ALBAWABA – We are often told that technology is revolutionizing business, but the economic data indicates that technology is not making us more productive, according to a recent BBC report.
Between the years 1974 and 2008, output per worker in the United Kingdom (UK), a measure of productivity per capita, grew at an annual rate of 2.3 percent.
However, between 2008 and 2020 the rate of productivity growth collapsed to around 0.5 percent per annum. And in the first three months of 2023, UK productivity was actually down 0.6 percent on 2022, BBC reported.
Notably, the same applies to most other Western economies.
In the US, productivity growth fell to 1.4 percent in 2005 through 2019, from 3.1 percent in the years 1995 through 2005.
One explanation might be that we are all just using technology to avoid doing work. Or, it could be that there are bigger underlying factors to consider. Because the data above clearly indicates that technology is not making us more productive.
Productivity is something economists look at very closely. It is complicated, especially with the 2008 financial crisis and current high inflation having a negative impact on businesses and individuals alike.
People use technology at work all the time now but technology is not making us more productive - Shutterstock
Yet, there are said to be two main explanations for why technology is not boosting productivity, according to Jonty Bloom’s article with the BBC.
Bloom argues that it is possible that we are just not measuring the impact of technology properly. Or that economic revolutions tend to be rather slow. It could be that “technological change is happening, but it just might be decades before we reap the full benefits”.
However, these explanations – while valid – do not offer a convincing justification of the phenomenon.
It could only seem that technology is not making us more productive even though it is
A proponent of Bloom’s first argument is Dame Diane Coyle. She is the Bennett professor of public policy at the University of Cambridge and a recognised expert on how we measure productivity.
"There is nothing that doesn't use digital now,” Coyle told BBC.
“But it is difficult to see what is going on because none of this is visible in the statistics. We just don't collect the data in ways that would help us understand what is happening," she added.
For example, Bloom says that a company that used to invest in its own computer servers and IT department might now be outsourcing both to an overseas, cloud-based provider. In this case, it would be difficult to measure tech-driven productivity growth as a whole in such a company.
Though it has revolutionized many businesses, still, technology is not making us more productive - Shutterstock
On the other hand, the firm doing the outsourcing acquires the best software, always updated all the time, and it is reliable and relatively cheap.
However, in terms of the size of the economy, this efficient move would make such a company look smaller, not bigger.
More so, it is no longer seen to be investing in that area of its IT infrastructure, which would have previously been measured as part of its economic growth.
According to Dame Diane, citing statistics from an 1885 UK statistical yearbook, it is possible that we are not doing the right measurements in all of the rights places.
Back then, in 1885, the professor argued, the statistics dedicated on 12 pages out of 120 to what at one point, not long after, became the backbone of the economy, i.e. mines, railways and cotton mills. The rest of the book was dedicated to agriculture.
"The way we see the economy is through the lens of how it used to be in the past, not how it is today," Dame Diane explained.
Maybe technology is not making us more productive now but it will soon enough
The other argument is that technology is making us more productive, but it just is taking a long time for the changes to show.
Nick Crafts is emeritus professor of economic history at the University of Sussex Business School. He pointed out to Bloom that the massive changes in economic performance that we tend to think of as having happened almost overnight, actually took decades.
The same may well be happening right now, Crafts contended.
Technology is not making us more productive right now but it could lead to ground-breaking changes in the future - Shutterstock
"James Watt's steam engine was patented in 1769," he said. "Yet the first serious commercial railway, the Liverpool to Manchester line only opened in 1830, and the core of the railway network was built by 1850. That was 80 years after the patent."
The same applies to electricity. It took 40 years from Edison's first public use of the light bulb in 1879 to the electrification of whole countries and the replacement of steam power in manufacturing.
Is there another explanation for why technology is not making us more productive?
While both those views sound valid, another explanation for why technology is not making us more productive is because the value of workers’ outputs around the world has devaluated over the years.
Combine that explanation with non-tech companies investing less in in-house technology and the fact that economic revolutions take a while to manifest in ground-breaking changes, and you’ve got yourself a trifecta of reasons.
The value of the US Dollar, the main currency by which we measure economies today, has devalued significantly since the 1800s.
According to the Official Data website, the dollar back in the year 1800 is equivalent in purchasing power to about $24.26 today, when adjusting for Consumer Price Index (CPI) Inflation. But technology did not really make it into the mainstream business sectors until the early 2000s.
Inflation is running at a higher pace than the economy is growing which is why it seems like technology is not making us more productive - Shutterstock
Back in the year 2000, the US dollar was worth $1.78 today, and back then, the world Gross Domestic Product (GDP) stood at $63.1 trillion, according to the Our World in Data website.
Today, as of 2022, the global GDP stands at $103.86 trillion, which is a 64.5 percent increase in value, according to Statista and PopulationU.
Noteworthy is the fact that the US dollar has lost more in value since the year 2000, around 78 percent, than the global economy has grown in value, 64.5 percent, in the same duration.
Also, the revolution that came with the advent of technology did not induce a radical shift in the modes and patterns of production, the way the industrial revolution did at the time.
Technology created new channels for individuals to make money on their own, from trends and online content consumption, which adds value to the market but not in terms of productivity. The people using these platforms and channels to generate income are not necessarily employees, and even if they were, it is most likely that the income they make is not factored into their employers’ worker productivity metrics.
