Charles Kenny argues that while the Internet has changed the way we spend our leisure time and consume, it has had only a limited impact on economic growth. 

Perhaps one reason we haven’t seen a huge impact on productivity because of access to the Internet is because, once we find a job, we spend quite a lot of time surfing the Web at the office. (Some of that time is used to look for a different job, apparently.) Ninety percent of workers with a PC also say they surf recreational sites at work. Almost the same number say they send personal e-mails, and more than half report they cybershop. The reality may be worse: Tracking software suggests that 70 percent of employees visit retail sites, and more than one-third check out X-rated sites. Perhaps we’re using the Internet to do more in less time at work. Yet we’re using the extra hours to check out pictures of Kate Upton or cats playing the piano rather than producing more widgets for the boss.

More broadly, [Robert] Gordon argues that the big productivity wins from IT occurred long ago. He notes (PDF) that telephone operators disappeared in the 1960s as the first robots were arriving in factories. Reservations systems, electronic calculators, and barcode scanners spread in the 1970s and 1980s. Business-to-business electronic invoicing through electronic data interchange has been around since 1965—when Holland-America Steamship Lines started sending shipping manifests through telex messages that were automatically converted into computer data. Online retail shopping may be a comparatively recent phenomenon, but it isn’t a very important part of the overall productivity story.

The Internet has changed the economy and will continue to change it. Some industries—not least print media, booksellers, and broadcast TV—will continue to see dramatic upheaval. But the biggest impact of the technology has been as a more addictive form of entertainment than watching Friends reruns or talking to real friends in real life. If we’ve learned anything over the past 10 years, it’s that there’s no simple Web-based solution to an economy in the productivity doldrums.

Kenny is a skilled debunker, and his column is well worth reading. And he frankly sets up an easy target — the Internet alone will not deliver “an unprecedented period of sustainable, rapid growth,” as President Clinton’s Council of Economic Advisors hoped it might in 2000, particularly if the market democracies pursue destructive monetary and fiscal policies. But there are a few points worth keeping in mind:

1. Clayton Christensen and Ashwin Parameswaran have both observed that recent years have seen a great deal of efficiency innovation relative to empowering innovation, or rather process innovation relative to product innovation. That is, firms are doing the same things more efficiently rather than launching new products and services that create new forms of consumption. The first kind of innovation allows us to use fewer resources to manufacture stagecoaches. The second kind gives us new products like the personal automobile, a device that dramatically increased mobility and that fostered the creation of a wide range of ancillary services. Efficiency innovations will tend to reduce employment levels in a given sector while empowering innovation will tend to increase employment levels as new sectors and new firms arise to meet new needs. Ashwin’s work emphasizes the role of new firm entry in fostering product innovation. As we often discuss, however, the barriers to new firm entry (the debt bias in the tax code, the cost of regulatory compliance) are quite high in many sectors in mature market democracies like the U.S.

The Internet has the potential to reduce barriers to entry in some domains by facilitating disintermediation, etc. This is why some have seen the Internet as an economic panacea. Yet as long as regulatory and, more subtly, cultural barriers persist, this potential won’t be realized. A perfect companion piece for Kenny’s column is Brad Stone on “Why Redfin, Zillow, and Trulia Haven’t Killed Off Real Estate Brokers,” which explains why various real estate start-ups have failed to transform the real estate sector.

2. In 1989, Paul David’s “The Dynamo and the Computer” observed that it took many years for investment in electrification to pay off, and that a similar dynamic might apply to the deployment of information technology in the modern workplace. Kenny implicitly addresses this argument by drawing on Robert Gordon’s claim that we have largely exhausted the potential productivity gains from IT. These gains have been realized through investments in organizational capital. Firms in various sectors, ranging from knowledge-intensive services to retail, have restructured the ways in which they deploy human capital to better exploit information technology. Yet there are a number of sectors that have not gone through this restructuring, or rather that have not taken full advantage of this opportunity, e.g., the education, health, and construction sectors, among others.

3. And finally, it could be that the Industrial Internet will deliver where the Internet Internet did not, particularly if it emerges under a more favorable mix of macroeconomic policies.