Professor Danny Quah (London School of Economics and CEPR) will argue, at a conference jointly organized by the Centre for Economic Policy Research and the Department of Trade and Industry on 27 January, that technological progress is now, and likely always has been, the single most important factor underlying continued advances in economic wellbeing in the richer countries. This remains true both at the national level and at the individual level.

Over the last two decades the greatest, most rapid, and most visible technical progress has occurred in that part of the economy which can be referred to as the ‘weightless economy'. This can be defined as a combination of information and communications technology (ICT), intellectual property – embedded in, among others, pharmaceutical products, electronic libraries, databases, and digital media. (Sometimes, one might include in this list other elements of the ‘creative’ sectors of the economy, although whether it is insightful, useful, or correct to do so, depends).

The rate of technical advance in the weightless economy dwarfs anything that had preceded it – including, significantly, the Industrial Revolution of the late 18th century, or the technical consolidations of the 19th century or early 20th century. The defining feature of the weightless economy is not just the high concentration of knowledge in the goods produced, but also, more important, in the way weightless economy products themselves behave like knowledge. To a first approximation those products show infinite expansibility and inherent unknowability.

• Infinite expansibility is when further use of a product does not draw down its original usefulness to other consumers. Computer software displays this; scientific knowledge displays this; electronic database and digital media content displays this.
• Inherent unknowability is when the value of a product in use or consumption is uncertain, when consumers need to grow in sophistication to fully exploit a product. Computer software, scientific knowledge, and digital content, again, all increase in usefulness as users raise, correspondingly, their levels of sophistication – either through learning by doing on one's own or learning from one another in networks.

Education, in this broad interpretation, supports the demand side of the weightless economy, not just its supply side.

To succeed, continued wealth creation and economic progress – whether at the individual, national, or global level – has to acknowledge the increasing importance of the weightless economy and to exploit its peculiar properties. Marginal cost can be close to zero, thereby making conventional economic behaviour to price at marginal cost in equilibrium no longer feasible. However, market structures that support viable alternatives paradoxically deliver inherent social inefficiencies when they do work. Technical leaders can grow to be market successes, and incur unjustified popular criticism. Successes in the weightless economy do not derive from an inherited or established position. And they don't remain leaders for long without continually re-inventing their successes. Societies need to understand and to debate this trade-off between dynamic incentives and social inefficiency.

Centralisation does not provide the answer, and examples from history illustrate the dangers of expecting it to encourage and promote technical progress. Despite an Industrial Revolution in 17th-century China waiting to happen, with all technological ingredients in place, that economy failed to take off. A bureaucratic state shut off growth in demand and use of the new technology – paper and printing, mechanical and hydraulic power, chemical advances – and ended up stifling economic development. While economically and technologically ahead in 1400, China by 1900 was well behind the fast-growing industrially-advancing Western economies. Uncomprehending bureaucrats, fearful of the subversion of their authority, allowed their technical edge to wither away, and snatched disaster from the jaws of an economic miracle.

The weightless economy therefore brings opportunities and pitfalls. There is the possibility of ongoing, unconstrained economic growth; no natural bound is apparent. There is the possibility of a dramatic concentration of wealth and economic power. But at the same time, in well-functioning markets there can be mobility: whoever is on top does not always have to remain there. Finally, there are infinite possibilities for national and social policy mistakes, with disastrous consequences. Understanding the choices to be made and the technological forces underlying them is, at this stage, critical for continued economic success.