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U.S. Economy to IT: Thank You

Information technology has been the primary driver of the economy over the last decade, adding $2 trillion annually and reversing a 20-year slowdown in productivity from the mid-1970s to the mid-1990s, according to a new report released Tuesday.

Produced by the Information Technology & Innovation Foundation (ITIF), the report says the growth is not only attributable to booming Silicon Valley industries but also the integration of IT into widespread sectors of the economy.

According to the report's equation, which combines the productivity growth of IT companies with the productivity attributable to IT in other sectors, IT was responsible for two-thirds of total productivity growth in the U.S. between 1995 and 2002.

"People don't generally appreciate the extent [of IT throughout the economy] to the extent that they should," Rob Atkinson, the report's author, told internetnews.com. "Too often they think of IT as just one sector of the economy. IT is really what our economic growth is all about."

Atkinson said IT has become a "pervasive" factor from farming to manufacturing to services to government. "IT has just been so central to U.S. economy over the last decade. The key to the economy is digital transformation [in all sectors]," he said. "We must keep the pedal to the metal."

IT is also driving significant economic growth in Australia, Canada, Finland, France, Germany, Korea, Japan, the Netherlands and Switzerland. While IT's impact is not as large in developing countries, the report notes IT expenditures rose twice as fast as the Organization for Economic Co-operation and Development (OECD) average in developing nations from 1993 and 2001.

"The IT industry itself creates jobs, on average paying 84 percent more than average jobs," the report states. "Moreover, IT appears to be playing a key role in reducing the severity of the business cycle, allowing the economy to run at full capacity more of the time."

Given that impact, Congress should make IT the central focus of its economic policy, Atkinson said. "[Digital transformation] is not really on lawmakers' radar. They need to be thinking about that."

Atkinson also said the White House has not been thinking about it, either. "Hopefully in 2009, when a new president takes office, someone in that office will be there that thinks seriously about this."

Without that focus, Atkinson warned that IT is "no magic perpetual motion machine that will inexorably drive growth." National economic policy, he said, can accelerate or restrict growth.

According to the report, the right IT public policies could mean the difference between adding two percentage points of productivity growth per year to the economy instead of just one percentage point, which would be the difference between incomes doubling in 36 years instead of 70 years.

Supporting the digital transformation of the economy should become what Atkinson calls the "fourth leg" of public policy along with the traditional focus on fiscal, monetary and investment policy.

The report supports increased government investment in emerging IT areas in addition to utilizing "policy levers," such as tax breaks, regulatory relief, trade and procurement policies that spur IT innovation, particularly in health care, education and transportation.

"There is so much the government could do that would be good," Atkinson said. "Policy makers must adopt an approach that incorporates IT transformation in all that they do."

He also said he could envision policies that "could slow down the economy," including protections for brick-and-mortar businesses from online competition and over regulation of Internet telephony.

Atkinson stressed that putting IT as a central element of economic policy does not amount to "industrial planning," the often criticized European style of policy that favors one industry over another.

"If we can't get to a point where we see anything but laissez-faire, we're in more trouble than I thought," he said. "I don't favor picking winners and losers, but we must recognize that IT is this huge engine of growth. Why don't we make sure our policies reflect that?"

In addition, the government should develop policies that encourage citizens to embrace technology. The report points out that in 2005, only between 65 percent and 75 percent of Americans had a broadband connection.

"There are multiple reasons why the rate is not higher, including in some cases affordability. But perhaps the most important factor is digital literacy," the report states.

Among the report's suggestions to tackle the problem of digital literacy is that the government should work in partnership with for-profit, non-profit and state and local governments to help Americans use and access technology.

"Ensuring that societies take full advantage of the IT revolution will require that the large majority of citizens participate in the digital economy," the report concludes.