Alan Greenspan likes global tracking, according to his testimony before Congress today. It is heartening to know he's all aboard.
WASHINGTON, June 14 (Reuters) - The following is the full text of
Federal Reserve Chairman Alan Greenspan's testimony on Monday on
the high-tech industry in the U.S. economy before the Joint Economic
Committee.
"Something special has happened to the American economy in recent years.
An economy that twenty years ago seemed to have seen its better days, is
displaying a remarkable run of economic growth that appears to have its
roots in ongoing advances in technology.
I have hypothesized on a number of occasions that the synergies that have
developed, especially among the microprocessor, the laser, fiber-optics,
and satellite technologies, have dramatically raised the potential rates
of return on all types of equipment that embody or utilize these newer
technologies. But beyond that, innovations in information
technology--so-called IT--have begun to alter the manner in which we do
business and create value, often in ways that were not readily
foreseeable even five years ago.
As this century comes to an end, the defining characteristic of the
current wave of technology is the role of information. Prior to this IT
revolution most of twentieth century business decisionmaking 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, businesses required
substantial programmed redundancies to function effectively.
Doubling up on materials and people was essential as backup to the
inevitable misjudgments of the real-time state of play in a company.
Decisions were made from information that was hours, days, or even weeks
old. Accordingly, production planning required costly inventory safety
stocks and backup teams of people to maintain quality control and to
respond to the unanticipated and the misjudged.
Large remnants of information void, of course, still persist, and
forecasts of future events on which all business decisions ultimately
depend are still unavoidably uncertain. But the recent years' remarkable
surge in the availability of real-time information has enabled business
management to remove large swaths of inventory safety stocks and worker
redundancies, and has armed firms with detailed data to fine-tune product
specifications to most individual customer needs.
Moreover, information access in real-time--resulting, for example, from
such processes as checkout counter bar code scanning and satellite
location of trucks--has fostered marked reductions in delivery lead-times
on all sorts of goods, from books to capital equipment. This, in turn,
has reduced the relative size of the overall capital structure required
to turn out our goods and services.
Intermediate production and distribution processes, so essential when
information and quality control were poor, are being bypassed and
eventually eliminated. The increasing ubiquitousness of Internet web
sites is promising to significantly alter the way large parts of our
distribution system are managed.
The process of innovation goes beyond the factory floor or distribution
channels. Design times have fallen dramatically as computer modeling has
eliminated the need, for example, of the large staff of architectural
specification drafters previously required for building projects. Medical
diagnoses are more thorough, accurate, and far faster, with access to
heretofore unavailable information. Treatment is accordingly hastened,
and hours of procedures eliminated. In addition, the dramatic advances in
biotechnology are significantly increasing a broad range of
productivity-expanding efforts in areas from agriculture to medicine.
Economists endeavor to describe the influence of technological change on
activity by matching economic output against measurable economic inputs:
quality adjusted labor and all forms of capital. They attribute the fact
that economic growth has persistently outpaced the contributions to
growth from labor and capital inputs to such things as technological
innovation and increased efficiencies of organizations that are made
possible through newer technologies. For example, since 1995 output per
labor workhour in the nonfarm business sector--our standard measure of
productivity--has grown at an annual rate of about 2 percent.
Approximately one-third of that expansion appears to be attributable to
output growth in excess of the combined growth of inputs.
Of course, it often takes time before a specific innovation manifests
itself as an increase in measured productivity. Although some new
technologies can be implemented quickly and have an immediate payoff,
others may take years or even decades before achieving their full
influence on productivity as new capital is put in place that can take
advantage of these creations and their spillovers. Hence, the
productivity growth seen in recent years likely represents the benefits
of the ongoing diffusion and implementation of a succession of
technological advances; likewise, the innovative breakthroughs of today
will continue to bear fruit in the future.
The evident acceleration of the process of "creative destruction," which
has accompanied these expanding innovations and which has been reflected
in the shifting of capital from failing technologies into those
technologies at the cutting edge, has been remarkable. Owing to advancing
information capabilities and the resulting emergence of more accurate
price signals and less costly price discovery, market participants have
been able to detect and to respond to finely calibrated nuances in
consumer demand. The process of capital reallocation has been assisted
through a significant unbundling of risks made possible by the
development of innovative financial products, not previously available.
Every new innovation has suggested further possibilities to profitably
meet increasingly sophisticated consumer demands. Many ventures fail. But
the few that prosper enhance consumer choice.
The newer technologies, as I indicated earlier, have facilitated a
dramatic foreshortening of the lead-times on the delivery of capital
equipment over the past decade. When lead times for capital equipment are
long, firms must undertake capital spending that is adequate to deal with
the plausible range of business needs likely to occur after these goods
are delivered and installed. In essence, those capital investments must
be sufficient to provide insurance against uncertain future demands. As
lead times have declined, a consequence of newer technologies, firms'
forecasts of future requirements have become somewhat less clouded, and
the desired amount of lead-time insurance in the form of a reserve stock
of capital has been reduced.
In addition to shortening lead-times, technology has increased the
flexibility of capital goods and production processes to meet changes in
the demand for product characteristics and the composition of output.
This flexibility allows firms to deal more effectively with evolving
market conditions with less physical capital than had been necessary in
the past.
Taken together, reductions in the amount of spare capital and increases
in capital flexibility result in a saving of resources that, in the
aggregate, is reflected in higher levels of productivity.
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