The economic contribution of Ordnance Survey - Economic

OXERA (Oxford Ecomomic Research Associates Ltd) Final Report (public version)

2. The Economic Gains from Geographic Information

2.1 Introduction

OS has undertaken the official topographic survey and mapping of Great Britain since 1791. It is responsible for providing and marketing topographic data and mapping at scales of 1:10 000 and larger, depending on the type of area, for the whole of Great Britain. This includes the geodetic and topographical surveys, and the associated work necessary for their completion. OS also produces national series in paper and data products at a range of other scales.

In 1990 OS became an Executive Agency of government. In 1999, it became a Trading Fund, enabling it to focus on the development and exploitation of its commercial activities. It has also recently entered into an agreement with the government, the National Interest Mapping Service Agreement (NIMSA). This is designed to ensure the continuation of the non-commercial (i.e. national interest) elements of OS's business.

An understanding of the economic value of OS must begin with an understanding of the value of GI to the Great Britain economy. As with most national mapping agencies, OS is the central player in the market for GI in Great Britain; as such, it contributes to the growth of, and developments in, the GI market. Similarly, users and other producers influence OS, both by guiding product development and pricing, and by providing complementary products, particularly those involving new technologies. As the technological options have widened, OS has developed a wider range of products and services, many of which were not even conceived of 25 years ago.

This section considers the economic importance of GI, with particular focus on the value provided by geographic information systems (GIS). Later sections focus explicitly on the economic value of OS alone. There have been some studies of the economic importance of GI, and many detailed studies of the specific costs and benefits of particular GIS applications. However, we believe that this is the first time the economic contribution of OS has been presented within the framework of economic analysis. In what follows, it is not always the facts that are new (many are drawn from existing studies and publications), rather the way in which they have been integrated. Much of this discussion will be familiar to those working in the field, but this brief overview provides a useful summary for those new to the sector.

2.2 What is geographic information?

The Chorley Report defines GI as follows:

'Geographic information' is information which can be related to specific locations on the Earth. It covers an enormous range, including the distribution of natural resources, the incidence of pollutants, descriptions of infrastructure such as buildings, utility and transport services, patterns of land use and the health, wealth, employment, housing and voting habits of people.²

GI is all information that has a spatial context. It encompasses a growing number of datasets, many of which are combined to provide information requirements for the end user. A sample of the types of datasets is shown in Box 2.1.

Box 2.1: Core types of datasets

Source: GI-BASE (1997), 'Final Report, Study on Demand and Supply for Geographical Information in Europe', OS, Navigation Technologies, and elda Ingegneria spa.

A significant proportion of all information that is publicly available in any economy is GI-related and is used in a wide range of commercial and leisure activities.

GI is an assumed reality of everyday life. Information about where we are, what surrounds us, and where we are going is essential for both commercial and social well-being. This was confirmed in the Chorley Report, where it was noted that:

Most human activity depends on geographic information: on knowing where things are and understanding how they relate to each other.³

The economic value of GI is often underestimated because the knowledge acquired through the use of GI is considered an automatic 'right', which will always be freely available. It is only once the social and economic losses that would result from an absence of GI have been considered that the full value of GI is appreciated.

2.3 Is geographic information a public or a private good?

In order to establish something of the role and value of GI in the national economy, Masser considers alternative economic classifications of GI⁴. He establishes that while GI has many of the characteristics of a resource, a commodity, a capital asset and infrastructure, it does not fit neatly into any of these categories. The difficulty in assigning a particular role to GI reflects, to a large extent, the diffuse, and hence extensive, impact that it has on the economy. For the purposes of this report, it is assumed that GI, as provided by OS, is a basic input into production processes throughout the economy, and a final good consumed by users directly, both for commercial and leisure activities. The role of GI as an asset and infrastructure is also captured in the discussion on the social and environmental value of OS.

One issue is the extent to which GI is a public or a private good. The theoretical differences between these two types of goods have been discussed extensively in economic literature and in studies of GI⁵. In essence, public goods are those which, once they have been produced, are available to all, without exclusion; in contrast, private goods can be owned exclusively.

Given the variety of datasets, products, services and uses involved, it is not surprising that GI cannot be defined as either a pure private good or as a pure public good. There are some elements of GI that are distinctly public. GI is non-rival in consumption (i.e. the same information can be consumed by multiple users), but there are attributes of GI provision which make it a private good (e.g. in general, it is not freely available to all consumers, and charges can be used to limit access). GI has grown from being the collection of information required for defence or other public purposes, which could be construed as a public good, to being a wider range of datasets and information uses. It has become what Love defines as a 'quasi-public good'⁶.

Similarly, OS cannot be seen simply as a provider of a public good or a provider of a private good. Elements of business cover both types, although services based on GI are mainly private goods, since they are constructed with particular users in mind. The dual nature of OS outputs and services has been recognised in both the internal organisation of OS and the financial regime established by the government. Thus, the establishment of the Trading Fund recognises the private-good element of OS activities (where it is expected to be commercial), while the NIMSA provides official recognition of the public-good role of OS, and the need to ensure that it continues into the future.

2.4 How far is the collection of geographic information a natural monopoly?

A separate consideration is that the collection and maintenance of GI may in part be a natural monopoly, with the result that the average cost of provision is increased where OS's activities are duplicated by other information providers. Certainly, there would seem to be no benefit from having two identical base datasets of the same location, and there should be substantial efficiency gains from unifying data collection. The implication is that any required level of activity can be supplied most economically by a single firm or a single system⁷. In practice, there is some duplication of geographic data collection within Great Britain, and the extent of duplication may increase in the future, as new digital technologies based on aerial photography become available. Thus, it seems possible for competitors to overcome some of the apparent advantages of a natural monopolist by using new techniques or by selling new products or services.

OS's activities are to some extent split between those which have elements of natural monopoly (the collection, storage and maintenance of GI), and those which are potentially competitive (the conversion of the base GI datasets into products and services, and the sale and marketing of these products and services to customers).

Where there is a natural monopoly, there are difficult choices about pricing since there are many ways of recovering fixed costs, each with different implications for demand. Issues of pricing policy have only been touched upon in this report, which deals with the current pattern of demand and use.

2.5 The role of geographic information systems

According to the DTI's White Paper, 'Our Competitive Future: Building the Knowledge Driven Economy':

Digital technology is the nerve system of the knowledge driven economy. Huge advances have been made in our ability to collect, store, retrieve, analyse and communicate information… Information is cheap and plentiful. It is not enough, however, for business simply to collect information. It has to use it effectively to raise productivity, develop new products and processes and serve customers more intelligently.⁸

The same concerns drive the recent book by Bill Gates⁹;. The central message of this book is that: 'The successful companies of the next decade will be the ones that use digital tools to reinvent the way they work.' Several of the examples in the book make some use of GI.

The gains from new technology can be categorised into three types:

• increases in efficiency, so that the same task can be performed with fewer, often significantly fewer, resources;
• increases in effectiveness, so that the same task can be performed with greater accuracy and fewer mistakes;
• new products and services, which could not have been produced without this new technology.

The gains can be achieved by various routes:

• reductions in processing costs;
• reductions in search costs;
• more effective scheduling, and therefore reductions in waste;
• reductions in uncertainty, and therefore more effective service delivery;
• better matching of products and services to needs as a result of better information.

Given these potential benefits of technology, it is not surprising that the development of computer-based GIS is assumed to have increased the efficiency and effectiveness with which GI is used throughout the economy. Two definitions of GIS are:

A GIS is a combination of hardware and software which enables the collection, storage, retrieval and display of geographical and database information in a single system.¹⁰

A system of hardware, software, and procedures designed to support the capture, arrangement, manipulation, analysis, modelling and display of spatially-referenced data for solving complex planning and management problems.¹¹

Together, these definitions identify the range of information covered and its subsequent usage. In Box 2.2, a sample of GIS applications is provided to indicate the significant impact which these systems have in all areas of the economy.

Box 2.2: Geographic information systems applications

Source: GI-BASE (1997), 'Final Report, Study on Demand and Supply for Geographical Information in Europe', OS, Navigation Technologies, and elda Ingegneria spa.

It is evident from Box 2.1 that there are many different types of datasets that are categorised as GI and that each has many alternative uses. A key feature of GI is the close relationship between the constituent datasets. There are substantial advantages if users and product and service providers are able to combine the base data-types, thereby creating new sources of information and analysis. In the paper world of the past, the combination of different datasets was either impossible or else difficult and time-consuming. Developments in technology, and the advent of the digital age, have altered the way in which GI can be used, combined and integrated into production processes. The development of GISs has significantly increased the economic value of GI, especially where the different datasets are consistent.

In the EU, DG XIII (Directorate General for Telecommunications) has responded to the agenda set out in the competitiveness White Paper¹² by establishing a work programme to develop a European policy for GI as a contribution to the European information society. The related discussion document sets out a broad strategy, together with indications of the expected economic benefits¹³. The DG XIII document states that the ultimate aim of GI is to 'manage our natural environment more effectively and promote economic growth'.

Box 2.3 gives a broad indication of some of the uses of GI, in a digital context, to emphasise the central importance of GIS to the modern economy. Only when the precise applications are considered can the real potential be understood, particularly in the case of new and innovative uses.

Box 2.3: Some new and innovative uses of geographic information

Source: OXERA based on Gilbert H Castle III (ed) (1993), Profiting from a Geographic Information System, GIS World Books; and internal OS information.

It would be misleading to proceed on the assumption that we are dealing only with benefits to business, which can be translated into growth in national income or GVA. For example, many of the uses of GIS involve the heath and social services or other aspects of public provision (e.g. accident protection and avoidance), which generate significant, but non-pecuniary, benefits.

There is concern that some of the business uses of GIS will result in greater manipulation of consumers, rather than greater efficiency and better service standards. This is a philosophical and ethical consideration that is far beyond the scope of this report¹⁴. What is undeniable, however, is that, as the above box shows, the potential benefits of GI reach far into society. As the DG XIII document states, 'GI and GIS tools, working hand-in-hand, can improve the ability of many societal actors to make informed choices.' As would be expected, a number of the uses relate to the more effective use or protection of land or natural resources. Given the growing pressure on natural resources, and the world's increasingly urgent environmental concerns, these sort of gains are clearly of major importance. However, other uses relate to other kinds of resources (e.g. medical, social and economic).

2.6 The economic value of geographic information in the digital age

Developments in technology have improved the way in which GI is collected and managed. Other changes have increased the range of products and services available, while some previously inaccessible information is now widely available on the Internet. The choice between new and more accurate maps, and old and less accurate maps, is one that has presented itself to users ever since maps began. While this choice remains, it has been superseded to a large extent by the much more fundamental choice between old and new technologies. The essence of digital technologies is that the process of updating maps and other GI can be both instantaneous and much less costly than before; however, the costs of investing in the new systems, including hardware, to handle the new technology should not be underestimated.

The net economic and social impact of better information is real, but it is inevitably often difficult to measure. Table 2.1 presents examples of the economic advantages which companies and institutions have been able to reap as a result of the use of GIS products. An aggregation of these effects is not really possible. However, there are widespread claims in the USA that 'the dramatic improvements in computing power and communication and information technology appear to have been a major force behind this beneficial [productivity] trend.'

Table 2.1: Some examples of economic gains from geographic information systems

Case studies of this kind inevitably draw attention to the successes. Another study puts these, possibly rather exceptional cases, in perspective. In a survey of the business use of GI¹⁶, respondents, who were all members of the Association for Geographic Information (AGI), and were therefore more aware of the possible uses of GI than most, were asked to rank the benefits of GIS in a scale ranging from 'very considerable benefits' to 'no benefits at all'. Eleven uses were identified¹⁷ and, in all cases except 'contract negotiation, over one-third of respondents said that the benefits were either 'very considerable' (scored as 1) or close (scored as 2). Nevertheless, in the case of risk assessment, disaster planning, and contract negotiation, about half the respondents said that there were no benefits at all. It is important to bear this range of experience in mind when interpreting the uniformly favourable case studies.

2.7 The value of geographic information and geographic information systems

This report focuses on the value of OS's activities to the Great Britain economy, both in qualitative and quantitative terms. Barr and Masser suggest that:

Information has no inherent value, it is only of value once used and that value is related to the nature of the use rather than the nature of the information. As a result information has very different values for different users.¹⁸

The aim of this report is to show something of this variation. Nevertheless, it is tempting to want to place this analysis within the framework of an estimate of the value of GI and GIS as a whole.

A crude guide to the value of GI to the economy is the amount invested in GI. DGXIII estimates that the investment made by government, commercial and industrial organisations for the collection, provision and use of GI in Europe is 10 billion ECU per year (£6.6 billion)¹⁹. It adds that only a small percentage of this investment is thus far linked to commercial exploitation. Estimates have been made by a number of researchers of the total size of the Great Britain GI industry. For example, NOP estimated that the total domestic market was valued at £204m in 1997²⁰. The contribution to employment is also significant. OS's own turnover was £75m in 1997/98.

2.8 Conclusion

This section has presented a broad review of the benefits of GI, and in particular of digital information systems. Substantial gains in productivity and improvements in performance standards are possible, although no attempt is made at this point to make an aggregate estimate of value.

It is, however, important not to omit the other wider social and environmental gains from GI. The maximisation of such gains raises difficult questions concerning the best way to price such information and the possibilities for increasing usage by introducing different tariffs.

2 Department of the Environment (1987), 'Handling Geographic Information: Report to the Secretary of State for the Environment of the Committee of Enquiry into the Handling of Geographic Information', Chairman: Lord Chorley, p. 7.
3 ibid.
4 Masser, I. (1998), Government and Geographic Information, Taylor and Francis. The reader is referred to Section 2 for an extensive discussion of the problems in defining GI.
5 See, for example, OS (1996), 'Economic Aspects of the Collection, Dissemination and Integration of Government's Geospatial Information: A Report arising from Work carried out for Ordnance Survey by Coopers and Lybrand, May.
6 Love, J. (1995), 'Pricing Government Information' in 'Agenda for Access: Public Access to Federal Information for Sustainability through the Information Superhighway', report prepared by the Bauman Foundation, Washington DC.
7 See Sharkey, W. W. (1982), The Theory of Natural Monopoly, Cambridge University Press.
8 DTI (1998), 'Our Competitive Future: Building the Knowledge Driven Economy', paras 2.72-73, Cm 4176.
9 Gates, B. (1999), Business @ the Speed of Thought: Using a Digital Nervous System, Penguin Books.
10 OS (1997), 'Digital Insight' booklet.
11 Cown, D. (1989), The National Centre for Geographic Information and Analysis (NCGIA) lecture.
12 'Growth, Competitiveness and Employment: The Challenges and Ways Forward into the 21st Century', Bulletin of the European Communities, 1993.
13 DG XIII (1998), 'Geographic Information in Europe: A Discussion Document', August.
14 These concerns are covered in Pickles, J. (ed) (1995), Ground Truth: The Social Implications of Geographic Information Systems, The Guildford Press.
15 Alan Greenspan, Chairman of the US Federal Reserve Board, quoted in DTI (1998), 'Our Competitive Future: Building the Knowledge Driven Economy'.
16 Grimshaw, D.J. (1997), 'A Survey of GIS Use in the Business Sector', Proceedings of the AGI Conference at GIS.
17 These were risk assessment; disaster planning; drivetime analysis; financial management; strategic development; customer profiling; site planning; visual presentation; service delivery; contract negotiation; and marketing/targeting.
18 Barr, R and Masser, I (1996), 'The Economic Nature of Geographic Information: A Theoretical Perspective', in Proceedings of the GIS Research UK 1996 Conference.
19 DG XIII (GI2000 initiative) (1996), 'Towards a European Policy Framework for Geographical Information: A Working Document', November.
20 OS (1998), 'Marketing Strategy', November.