30 January 2001

Information Technologies (IT) Boost U.S. Economy

Washington -- The potential for economic recession has become a matter of intense speculation and concern since the new year began, and a new U.S. president moved into the White House. With economics at the top of the national agenda, experts exchange guarded predictions about the stock market, interest rates and consumer confidence while President George W. Bush strives to enact major tax legislation.

Against this backdrop of uncertainty, a former top U.S. telecommunications regulator speaks with unqualified conviction about the role the information technologies (IT) industry has played in sustaining U.S. economic growth and prosperity in recent years. Speaking at a January 25 Washington briefing, former Federal Communications Commission (FCC) Chairman Reed Hundt said, "But for the current state of the new economy, we (the United States) would be in recession," already.

Hundt was chairman of the FCC from 1993-97, a period when IT, the Internet and the World Wide Web experienced a tremendous growth spurt. The expansion of this business sector during that time is widely credited as a principal factor in the strong growth in the overall national economy that occurred in the same period.

Now a senior advisor with the worldwide consulting firm McKinsey and Company, Hundt explained that expansion of the IT sector is creating jobs and wealth in its own right, but the new technologies have also enabled growth in "old economy" companies such as manufacturers and retailers. Productivity improves, the former FCC chairman said, as a result of the better, faster ways of moving information, shipping inventory and filling orders that improved information technologies allow. When productivity increases, growth and profits are also likely to increase.

These IT-driven trends lead Hundt to conclude that the U.S. economy will avert recession. He projected that the "astounding" growth rate of IT could become the "engine driving the world economy." But that will only happen if other nations follow a regulatory strategy that will encourage growth in the sector.

The rapid 1990s growth of IT had its seeds in several technological developments that occurred around the same time -- development of the communications protocols that allowed creation of a World Wide Web, the expansion of fiberoptics, and the steadily increasing capacity of microprocessors.

The timing of those breakthroughs was just luck, Hundt said. But insuring that they could be properly exploited to create rapidly expanding businesses and economic growth required a considered regulatory strategy. To create the proper climate for growth, Hundt said the FCC worked toward ending monopolistic control of the sector by a few large companies, encouraged competition and innovation, and allowed pricing to float with market forces. The strategy created a climate in which some companies would experience huge and rapid growth, he said, while others might crash and burn.

Hundt maintained that this regulatory model encouraged growth, and if other nations want to experience similar IT growth, he said they should follow the same model. It's an advisory he directed with particular urgency to China, where national personal computer ownership is projected to exceed all nations save the United States within two years.

Hundt pointed to other nations whose experience he said bolsters his argument. Brazil followed the U.S. regulatory strategy, adopted very similar polices, and experienced 24 percent growth in its IT sector within several years. Hundt said Japan, on the other hand, has allowed a handful of companies to dominate IT, and, in so doing, has stifled competition and controlled prices. According to the analysis of this former FCC chairman, those policies have worked to keep Japan's economy in the doldrums for almost a decade.

Distributed by the Office of International Information Programs, U.S. Department of State.
Web site: http://usinfo.state.gov