Better economy rests on IT's shoulders

The odds that IT can bring the U.S. economy out of a recession are 'pretty good,' says at least one expert. But are you ready to have the weight of the world on your shoulders?


As part of my job, I travel to a lot of IT conferences and report back what industry analysts and titans of IT

are telling CIOs. Last month in Las Vegas, Ken McGee, a fellow at research firm Gartner Inc., made this provocative statement: "IT can lift America right out of this recession."

CIOs, by innovating, can reverse the worst consequences of this recession, he proclaimed. Actually, he called it, "IT, Innovation of the Third Kind," an allusion to the science fiction movie starring a starry-eyed Richard Dreyfuss, who has a vision his family just doesn't get. McGee defined innovation of the third kind as what happens when IT practitioners don't wait for orders from the business. They identify a business need and meet it with new technology. That's how America is going to get out of the recession. I thought it was a bold statement. I filed a report on his pep talk, leading off with McGee's inspirational quote.

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The reaction back at the editing desk, however, was a loud groan. Innovation is old news. Worse, a cousin to yesteryear's clichéd call for IT and business alignment. Wow! After three years on the IT beat, was I swallowing the Kool-Aid (not to mention coffee, juice, Perrier, muffins, M&Ms, chips, chocolate chip cookies, Chardonnay etc.) plied at these conferences? So much for that theory. What happened in Vegas during that keynote stayed in Vegas.

Don't be so sure, says Robert Atkinson, president of the Information Technology and Innovation Foundation, a think tank in Washington, D.C. Atkinson is the author of "The Past and Future of America's Economy: Long Waves of Innovation That Power Cycles of Growth." He says the odds that IT can "raise America right out of this recession" are pretty good. After the 2001 dip in the economy, many concluded incorrectly, he argues, that the IT economy was smoke and mirrors. IT doesn't matter, as Nicholas Carr put it in his screed by the same title.

But the digital revolution is more than fulfilling its original promise, according to Atkinson. From 1995 through 2004, IT was responsible for two-thirds of the growth in productivity and virtually all the growth in labor productivity, Atkinson said in a phone conversation yesterday, pointing to data from more than 50 recent studies on productivity. As for whether IT is still driving productivity, he pointed to two considerations that are important to understand. "First, no one really knows what's going on now. People throw the R-word around pretty loosely," Atkinson said. "Technically a recession is defined as two negative quarters of GDP growth." Second, the slowdown today differs from the one in 2001.

"If you look at the slowdown of the 2001 era -- obviously, terrorism did not help -- but that was in some ways caused by the IT sector. There was an overshoot of IT investment and then correction of that, which had business-cycle implications," Atkinson said. That is not what is going on today.

"The IT sector is quite strong and if you look at IT, e-commerce, the Internet, the whole digital ecosystem, I think, if anything, IT is going to be countercyclical," he said. The recent healthy earnings and bullish forecasts from three pillars of the high-tech economy -- Intel, IBM and Google -- seem to bear that out.

In addition, the 2001 slowdown was related to the business sector, whereas the current crisis is more related to the consumer. Economists argue that the other two sectors, government and business, have to pick up the slack. "If you look at the latest report in USA Today, government hiring is way, way up," he said.

Google's chief economist, Hal Varian, echoed that view last week in a panel discussion at Google's offices in Washington, D.C. An analysis of Google search queries shows that job-related searches have climbed, while real estate and luxury goods searches, for example, are down, consistent with a recessionary environment, Varian said. The data shows we're in an economic slowdown but not an Internet slowdown, Varian said. E-commerce sales, albeit still a small slice of total sales, continue to rise, increasing 19% in 2007 over 2006, according to U.S. Census Bureau figures.

After three years on the
IT beat, was I swallowing the Kool-Aid?

,
While the possibility that IT could pull America out of this slowdown might be a "slight exaggeration," Atkinson said, there are reasons for McGee's optimism. "Back in the 1980s, if you look at capital investment in the economy, leaving out buildings, cars and furniture, so real capital investment, IT accounted for a little under one-third of total capital investment. Today over two-thirds of capital investment is in telecom and IT. Since IT represents over two-thirds of business investment, what companies do with IT over the next year will have an impact on whether this economy is a blip and will bounce back quickly or whether we're in for a longer slowdown."

The other advantage of an IT-driven rebound, he said, is that we get not only short-term benefits, but also "very strong long-term benefits" in productivity growth spurred by IT investment. He pointed to his paper, "Digital Prosperity: Understanding the Economic benefits of the Information Technology Revolution," a study he published with Andrew McKay that draws on productivity data from myriad studies by The World Bank, the Federal Reserve and the Organisation for Economic Co-operation and Development. Productivity growth for the 25 years preceding the 1990s was about 1.5 %, then jumped to 3%, due almost entirely to IT and information communications technology. He said he sees no evidence that would not be true going forward, for at least the next five years. In fact, Atkinson said he wonders why the federal government hasn't acknowledged this engine in its latest efforts to jump-start the economy.

"It is disappointing to me that the federal government chose a stimulus package that focused almost exclusively on consumer spending and didn't do something that would be more forward looking. You could have said to companies, 'If you invest in IT over the next year or 18 months, we will let you write that off in the first year, instead of the next three, five or 10 years.' I think companies would accelerate IT spend."

CIOs know what IT can do better than anyone. What are the odds that IT can pull us out of a recession? Let me know.

Linda Tucci is senior news writer for SearchCIO.com. Write to her at ltucci@techtarget.com.

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