Measuring and Sustaining the New Economy Report of a Workshop (2002) / Chapter Skim
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II. Introduction
II. Introduction
Pages 7-28
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From page 9... ...
For a broad study of investment in technology capital and its use in various sectors, see McKinsey Global Institute.
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The introduction of advanced productivity-enhancing technologies, the key feature of the New Economy, obviously does not eliminate the business cycle. Instead, as this report emphasizes, the New Economy refers to particular technological and structural changes that positively impact productivity and growth.
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Moore, "The Continuing Silicon Technology Evolution Inside the PC Platform," Intel Developer Update, Issue 2, October 15, 1997, where he notes that he "first observed the 'doubling of transistor density on a manufactured die every year' in 1965, just four years after the first planar integrated circuit was discovered. The press called this 'Moore's Law' and the name has stuck.
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Throughout the 1970s and 1980s Americans and American businesses regularly invested in ever more powerful and cheaper computers. They assumed that advances in information technology by making more information available faster and cheaper would yield higher productivity and lead to better business decisions.
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After a 20-year slowdown dating from the early 1970s the average labor productivity had grown by 2.4 percent per year during the period 1995-1998. This exceeded the rate for 1990-1995 by a full percentage pointy Economic Impact of the Internet Along with the rise in productivity grew the expectation that new information technologies would improve business practices, generate spillovers to other industries, and raise productivity throughout the economy.
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The evidence is equally clear, however, that these gains have not spilled over to computer-using industries and services, such as finance, insurance, and real estates Robert Gordon, a critic of many New Economy assumptions, finds that there is "no productivity growth in the 99 percent of the economy located outside the sector which manufactures computer hardware."~5 i4Jorgenson and Stiroh, op.
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Meanwhile, the rapid pace of change in this "new" or "emerging" economy provides a smorgasbord of emerging synergies, new economic opportunities, and new statistics to consider and new needs for better measures, as we attempt to determine the emerging outline and prospects of the New Economy. The Problem of Measurement Participants in the workshop noted that the contribution of information technologies to the economy is difficult to capture accurately.
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Brynjolfsson of the Massachusetts Institute of Technology further noted some hazards in equating price with value for computers, particularly given that consumers are often not price-sensitive, valuing instead service, brand loyalty, and perceived quality.22 Further to the issue of value, Dr. Mowery of the University of California at Berkley noted that it is difficult, from the point of view of statistics, to see the contributions of the semiconductor industry since it is hard to measure the output of "user" industries.
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Some argued that we are near the bottom of the curve and about to take off; others suggested that we are in the middle and thus enjoying rapid productivity gains from the widespread adoption of information technologies; still others indicated that marginal productivity gains from information technologies might be waning, signifying that we are already near the top of the technology adoption curve. Workshop participants noted that a major constraint in sustaining the New Economy might not be the rate of innovation itself, but rather the rate of technology absorption.
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This gap is particularly evident in productivity growth derived from new technologies and their collective impact on the economy. The Internet exemplifies both the potential and the uncertainty of major features of this new economy.
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Jorgenson noted that he found that total factor productivity was rising in some industries, including information technology but not in all. The sustainability of this increased rate of growth, he concluded, depends on the persistence of high rates of technological progress and is subject to considerable uncertainty because of incomplete information about prices of software, telecommunications equipment, and other important sectors.25 Dr.
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Dr. Raduchel commented that software production was a hardware-intensive process, so that economies in hardware tend to reduce software costs and raise productivity.
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Five Trends of Microprocessors and Computers In his presentation Alan Ganek of IBM posited five major trends, drawn from recent innovations in information technologies. The first is a continuing ability to overcome apparent physical limits in information technology.
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He closed by emphasizing that the pharmaceutical industry is about to enter a dramatically new phase through the introduction of "deep computing" for rational drug design, genomic data usage, personalized medicine, protein engineering, and molecular assemblies. During the discussion period Dr.
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He described various advances in communications, including the advent of "post-Internet" software adapted primarily for wireless devices; the potential for data accessibility "anytime, anywhere"; the digital convergence of sound, video, and other media; and the evolution of software from a purchased commodity to an online service tailored to specific needs. Panel IV: Applications and Policy Issues As moderator, Dr.
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Brynjolfsson: value creation from the use of information technology. We do not yet have the tools, he said, to measure the value of business information systems, which are "among the most valuable human artifacts." This problem is amplified by the difficulty of changing business systems and the high organizational costs of such changes.
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Gomory agreed with earlier speakers that the rate of technology advances was "not the name of the game" today but rather the ability to absorb it and the cost of re-doing the business organization to take advantage of it. The question is not one of how businesses can acquire more technology but one of how they can integrate changes induced by technology they already have.
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He suggested an attempt to determine whether shifts of the learning curve are caused by new science, new technology, or some government policy and whether features of each industry, such as market structure, industry standards, and government policy, are influenced by changes in productivity.
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He also underlined the importance of Mr. Maxwell's series of questions about taxation and other potential policy roadblocks to the development of economies, noting that to achieve the enormous promise of these technologies, public policy will have to evolve in many significant ways.
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