IT as an Engine of Economic Growth — Another Perspective

Posted by  Robert D. Atkinson 
President, Information Technology and Innovation Foundation

(Editor’s note:  This is the first of what we anticipate will be a steady stream of posts from guest bloggers on  Microsoft on the Issues. Robert Atkinson is the founder and president of the Information Technology and Innovation Foundation, a Washington, D.C.-based technology policy think tank, and has an extensive background in technology policy. His comments help to place the recently released study “Aid to Recovery: The Economic Impact of IT, Software, and the Microsoft Ecosystem on the Global Economy,” by IDC, in a richer context.)  

Last week’s disappointing U.S. jobs numbers, which revealed that national unemployment climbed to 9.8 percent in September, reiterated how severe this global recession has been and how long it is likely to take to get to full recovery and growth, especially on the employment side.  If there is a bright side it is that the continued global transformation to a digital economy is serving as an engine for economic recovery and growth. 

In the short term, IT is likely to grow faster than the overall economy.  In the United States, for example, from 2005 until the second quarter of this year, overall capital investment declined by almost 20 percent.   But capital expenditures on IT (e.g., hardware, software and telecommunications) increased more than 5 percent, as companies and other organizations continued to invest in IT to gain competitive advantage, cut costs and improve quality.

Moreover, government stimulus efforts around the world are focusing on spurring even more IT investment. For example, G-20 nations have committed to policies that will spur over $100 billion in IT

investment in areas like broadband, e-government, smart grid, health IT and incentives for business to adopt more IT.  As ITIF estimates, the investment of almost $40 billion in the American Recovery and Reinvestment Act designated for investment in IT infrastructure for heath care, smart grid and broadband will spur the creation or retention of more than 1 million jobs, with over 600,000 in small and medium sized enterprises.  Plus, IT jobs tend to be higher paying, higher quality jobs.  In the United States IT jobs on average pay 84 percent more than average jobs.

In the long term, IT is likely to continue to be the principle engine of growth. Between 1995 and 2002, for example, IT was responsible for virtually all of the growth in labor productivity in the United States.  During the period 2000 to 2005, IT continued to perform, contributing over 1 percentage point to growth in labor productivity.  But it’s not just the United States that is benefiting from the IT revolution, most nations are.  In Japan, IT was responsible for 51 percent of GDP growth from 2000 to 2004.  In Middle East and North African nations, a 1 percent change in IT investment typically leads to a 0.81 percent change in per capita income.

Finally, IT investments are in many cases the leading source of  important improvements in the quality of life and improvements in society.   For example, spurring adoption of health IT will lead to better quality care and fewer medical errors.  Intelligent transportation systems will improve the performance of roads and transit systems.   Infusing IT into the electric grid will produce significant energy savings and lead to a less carbon-intensive economy.

For policy makers the lessons should be clear: design policies to spur additional IT investment.  Doing so will speed recovery, lay the foundations for more robust long-term growth and address key public policy challenges.


Tags: ,