A Key To America's Strong Growth

How is it that the world's largest economy, far from settling into a satisfied stasis, is expanding at a rate that puts most of the world to shame? Business investment has picked up, payrolls are growing, consumers are bullish, and the housing market remains irrepressible. How has the U.S. restarted the engines of growth so successfully, while other rich countries glide along at half-speed?

To understand one of America's secrets of success, study the E-biz Special Report in this week's issue. It highlights six industries that are being transformed by advances in information technology and the Internet: bill payment, phone service, jewelry, software, real estate sales, and hotel bookings. For each, info tech is raising productivity, enabling companies to offer products that are better, faster, and cheaper than before.

Take just one important example: bill payment. It costs about $30 billion a year to print, transport, and process paper checks, including the expense of trundling them around the country via armored car and jet. But that expense is falling now that more people are paying bills online. And checks will be far less costly to process under a law taking effect this October that encourages banks to accept electronic images of checks in lieu of the actual pieces of paper.

Imagine new technologies continually slashing costs throughout the economy, and you begin to understand how U.S. productivity has grown at an annual rate of 3.1% since the beginning of the period of New Economy acceleration in 1995, more than double the rate of 1.5% from 1973 to 1995.

Of course, radical change creates losers as well as winners. Among those labeled as the "hunted" in our special report are incumbent phone companies, hotel chains, unwired real estate agents, corner jewelers, small-town banks, and even all-powerful Microsoft Corp. (MSFT ), which is threatened by open-source software.

The U.S. gains the full advantage of technology because it doesn't prop up every company that's harmed by creative destruction. Established companies can't strangle upstarts in the cradle. Sure, they try. Microsoft is waging war on Linux. Hotel chains are threatening franchisees with expulsion if they continue to book rooms via online agents for less than they charge the chains. And so on. But in the end, many incumbents come to understand that it's wiser to switch than fight. Thus, Verizon Communications is investing billions of dollars to offer Net phone service beginning this spring.

E-biz is back, bigger than ever. And the U.S. economy is once again growing strongly. A coincidence? Hardly.

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