Economic Impact of IT Innovation

CU360
October 15, 2007 | COMMENTS

Information technology is not only the current driver of the new global economy, it will continue to be the driver well into the foreseeable future, according to a new study from The Information Technology and Innovation Foundation.

The study, “ Digital Prosperity: Understanding the Economic Benefits of the Information Technology Revolution,” asserts that not only has IT fulfilled its original promise, but "the integration of IT into virtually all aspects of the economy and society is creating a digitally enabled economy that's responsible for generating the lion's share of economic growth and prosperity," conclude the study's authors Robert Atkinson and Andrew McKay.

The authors also report that despite the centrality of IT to economic growth for well over two decades, "there has been surprisingly few attempts to catalogue what is known about IT's impact on the economy." And this impact goes well beyond simply commerce or business conducted across the Internet.

Rather, they include the pervasive use of IT (hardware, software, applications, and telecommunications) in all aspects of the economy, including the internal operations of organizations, transactions between organizations, and transactions between individuals. They claim that the diffusion of information technology into the economy and workplace has been responsible for three to five times more worker productivity than non-IT capital (buildings and machines).

IT boosts economic output in a variety of ways. It lets organizations automate tasks, freeing up workers to create value in other tasks. IT also has widespread complementary effects, including allowing organizations to more efficiently use capital and other resources.

An example cited in the study includes the development through IT of multiple channels for consumers to access their financial resources. Online banking, ATM networks, call-centers, and transaction kiosks, have not significantly decreased the number of branch visits financial institutions experience.

What IT has done is allow financial institutions to supply service and convenience at an undreamed of level even 30 years ago.

The study makes a number of policy recommendations to facilitate the ongoing development and economic benefits of IT:

• Give the digital economy its due. Issues regarding IT should be viewed as larger issues of economy and prosperity, not simply as technological questions.
• Actively encourage digital innovation and transformation of economic sectors. Government can support research in emerging IT areas, and should use a wide array of economic policy levers (taxes, regulation, trade) to do so.
• Tax policy should be geared to encourage IT investment.
• Encourage digital literacy and technology adoption for all people.
• Don't get in the way. Policymakers need to carefully consider the full impact of their decisions to avoid putting impediments in the way of IT development, enhancement, and operations.