| BUSINESSWEEK ONLINE : AUGUST 16, 1999 ISSUE | ||||||||
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| NEWS: ANALYSIS & COMMENTARY
Commentary: The Spoils of the New Economy Belong to High Tech Construction is booming, and consumers are snapping up cars, homes, and all manner of goods and services--as they always do during an expansion. Yet the economic data tell a more complicated story: The growth in this expansion is still concentrated in the high-tech and information sector. Over the past three years, growth in the gross domestic product has averaged a stellar 3.8%. Take out high tech, however, and the rest of the economy is growing at a moderate 3% rate, just slightly above the pace of the 1980s. The latest data from the Commerce Dept. show an even wider divergence between the fortunes of the information sector and the rest of the economy. The growth rate in the second quarter fell sharply, to 2.3%--and all of the slowdown was outside high tech. Business spending on information technology actually accelerated during the quarter. This continued expansion of New Economy industries is good news for the long-term future of the U.S. economy. These are the fast-growth, falling-price industries, and as they become a bigger share of output and employment, it means the U.S. can sustain a higher growth rate without inflation. In fact, the Information Revolution is following the same pattern set by economic waves of the past. Historically, the early stages of major technological changes are marked by the explosive creation of dynamic new industries and markets. Productivity and profits soar in the new industries, attracting workers and capital. As these fast-growing innovative sectors become significant chunks of the economy, they lift overall productivity. The new technology also lifts efficiency in ''old-line'' industries, too, but more slowly and less forcefully. The classic example is the technological revolution of the late 1800s and the early 1900s. During that period the ''old economy'' was agriculture, which accounted for some 35% of U.S. economic output in the 1870s. As new technologies such as the internal-combustion engine and electrification arrived, they showed up much sooner in the industrial sector than in the agricultural sector. The U.S. still experienced a sizable productivity boost--but not surprisingly, most of the gains came from industry. From 1889 to 1929, farm productivity only rose at an average annual rate of 0.9%. By contrast, manufacturing racked up 2.4% annual productivity gains over the same period. Much the same thing is happening today. It only makes sense that information technology should be having its earliest impact on businesses where the main output is information. Industries such as communications, financial services, and media are able to take full advantage of the exponential growth of information-processing power to get a quantum leap in productivity. On the other hand, businesses that produce tangible goods or provide personal services, like haircuts or lodging, are finding productivity gains smaller, slower, and more difficult to achieve. A hotel can computerize its reservation system, but its rooms still have to be cleaned the old-fashioned way. LOW TECH. Robert J. Gordon, an economist at Northwestern University, argues in a new paper that, outside of high tech, manufacturing productivity may not have accelerated at all in recent years. That position is supported by a BUSINESS WEEK analysis of the Federal Reserve's industrial-production data that suggests productivity growth in non-high-tech manufacturing grew at an annual rate of 2.3% over the last three years, nearly identical to the previous decade's average. The concentration of productivity gains thus far is also reflected in profits. Corporate profits rose nicely in the second quarter, according to the latest BUSINESS WEEK Corporate Scoreboard (page 88). But of that gain, some 80% came from companies in New Economy industries, even though they only account for 30% of revenue. A century ago, the U.S went through the turbulent process of shifting labor and capital from a slow-growth agricultural economy to one dominated by fast-growing manufacturing. Today, it's the explosive information sector that is garnering a growing share of the economy's resources--and as long as that continues, so will the New Economy. By Michael J. Mandel _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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