become self-supporting, the synergy of a larger network adds opportunities available both to the network and through the network to individual sites. These opportunities include Web support, information development and management, and distributed service support such as call centres.

In addition the regional network is in a position to be integrated with other service providers and centers such as school boards, hospitals and other medical care facilities, human services and economic development programs. Each of these generally work through discrete hierarchies into centralized administrations. With the ready and low-cost availability of ICT there has been an increasing tendency to decentralize responsibilities for program management to regional and even local levels.

With increasing emphases on regional administrations and the related increasing emphases on ICT as the link there is an increasing need at the regional level for technical support and information management. The tendency has been to continue to provide ICT activities within the traditional administrative organizational structures. However, the cost is quite significant while the quality of service which can be provided in this manner is often inadequate. Increasing pressures for cost control and increased efficiency is providing pressure on these organizations to look to regional and integrated capacities for providing ICT services.

Taking advantage of more entrepreneurial activities means that there will be quite significant opportunities for the development of regional ICT service. This service in turn can become a resource for development on a regional basis of enterprises which take advantage of the skills recruited to the regional hubs combined with the lower overhead costs. Thus, for example, combining a significant technical capacity at a regional level with specializations in wood processing or databases leads to ICT support for local industries and the development ICT specialized software and hardware services linked to these industries.

In rural Nova Scotia there are opportunities in this manner in forestry, fishing, mining, tourism and agriculture. The combination of technical capabilities, skilled human resources and lower overhead costs all provide opportunities for local economic development with ICT as the base. Further reinforcement is possible with direct links to local educational centres such as colleges or universities with skilled personnel and appropriate research and development activities.

This kind of regional development - between community access, regional coordination, regional public administrations and existing areas of local specialization - could be very potent:

For the Province

The key to the revitalization of local economies using ICT will be in creating the capacity and the means to implement and optimally employ the aforementioned functionalities. While individuals, certain enterprises and some communities will be in a position to take advantage of these functionalities, it is very likely that their optimal use will only come with the development of a network approach. This network would involve a dispersed number of nodes - individuals, enterprises or communities - which together provide service both to their own locales and to external clients.

For example, suppose one community provides information on the World Wide Web designed to attract tourists; it will be in competition with every other similar community not only for tourists but more importantly for the attention of potential tourists. However, suppose a network of communities in a region or in a state or province worked together to create a Web site for tourists. The impact of this site would be far greater than any single site devised by a community.

If the responsibility for maintaining official electronic "presences" for a region were transferred to digital cooperatives, information could be developed in new and exciting ways. In Nova Scotia, tourist destinations are organized in terms of individual tourism "trails"; there are six separate tourist trails each covering a specific part of the province, coordinating information from diverse sources.

We have proposed that the entire provincial tourist guide be placed on the Web, with local authorities responsible for each of the regions/trails. An overall project coordinator would ensure a common "look and feel" and quality control to the complex site. Local participation would depend on local Internet service agencies or local Community Access sites. These agencies and sites would coordinate information from diverse sources, individuals, businesses, communities and diverse government agencies.

The overall impact of this approach would:

About the Author

Michael Gurstein is Director of the Centre for Community & Enterprise Networking at the University College of Cape Breton in Sydney, Nova Scotia, Canada.


A portion of this paper was the keynote address at the founding meeting of the Australian Community Networking Association (ACNA) in February 1998.

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