Can the Public Sector Save Information Technology?

After multiple decades of increased expenditure in private sector IT equipment, we recently saw the first decrease in expenditures in more than 20 years. Is this trend the same in the public sector.

Published September 1, 2001

By Allison L. C. de Cerreño, Ph.D., Mahmud Farooque, and My Linh H. Nguyen
Academy Contributor

In less than six months, between 2000 and 2001, quarterly private investment in IT equipment and software decreased 11.4%. This signaled an end to an era of expansion, spanning more than 20 years, during which IT spending had increased at an average rate of 2.4% per quarter.

The private sector began its transition to the digital world in the mid 1990s, recording cost-savings sometimes as high as 20%. Government, though responsible for spawning the networks that led to the Internet, at that time viewed its role as a facilitator. In the late 1990s, although governments began recognizing the potential benefits from digitization, IT spending priorities were aimed at remedying the Y2K bug.

Finally in 2000, when corporations cut spending on high-tech software, systems, and services, all levels of government had growing surpluses from tax revenues and started to plan serious increases in allocations for information technology. From posting information, to creating tools for two-way communications, to integrating and customizing internal and external transactions, the public sector developed detailed plans for bringing government into the digital world.

These developments brought solace to IT firms, which now view the public sector as a source for steady, if not spectacular, growth. The Federal government’s annual IT budget is growing at a rate of 5%. States and local governments’ annual IT budgets are growing twice as fast. The biggest percentage-wise increase in the Tri-State will be in New York, which has been spending a much smaller share of its budget on IT allocations.

E-Government: States that Have Room for Growth

States hurt most by the economic slowdown are deferring IT expenditures, rather than canceling them. 90% of all states either implemented a statewide IT architecture or have one currently in development. The Center for Digital Government ranked each state in 8 different categories of e-Government. With a score of 79 out of a possible 100, NJ was ranked the 6th most digital state in the nation. CT and NY both show significant room for improvement, especially in the area of social services.

Getting E-Ready: Securing Access and Ensuring Training, but Will it Pay?

During the landmark 1996 legislation that deregulated the telecom industry, government opted not to restrict development of the Internet with a universal access regulation. Instead, it concentrated on wiring schools and libraries to aid people likely to be left behind by the market. Government was banking on the pattern of diffusion of technological inventions such as the television and VCR, which achieved high rates of penetration in a short time without governmental intervention. The Tri-State region illustrates that approach. Between 1998 and 2000, the percentage of households with computers increased from 41% to 52%; access to the Internet jumped from 27% to 43%.

U.S. Department of Commerce projections in 1997 showed that between 1996 and 2006, the U.S. would require more than 1.3 million new IT workers in three core IT occupations: computer scientists and engineers, system analysts, and computer programmers. The tight labor market prompted industry to push for legislations to hire temporary foreign workers. Government concentrated on making IT training more broadly available.

The IT Intensity of the Workforce

One way to evaluate the results of these efforts is to measure the IT intensity of the workforce—the percentage of total employment shared by core IT workers in six occupations: computer engineers, computer programmers, system analysts, database administrators, computer support specialists, and all other computer scientists. In 1999, the IT intensity of the workforce was 2% for the Tri-State region compared to 1.8% for the rest of the nation. New Jersey and Connecticut ranked among the top ten states in core IT worker intensity.

Leaving it to the market to effectively utilize e-Capital is an approach that worked well during times of exponential growth in the high-tech industry. However, will it be enough when the industry loses its appetite for volume and focuses on efficiency? Even before the attacks of September 11, companies were cutting down on workforce, integrating Internet ventures with other company operations, and investing only in those technologies that offer significant cost-savings.

After September 11, in addition to looking for efficiency, they are also planning for contingencies in their supply chain. Policymakers in the Tri-State region will have to decide whether to continue focusing on the creation of more e-Capital or begin taking a more proactive role in aiding individuals and businesses displaced by the changes in the economic and social climate.

Also read: Looking at Technology in the Classroom

Sources

• Center for Digital Government, Digital State Survey, January 2000.
• National Telecommunication and Information Administration, Falling Through the Net: Toward Digital Inclusion, 2000.
• United States Bureau of Labor Statistics, Occupational Employment and Wages, 1998, 1999.