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Women's Oregon Trail

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IT and the Business Cycle

By IT Analysis

Posted: 06/08/2002 at 14:06 GMT

There is a regular business cycle, which lasts for about 9 years. The cycle is characterised by a period of growth, then strong growth and then recession. Unfortunately, the cycle isn't exact and it isn't dependable, or else you could make money out of it, by gambling on it. Sometimes it lasts 7 years, sometimes 10 or 11.

In the later stages of the last business cycle some odd things were happening. Growth in the US economy was much higher than anyone expected and unemployment much lower. Productivity statistics from the US Government suggested that from 1996 productivity was improving at an average 2.2 percent per year, which was a dramatic improvement on the 1 percent average for the previous 25 years.

The point at which productivity turned up coincided with the point at which the Internet started to become visible. That may have been a coincidence, but there was another strange quirk in the figures. Investment by US companies since 1990 has been static in every area except in IT, where it rose dramatically by a factor of 14 over the decade. And to cap it all, the bulk of the productivity improvement in the US economy was confined to the IT industry itself.

In theory, IT should be counter-cyclical and it usually is. The benefit that IT is supposed to deliver is automation. It either cuts costs and/or improves productivity, accordingly. The figures from the US suggest that it was doing the latter in the glorious 90s and particularly in the later years. In the current part of the business cycle it will be cost cutting that matters. The heady days of optimism are over and the era of cautious IT investment has arrived. So what are the information technologies that will do well in this era?

Here's one thought. Consider the anomaly of Moore's Law. This suggests that CPU power will double every 18 months and it has done just that for over 30 years. Actually Moore's law doesn't just apply to CPUs, but also memory, disk, buses and just about every

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