Report: High tech driving boom times

Sunday, April 26, 1998

BY CHARLES BREWER
The Cincinnati Enquirer

Anyone watching the stock market lately knows these are great times.

Now a new government report attributes America's economic boom to what some futurists have been predicting for years.

According to a new report by the U.S. Department of Commerce, America's economy is being driven by an information revolution. More specifically, by the phenomenal growth of the Internet.

In "The Emerging Digital Economy," the Commerce Department suggests that the Information Technology industry might be creating what some economists are calling a "long boom" -- good times that could last well into the next century.

It quotes no less an authority than Federal Reserve Board Chairman Alan Greenspan, who told Congress in February, "Our nation has been experiencing a higher growth rate of productivity -- output per hour worked -- in recent years. The dramatic improvements in computing power and communication and information technology (IT) appear to have been a major force behind this beneficial trend."

The report notes that the nation is taking to the new digital technology at an unprecedented rate. For example, it took more than 100 years from the discovery of how to create and distribute electricity, until electric power was in 80 percent of factories and homes.

Radio shows were being broadcast for 38 years before 50 million people tuned in, and television took 13 years to reach that size an audience. Yet in only four years, the Internet has grown from the exclusive domain of academics to a network that links 100 million people around the world.

The Commerce Department report, which defines Information Technology as computing and communication, notes that IT grew from 4.9 percent of gross domestic product in 1985 to 8.2 percent of GDP today. That's a growth rate of almost 15 percent a year. Compared to the rest of the economy, IT has been responsible for more than a quarter of the nation's economic growth, the report says.

Even more remarkable is the fact that while IT's share of the economy has been surging, prices in that sector have been dropping. This has been a big factor is keeping inflation flat in a hot economy.

While IT prices are dropping, workers in the IT industry are among the best paid. In 1996, the average salary was $46,000 a year, compared with $28,000 for the private sector. Workers in the high-paid software and service areas made an average of $56,000 a year.

The report notes that the digital boom is just beginning. More growth will be driven by four types of activity:

  • Internet growth. An estimated 100 million worldwide use the Internet today; that number might reach 1 billion by 2005. This will bring huge expenditures in computer software and services.

  • Electronic commerce among businesses. By 2002, the Internet might be used for more than $300 billion worth of commerce between businesses.

  • Digital delivery. The sale and transmission of information products such as newspapers, magazines, music and software is already occurring over the Internet, as is the sale of airline tickets and financial products such as security or insurance policies.

  • Retailing. While Internet sales are less than 1 percent of total retail sales today, sales of products such as computers, software, cars, books and flowers are growing rapidly.

    But challenges lie ahead, the report says.

    One is finding enough workers. Some companies are already complaining about a shortage of programmers, and there's even talk in Congress about lowering the immigration barriers to foreign workers with IT skills. High-skilled IT jobs (programmers and engineers) are expected to grow from 874,000 in 1996 to 1.8 million in 2002. At the same time, low-skilled IT jobs, such as computer operators, could drop from 481,000 in 1996 to 342,000 by 2002.

    Other workers will be displaced, but the report predicts that more jobs will be created than lost. The challenge will be training -- or retraining -- workers.

    Another challenge is controlling regulation, censorship and taxation. The digital revolution is creating a world economy, but standards differ around the world. Some countries might see the Internet as a purveyor of pornography and amoral entertainment, or fear that Western companies will destroy their own industries or markets. And Internet sales are costing municipalities millions in lost sales taxes.

    The report warns that government regulation could stifle the economic boom.

    Copies of the report can be downloaded from The Electronic Commerce Web site at http://www.ecommerce.gov/emerging.html

    Send e-mail to Charles Brewer at CBrewer@enquirer.com.

    BREWER ARCHIVE