Measuring the economic gains from IT- (13.01.02)

Recently Mark Halper argued in the Financial Times (05.12.01) that "traditional macroeconomic analysis does a poor job of measuring the real value of computer-related services. Economists tend to focus on hardware investment".

The argument continues that GDP is underestimated due to the increase in productivity that results in information rich economies and economics struggles to measure this. These productivity gains are due to the ability to produce a greater variety of goods that closely match consumers needs and quality of production improvements (such as increasingly powerful computers). Whilst there has always been a gap between measured and actual productivity growth, the point is that information driven productivity gains have resulted in this gap growing.

There are reasons to doubt this increasing gap. An information rich economy creates no extra wealth just because it has a lot of information and it manages it well. Basic economics tells us that information on its own has intrinsically no value. Value comes from the use of this information. Knowledge Management merely allows better use of information to generate ideas that make money and increase profits. These profits will be easily measure in the normal way in companies home and export sales. Logic suggests that the companies that make the best use of knowledge will be the most successful, whether this is IT driven or not.

To find out more about Knowledge Management, an in-depth study about its application to economics will be included in the info section in the near future. To comment on this analysis, please visit the debate section.