Beginning in 1992, the American economy began an extraordinary investment boom. From 1992 to 2000, real business fixed investment grew at 11 percent per year, with more than half of the additional investment going into computers and related equipment. And as the IT investment boom took hold, productivity growth and growth in real GDP accelerated as well. The most powerful reason to believe that this acceleration of aggregate productivity growth is permanent, rather than a flash in the pan, comes from the underlying growth accounting of the impact of the IT revolution.

In 2001, information technology capital was growing at 20 percent per year and accounted for 7.0 percent of income earned.

Multiplying these two sets of numbers together, we find that the increase in the economy’s information technology capital stock is directly responsible for 1.4 percent per year of economic growth (www.j-bradford-delong.net/TotW/g26.html).

Currently, U.S. workers’ productivity is sufficiently higher than their overseas counterparts’, and output is comparable per labor dollar — even when the lower offshore salaries are considered. But as the offshoring trend goes forward, multinational corporations will find it in their best interest to equip their engineers in India, China and elsewhere with the same productivity tools enjoyed by U.S. workers.

The other factor is innovation — new combinations of capital and labor that improve quality and reduce cost. Those who argue that the United States’ position in the forefront of high-technology innovators is secure are counting on innovation to maintain that security. The development of the transistor at Bell Labs is often cited as an example of innovative capability. This invention led to integrated circuits, then to large-scale integration, and eventually to the Pentium 4, a chip with 125 million transistors on it (http://tech-report.com/reviews/2004q1/p4-prescott/index.x?pg=1). Intel began chip fabrication operations in the United States, but today operates 15 manufacturing sites, only eight in the United States. IBM operates eight R&D centers, three in the United States.

Bell Labs began developing the Advanced Mobile Phone System (AMPS) in the 1970s. Today, three major producers of cellular wireless units are headquartered in Finland, Korea and Sweden. One is headquartered in the United States but has manufacturing and R&D centers in China, where it holds 30 percent of the handset market (www.chinanex.com/company/motorola.htm).

In 2003, IEEE-USA was successful in supporting — and helping to get — federal funding for nanotechnology research. That same year, some $304 million in venture capital funding was earmarked for nanotechnology, a 42 percent increase over 2002. Not all of that venture capital was invested in the United States; some went to Ireland. Whether nanotechnology is the next big development is not yet clear, although many applications for the technology have already been identified. How rapidly will this technology diffuse to other countries, even if it is pioneered in the United States?

Advances in technology are often protected as intellectual property by copyrights or patents. These provide a source of licensing fee income for owners — at least when countries and companies observe IP protection. We should note, however, that China has been reckless in IP theft, to the tune of an estimated $1.8 billion in 2002. The Russian Federation is another government that condones copyright piracy.