3.2.5Redistribution

This hypothesis proposes that information technology capital is vulnerable to rent dissipation, as stated by Brynjolfsson and Hitt (1993) who argued “information technology capital rearranges the shares of the pie without making it bigger.” In other words, if IT capital is indeed beneficial to individual firms, it may not be so for the whole industry or economy. Because competition is fierce in the chase for information technologies, there are no winners without losers. Since IT might only redistribute wealth, the effects of information technology on output growth would be negligible because they cancel out.

Jorgenson and Stiroh (1999) gave an original explanation to the productivity paradox. According to them, computers should not have had any impact on TFP growth (technical change), but only a substitution effect.

‘Under standard assumptions of diminishing marginal products and decreasing marginal utility, a fall in the price of an input or a consumption good will lead to substitution toward the relatively cheap input or consumption good.’

According to BEA and as widely accepted, the constant quality price decline in computers has been dramatic. Consequently, businesses and households have massively substituted toward IT equipment, but no substantial growth in TFP has been reported in the 1990s (a decline was even reported).

Even if indeed information technologies have made a significant contribution to growth over the last two decades, external factors such as fierce global competition may have forced productivity gains to remain sluggish. Without the massive investment in information technology, national productivity figures would have been even more dramatic. This argument is also called the offsetting factors hypothesis.