Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Monday, December 26, 2005

Daniel Gross writes:

What Makes a Nation More Productive? It's Not Just Technology - New York Times : Today, as bubble-era books like "Dow 36,000" collect dust on library shelves, evidence is mounting that there may be a new economy after all. In the late 1990's, growth in labor productivity - the amount of output per hour per worker - kicked into a higher gear. From 1996 through 1999, it grew at a blistering annual rate of 2.5 percent, compared with 1.4 percent from 1972 to 1995.... As the technology investment boom of the 1990's gave way to bust in 2000, many analysts feared that the productivity gains would dissipate. Instead, productivity since 2000 has grown at a substantially higher pace than it did in the late 1990's.... "The I.T.-producing industry itself, with its extraordinarily rapid pace of change, certainly has contributed to overall productivity growth," said Martin Baily, a senior fellow at the Institute for International Economics, based in Washington. "But now we're getting a bigger share from the rest of the economy."... In the late 1990's, McKinsey found that six of the economy's 59 sectors accounted for virtually all productivity growth... new-economy industries like telecommunications, computer manufacturing and semiconductors. But from 2000 to 2003, the top seven sectors accounted for only 75 percent of the productivity increase. And five of the top contributors were service industries, including retail trade, wholesale trade and financial services.... To be sure, service industries have become more productive in recent years by continuing to invest in information technology. Yet there are also other factors at work. "I.T. is a particularly effective enabling tool," Ms. Farrell said. "But without the competitive intensity that drives people to adopt innovation, we wouldn't see these kinds of gains."

To compete with Wal-Mart, for example, retailers of all stripes have been working furiously to gain scale, to manage supply chains and logistics more effectively, and to negotiate better terms with suppliers and workers. A similar dynamic has played out in the finance sector, where there has also been a huge gain in productivity.... One mystery of recent years has been the enduring gap in productivity growth between the United States and Europe. In this case, another structural force - regulation - may be at work. "In economies with less regulation, companies can use information communications technology that link sectors to one another in ways that create joint productivity," said Gail Fosler, executive vice president and chief economist at the Conference Board. Because domestic retailers don't face the same sorts of restrictions on working hours and road use that European retailers do, for example, the Americans have been better able to use technology to manage trucking fleets, deliveries and inventory...

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