COMPETITIVENESS; ECONOMIST CALLS TECH INNOVATIONS KEY TO GROWTH

ASPEN, Colo. -- Harvard economist Dale Jorgenson offered plenty of charts and graphs Monday to show that the U.S. economy has potential but that innovation will be the key to unlocking it. Jorgenson spoke here at the first day of the Progress and Freedom Foundation's annual Aspen Summit, telling technology industry executives and Washington regulators that after the dot-com crash and during the recovery, information technology innovations can contribute to a sustainable economic growth. Jorgenson walked his audience through the IT growth from 1995 through 2000, noting that IT-producing industries comprised 3 percent of the economy but contributed 10 percent of the economic growth. He also said that during that time, technology produced half the innovation.


He said those innovations, implemented by IT-using firms that comprise 23 percent of the economy, helped boost productivity and growth during the recovery from 2000 to 2005. "It was the IT-using sectors that emerged as the leaders for innovation," Jorgenson said. "The shift in innovation is the biggest part of the story [from 2000 to 2005]."


As the dot-com crash unfolded, Jorgenson said, all the IT users investing massively in infrastructure made decisions and closed whole departments. He said some jobs were replaced with machines -- and the equipment worked.


"The result was a huge increase in productivity," he said. "The economy experienced an unprecedented boom in innovation." Jorgenson compared the economic growth during the IT boom and post-crash recovery, and looked at what is sustainable. He said companies can increase employment, investment and output but warned, "If there is no innovation, there will be no output in excess of the input." So innovation, he said, is "very critical."


Jorgenson forecasts the future for economic growth at about the same on average as it has been since 1995 -- 2.9 percent a year, along with productivity growth of 2.1 percent. He said U.S. growth compares well to that in other industrialized nations, but it will be slower than the overall world economy, including developing nations, which he said is expected to grow at an "unprecedented" 5.2 percent. Jorgenson closed by saying the economy has plenty of potential, but other PFF panelists should "discuss how that future will be realized through IT technology."


The next panel wasted no time, with representatives from Comcast, Verizon Communications and the Internet telephone service Skype arguing over how FCC regulations or decisions not to regulate could help boost competition and innovation among those delivering Internet services.


Chris Libertelli of Skype said he hopes the FCC will rule against major telecom companies and said he wants a future that moves toward "increased price competition, innovation and consumer choice." Tom Tauke of Verizon insisted that there already is competition, and consumers have "more and more choices."


Stanford University professor Roger Noll joked about following those people arguing for and against regulation, saying that it is not a matter of political theology but who profits. "Anyone from anywhere in the political spectrum has a regulatory agenda," Noll said. "They don't like market outcomes because someone who pays their salary doesn't like the world as it is and wants a different outcome."


- By Heather Greenfield