Did the IT surge cause the 1990s productivity boom?
The only problem is, the explanation doesn’t work, according to John Van Reenen at the London School of Economics. … He said that the prices of information technology fell in Europe, too. And Europeans bought information technology. But they had no productivity miracle.
To explain the experience in the United States, one would have to believe that Americans have some better way of translating the new technology into productivity than other countries. And that is precisely what Professor Van Reenen’s research suggests…
But that is, of course, the paradox of the American position. We hate experiencing major adjustments … that force people to look for new jobs. That experience has made many skeptical about the future of the United States in the world economy. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting.
I agree that the disutility of “experiencing major adjustments” needs to be considered and minimized to avoid the rise of protectionist sentiment. But an issue that isn’t mentioned, the distribution of the gains from trade and from technologically induced structural change, is also part of the political forces driving the opposition to trade liberalization. If faster response to change means that losers from the adjustment process are churned out more quickly, the politics will continue to build against globalization.