A study released today by the Information Technology and Innovation Foundation (ITIF) makes some eye-popping claims about the economic benefits of IT investment (the study is available in PDF form here). It’s 53 pages plus notes, but here’s the nut:

The diffusion of information technology and telecommunications hardware, software, and services turns out to be a powerful driver of growth, having an impact on worker productivity three to five times that of non-IT capital (e.g., buildings and machines). In fact, in the United States IT was responsible for two-thirds of total factor growth in productivity between 1995 and 2002 and virtually all of the growth in labor productivity.

For those of us who’ve followed the “productivity paradox” for years, that’s an astounding claim. Throughout the ’80s and ’90s, economists expected that the increased use and power of computers and IT infrastructure would yield gains in productivity, but they stubbornly refused to show up in the data. The economist Robert Solow once said: “We see the computer age everywhere except in the productivity statistics.” Apparently these technology-driven effects take time to show up in the statistics; the report’s authors argue that a similar lag was needed before the electric motor had significant economic impact.

It should be noted that the ITIF is funded by big tech companies like Cisco Systems (CSCO) and eBay (EBAY), but it’s certainly not pure hype. While we might quibble around the edges of some arguments, the basic theses are persuasive: IT makes individual workers more productive; it creates innovative business models that force efficiencies onto traditional businesses; it allows smaller businesses to grow their market reach; and it enables executives to make more informed decisions.

The report acknowledges that there are darker sides. It estimates the cost of fighting spam and cyber attacks in the hundreds of billions of dollars annually, and while some companies make money off that, it’s clearly not helping “productivity” in any normal sense of the word. 

There’s also some less-than-cheerful data on IT’s record at job creation — regardless of growths in productivity, all the IT spending in the country has done little to boost workers’ real compensation. Indeed, there are economists like James Galbraith who’ve argued that the IT technology used to outsource jobs to low-wage markets, and the relatively low wages paid to the worker-bees of the IT world (not those at the very top) are largely to blame for stagnant wages.

All told, this report is a comprehensive attempt to understand what exactly the “digital economy” is, and is worth the read.