Computers: Waiting for the Revolution

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In early January, the Bureau of Labor Statistics reported data, including strong job growth in December, suggesting that the economy again grew rapidly in the last three months of 1997. This followed eighteen months in which the real Gross Domestic Product (discounted for inflation) had already grown by an annual rate of 4 percent, and unemployment had fallen to a quarter-century low of 4.7 percent. The output of goods or services per hour of work (known as productivity) had risen by 2.25 percent in the preceding twelve months, and nearly 2 percent a year since 1996, well above its historically slow annual growth trend of 1 percent since the early 1970s (though after revisions it will probably have slowed significantly in the fourth calendar quarter of 1997). All the while, consumer inflation had fallen to less than 2 percent, and Washington was exulting because rising federal tax revenues had nearly eliminated the budget deficit well ahead of schedule.

Short spurts in growth occurred before, in the 1970s and the 1980s, but they quickly subsided. But now, with inflation, unemployment, and the deficit reduced beyond expectations, the enthusiasm that typically accompanies even modest improvements in the economy is at a higher pitch than usual. To many newspaper and magazine writers, business consultants, and some economists, the surprisingly strong performance of the economy since 1996 suggests that the long-awaited “computer revolution” has at last taken hold. They argue that, because of the spreading use of computers, the economy has finally passed through a threshold which will enable it to grow rapidly once again after twenty-five years of historically torpid growth—thus, the “new economy.”

Vice President Al Gore is among the most ardent supporters of this vision. Last summer, he announced that he, like Alexis de Tocqueville a century and a half earlier, had taken a tour of the nation “to see an old economy once again giving way to a new one.” Gore and many others credit the computerization of business and society at large with a transformation that will rival the passage from an agricultural to a manufacturing age in the nineteenth century. It is “an economy driven by information, research, knowledge, and technology,” Gore went on. “During these three months, I have seen the new economy unfold in mammoth airplane hangars in Seattle, in the sunny cornfields of Iowa, on the streets of inner-city Detroit, in the high-tech labs of New England, and even in the far reaches of cyberspace…. I have seen the new economy, and I am here to tell you that it works.”

To such enthusiasts, the numbers speak for themselves. Where only about 40 percent of businesses invested in computers in 1977, according to one sample, more than 80 percent do so today. One out of two American workers is now likely to use a computer, compared to one out of four in mid-1987.1 In particular, the enthusiasts say the proliferation of computerized information technology, which makes unprecedentedly large amounts of information inexpensively…

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