The new business cycle: the impact of the application and production of information technology on U.S. macroeconomic stabilization

Business Economics, Oct, 1997 by Martin Fleming

Lebow and Sichel observe that as more functions are outsourced from the manufacturing sector to the service sector, responding to the fluctuating demands of manufacturers, volatility in the service sector will approach that of the manufacturing sector. While it is undoubtedly true that the stability of the service sector will decrease as outsourcing increases, the economy overall will likely gain in stability. The services provided to goods-producing firms by service-sector firms will likely benefit from much greater stability as service-sector firms face a completely different set of economic incentives and thus respond in fundamentally different ways to changes in demand than do manufacturing firms. If this were not the case, manufacturers would realize no economic benefit to outsourcing the activities they require.

Martin Fleming is Principal Consultant and Director, Information Technology Practice, Abt Associates Inc., 55 Wheeler Street, Cambridge, MA, 02138. A copy of the complete paper, with footnotes, references and charts, is available from the author on request.