Jewish World Review May 11, 1999 /25 Iyar 5759
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The answer, it seems more and more, is a 10-letter word: technology. Alan Greenspan confirmed it last week, attributing the economy's "phenomenal" performance to technological innovations wrought by computers and other information-processing equipment. But it's not just technology's effect on productivity. It is the powerful draw it has on investors. In the past 10 years, capital investment has nearly doubled, from approximately 7 percent of gross domestic product to 13 percent. That's the highest proportion of GDP in this century. This surge in investment has accounted for about 25 percent of GDP growth, up from 8 percent in the 1980s. Last year, capital spending rose by 17.5 percent, compared with the average of 11 percent of the 1990s; high-tech investment grew by 32 percent, exceeding its 19 percent average for the decade. The result? The nation is experiencing its strongest capital investment cycle in 50 years.
Can it last? The answer, it seems, is yes.
Revolutions. We are in the midst of transforming the distribution of goods, services, and knowledge through the Internet. The rush to create the hardware and software to extend the reach of the Web has the capacity to power this investment cycle even further. For the first time ever, information industries have become the biggest job creators, accounting for more than 37 percent of last year's new jobs. That's up from 15 percent just three years ago. Productivity, as a result, has increased from the 1 percent of the 1970s and 1980s to over 2 percent per year in the 1990s. And it's still going up.
Behind our macroeconomic success are a million microeconomic increases. The United States enjoys a unique capacity to move financial and human resources to the cutting edges of technology. This is the fifth industrial revolution of American history. The first was in the 18th century, with water power, textiles, and iron. In the mid-19th century came steam, rail, and steel. The turn of the 20th century brought electricity, chemicals, and internal combustion. Fifty years later, it was electronics, aviation, and mass production. The current revolution is based on semiconductors, fiber optics, genetics, and software. Thanks to them, we are pulling further and further ahead of industrial heavyweights like Germany and Japan, which are still enmeshed in low-value-added industries.
Information technology counts for so much because it is so crucial to interactions between people. A McKinsey Global Institute study found that transactional interactions account for a third to a half of all economic activity, made up of over 50 percent of work in service industries, 35 percent in mining, agriculture, and manufacturing, 15 percent for workers involved exclusively with physical labor, and about 80 percent for managers and supervisors. The McKinsey study argues that data-gathering efficiencies could further increase by a factor of 3; written and oral communications by around 2; and group problem solving by 1½ times. That would represent a potential increase in productivity of an additional 27 percent. With all this growth, tax receipts are rising at stunning ratesfar faster than projectionsproviding the wherewithal for public and private investment. State and local government surpluses for 1998 were $150 billionmore than double the federal surplus of $70 billion. The combined surpluses are estimated to reach $300 billion in 1999, offering untold booms if they are spent wisely.
The combination of public surplus and private investment offers us the time of our lives in which the economic upturns will be longer and stronger, and the downturns shorter and shallower. The 21st-century mantra will be, "It's the technology,