![]() This surge in the availability of more timely information has enabled business management to remove large swaths of inventory safety stocks and worker redundancies. But information has become vastly more available in real time-resulting, for example, from developments such as electronic data interface between the retail checkout counter and the factory floor or the satellite location of trucks. Of course, large voids of information still persist, and forecasts of future events on which all business decisions ultimately depend will always be prone to error. Decisions were made from information that was hours, days, or even weeks old. In that environment, doubling up on materials and people was essential as a backup to the inevitable misjudgments of the real-time state of play in a company. Businesses had limited and lagging knowledge of customers' needs and of the location of inventories and materials flowing through complex production systems. Before this quantum jump in information availability, most business decisions were hampered by a fog of uncertainty. As we all know, that day has arrived.Īt a fundamental level, the essential contribution of information technology is the expansion of knowledge and its obverse, the reduction in uncertainty. The full value of computing power could be realized only after ways had been devised to link computers into large-scale networks. capital stock, and computers were still being used largely on a stand-alone basis. The investment in new technology arguably had not yet cumulated to be a sizable part of the U.S. However, until the mid-1990s, the billions of dollars that businesses had poured into information technology seemed to leave little imprint on the overall economy. It is the growing use of information technology throughout the economy that makes the current period unique. By the 1990s, these and a number of lesser but critical innovations had, in turn, fostered an enormous new capacity to capture, analyze, and disseminate information. It brought us the microprocessor, the computer, satellites, and the joining of laser and fiber-optic technologies. How did we arrive at such a fascinating and, to some, unsettling point in history? While the process of innovation, of course, is never-ending, the development of the transistor after World War II appears in retrospect to have initiated a special wave of innovative synergies. The exceptional stock price volatility of these newer firms and, in the view of some, their outsized valuations indicate the difficulty of divining the particular technologies and business models that will prevail in the decades ahead. And participants in capital markets, not comfortable dealing with discontinuous shifts in economic structure, are groping for the appropriate valuations of these companies. Those innovations, exemplified most recently by the multiplying uses of the Internet, have brought on a flood of startup firms, many of which claim to offer the chance to revolutionize and dominate large shares of the nation's production and distribution system. New technologies that evolved from the cumulative innovations of the past half-century have now begun to bring about dramatic changes in the way goods and services are produced and in the way they are distributed to final users. When historians look back at the latter half of the 1990s a decade or two hence, I suspect that they will conclude we are now living through a pivotal period in American economic history. My remarks today will focus both on what is evidently the source of this spectacular performance-the revolution in information technology-and on its implications for key government policies. Indeed, the rate of growth appears to have been rising throughout the period. Since 1995, output per hour in the nonfinancial corporate sector has increased at an average annual rate of 3-1/2 percent, nearly double the average pace over the preceding quarter-century. Most remarkably, inflation has remained largely subdued in the face of labor markets tighter than any we have experienced in a generation.Ī key factor behind this extremely favorable performance has been the resurgence in productivity growth. Not only has the expansion achieved record length, but it has done so with economic growth far stronger than expected. In the last few years it has become increasingly clear that this business cycle differs in a very profound way from the many other cycles that have characterized post-World War II America. FRB: Speech, Greenspan - The revolution in information technology - March 6, 2000īefore the Boston College Conference on the New Economy,ěoston, Massachusetts
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