NCPA - National Center for Policy Analysis

Searching For Increasing Productivity From Information Technology

August 11, 1997

Economists are puzzled that the vast investment in information technology made over the past decade or two is not showing up in productivity figures. In the first half of this decade, they report, productivity gains have been minimal -- especially compared to the routine 3 percent annual gains in the 1950s and 1960s.

  • The United States government's index of output per hour of all persons in the business sector climbed only 1.7 points -- to 101.7 -- in the five years 1992 through 1996.
  • The U.S. did experience a 1.3 point year-to-year gain in this year's first quarter -- which might indicate that after a time-lag information technology is beginning to have an impact.
  • Economist Paul David of Stanford University has pointed out that it took 40 years from the invention of the electric dynamo in 1880 until its effects in powering industry began to show up in productivity figures.
  • Some economists caution that improvements in efficiency can actually show up as diminished output -- for example, the proliferation of automatic teller machines might make bank production appear to decline as fewer check transactions are processed.

Economists also suggest that the gains some business report from information technology are being offset by higher costs elsewhere due to the tax collecting and regulatory functions of government -- and the higher costs inflicted by government red tape.

Source: George Melloan, "Where Is the Information Technology Payoff?" Wall Street Journal, August 11, 1997.


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