Magazine

The Innovation Imperative


Of all the good news found in the sharp 7.2% jump in third-quarter gross domestic product, perhaps the most important is the return of business confidence. Lost in a fog of "no visibility" for three years, pursuing a defensive strategy of cutting costs, chief executives are finally rediscovering their animal spirits. They raised spending on technology and equipment by 11.1% last quarter, the biggest jump since 1999. And while cost-cutting may work for surviving cyclical downturns, investment and innovation are the way to sustained U.S. prosperity.

A profits boom in the third quarter fueled the surge in investment. Thanks to continued growth in productivity and consumer spending, earnings at the 900 companies on the BusinessWeek Corporate Scoreboard rose 41% from a year earlier. That was the third straight quarter of double-digit gains -- enough to convince CEOs to start investing again.

Washington is helping by offering a 50% bonus depreciation to allow companies to write off more of their equipment in the year it is purchased. The bill expires in 2004, so CEOs are hastening their capital-spending plans.

One lesson CEOs learned in the downturn was that information technology boosted productivity by cutting costs and hiking profits. The next lesson is to use technology to bring to market new products and services that consumers will want -- and pay for. If CEOs follow through, we could see some fun and excitement return to the game of capitalism.


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