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fyi

The Information Technology Paradox
From the early 1970s through the mid - 1990s, mation technology revolu- Total factor
the United States went through a slump in tion could be seen every- productivity
growth from
total factor productivity growth. The figure where except in the
previous year
shows Bureau of Labor Statistics estimates economic statistics.
8%
of annual total factor productivity growth Why didn’t information
6
since 1949. As you can see, there was a large technology show large
4
fall in the productivity growth rate beginning rewards? Paul David, a
in the early 1970s. Because higher total Stanford University eco- 2
factor productivity plays such a key role in nomic historian, offered 0
long - run growth, the economy’s overall growth a theory and a prediction. –2
was also disappointing, leading to a wide- He pointed out that
–4
spread sense that economic progress had 100 years earlier another
ground to a halt. miracle technology—elec- 1949 1960 1970 1980 1990 2000 2008
Many economists were puzzled by tric power—had spread
Year
the slowdown in total factor productivity through the economy, again
growth after 1973, since in other ways with surprisingly little impact on productivity electric power—most famously Henry
the era seemed to be one of rapid techno- growth at first. The reason, he suggested, was Ford’s auto assembly line—did productivity
logical progress. Modern information that a new technology doesn’t yield its full po- take off.
technology really began with the development tential if you use it in old ways. David suggested that the same phenome-
of the first microprocessor—a computer For example, a traditional factory around non was happening with information technol-
on a chip—in 1971. In the 25 years that 1900 was a multistory building, with the ogy. Productivity, he predicted, would take
followed, a series of inventions that seemed machinery tightly crowded together and off when people really changed their way of
revolutionary became standard equipment designed to be powered by a steam engine doing business to take advantage of the new
in the business world: fax machines, in the basement. This design had problems: technology—such as replacing letters and
desktop computers, cell phones, and e - mail. it was very difficult to move people and phone calls with e-mail. Sure enough, produc-
Yet the rate of growth of productivity materials around. Yet owners who electrified tivity growth accelerated dramatically in the
remained stagnant. In a famous remark, MIT their factories initially maintained the multi- second half of the 1990s. And, a lot of that
economics professor and Nobel laureate story, tightly packed layout. Only with the may have been due to the discovery by com-
Robert Solow, a pioneer in the analysis of switch to spread - out, one - story factories panies like Walmart of how to effectively use
economic growth, declared that the infor- that took advantage of the flexibility of information technology.

Success, Disappointment, and Failure

Rates of long - run economic growth differ markedly around the world. Let’s look at
three regions that have had quite different experiences with economic growth over the
last few decades.
Figure 38.3 on the next page shows trends since 1960 in real GDP per capita in 2000
dollars for three countries: Argentina, Nigeria, and South Korea. (As in Figure 37.1, the
vertical axis is drawn in logarithmic scale.) We have chosen these countries because
each is a particularly striking example of what has happened in its region. South
Korea’s amazing rise is part of a larger success story in East Asia. Argentina’s slow
progress, interrupted by repeated setbacks, is more or less typical of the disappoint-
ment that has characterized Latin America. And Nigeria’s unhappy story—real GDP per
capita is barely higher now than it was in 1960—is, unfortunately, an experience shared
by many African countries.

module 38 Productivity and Growth 381