InformationWeek

June 4, 1999

The Cloud Surrounding The Silver Lining

By Lou Bertin

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ederal Reserve Board chairman Alan Greenspan recently broke ranks with his brethren practitioners of "the dismal science" of economics with his pronouncement that technology is primarily responsible for the nation's "phenomenal" economic performance. In a speech last month in Chicago, Greenspan said the unprecedented combination of strong growth, low unemployment, low inflation, high corporate profits, and through-the-roof stock prices is directly attributable to technology being applied to let businesses operate more efficiently, allowing organizations to control costs and increase profits without raising prices.

While Greenspan earlier cited such factors as falling oil prices and a strong dollar as the drivers of the economic expansion, his epiphany now has him citing technology as the creator of "a deep-seated, still-developing shift in our economic landscape."

Specifically, Greenspan cited the classic value-chain example of applying technology to keep better track of product orders, supplies, deliveries, and administrative aspects of companies, thereby allowing them to meet customer needs more quickly and at lower costs while virtually eliminating inventory-related operating expenses. The net result of all this, according to Greenspan, is productivity gains that the Fed hadn't bargained on. Moreover, he said that traditional production and distribution processes are being bypassed and eventually will be eliminated, with E-commerce changing forever the way the distribution of goods and services are managed.

A rosier assessment from one so sober can hardly be imagined. But lest we all be lost in the euphoria of Greenspan's pronouncements, he very directly raised the specter of the cloud that surrounds the silver lining we've all been basking in when he cautioned that tight labor markets could drive up wages--and prices, canceling the productivity gains.

Ouch! Here we are with an economy that's booming, economic policy that is being (at last) tailored to reflect and propagate technology-driven innovation, and the chronic problem of the people shortage rears its horrible head once again, threatening to derail the whole thing.

If Greenspan is concerned about a shortage of skilled workers in these technology-driven times, the Council on Competitiveness appears to be downright petrified. In a report titled "The New Challenge to America's Prosperity" the Council--whose membership reads like a "Who's Who" of Fortune 500 CEOs and distinguished academics--paints a bleak picture of what's in store for U.S. businesses.

The report, co-authored by professors Michael Porter of the Harvard Business School and Scott Stern of MIT's Sloan School of Business, says the American economy is "living off historical assets that are not being renewed." There are, according to the report, several key areas where low investment and inattention have weakened the ability to keep innovating.

The chief culprit, according to the report, is a shortage of talent. The report cites a "serious weakening" of the nation's scientific and technical work force, with graduate school populations in computer sciences static or declining. According to the report, "an increasing proportion of graduates are international students and an increasing number of them are returning to their home country on completion of their studies."

The report is stark in its assessment of where things stand relative to the nation's ability to continue innovating and, in turn, continue on the fantastic economic path that's been created. One of its recommendations is a plea we've all heard before and will no doubt hear again until it becomes a mantra: "The United States must rebuild its dwindling pool [of information workers]. This will require major changes and investments in K-12 education together with a concerted effort to rebuild undergraduate and graduate training."

The conditions addressed both by Greenspan and the council are long-familiar by now. Technology is driving growth and is making individual workers more productive, which benefits us all. That's wonderful, but before we're all carried away with Greenspan's bullishness, we'd do well, I think, to heed his one bearish note and to look hard at the council's conclusions.

Without investment in what should be the ultimate renewable resource--people equipped for the new workplace--we could well find ourselves looking back enviously at the '90s as a sort of economic Camelot, the shame of which would be, of course, that we had the preventive measures at hand but neglected to apply them.

Lou Bertin is managing editor of CMP Media's Business Forums Group and an industry consultant. He can be reached at BertinL@aol.com.