Testimony of
Under Secretary for
Economic Affairs Kathleen B. Cooper
Before the
Sub-Committee on
Rural Enterprises,
Agriculture, and Technology
February 7, 2002
Chairman Thune, Congressman Udall, members of the
subcommittee. My name is Kathy
Cooper. I am the Commerce Department’s
Under Secretary for Economic Affairs, which means I manage the U.S.
statistical bureaus that produce much of the nation’s economic, social, and
demographic data.
I am pleased to be here this morning to share with you a
Commerce Department report describing the important and developing relationship
between American small business and “the new economy.”
The term “new economy” was coined to describe an economy
with surging productivity due largely to investment and use of information
technologies (IT) like computers, software, and networks. And despite the recent economic slowdown and
recession, higher trend growth in productivity appears to be continuing. U.S.
businesses continue to add to the nation’s IT capital stock, although at a
slower pace, reflecting the downturn in business investment during the current
recession.
Our report, “Main Street
in the Digital Age,” examines the degree to which small- and medium-sized
businesses are participating in this high-tech revolution. If we are indeed in a “new economy,” we would
expect to see diffusion of these critical IT tools to businesses of all sizes
throughout the economy.
Indeed, we are seeing the diffusion of these
technologies. Small- and medium-sized
businesses in every industry are investing in information technologies and
exploring the potential of these technologies.
- Small-
and medium-sized firms invest approximately one quarter of their total
capital expenditures on computers and communications equipment. This is the same share as larger firms.
- Over
70 percent of small and medium-sized firms use computers in their
businesses, and our best evidence from a combination of Census and private
sector data suggests that a majority of small businesses are also Internet
subscribers.
- Around
sixteen percent of employees of small-and medium-sized firms who do not
use a computer at work regularly use a computer at home or some other
location. This combined with the share of small- and medium-sized
enterprises (SMEs) employees who already use a
computer on the job suggests that there is a basic level of computer
literacy in the current SME workforce.
However, our research also shows that:
- The
smaller the firm, the less it invests in IT equipment on a per-employee
basis. Companies with more than 500 workers invested twice as much per
employee in computers and communications equipment as enterprises with 500
or fewer workers.
- Employees
at smaller firms are less likely to use a computer at work than their
counterparts at larger companies.
- And,
the best available evidence suggests that small- and medium-sized
businesses are less likely than larger firms to undertake certain
e-commerce activities like buying and selling online.
Our report thus paints a picture of the diffusion—albeit the
uneven diffusion—of information technologies to small- and medium-sized
firms.
This is a first look at entrepreneurs’ information
technology investment patterns and suggests a variety of questions about the
role of small- and medium-size enterprises in the digital economy. Why, for instance, do large firms invest more
than small- and medium-sized firms in information technology equipment? And, what role does the Internet and
e-commerce play in helping businesses to succeed?
Two factors help account for lower levels of IT investment
per employee:
- First,
although small and medium-sized businesses devote roughly the same
percentage of their capital spending to IT as larger businesses, the total
amount they invest in capital equipment is less than that expended by
larger firms.
- Second,
smaller firms are more prevalent in industries that tend to be less
capital-intensive, such as retail, services, and construction.
Our data are revealing, but raise new questions that will
require new data to answer. Are small-
and medium-sized firms underinvesting in computer and
communications equipment? Are there
reasons beyond “no business need” that cause some of the size-related
differentials to appear? All of these
are areas for further research.
Improvements
in the data collection programs at Commerce should aid in addressing these
important research questions. For example:
- The
Census Bureau’s American Community Survey will yield better and more timely demographic and geographic information
right down to local levels.
- The
Economic Census is the statistical benchmark of businesses economic
activity and is being conducted this year.
As we have seen, many small businesses are involved in delivering
services or producing and servicing IT.
- The
Census Bureau and the Bureau of Economic Analysis (BEA) can and -- with
funding in this year’s budget -- will do a more accurate accounting of the
evolving services and high tech sectors.
- An
enhanced Gross State Product from BEA will help businesses serving local
communities establish business models and budgets based on information
about their locality.
- And,
the institution of a first-time ever supply chain survey will help
document shifts in economic activity by documenting how e-business processes
are shifting functions and economic activity among manufacturers,
wholesalers, retailers, transportation services, and logistics providers.
The emergence of the Internet and the combination of
increasing quality and falling prices of computer equipment during the last
decade should not be overlooked in this context. The less expensive computers and ubiquitous,
relatively easy to use computer networks have given small-and medium-sized
firms entrée into the information economy.
Small business may not be engaging in some of the more sophisticated
online activities—like buying and selling online—to the same extent as large
firms. But, most firms are at relatively early stages of incorporating the
Internet into their business processes.
Furthermore, as you know, small- and medium-sized
enterprises are an incredibly diverse collection of firms. Some of the most technologically advanced
firms in existence are small. We cannot expect
a single technological approach to be appropriate for every firm. Business owners must evaluate each technology
and each online business activity in light of their business goals.
This research is just one part of the Commerce Department’s
efforts to improve our understanding of the place small- and medium-sized
businesses in the new economy and to make sure that these firms are able to
grasp the potential of new technologies.
- Commerce
Secretary Donald L. Evans’ E-Business Facilitation Initiative encouraged
the Organization for Economic Cooperation and Development to examine the
obstacles facing businesses, particularly small businesses, in conducting
cross border transactions over the Internet and to look for positive ways
to help businesses use information technology and electronic commerce to
expand internationally.
- In my
own agency, the Economics and Statistics Administration, we are making it
easier for smaller exporters to complete their export paperwork and submit
it to us online. This will reduce the paperwork burden on small business
and enable the Census Bureau to produce trade statistics faster.
More broadly across the Administration:
- The
President’s economic security plan, particularly a provision for partial
expensing of capital expenditures, will give incentives to small business
to upgrade and modernize equipment.
And, of course, the President’s commitment to expanding trade will
open markets to businesses large and small.
- The
Office of Management and Budget is coordinating the E-government plan that
will make accessing the Federal Government’s online offerings easier to
understand and more efficient. One-third of online adults visited a
Federal Government site. And part
of the President’s Management Agenda uses Internet-related technologies to
accelerate and streamline service delivery to citizens. In fact, the Small Business
Administration has partnered with OMB and the e-gov
initiative to launch BusinessLaw.gov -- a new Web site to help guide small
business through the maze of laws and regulations.
We want to foster small businesses’ access to people and
capital, reward risk, and foster a pro-entrepreneurial economic climate.
- An
educated, trained workforce can bring to small business the expertise to
try different high-tech approaches to business needs. Some of our future network experts may
be the beneficiaries of the President’s education plan, which dedicated
resources to science and math education.
- The
Small Business Administration (SBA) guarantees loans and provides access
to capital to start or expand a business, and President Bush recently
added $320 million in loan capacity to the more than $200 million the SBA
has loaned to small businesses impacted by the September 11 attacks.
The potential for small business and IT is vast and
growing. Broadband could provide
high-speed, high-capacity connections needed to realize that potential. The Administration is educating businesses of
all sizes about the value of high-speed service and the innovation and
productivity it will provide.
Mr. Chairman, members of the subcommittee, I appreciate your
leadership on this important front.
This is a critical time for the economy as a whole and for the small
business community’s relationship with the high-tech sector.
An end to the decline in business investment would remove a
major source of weakness for the economy.
In fact, production data released in January show that the large
declines in the output of high-tech products are ending. Small business and the high-tech sector have
been hit hard. I hope we will see a
rebound in the near term.
A solid recovery depends on a variety of factors, of course,
including the strength of small business and the high-tech industry – both
individually and together.