Advances in IT and its effective use can be expected to continue to drive economic and social gains and are key to future innovation and growth. IT is diffused throughout the economy: it is critical to or supports production in all sectors. IT underpins all fields of scientific and engineering endeavor—from basic and applied research to product development, sales, and distribution (see also the discussion of pervasive IT in Chapter 3).

The Economic Case: The Contributions of IT to the Economy

Although economists had debated the exact nature of its impact, the permanent, positive contribution of IT to economic output and growth is now unquestioned.3 Previous difficulties in capturing the impact of IT in the national income and product accounts had been expressed in Nobel Prize-winning economist Robert M. Solow’s often-quoted statement in 1987: “You can see the computer age everywhere but in the productivity statistics.”4 In economics circles, this was known as the Solow productivity paradox. However, improvements in how the national income and product accounts are constructed have convincingly revealed IT’s fundamental contributions to output and growth.5 The paradox is resolved.

In the past decade, worker productivity increased dramatically owing to investments in information technology and, perhaps more importantly, to the effective use of that technology by firms.6 Jorgenson points out that “the development and deployment of Information Technology is the

3

For a resolution to the economic debate about whether the effect of IT was a positive but temporary “shock” to the economy or a permanent improvement, see Dale W. Jorgenson, “Information Technology and the U.S. Economy” (President’s Address to the American Economic Association, January 6, 2001), American Economic Review 91(1):1-32, March 2001. See also the statement by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, before the Joint Economic Committee, U.S. Congress, June 14, 1999: “Innovations in information technology—so-called IT—have begun to alter the manner in which we do business and create value, often in ways that were not readily foreseeable even five years ago.” See http://findarticles.com/p/articles/mi_m4126/is_8_85/ai_55671973; accessed March 24, 2008.

4

Robert M. Solow, “We Had Better Watch Out,” New York Review of Books, July 12, 1987.

5

These improvements began with a revision in 1999 that started treating software expenditures as an investment rather than as an expense to be written off against current income. See Dale W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh, Information Technology and the American Growth Resurgence, MIT Press, Cambridge, Mass., 2005.

6

Jason Dedrick, Vijay Gurbaxani, and Kenneth Kraemer, “Information Technology and Economic Performance: A Critical Review of the Empirical Evidence,” ACM Computing Surveys 35(1):1-28, March 2003.



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