The future, the Internet and economic growth

By: Link Hoewing

I am an optimist about the potential of technology – particularly information technology – to spur growth and progress in society. But this view is not universal. In fact, a debate about the growth of our economy and the broader world economy has been emerging recently and it relates directly to the role of the Internet and mobile technologies. The debate centers on the question of whether we are facing a fundamentally different economy – both in the U. S. and globally – than we have had in the recent past.

This is a very important topic because much of the current debate around what to do to spur more growth centers on understanding how the economy responds to policy changes and to the actions of various actors, such as businesses and consumers. Some believe that the U. S. economy’s basic working fundamentals have not changed much in recent years. This is the view of Ben Bernanke and many others.

But others believe that the past 250 years may prove to have been a “unique” period of expansion that may not continue in the years ahead. As a result, they believe that achieving annual growth rates of three to four percent going forward will be much more difficult than in the past. Among those making this argument is Robert Gordon. You can read Gordon’s paper at the link, but in a nutshell he believes the waves of innovation over the last 250 years (including the Internet) have largely played out, and that while new technologies and innovations will spur economic growth, a host of other factors – an ongoing global debt crisis, demographic challenges, lack of access to educational resources – will tamp down economic growth for decades to levels as low as .5 percent a year.

Is Gordon right? As a tech trends and policy thinker for over two decades, my first response when it comes to the potential of technology is to be cautious about predicting anything. But I do believe that technological advances often move in directions and with speeds we never could have anticipated. I, for one, am not nearly ready to declare that we’ve reached a “new normal” or plateau in growth, in large part because the innovation that ensues is not limited to technology, but also to business models and transformation of the entire production system.

Rob Atkinson and a number of other economic historians argue that throughout its history the U.S. economy has gone through such periods of transformation about every fifty years: from agriculture to craft manufacturing during the 1840s-1890s; the development of factory-based industries during the period from the 1890s to the 1940s; the explosion of large, corporate mass production from the 1940s to the 1990s. Today we are still experiencing the disruption of the post-WWII, mass-production social and economic order that began a decade ago, as the forces of the IT-driven knowledge economy began to “flatten the world,” as Tom Friedman might say.

As even Gordon notes, the impacts of the changes influenced by the first two waves of technology change he discusses took literally decades – possibly close to 100 years – to completely work their way through society and the economy. While he notes that computers have been around since the 1960’s, the truth is that those early machines were nothing like today’s. They ran initially on punch cards (I programmed on them when I was in grad school) and they did little to empower individuals. They were centralized devices owned and managed by corporations and government agencies by and large.

Further, the real power of computing did not start until the 1990s, when computers finally were not only “personal” (and no longer behemoths owned by big companies alone), but more importantly networked. Alan Greenspan made an important observation about this in a speech in 2000 when he said “The full value of computing power could be realized only after ways had been devised to link computers into large-scale networks.”

The power of mobile technologies adds another dimension to this picture that suggests high levels of innovation, change and investment. This piece in the New York Times illustrates how rapidly these markets are evolving. The innovation that is emerging is going to have continuing impacts on our economy, promoting new services that will mean more growth and consumer adoption of a wide array of services that are only beginning to emerge. This piece, highlighting the development of networks of sensors and mobile-information devices, suggests even more growth as mobile networks of a wide array of devices will help us manage aspects of our daily lives and businesses better manage their operations. These so called “machine to machine” technologies are only beginning to have an impact, with approximately 100 million devices connected today. Studies suggest more than 2 billion devices may be connected within the next decade, with major impacts on business operations and efficiency.

Further, technology often has even greater impacts as business processes change to take maximum advantage of the new capabilities. Clayton Christensen as explains, only after consumers (and businesses) widely adopt a new technology and have used it for some period of time can its impact be widely appreciated. This sort of change may not become “transformational” with major impacts on the economy for quite a period of time.

I believe this is true of mobile technologies and the Internet. Yes, we’ve had the World Wide Web (running as service on the Internet) since 1995 but only in recent years has web access become a “mass market” phenomenon. While most Americans today have mobile phones, the majority still do not have smartphones and are not able to use the full set of services and capabilities available on the web. Globally, billions still do not have either web connectivity or smartphones. Whole segments of our economy have yet to see the full benefits of mobile connectivity and access to high speed web based services.

While a majority of doctors today have iPads and are using information technologies, the reality is that health care remains isolated from the major improvements in efficiency and treatment outcomes that effective utilization of information and communications technologies could bring.

At least a third of health care expenditures in this country are wasted or harmful according to the study, including numerous examples of patients failing to follow their treatment regimens and landing back in the hospital. Medical errors, such as improperly administering medicines or treating patients in the hospital, often result from faulty written records or mistakes in reading information on paper charts. All of this results in huge costs for re-admitting patients to hospitals, failing to prevent serious illnesses, failing to administer treatments correctly and failing to take maximum advantage of better alternatives in administering care.

Huge inefficiencies result. Communications and information technologies can make a major difference in this situation. While there has been a push for wider adoption of electronic medical records, progress has not been as great as in other industries, such as retail, which have taken advantage of efficiencies and meeting consumer needs via information and communications technologies.

Our CEO Lowell McAdam put it best in a recent speech:

And we’ve seen a revolution in the behavior of consumers, who have come to expect anytime-anywhere access to everything in their digital lives. Yet for all of this innovation, technology has yet to truly transform health care as it has other sectors of the economy. Doctors report that their productivity actually goes down, not up, when technology is introduced because of incompatible systems and frustrating interfaces. The amount of digitized medical information is rising exponentially, but systems still can’t talk to each other easily, in part because of the licensing and security issues unique to this industry. Access to quality care is still uneven. While 20 percent of Americans live in rural areas, only 10 percent of doctors serve them, meaning that two-thirds of people in rural areas have to travel more than an hour for medical care. And maybe the most surprising thing in an anywhere-anytime age is that patients don’t have the seamless connection to their health care systems that technology affords them in every other facet of their lives. The results: consumers and providers are still frustrated …access to quality care is still unequal...and America’s $2.3 trillion bill for health care is still rising at an unsustainable rate.

This is not the only segment of society where the Internet and mobile technology has not been integrated effectively, where the transformational possibilities – and the spinoff improvements that would continue to occur – have not yet been achieved. Energy management, transportation, education and many other parts of our society have only seen the beginnings of the improvements that could occur if we more effectively integrated these communications technologies – and adapted our systems to utilize them more effectively. There are huge benefits in productivity and efficiency that remain to be mined. And this does not even take into account what can be done globally where many hundreds of millions do not yet even have access to the Internet.

When it comes to earlier waves of technology that led to the adoption of cars, indoor plumbing, the telephone and electricity among other things, Gordon seems to understand that a complex process of technology development, change in business practices, adaptation by society and full integration into all aspects of society are required to take full advantage of the efficiencies and improvements that technologies offer.

I would argue that with the Internet and mobile technologies, we have not seen anything yet, and that this coming wave of innovation will actually help address and alleviate some of the “headwinds” Gordon believes will hold back economic growth – access to education, for example.