Study: Economic impact of tech often understated

A new report calls for US policymakers to put a larger emphasis on the tech industry

IT has driven nearly all of the economic growth in the U.S. since 1995, but lawmakers too often ignore the tech industry or create policies that hurt it, according to a report released Tuesday.

IT was responsible for nearly all of the U.S. worker productivity growth between 1995 and 2002, says the report, from the Information Technology and Innovation Foundation (ITIF), a pro-technology think tank. IT also creates higher-paying jobs, allows businesses to cut costs through just-in-time inventory management and boosts new innovations, said Robert Atkinson, co-author of the report and ITIF's president.

While many business leaders and investors may have gotten too optimistic about IT in the late 1990s, some economists and policy makers began to discount its value after the dot-com bust early this decade, Atkinson said during a forum in Washington, D.C., "The pendulum has swung too far the other way," he said. "[Economists] generally don't look at IT as one of the leading drivers of the economy."

The U.S. economy is nearly US$2 trillion larger now than if the IT revolution had started in 1995, according to the study, titled Digital Prosperity. Growth in the U.S. economy due to IT in the last 11 years is equal to two and a half Indian economies, Atkinson said.

Yet, many policy makers and economists pay much more attention to other economic factors such as interest rates or value of the dollar, Atkinson said. Some federal or state lawmakers attempt to limit IT by passing laws such as those that would slow the rollout of broadband, limit the use of RFID (radio frequency identification) and slow online personalization efforts by limiting the amount of data companies can collect, he said.

"There's going to be a significant cost to the economy if you hinder digital transformation," he said.

Atkinson called on the U.S. government to drive forward IT adoption in several industries including health care, banking and transportation. While some critics may accuse him of calling for an "industrial policy" favoring tech, Atkinson said he's looking for a middle ground between a complete market-based approach and subsidies for tech vendors.

"The reality is, the government's in the health-care market," he said. "Why shouldn't it be doing everything it can to spur digital transformation in health care?"

Two speakers at the ITIF's Tuesday event agreed that the IT industry is driving the U.S. economy, but they stopped short of advocating broad new national policies addressing tech.

The IT boom is a new phenomenon, and other industries such as bio-IT or clean energy may eventually produce similar economic benefits, said Robert Litan, vice president of research and policy at the Ewing Marion Kauffman Foundation, which promotes entrepreneurship.

Robert Crandall, senior fellow in economic studies at the Brookings Institution, a left-leaning think tank, also suggested that U.S. policies toward technology are adequate. The U.S. economy has benefited from technology more than many other economies, including those in Europe that have a much more activist approach to tech policy, he said.

The European Union has taken a much more hands-on approach to telecom regulation and antitrust policy than the U.S. in recent years, he said. But the U.S. remains ahead of Europe on productivity gains, he added.

"We're in rather good shape," Crandall said. "I'm not at all concerned about our public policy."

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