Internet will boost productivity growth: economists

Andy Sullivan

WASHINGTON: Splashy Web sites like www.pets.com

may have gone the way of the eight-track tape, but the Internet will continue to

improve the daily lives of Americans over the next five years, say two prominent

economists.

Broad sectors of the US economy will continue to migrate routine functions

like billing and inventory management to the Internet, boosting productivity

gains by one-quarter to one-half of one per cent per year, say Brookings

Institution economists Robert E. Litan and Alice M. Rivlin in a new book.

At that rate, a worker earning the US average of $36,000 per year would see

his real income grow by $2,500 per year, Litan said. "This is not a trivial

gain, this is real money," Litan said Monday at a round-table discussion.

The Internet's real impact will not come from new dot-com businesses or

retail sites like Amazon.com Inc., Litan and Rivlin argue in "Beyond the

Dot.coms: the Economic Promise of the Internet." Rather, the global

computer network will increase productivity by transforming established

industries like manufacturing and health care, which will be able to automate

routine paperwork and track shipping online.

Governments will save money if citizens can find information and submit

routine applications online, and the financial-services industry could save

significantly if more people use electronic payments rather than personal

checks, Litan and Rivlin say.

Even the trucking industry will likely become more efficient as central Web

sites provide a more complete picture of what cargo capacity is available and at

what prices. The savings will total between $125 billion and $251 billion over

the next five years, they say, nothing to sneeze at even in the US's $10

trillion economy.

Litan and Rivlin reached their estimate after asking a range of experts to

examine how various industries will likely use the Internet to their advantage

over the next several years.

Productivity increases standard of living



The result attempts to isolate the economic impact of the Internet from the
economy as a whole. No matter if the US economy remains mired in recession or

bounces back, the gains in productivity will be real, they say.

Economists see the rate of productivity growth as a key quality-of-life

indicator. When companies reap increased profits from more productive

operations, they can afford to pay higher wages or lower the cost of their

products, enabling workers to buy more.

An economy that increases productivity by a rate of three per cent per year

will double its real per capita income in 24 years.

Productivity grew at an annual rate of just under three per cent between the

end of World War Two and 1973, when it slowed to around 1.25 per cent, according

to US government statistics cited in the book. Productivity growth picked up

again in 1995, and grew at an average rate of 2.5 per cent due in some measure

to increased use of the Internet and other information technology, many

economists believe.

Productivity growth has slowed along with the economy as a whole, the two

noted Monday. "The big question is whenever this recession does end, what

will the future growth be like? Will it be a return to rapid growth, or somewhat

less than that?" Rivlin said.

Increased security costs after the hijacking attacks of September 11 could

slow productivity growth in the near future as well, they said. But the Internet

will serve to boost productivity despite these factors, the two said.

(C) Reuters Limited.