Former Federal Reserve chairman Alan Greenspan predicts the U.S. economy will resume making productivity gains -- and IT will help. But those gains will always be limited by just how quickly businesses can adapt to new information technology, Greenspan said Thursday during a question-and-answer session at AMR Research's Executive Leadership Conference 2006 in Boston.
Greenspan also predicted that the Democratic-controlled U.S. Congress could make changes to the Sarbanes-Oxley financial reporting regulations. And he said the U.S. health care industry won't fully embrace IT as long as older, technophobic physicians are in charge.
Productivity in the U.S. economy showed no growth at all in the July-September quarter. And productivity growth was just 1.3% over the past 12 months, the weakest showing in nine years. Greenspan, who has long championed information technology as a means of improving worker productivity, said IT helps reduce costs, such as by improving inventory management and reducing scrap rates, and helps businesses create new products and improve product quality.
"Is productivity going to increase? The answer is, of course it is," he said. But it's difficult to predict just how quickly. Moreover, productivity gains of more than 3% per year are nearly impossible to sustain over multiyear periods because businesses -- and the people that run them -- can only adapt just so quickly to exploit new technology.
"The obvious answer is that we're just not smart enough," he said. "How we apply cutting-edge technology is a function of IQ."
When a questioner noted this week's elections in which Democrats captured both the U.S. House of Representatives and the U.S. Senate, Greenspan dryly said: "I noticed." Then he added: "This is an election the Republicans lost. The Democrats didn't win. They just happened to be standing there."
Congress might change Sarbanes-Oxley's Section 404 that establishes strict internal controls for financial reporting, Greenspan predicted. Calling Section 404 "a nightmare," Greenspan said it has saddled many businesses with increased costs. Sarbanes-Oxley passed nearly unanimously in the wake of financial scandals such as the collapse of Enron, "and anything that goes through Congress with that level of unanimity can't be good," he said. But Congress should retain the parts of Sarbanes-Oxley that require CEOs and CFOs to sign off on corporate financial statements, Greenspan said.
Growing use of electronic medical records will help the healthcare industry better identify and implement best practices, Greenspan said. But the industry won't fully embrace IT until younger tech-savvy physicians predominate, replacing technophobic physicians now in their 50s and 60s. And it's impossible to predict the impact of IT on healthcare costs, he said.
Medicare soon won't have the resources to provide healthcare to all aging baby boomers. "We have probably overpromised to baby boomers what can be delivered," he said.