Winter 1997

MOUNTAINS OF PAPER

With the advent of the personal computer, many pundits heralded the promise of the paperless office. The creation, manipulation, transfer, and storage of electronic information seemed much faster and cheaper. Yet paper production doubles every 3.3 years, reports the Association of Information and Image Management. And within the average firm, hard-copy records are growing at a 10 percent annual rate.

Computer and communications technologies have been a complement, more than a competitor, to paper. Workers today create documents, records, and receipts with incredible ease. They can print fifty copies in less than two minutes at the push of a button; whereas in the days of carbons and mimeographs, workers cringed at the idea of one more page. So while computers store huge amounts of data, consultant Richard A. Staffer, at Technologic Partners in New York City, says they hold just 10 percent of the rising corporate data pile.

Knowing where to put the paper is a pressing concern, says Kenneth Rubin, of Iron Mountain, a Boston-based records management firm. Clients are increasing off-site storage by 7 to 10 percent per year to get the stuff out of the office.

Electronic storage is more efficient in many ways. A.Van C. Lanckton, a lawyer at Craig and Macauley in Boston, is working with a bank on the admissibility of electronic documents in court. Lanckton says paper documents can be forged or misdated, and expert witnesses can attest to the authenticity of electronic as well as paper records. So the main barrier to legal acceptance may be psychological. If overcome, computers might nibble away at the endless mountains of paper.
- Tara Fallon

PATENT CULTURE

The software industry as it exists today grew up at a time when the U.S. Patent and Trademark Office viewed software as unpatentable mathematical algorithms. Recently, however, changes in patent policy have extended protection to a wider array of innovations. As a result, the number of software patent awards has exploded, with nearly 80 percent of the total number of software patents being approved during the 1990s, according to Greg Aharonian of the Internet Patent News Service.

But do software patents really offer help to the industry?

Some say yes. As patent protection prevents all others from making, using, or selling a product, it should come as no surprise that many industry leaders, such as IBM and Microsoft, favor strong patents to protect their investment in product development. And a lack of protection, they say, could discourage future research and development.

Opponents, including companies such as Adobe, Oracle, and Borland, counter that patent protection is impractical for the software industry. Software developers depend on both new and existing techniques when creating products. Restricting access to ideas, through over-broad protection, could diminish the quality of software products and encourage complicated legal battles that limit competition.

The culture of the software industry is anti-patent, says Aharonian. He notes that the leading holders of software patents are outsiders -- hardware and non-computer companies, such as IBM and GE -- and money made in patent litigation typically comes at the expense of software startups that lack the resources to fight legal battles.

Fundamental innovations, such as the spreadsheet and wordprocessor, were developed without patent protection. It is now an open question whether software patents will promote more important advances.
-Christine Gagliardi

LAYOFF COSTS

Unemployment insurance was created in this country in the 1930s to provide income security to workers who found themselves temporarily unemployed by no fault of their own. From its inception, the system has been financed by an "experience-rated" tax, charging higher rates to firms that generate greater costs. To the degree the system distributes costs in line with benefits, it encourages employers to adopt stable employment practices and to police the UI system for spurious claims.

States can modify their UI programs, and many have enacted rules that weaken the significance of experience in setting taxes. A maximum tax rate is a common modification. Massachusetts firms, for example, face a maximum UI tax of 8.1 percent, no matter how bad their layoff experience. Bob Tannenwald, an economist at the Boston Fed, found that firms at the maximum rate accounted for about 5 percent of Massachusetts' payrolls in 1995.

The maximum creates a revenue shortfall, which is picked up by other employers. This shortfall -- about 20 percent of UI benefits in Massachusetts --is partly due to seasonality in industries such as construction and tourism. It is also due, in part, to the fact that firms that continually pay the maximum lack UI incentives to stabilize employment and police UI claims.

So why not increase the maximum tax rate? One reason may be not to kick a firm when it's down. Charging troubled firms prohibitive rates could cause them to fail, while spreading their UI costs can help them weather rough periods. UI, in this way, insures employers as well as employees.
- Delia Sawhney