More Widgets - Is PC Finally Affecting GDP?

The computer revolution may finally be doing its job - revolutionizing American productivity.

And that's big news, because in the long run, the only way to boost Americans' standard of living is to boost per-worker output.

To the puzzlement of many economists, computer technology has failed in that task over the last 20 years.

But some suspect that the rapidly growing information industry is finally beginning to boost productivity in a big way.

If productivity has accelerated, then inflation poses less danger to the economy. Employers could give workers bigger wage hikes without pushing up labor costs.

At computer companies themselves, productivity gains have been huge. For example, Hewlett-Packard's productivity has risen about 30 percent a year for longer than a decade.

"Nobody thinks of it as being out of the ordinary" for the industry, says Richard O'Brien, chief economist at the Palo Alto, Calif., computermaker.

Texas Instruments, a Dallas chipmaker, boasts productivity gains of 50 to 100 percent a year.

"It is amazing," says chief economist Vladi Catt.

Now, he suspects, the computer industry's customers may have finally figured out how to use technology to boost their own output. "There has been progress in the last few years," he says.

Jeremy Greenwood, a University of Rochester economist, says the computer revolution that started about 1974 is "right about now" starting to boost productivity. It is a "third industrial revolution," much like the introduction of steam power and the use of electricity.

Such profound technological changes involve a 25- to 30-year learning curve before management and workers employ them efficiently, he says. And the change can even slow productivity advances at first.

For the United States, productivity - how much workers produce per hour, whether in a factory or a bank - has crawled slowly since 1974.

In the four-plus years since President Clinton took office, it rose a mere 2.5 percent.

One possible sign of a productivity revival is this year's first-quarter output, up at a faster than expected 2.6 percent annual rate.

At that rate, productivity will rise more in 1997 than in the past 17 quarters.

The first-quarter jump could encourage the Federal Reserve not to raise interest rates when it meets July 1-2.

To economist Charles McMillion, of MBG Information Services in Washington, the first-quarter gain is something of a fluke. A mild winter this year pushed up national output of goods and services compared with the hard winter of 1996, he says.

To economist Mark Lasky, it's the boom in business investment pushing up productivity. Computers, he notes, amount to only 15 percent of total equipment investment.

In 1996, business put so much money into new or modernized plant and equipment that the investment amounted to 10.4 percent of gross domestic product (GDP), the nation's output of goods and services.

That ratio will notch up to 10.7 percent in the next few years, up from 8.9 percent of GDP in 1989, says Mr. Lasky, of DRI/McGraw-Hill in Lexington, Mass.

Those changes translate into billions more of investment. Lasky expects more than a 1.2 percent growth in productivity this year and for several years to come, an important advance over 0.7 percent in 1996.

Many economists suspect the Bureau of Labor Statistics has long under-measured productivity gains, especially in service industries such as finance.

"The dilemma is how the government solves these mismeasurement problems," says Lawrence Kudlow, chief economist at American Skandia Assurance in Shelton, Conn.

Gordon Richards, chief economist at the National Association of Manufacturers, sees evidence that productivity rose more than the official number for 1996.

One sign is a statistical discrepancy between GDP and national income. These should balance, but don't. If GDP is revised upward, productivity would work out to 1.8 percent - not 0.7 percent.

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