March 11, 2004
Productivity gains driven by IT
MIT Technology Review has an article analyzing recent productivity gains in the US economy. It argues the gains (8%) are primarily due to the infrastructure put in place over the past 5 years (supply chain software, ERP etc). Brynjolfsson is over simplifying things. Thurow is more accurate with his three pronged cause - Information Technology, Market Pressure (shareholders), and outsourcing (lower productivity jobs moving out of the US).
From the 1970s into the 1990s, U.S. labor productivity grew by barely 1.4 percent a year. Many economists thought it would be stuck at that level forever. But the growth rate jumped to more than 2.5 percent in 1995 and has averaged more than 4 percent since 2001.The difference is dramatic. It takes 50 years for living standards to double if productivity grows at 1.4 percent per year, but only 18 years to double at 4 percent growth.
The productivity boom is rooted in a revolution in the way American companies apply information technology. Technology-driven innovation is reshaping the economy, but managers who sit back and wait—assuming that technology alone will quickly or automatically introduce gains—are setting themselves up for failure.
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The unsung heroes of the IT revolution have not been the microchip and the Web browser, but rather the creative, diligent, and painstaking work done by those who have been rethinking supply chains, customer service, incentive systems, product lines, and 1,001 other processes and practices affected by computers.