Opinion Editorial | |
| Monday, June 21, 1999 | |
Computer Technology And Productivity |
Last week, Congress's Joint Economic Committee held a set of hearings on the role of high technology in the U.S. economy. Everyone who participated agreed that it is critically important and growing more so all the time. Yet an examination of the economic literature shows that economists are still unsure whether growth is any higher because of high technology. Indeed, there is precious little hard data showing that it has had any impact whatsoever. As Nobel Prize-winning economist Robert Solow once put it, "you can see the computer age everywhere but in the productivity statistics."
For example, a 1994 Brookings Institution study found that computer hardware added just 0.16 percent per year to economic output between 1970 and 1992. Including software almost doubles this figure, but the overall impact is still small. The study concluded that "computers probably have not caused much of whatever pickup in aggregate productivity growth has occurred in recent years."
Output in just the IT sector, however, may not be the most relevant way of looking at the impact of high technology on the economy, because computers affect all industries, both directly and indirectly. Thus investment may be a better indicator. According to the Department of Commerce, business investment in computers has risen from 7.7 percent of all investment in producers' durable equipment in 1990 to an astonishing 45.7 percent last year (see figure).
The problem with looking at investment as an indicator of IT's impact on the economy is that the effect on output and productivity may not be felt for many years. Studies of the electricity, radio and other industries whose impact was similar to today's computer industry, have shown that it took decades before their potential began to be fully exploited.
Nevertheless, some economists are starting to find solid evidence of the impact of computers on the economy. One of the authors of the Brookings study, for example, recently reviewed more recent data and found "a striking step-up in the contribution of computers to output growth." Other economists are also saying that the sharp rise in productivity growth -- from an average of 0.33 percent per year from 1993 through 1995 to 2.2 percent from 1996 through 1998 -- may be due to the growing role of computers.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, June 21, 1999.
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