Federal Triangle

Economic Mysteries

This current, unprecedented run of national prosperity, what co-authors Raymond Keating and Thomas Edmonds term an "entrepreneurial revolution" in their new book "US By The Numbers," gives rise to important questions such as: what is "information technology or IT"?; what is "knowledge management or KM"?; what is "productivity"?; how are these things measured, quantified, and related to prosperity, or are they even connected? We know some things for certain: there is no cause and effect relationship between the rooster crowing and the Sun rising, or a U.S. President claiming responsibility for good economic times. But many factors are perplexing.
Between 1980 and 1998, the U.S. population increased 18% while the number of businesses in the country grew 72%. U.S. employment increased by 32.2 million, nearly twice the combined job growth (16.8 M) of Canada, Japan, France, Germany, Italy and Great Britain (an equivalent population base). U.S. manufacturing employment declined slightly during this period, but as a result of officially measured "labor productivity" and "technology advances," total trade (imports plus exports) grew to over 25% of the U.S. economy. These other nations are home to able people also using IT and KM and benefit from enhanced labor productivity. The problem, as expressed by Organization for Economic Cooperation and Development (OECD), may be that some nations are tax havens to businesses and individuals. This is a foolish notion, but trends in the private sector will grow to punish governments for burdensome regulations and high taxes, and become swifter and more severe as industry becomes more mobile in response to assaults on entrepreneurship and investment.
Economist Alan Blinder at The Brookings Institution reminds us that studies over the past half century consistently show that technology is the primary driver for gains in productivity. But, per annum productivity growth since 1973 has declined from 2.94% to 1.41% in the U.S., precisely at the same time that IT, KM, and computers all came into fashion. Some postulate that it takes time until new technologies have a measurable impact on macroeconomics with results derived from indirect causes. As an example, e-commerce provides savings in consumer travel and merchant expenses, but is not captured in gains reflected in GDP and productivity statistics. It is Blinder's view that actual economic growth rate has exceeded any reasonable estimates of what economists thought possible or plausible and that new technology has a role in this change. But economists cannot define why this is so. I think Blinder is correct.
People that assess productivity say that their work involves the pragmatic use of measurements and that "you cannot control what you cannot measure." True enough, but how can skills, processes, and technology be measured in quantitative terms and meet uniform standards?
While productivity as an economic concept is a bit ethereal, all this banter about IT and KM strikes me as mostly new age hype. Companies and industry associations hold seminars to "facilitate R&D" by teaching those who pay big bucks how to "create and collaborate with virtual teams" and "create a Six Sigma culture." I am reminded of the trend decades ago that popularized the "ilities" (reliability, availability, and maintainability) - things that I always had thought were all part of good engineering design practices. Today these "ilities" have been formalized and are no longer marginal as they once were. It is entirely possible that the IT and KM crowd can do the same thing and explain in plain language why it is valuable. Indeed, some concepts make sense, such as defining a "value chain" and finding critical talent pools that contribute or constrain creation of value for the company. As example, Disney World management found that street sweepers so enhanced the value of customer entertainment experiences that "bang for the buck" was bigger for this labor pool than for any other.
Where is all this leading? I suggest a summary view with the following points:
1. Correctly applied technology is a productivity enhancer, but it takes time before users get it right and truly understand how to manage change. Most organization's immune systems assure stability and resist change.
2. Much of the talk about IT and KM is salesmanship to create a business. Mature firms should be critical before jumping onto bandwagons that are really circus merry-go-rounds blaring music of buzz words.
3. U.S. industrial growth and national prosperity may be and probably is fleeting, but what the nation has derived over the last decade is unparalleled in history. Some unexplained things were afoot that allowed it to happen. But, economists may figure it out one day soon and America could use more of the same.