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The unwritten statement here that's implied by these sorts of studies is: "spend money on IT, increase productivity".

Which we know is false. IT and computing is squandered everywhere. Huge ERP installations go tits up regularly. Large systems integrators waste gobs of company's cash by running projects with clueless hordes & over-assertive managers that somehow mask that something that should take 3 people x 3 months should take 90 people x 2 years.

It also implies that IT vendors are responsible for the appropriate channeling of IT investment. This is like suggesting that weapons, communication, and transportation manufacturers should have been given credit for the Allied victory in WW2.

Investing - in anything - requires thought and management. It is good management that leads to an increase in productivity. Technology and computing capacity are just a means.

The paper is correct that technology can transform industries and markets, and that is a good source of productivity. But the catch is that there is no correlation between IT spending and transformation. Technology & computing capacity is "necessary but not sufficient" for transformation. Thus, it strikes me as a propaganda piece to squander billions with hardware & global services outsourcing.

A great source is Paul Strassmann's profitability & productivity studies, which he has conducted since the 1980's. He has plotted spending vs. productivity or profitability, in what is the now famous "scatter plot": there is *NO* correlation between IT spending and productivity & profitability. Yes, one CAN gain increases in both of these in concert with IT (witness the work of Toyota's lean approach, or Wal-Mart's data warehouse), but I'd attribute that gain to smart management plus technology over just IT.

Boy it sounds unbelievably bad - We are spending 10x what Japan spends and a shocking 24x what Russia spends! Well, I'm not saying it's not bad, but it certainly isn't THAT BAD. At least not when you think for a few seconds and realize the only way to sensibly approach this is to look at military expenditures as a % of GDP. (for source material check http://www.sipri.org/contents/milap/milex/mex_data base1.html and http://www.cia.gov/cia/publications/factbook/.

From that perspective things make a lot more sense - in 2004 the US spent between 3.2 and 3.9% of GDP (based on whose expediture estimates you use), while the UK and France spent about 2.6%. Germany, Japan, and Italy spent between 1.1 -1.7% of GDP - and Russia was about the same. To gain some perspective, South Korea spent about 1.7% while their unfriendly and incredibly poor neighbors to the North were able to scrape together a shocking 13% of their resources for military expenditures. Saudi Arabia came in at 6% while Israel came in at 7%. Iran is estimated as 3.3% by the CIA but I couldn't find any source material to back up that claim.

So Andy, it appears that other Countries ARE spending "the kind of money" the US is spending on military expenditures - some are spending relatively even more.

For more perspective I tried to find out how much of the US GDP is spent on IT - but all I could find was an estimate of 2.8% which appears to be for 1996. http://www.strassmann.com/pubs/datamation0297/.

Economist Paul A. Strassman has done several studies on the economics of outsourcing. He did a famous article in Computerworld in 1995 Outsourcing: A Game for Losers and a follow-up in 2002 Still A Loser's Game.

One of Strassman's major observations is that outsourcing is a telling symptom of a company in financial trouble, and an important signal to analysts and shareholders that its going to be a downhill ride. Now add that to old .com downhill indicator, MS has cancelled the free Soda...

Economist Paul A. Strassman has done several studies on the economics of outsourcing. He did a famous article in Computerworld in 1995 Outsourcing: A Game for Losers and a follow-up in 2002 Still A Loser's Game.

One of Strassman's major observations is that outsourcing is a telling symptom of a company in financial trouble, and an important signal to analysts and shareholders that its going to be a downhill ride. Now add that to old .com downhill indicator, MS has cancelled the free Soda...

Economist Paul A. Strassman has done several studies on the economics of outsourcing. He did a famous article in Computerworld in 1995 Outsourcing: A Game for Losers and a follow-up in 2002 Still A Loser's Game.

One of Strassman's major observations is that outsourcing is a telling symptom of a company in financial trouble, and an important signal to analysts and shareholders that its going to be a downhill ride. Now add that to old .com downhill indicator, MS has cancelled the free Soda...

From 1998:
Microsoft: A U.S. Security Threat

An all-encompassing operating system bares itself to hostile exploitation of paralyzing security flaws. The presence of a fatal defect is unavoidable, as the complexity of Microsoft systems expands to bizarre proportions with each new release. It's the search for such a fault that occupies the minds of some of the brightest computer experts. Finding a crack through which one could induce mayhem with only a few keystrokes would be worth a great deal of money, especially when supporting an act of terrorism.

The point is, this is nothing new. And here's a simple example of somebody drawing the Code Complexity parallel to increased insecurity.

By the way, this is NOT going to change anytime soon. NASA CIO Paul Strassmann loves the e-mail environment at Johnson and wants to implement the same thing (MS Exchange) across the entire agency as part of the OneNASA initiative. So, basically we'd probably see the one or two mail servers per center replaced with hundreds of Exchange servers centralized at Johnson or Marshall. Such progress!!

Whatever beneficial societal changes may or may not be attributable to the MS marketing machine, they have no bearing on the case.

You hit the nail on the head! I've been thinking about this recently, and here's what I've come up with:

Microsoft executives' oft-repeated contention is that not only haven't they harmed consumers, but that their policies have actually benefitted consumers tremendously. For evidence of this, they point to the productivity gains American businesses have enjoyed in recent years.

Ignoring the fact that their whole argument is beside the point (since antitrust law deals with whether competitors were harmed, rather than whether consumers were harmed), Microsoft's executives are still being misleading when they say their practices haven't harmed consumers. What they've left out in discussing the recent gains in productivity could fill the Grand Canyon.

For example, the rate of productivity increase among American non-farm businesses has been anemic since the 1970's. According to some (as mentioned in the link above), the "huge productivity gains" of the 1990's may, in fact, be illusory. But the bottom line is that whatever productivity gains may have occurred in the 1990's are dwarfed by those in the decades leading up to the 1970's. According to the Bureau of Labor Statistics, the average annual productivity increase in the period 1960 to 1973 was nearly 3%, while for the 1990's it was less than 1%. To the extent they had anything to do with those results, Microsoft should hardly be shouting from the roof-tops about them.

Even assuming that Microsoft's products did increase productivity from what it would otherwise have been, how can those Microsoft executives claim they increased it at a faster pace than would have otherwise been the case, had there been real competition in the Operating System (OS) market? The answer is that they can't make that claim without rejecting the entire economic system we operate under. One of the foundations on which capitalism rests is the theory that competition is better than the lack thereof. That resources are distributed in the most efficient way through competition, that products are better with competition, and that the more competition there is, the better the situation will be for the society as a whole. Thus, Microsoft executives' contention that U.S. consumers were not harmed is actually at odds with capitalist economic system, yet they're claiming that the government is anti-capitalism for working to restore meaningful competition to the OS marketplace.

If we are to assume capitalism is the right economic system to use, then we must also accept its underlying precepts. Since one of those precepts (arguably the most important one) is that competition is good, more competition is better, and a lack of competition is decidedly bad, Microsoft executives' statement that they didn't harm consumers is ludicrous. Competition would have driven down their prices, driven up their product quality, and resulted in a better allocation of resources (consumer and business dollars, as one example) for society as a whole. Basic capitalist economic theory says so, and that has been proven true time and again in the real world.

Microsoft either harmed consumers or capitalism is a lie and it's time to go socialist. So which is it, Mr. Gates? You tell me.