It is becoming more widely accepted that ICT-related productivity gains can come through ICT use as well as ICT production. But ICT use is not in itself sufficient. Multifactor productivity gains can come if there are also improvements in products and processes. The Australian experience suggests that the central tenants of policy reform — competition, openness and flexibility — have been important in driving the uptake of ICTs and assisting firms to use them in productivity-enhancing ways. Reforms have provided competitive incentives for firms to take up ICTs, enabled ready access to the latest advances in ICTs and have ensured that firms have the flexibility to use ICTs in ways that transform their businesses and raise productivity. However, many of the productivity gains from Australia’s reforms are unrelated to ICTs. From a policy and productivity perspective, a direct focus on ICTs and the ‘new economy’ is therefore somewhat misplaced. Nevertheless, ICTs and the ‘new economy’ have direct policy implications and bring statistical needs.

This paper uses a growth accounting framework to compare the contribution of ICTs to productivity accelerations in Australia and the USA. It finds that many studies have overstated the contribution of ICT capital deepening (increased ICT use has substituted for other forms of capital at least as much as they have substituted for labour) and have overstated the acceleration in underlying productivity growth.