May 28, 1993
"Zero-to-60 in 5 Nanoseconds"
San Jose Mercury News
By Timothy Taylor
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IT MAY sound like heresy, but some skeptics doubt that computers add to economic
productivity. Evidence for their nagging suspicions comes from all directions
-- anecdotes, industry-level studies, and macroeconomic statistics. Anyone who
has survived the ordeal of installing a new office computer system will understand
the dangers here. Workers are required to take time away from their jobs to sit
through dry-as-dirt training sessions. Records are carefully filed away in the
computer -- and then no one knows how to access that information ever again.
Once the system is in place, middle managers are often bewitched by their new
toys; they begin to produce and require more status reports and updates than ever
before. Once upon a time, the paper companies were concerned that computers would
usher in the "paper-less office." Actually, computers have led to far
Of course, a few horror stories about counterproductive technology don't make
a definitive case. Anecdotes illustrate, but they don't prove anything. However,
several academic studies have also found that computers don't contribute much
In a recent "Weekly Letter" of the Federal Reserve Bank of San Francisco,
senior economist Ronald Schmidt describes one study that looked at U.S. and European
manufacturing firms, and found that investment in information technology had "little,
if any, marginal impact on output or labor productivity while all other inputs
into production including non-information technologies capital had significant
impacts on output and labor productivity."
Another study, looking back over several decades, suggested that manufacturing
"firms had over-invested in those information technologies, and that the
costs of the equipment exceeded their benefits."
Other economic studies (not mentioned by Schmidt) have examined computers in
service industries like banking, finance, insurance, and wholesale and retail
trade, again without finding much connection between computerization and productivity.
There seems to be some truth in the popular stereotype that the high-fangled computers
in financial industries have mainly served to move money around in faster and
trickier ways, often doing as much to destabilize and unsettle the economy than
to support it.
The macroeconomic evidence signals yet another caution about computers and
productivity; the 1980s were a time when business and individuals invested very
heavily in computers, but productivity growth for the economy stayed stubbornly
low. One wisecrack, generally attributed to Nobel laureate economist Robert Solow
of MIT, is that: "We see computers everywhere, except in the productivity
But this case for the prosecution is far from unanswerable; the computer revolution
has its share of defenders who advance two main arguments.
One response is to question the data on productivity. One basic measure of
productivity is output per hour of labor; for purposes of comparison, "output"
is usually measured by the total dollar value of what is produced.
Imagine that a new computer-aided design system allows companies to produce,
say, higher quality cars -- perhaps with better use of interior space, greater
safety, and better fuel efficiency -- but these improved cars sell for the same
price as the old ones. According to the productivity statistics, the same amount
of labor is producing the same dollar value of cars, so the computer added nothing.
In short, productivity statistics often fail to capture higher quality.
This problem is especially severe in the service-oriented industries that have
invested so heavily in computerization. Surely, it would seem that with automatic
teller machines and access to accounts by telephone, productivity in banking must
be higher than a decade ago? Logic says "yes," but the productivity
statistics won't show it.
An alternate defense is to accept that computers haven't increased productivity
much so far, but to argue that the economy takes decades to assimilate an invention
as far-reaching as the computer. Paul David of Stanford University has pointed
out an interesting historical parallel. The technology for the dynamo was available
in 1900, but it literally took decades for factories to be electrified, so that
they could take advantage of this new capability.
Similarly, Intel introduced the silicon microprocessor less than 25 years ago,
in 1970. Even a decade ago, desktop computers were relatively rare, and those
that did exist would today be considered as slow and obsolete as dinosaurs. On
this perspective, the "information age" is still in its infancy. Our
society is just beginning to redesign its manufacturing and services, its entertainment
and finance, its patterns of commuting and living, to take advantage of information
In the end, the case against computer-driven productivity is certainly not
proven. In the end, it is difficult to believe that this remarkable technology
won't raise the world's standard of living.
But the academic argument over computers and productivity has a real-world
lesson. Too many people buy computers (and other new technologies) the way they
buy cars: paying for zero-to-60 in five seconds, and the ability to drive 140
mph, and other features that they will probably never use.
In a world where the boundaries of technological possibility are continually
expanding, it's worth remembering that sophisticated technology, in and of itself,
is worth nothing. The interaction between technology and people is what counts.
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