E C O N O M I C R E P O R T O F T H E P R E S I D E N T

C H A P T E R 3Technology and the American EconomyOne TelephoneDumb;Five Million, EloquentIf there were only one telephonein the world it would be exhibitedin a glass case as a curiosity.Even in its simplest form telephonetalk requires a second instrumentwith connecting wires andother accessories.For real, useful telephone service,there must be a comprehensivesystem of lines, exchanges, switchboardsand auxiliary equipment,with an array of attendants alwayson duty.Connected with such a system atelephone instrument ceases to be acuriosity, but becomes part of thegreat mechanism of universal communication.To meet the manifold needs oftelephone users the Bell System hasbeen built, and today enables twentyfivemillion people to talk with oneanother, from five million telephones.Such service cannot be renderedby any system which does not coverwith its exchanges and connectinglines the whole country.The Bell System meets the needsof the whole public for a telephoneservice that is united, direct anduniversal.AT&T ArchivesAs new types of information technology link together computers, telephones, and othertypes of communications devices, network effects become increasingly important in determiningthe success or failure of some products. In industries not subject to network effects,the total value of a product is simply the sum of its value to each user. But in industrieswhere network effects are present, such as telephone or Internet service, the more links thenetwork has, the more valuable it is to each participant in the network.Over the last century, the American economy has adapted again andagain to continuing technological change. Repeatedly during our history,American firms and workers have exploited opportunities inspired by asuccession of technical advances, in the process creating new products, newservices, and even whole new industries. The new ideas that have reshapedindividual industries have often had a broader effect on the economy as well.Innovation makes it possible to produce more output from society’s availablelabor and capital, increasing the productivity of America’s workers. Thoseproductivity improvements have led to rising prosperity and living standards,as Chapter 2 discussed.97