Information technology has revolutionized the way America does business, and engineers are a vital cog in the new economic machine.
The term "new economy" has been bandied in the 1990s by journalists, academics, and policy makers in such vague and diverse contexts that the term itself has become synonymous with everything from greater yields on Kansas wheat farms, to better inventory control at Midwest auto parts factories, to billion-dollar IPOs for Silicon Valley dot-com companies. But whatever the application of the term, the fact remains that the United States' economy has changed greatly during the decade, and engineers-the leaders in the new information technology revolutionare a major force in the new economic order.
The theory of the new economy is basic in its assumptions. Advances in technology have permanently improved the economy's efficiency and productivity. Faster computers and new software enable everyone-from manufacturers to retailers to farmers-to access information quickly and cheaply, cutting costs and improving worker productivity. The result has been unprecedented growth rates without the accompanying inflation that has burst the high growth cycles of the past.
[Where IT's At]
Federal Reserve Chairman Alan Greenspan, in testimony before Congress this year, pointed out that "information technology has begun to alter, fundamentally, the manner in which we do business and create economic value, often in ways that were not readily foreseeable even a decade ago.
"As this century comes to an end," Greenspan continued, "the defining characteristic of technology is the role of information. Prior to this IT revolution, most of the 20th century decision making had been hampered by limited information. Owing to the paucity of timely knowledge of customers' needs and of the location of inventories and materials flows throughout complex production systems, business required substantial programmed redundancies to function effectively."
In other words, the lack of speedy information left companies relatively unsure of what their customers needed, and without efficient channels to get their goods and services to those customers in a timely manner.
In the past, the conventional wisdom among economists held that an annual economic growth rate of more than 2 percent would cause high inflation, thus slowing down the growth. But a study this year by Macroeconomic Advisors, a St. Louis forecasting firm, found that beginning in 1995 growth in productivity had accelerated so sharply that the rate now "rivals that of the 1950s and 1960s, the period in which [the growth rate] grew faster than any other time in modem U.S. history." Macroeconomic Advisors estimates that the U.S. economy should be able to grow by 3 percent a year during the coming decade without creating inflationary pressures.
Skeptics of the new economy paradigm-most notably Massachusetts Institute of Technology economics professor Paul Krugman-argue that the economy's recent performance can be explained by "temporary factors": the recent increases in productivity are too recent to determine long-lasting trend; the soaring dollar has made imports cheaper, thus counteracting inflation; lower interest rates in the 1990s have pumped up profits at inefficient companies; and tight labor markets will soon fire up wage inflation.
There is a historic precedent for what is happening in today's economy, and one needs only to look at the end of the last century to draw important parallels. In the 1870s, agriculture accounted for roughly 35 percent of U.S. economic output. But the advent of manufacturers, utilities, and railroads-and the innovations of automobiles, electricity, and the telephone-moved this new industrial sector far beyond the farming sector in jobs and productivity. The result was bankruptcies and impoverishment in many rural communities.
The same dynamic is happening today, albeit in a less dramatic fashion. …