NCPA - National Center for Policy Analysis

Reevaluating The New Economy

October 18, 2001

Recent weak economic growth has prompted some economists to question the theory that information technology has ushered in a new era of strong and nearly unbroken productivity gains -- such as characterized the period 1995-2000.

The consulting firm McKinsey & Co. is among the skeptics:

  • It concludes that the strong productivity gains of the late 1990s were concentrated in only 30 percent of the private sector -- and are likely to be whittled away in coming months and years.
  • The Labor Department had originally pegged the productivity growth rate at 2.8 percent a year in the late 1990s -- a figure it later lowered to 2.5 percent.
  • But McKinsey economists believe the long-term rate will fall back to about 2 percent.
  • Productivity growth during the period 1973-95 averaged about 1.4 percent.

McKinsey says nearly all the surge in the 1995-2000 period was concentrated in six sectors -- retail, wholesale, telecommunications, securities, the assembly of computers and the manufacture of semiconductors.

Source: Louis Uchitelle, "Deepening Wrinkles in the New Economy," New York Times, October 17, 2001.


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