Technology Cited as Major Engine of the Economy

Computers and the Internet have dramatically transformed the nation’s economy in the last five years, significantly reducing inflation and creating 7.4 million high-paying jobs, according to a Commerce Department report released Wednesday.

The report marks the government’s most comprehensive look to date at the growth of information technology and puts a dollar figure on the myriad advancements that have become a part of everyday life.

“Technology is reshaping this economy and transforming businesses and consumers,” Commerce Secretary Bill Daley said. “This is about more than e-commerce or e-mail or e-trades or e-files. It is about the ‘e’ in economic opportunity.”

From word processing and automated inventory controls to supermarket scanners and online shopping, information technology has boosted productivity for businesses and convenience for consumers.

The high-tech industry today accounts for more than 8% of the national output of goods and services--more than $660 billion a year--with the computer and communication sectors growing twice as fast as the rest of the economy, the report notes.

The effect has been especially dramatic in California, home to Silicon Valley and the Tech Coast of Southern California.

“We are about 12% of the nation’s economy, but about 25% of the high-tech industry, so it’s twice as important to California as it is to the U.S. as a whole,” said Ted Gibson, chief economist for the state Department of Finance.

But the benefit is hardly limited to high-tech companies, according to the report, titled “The Emerging Digital Economy.” Among the industries investing most heavily in information technology are real estate, radio and television broadcasting, auto repair services and motion picture production--all key to the California economy.

Nationwide, investments in information technology account for more than 45% of all business equipment investment, compared with only 3% in the 1960s. In select industries such as communications, insurance and financial brokerage houses, three out of every four equipment dollars are spent on information technology, Daley said in a speech to businesspeople in Washington.

That investment is paying off in terms of lower inflation, which would have been 3.1% in 1997 instead of the 2% rise that was recorded, according to the report. In addition, the millions of information technology jobs average just under $46,000 in annual pay, compared with $28,000 for the private sector as a whole, the report said.

The trend is poised to continue as the Internet spreads to more office desktops. Businesses are using the global computer network to buy supplies more cheaply, reduce inventories, lower sales and marketing costs and improve their customer service, the report said.

Hewlett-Packard Corp., for example, has increased productivity and reduced costs by more than $200 million a year by linking more than 100,000 employees worldwide on an internal network that allows workers to share files, said spokeswoman Ann McGrath. Employees can also share information on manufacturing defects and product tests on more than 100 online discussion groups, she said.

The Palo Alto-based computer and equipment giant expects to save up to 70% of the costs associated with paper forms by making personnel policies and payroll forms available online, McGrath said. Money saved from administrative costs can be plowed back into research and development.

The country’s reliance on information technology was highlighted earlier this week when an AT&T; Corp. network went down for about a day and rendered many automated teller machines and credit card authorization terminals unusable.

Information technology “is part of our lives as consumers and workers,” said Tom Leiser, executive director of the UCLA Anderson Forecast. “Maybe you don’t notice it so much until it’s not there all of a sudden.”

Despite the upbeat nature of the report, some observers emphasized that the spread of information technology has not paid dividends for everyone.

“It takes away jobs from some and creates jobs for others,” said Cathy Gay, a principal at International Advisory Group in New York, which publishes newsletters about new technology. “Everyone in every level of society is being forced to have some knowledge of how this technology works. There’s certainly the worry about creating a society of haves and have-nots.”

The report states that by the end of 1997, more than 100 million people were using the Internet, compared with 3 million in 1994. But Daley acknowledged that for electronic commerce to flourish, improvements must be made to online security, with stronger encryption methods.

U.S. companies have been improving encryption products, but they have battled with federal law enforcement officials for the right to export them. The FBI wants some control over encryption technology so that it can break the codes of terrorists or drug dealers who might use encryption techniques to evade detection.

The Clinton administration has so far failed to strike a balance between business interests and law enforcement needs while competitors in 29 foreign countries are beating U.S. firms to the market, Daley said.

“The ultimate result will be foreign dominance of the market,” Daley said. To prevent that from happening, he pledged to “make a renewed effort to achieve . . . compromise inside the government.”

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Times staff writers Jube Shiver Jr. in Washington and Vanessa Hua in Los Angeles contributed to this report.