Volume 4, Number 10 -- March 22, 2007

Study Attempts to Quantify IT's Effects on the Economy

Published: March 22, 2007

by Timothy Prickett Morgan

Back in the days of data processing, just replacing people with computers seemed to be enough of a good reason for business managers to spend relatively large sums of money on mainframes and minicomputers. But as the use of computing ballooned in the following decades, weaving itself into the very fabric of the economy and our lives, we ironically seem to not know exactly how much all of this information technology--which is more about linking people and companies than it is about doing bookkeeping in the back office--is helping or hurting the mature economies of the world.

According to a report released last week by the Information Technology and Innovation Foundation, getting a precise answer to that question is a bit difficult, but the researchers at this year-old foundation took a stab at it. The report was written by Robert Atkinson, who among other things was project director of the Congressional Office of Technology Assessment, and Andrew McKay, an economics student at Swarthmore College.

The basic premise of the 78-page report, called Digital Prosperity, is that the "integration of IT into virtually all aspects of the economy and society is creating a digitally enabled economy that is responsible for the lion's share of growth and prosperity." That's a pretty bold statement, and one that you would not get a single IT vendor and very few IT managers to argue a counterpoint to. (You can read the full report online at this link.)

I am in the IT business myself, and I like computers. I spend time building computers when I don't have to because I like to see how they work. The computer business has been pretty good to me. But I think it is more fair to say that IT has enabled us to do many thing faster than we did before--in my case, get news out to readers--but the pace of the world enabled by IT also makes intense demands on our productivity. We are not just magically more productive and that is great for the economy. We are more productive because of IT, and then the world--as filtered through our employers--expects more from us. In plain English, I write a heck of a lot more each day that I used to 15 years ago, and that is not because I am more experienced. It is because a modern, IT-connected world demands I do more for less each year, and I have to do more to break even. I ain't complaining, let's be clear on that. I love what I do, and if I didn't, I would stop right in the middle of this sentence. But I just want to say that I get a bit annoyed when academics, politicians, analysts, and IT vendors all hail the benefits of "getting connected." Getting connected means other people get unplugged--how many jobs has IT destroyed in 30 years?--and that many people get left behind in the prosperity.

It also means that we end up doing many of the things, with the assistance of computers, that used to be done by people. We used ATMs and kiosks, we type our own letters, we use email forms to send protests to our Senators. There is no question that online ordering, automated manufacturing, electronic banking and stock trading, computerized supply chain webs, and other networks of systems that are the backbone of the U.S. economy have not made the economy more efficient, as the Digital Prosperity report suggests. It took the Internet to make this productivity happen properly--which is why American productivity fell to an average of 1.5 percent per year between 1974 and 1995 as IT investment grew from a tiny fraction of total capital investment in 1980 to nearly 10 percent by 1990 and 22 percent by 2000.It wasn't until the period of 1996 through 2006 when American worker productivity rebounded to an average of 3 percent--the level that the country saw from the golden years between the end of World War II and the beginning of peak oil in the States, the Middle East wars and embargoes, and the resulting recessions.

Being able to do more things at a time is often hailed as being a huge benefit of modern IT systems, and this is the conclusion that the Digital Prosperity report ultimately comes to. While it is great that we are more productive, I often think that we are less focused, even if we do have better information at our fingertips.


Digital Prosperity: Understanding the Economic Benefits of the Information Technology Revolution

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Editor: Timothy Prickett Morgan
Contributing Editors: Dan Burger, Joe Hertvik,
Shannon O'Donnell, Timothy Prickett Morgan
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