We are often told that we are in the midst of a technological revolution. The world of finance and work is constantly changing and improving thanks to computers, the Internet, faster communication and data processing, robotics and now artificial intelligence.
As it turns out, there are hiccups with all of this: none of it seems to be reflected in the economic data. There is little evidence that all these technologies actually make us work better and faster.
In the UK, productivity (the amount of output produced by workers) grew at an annual rate of 2.3% between 1974 and 2008. But between 2008 and 2020, productivity fell by almost 0.5 percent per year.
In the first three months of this year, British productivity fell by 0.6% compared to last year. The situation is similar in most western countries. US productivity growth was 3.1 percent between 1995 and 2005, but fell to 1.4 percent between 2005 and 2019. We still seem to be experiencing a period of great innovation and technological development, but at the same time productivity is slowing down. How to explain this apparent paradox? Maybe instead of using technology to increase productivity, we use it to avoid work.
These include things like messaging friends on WhatsApp, watching videos on YouTube, having an angry argument on Twitter, or simply surfing the web. Of course, there may be other important factors.
Economists study productivity closely. Although this is a complex issue, given the negative impact of the 2008 financial crisis and the current high inflation, there are believed to be two main explanations for why technology has failed to boost productivity.
First, we simply don’t appreciate the impact of technology very well. The second is that the economic revolution is often slow burning things. Therefore, technological changes are underway, but all benefits can take decades. “There’s nothing that doesn’t use digital technology, but it’s hard to see what’s going on because it’s not visible in the statistics. We’re just not accumulating data in a way that helps us understand what’s going on ,” Cambridge University Public Policy says Diane Coyle, professor and expert in productivity measurement. For example, a company that previously invested in its own computer servers and technology department may now outsource both services to an offshore cloud provider.
Outsourcing companies get the best software in a reliable and cheap way with constant updates. But compared to how we measure economies of scale, this measure of efficiency makes companies look smaller, not bigger. You no longer see it investing in the areas of technology infrastructure that used to be measured as part of economic growth. Coyle cites the industrial revolution of the 19th century as an example of how productivity can be excluded from statistical accounting.
“I have a wonderful British Statistical Yearbook 1885, 120 pages, almost all on agriculture and 12 pages on mines, railways and cotton mills,” she said. This happened at the height of the industrial revolution, the so-called “dark and evil factories” period, yet 90% of the accumulated data comes from an ancient and increasingly unimportant sector of the economy, and only 10% corresponds to the actual relationship. We are now considering one of the most important changes in world history.
“The way we look at the economy is through the lens of the past, not the lens of the present,” Professor Coyle explains. Another reason is that the current technological revolution is happening more slowly than we expected.
Nick Kraft is Emeritus Professor of Economic History at the University of Sussex Business School, UK. He points out that what we tend to think of as dramatic changes in economic behavior that happened almost overnight, actually taking decades, may be happening now.
“James Watt’s steam engine was patented in 1769,” he said. “But the first major commercial railway, the Liverpool-Manchester line, opened in 1830 and the foundations of the railway network were laid in 1850. That was 80 years after the patent was granted.”
The same pattern can be observed in the use of electricity. It took at least 40 years from the first public light bulb to be used in 1879 before the entire country was electrified and replaced by steam power.
Perhaps we are now living through a similar period that was between the peak of steam power and the full development of electricity. The productivity race will be won by countries and companies that take advantage of new technologies best and fastest. As with steam and electricity, it seems to depend not only on the technology itself, but also on how it is used, adapted and extended.