OECD cautious on ‘new economy' hype

Information technology (IT) is significantly affecting the economy, the growth and structure of output, jobs and work and how we use own time, according to the world's peak economic think-tank.

However, the Organisation of Economic Cooperation and Development (OECD) sounded cautious about the hype surrounding the new economy, arguing there is no hard evidence for its existence outside the English-speaking nations, particularly the US, and furthermore that the so-called "new economy" is largely a myth outside the US.

While keeping an open mind about the potential impact of new technology in the rest of the world, the OECD said other countries could not expect to copy the US's success simply by buying more computers.

In its twice-yearly Economic Outlook, the OECD said information and communication technology (ICT) had played an important part in boosting labour productivity in the US, especially during the mid 1990s. This was due to an increase in productivity growth in the ICT-producing sector and other parts of the economy were buying more computers at ever-lower prices. (OECD countries account for more than 80 per cent of the world's ICT production.)However, the Paris-based group said there was little direct evidence that companies in the economy as a whole were using computer technology to full effect, although there were signs that businesses were reorganising production and distribution.

ICT intensity (ICT expenditures/GDP) rose in all OECD countries and reached almost seven per cent on average in 1997. It was particularly high in English-speaking countries, and Sweden, Switzerland, Japan and the Netherlands. The strong growth of ICT was mainly driven by growth in telecommunications equipment and services, the group said. Data suggests that the IT industry (excluding telecommunications) continues to undergo rapid restructuring; although hardware is still the largest segment, data communications play an increasing role.

Turning to the impact of new technology on the performance of other industrialised countries, the OECD said: "Evidence that greater use of ICT has raised productivity growth outside the US significantly is limited."

In the Nordic countries, where ICT use was comparable or even greater than in the US, and more intensive than in most countries, there was some evidence that labour productivity growth was increasing.

But this evidence could be interpreted in two ways. It might be related to the use of new technology but it could have been influenced also by the turbulent macro economic environment in the 90s, when deep recession forced producers to take drastic measures to increase efficiency in order to survive.

One factor seen as inhibiting the uptake and use of IT and electronic commerce is the widely held idea that an IT-worker shortage has developed, the report says.

For the US, the major IT market and supplier, data on unemployment rates, wages and graduates suggest there is no conclusive evidence of a serious shortage of IT workers. However, the structure of available skills may be a concern, and governments are likely to need to foster acquisition of the necessary IT skills. The OECD said that, to reap the potential of new technology, governments needed to invest in education, encourage entrepreneurship and competition.

"Fostering such policies should ensure that the opportunities offered by new technologies are not missed or unnecessarily delayed, and should allow the current period of stringer growth to be sustained."

In the meantime, there was a danger that "new economy" fever in financial markets could derail the outlook for global economic growth, risking a repeat of the boom/bust cycles of the 1970s and 80s. The OECD said overall global growth, which reached 3.1 per cent last year, would be 4.3 per cent in 2000 and 3.8 per cent in 2001, with the US, the world's biggest economy, slowing to three per cent in 2001 from 4.9 per cent this year.

Networks and Internet drive hardware markets"Growing use of computer networks and the Internet has driven hardware markets," according to the Organisation for Economic Cooperation and Development report.

"PCs and workstations now represent one-half of the hardware market, and data communication equipment is well over 10 per cent. In 1998, one out of every five PCs was shipped to Asia, but the US remains the main driving force for PC market growth. The business and government sectors still have close to 60 per cent of the total installed PC base. However, widespread demand from the household and education sectors has increased the PC installed base per 100 inhabitants in all OECD countries, and ratios are high in the Nordic countries, Switzerland, Australia, the Netherlands and the US. A sustained decline in prices, driven by downward microprocessor and component prices, has contributed to the rapid diffusion of PCs." www.oecd.org

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