IT professionals gained their most powerful and influential ally yet in the fight for greater technology investment in their organizations, when US Federal Reserve Board Chairman Alan Greenspan cited technology investments by U.S. businesses as a key contributor to the economy's robust nine-year expansion.
Greenspan's comments at a recent banking conference, in which he extolled technology's role in boosting labor productivity and the resulting beneficial effects on the US economy were hardly news to IT professionals and technology-savvy managers, many of whom have built their careers advocating the strategic business advantages of deploying IT. But according to economists, CIOs and other observers, the endorsement of Fed Chairman Greenspan could be decisive in the ongoing debate about how substantial and measurable is the return on IT investment.
"There used to be a [slogan] that said, 'When E. F. Hutton talks, people listen," said Robert M. Rubin, senior vice president and CIO at Elf Atochem North America , recalling a long-running US advertising campaign for an investment firm. "Well, these days it's, 'When Alan Greenspan talks, people listen.'"
Along with outgoing US. Treasury Secretary Robert Rubin, Greenspan has more influence on the direction of the US economy -- and in the current economic climate, on the global economy -- than any other government official, noted Elf's Rubin (no relation to the Clinton Cabinet member).
"He and Rubin are far more important to the economy than [President] Clinton and [Vice President] Gore put together," he added. "I think that Greenspan's comments will raise everyone's awareness."
"Anything that Greenspan says carries a lot of weight," agreed Barry Bosworth, an economist at the Brookings Institute, in Washington, D.C. "He's become almost a cult figure."
Greenspan has a reputation as a forward-thinking economist and has speculated in the past on technology's role in bringing greater efficiency and productivity to the economy, observers noted. However, central bankers are paid to be pessimists, vigilantly scanning the horizon for signs of inflation that could choke the economy, and Greenspan is no exception. His recent assertion that "the evidence for technology-driven acceleration in productivity is compelling, but not conclusive" is by far his strongest endorsement of IT investment to date, and places him squarely on technology's side in the debate over technology's return on investment.
"It was a reversal of irrational exuberance," Bosworth said of Greenspan's recent comments, contrasting them with the Fed chief's widely reported caution of December 1996 that gains in the U.S. stock at the time reflected the "irrational exuberance" of investors rather than underlying economic realities.
In his speech to the 35th Annual Conference on Bank Structure and Competition of the Federal Reserve Bank of Chicago on May 6, Greenspan credited a range of technological innovations in US industry and business, including the ongoing surge in electronic commerce, for boosting labor productivity and allowing businesses to grow their profits without necessarily raising prices. In addition, such technological innovations are creating competitive pressures that have also kept prices in check, keeping overall inflation under control in the U.S. economy and allowing it to continue to expand without overheating, according to Greenspan.
Greenspan acknowledged that many economists see the recent data on labor productivity growth as merely a cyclical upswing rather than a permanent by-product of technology investment. Brookings' Bosworth, a former director of the Council on Wage and Price Stability in the Carter administration, is among them. He notes that the three years of strong productivity growth that Greenspan cited were preceded by three years of declining labor productivity, making much of the 1990s -- a period of accelerating IT investments by U.S. businesses -- a relatively stagnant period of labor productivity growth.
"The debate among economists centers on two key questions," Bosworth explained. "Is there truly a lasting improvement in productivity growth? And, if so, what is the cause of it? We haven't even answered the first question yet."
"Skeptics will point to other waves of innovations in the past, but things are happening at lightning speed here," said James Glassman, an economist with Chase Securities Inc. in New York and an adherent to the Greenspan view. "Two years ago no one knew what 'dot com' was."
Yet despite their differences, skeptics and enthusiasts alike agree that Greenspan's position is enough to create converts among economists, business leaders and policy makers around the globe. And technology managers fighting to maintain or expand IT budgets within their organisations could be indirect beneficiaries.
"Many CEOs practice management by magazine," said Chuck Lybrook, executive director of The Information Management Forum, an Atlanta-based association of senior technology managers. Top executives often get ideas from and are influenced by the business publications that they read, he explained, and Greenspan's comments are sure to attract the attention of the major business press.
"The fact that [Greenspan] is an intellectual leader will generate a lot of chatter" about the productivity value of IT investments, agreed James Glassman, an economist with Chase Securities Inc. in New York. "The fact that the Fed chairman's highlighting it means it's got to be important."
Both because of his intellectual leadership and the current role of the U.S. economy as the principle engine of global economic growth, Greenspan's endorsement of IT investment could help spur innovation abroad, he noted. The U.S. emphasis on IT investment can be easily mimicked overseas, he said, particularly in troubled economies that have the greatest potential to exploit the benefits of automation.
"The toys are there," Glassman said, noting that the marketplace for IT products is a truly global one, in which essentially the same products are available in virtually every country in the world. "Everyone has access to the same technology."
"It's a way of leapfrogging" the more technology-rich countries, he added. "The technology is moving so fast that [under-invested countries] can make up for a lot of lost time."
Greenspan's endorsement of IT investment could have particular significance in Europe, where business practices have tended to mirror those of the US over time, noted Eileen Rudden, senior vice president of the communications products division at IBM's Lotus Development Corp. unit in Cambridge, Massachusetts.
"I think the most relevant and immediate impact it will have is on Europe. It's a truism to say that their investments are 12 to 18 months behind that of the U.S.," Rudden said.
Yet the world's largest economy is a vastly complex organism, economists contend, and all the conditions that have produced high levels of IT investment in the U.S. may not be present everywhere.
"It's a complicated set of issues," cautioned Harvard Business School economist Josh Lerner, who is currently researching the causes of the current surge of innovation in the U.S. economy with a colleague at Boston University. Several environmental factors are present in the "Silicon-Valley-style system of financing innovation," Lerner explained, including fluid capital markets, a large pool of highly trained technical professionals who can move rapidly from one company to another, plus the aggressive IT investments of U.S. businesses.
"If, for instance, just the IT piece is replicated without the broader changes in the institutional environment, will that have the same results?" Lerner asked rhetorically.
Economists and policy analysts will continue the debate on the productivity value of IT investment, yet with Greenspan's endorsement, many advocates are prepared to claim victory.
"There has been such a lively debate over 20 years [about] the impact of investment in IT and its effect on productivity," Lotus' Rudden noted. "I think that the reason he is willing to say this now is that there's ample evidence, just in the daily lives of people."
"Usually economists are figuring things out after the fact, especially the Fed chairman," Chase Securities' Glassman agreed, noting that economists can only study data on economic activity after it has occurred and thus spend most of their time explaining phenomena that are already evident in the real world.
Elf Atochem, a Philadelphia-based chemical manufacturer, is a case in point. The company has invested heavily in IT for years to help cut costs and allow its workforce to provide more customized service to its customers, explained CIO Rubin. Yet that hasn't eased the pricing pressure on the company, in the highly competitive chemicals industry, and it is now exploring electronic commerce to help continue to cut costs and increase service.
"All of us as consumers have gotten spoiled," Rubin observed. "We expect customised goods and services at commodity prices. The only way we can do that is to cut the fat out of our price structure."
Companies like Elf haven't needed the Fed chairman's encouragement to use IT to bring innovation to their businesses, yet Greenspan's influence could still provide some additional grease to an already well-lubricated industry, observers said.
"When Greenspan talks in those terms, it makes the financial community accept the investment required to build a world-class products and services," said Kim Orumchian, CTO and co-founder of FatBrain.com, an online seller of professional books based in Sunnyvale, California.
Greenspan's greatest influence is in the financial community, Orumchian noted. And it is the financial community that provides the capital that must be invested up front by companies looking to use automation to change the way they do business.
"It's a sign of how clever a guy he is," Orumchian added. "He's been talking about this type of stuff for years ... [but] these comments do reinforce the notion that it's a good thing to be forward-looking in terms of investment."
Yet having a powerful ally in their corner may not necessarily be a boon to CIOs and IT managers.
"I think it's good that [Greenspan] said that. I certainly agree with everything he said, but it's not going to make the CIO's job any easier," the Information Management Forum's Lybrook said, noting that there is already a tremendous amount of pressure on IT departments to deliver strategic business advantage, and heightened awareness will only increase the pressure.
Greenspan's recognition of the productivity value of IT is "further evidence that it's moving into the board room," he said. "This is just going to shine the spotlight on CIOs a little brighter."
(Nancy Weil and Jeff Partyka in Boston contributed to this story.)