productivity came from spending on information and communications technologies. 24 These impressive figures are what other policymakers want to emulate. There are some important similarities between the United States and Australia, but some important differences as well. The key similarity is that, for both economies, about one -half of the increase in labor productivity came not from spending on ICTs, but on using them. In the future, it is this multi-factor or total-factor productivity (MFP or TFP) that will most enrich these economies, far more than simply buying more hardware and software. What is TFP?
TFP reflects doing things differently in a business, in order to get more output out of the same or fewer inputs (capital, equipment, labor) – in other words, it is a proxy for transforming, restructuring, and reorienting the activities of the individual and/or business. A key difference between the US and Australia also is insightful. The US is a major producer of ICTs and Australia is not. That is, Australia raised its TFP not through domestic production of ICTs, but by importing and then using them.
Taken together, the similarity and the difference imply that the more important driver of the benefits to be gained in the New Economy--and the driver that is available to all economies--is not ICT sales or ICT production, but how individuals, firms, markets and governments use those technologies, especially in a networked environment. Review of the Literature: The US experience precipitates research … During the second half of the 1990s, US economic activity was sustained and relatively faster than that of other industrial economies, but without any apparent increase in inflation.
The US experience generated some urgency in the research community to answer the question about sources of productivity growth so that policymakers in other economies could follow a similar path to growth, if in fact such a path exists and could be gleaned from an investigation of the US. Accordingly, researchers have undertaken an extensive examination of US data and conclude, in one way or another, that investme nt in high-technology equipment is a key source (but not the only source) of the increase in labor productivity growth and in multi-factor productivity growth.
Despite the similar focus and approach of researchers, there is not full agreement on the manner or extent to which this investment might percolate through the economy to affect overall measures of productivity growth. And, there is incomplete agreement as to the permanence of the observed increase in productivity growth over the last five years. However, more and more researchers are coming to the conclusion that the increases in productivity growth are real and will be sustained.
Some authors suggest that a change in the pace of innovation in semi-conductor chips is key, so that a slowing in the pa ce of innovation could jeopardize the trend increase in productivity 24 Gruen, David, “Australia’s Strong Productivity Growth: Will It Be Sustained?” RBA Bulletin, February 2001. (Table 1) - 26-