End of tech revolution?

For some time now, we have been reading about the tech revolution: Entire industries are being “disrupted,” the way we do the simplest things is changing, the pace of innovation is accelerating. According to economic data, however, nothing much is happening.

Should we believe our eyes or the data? It’s not an obvious choice.

Former U.S. Treasury Secretary Larry Summers talked about one aspect of the paradox at a recent conference on productivity. If technological innovation is driving low-skilled workers out of the workforce – in 1965, 19 out of 20 men between the ages of 25 and 54 were working in the U.S., but now only 17 do – shouldn’t productivity rise faster? Intuitively, it should, both because fewer people are employed and the economy is growing and because it’s the least-productive workers who are being “dis-employed.”

Instead, total factor productivity growth in the U.S. has halved in the last decade, compared with the previous one.

- Advertisement -

Summers’ intuitive answer – he pointed out in his speech that productivity wasn’t his academic field – is that perhaps economic growth is improperly measured. Not everyone buys that, of course.

Finding a plausible explanation for the productivity slowdown within the current set of rules isn’t impossible. In a just-released paper, Ryan Decker of the Federal Reserve Board and his co-authors point out business dynamism in the U.S. has sharply declined since 2000: “The U.S. has a much lower pace of startups, and those that do enter are less likely to be high-growth firms.”

Business dynamism has declined as much in hyped-up sectors such as tech as in more traditional ones – retail and manufacturing. Decker and his collaborators didn’t research the reasons for the phenomenon, but one possible explanation is that the technological revolution really took place in the 1980s and 1990s. Personal computing was the major breakthrough.

The rise of mobile or social networks has brought significant changes, but not revolutions in terms of productivity and effect on the economy. The productivity paradox will disappear when the next Really Big Thing comes.

At the moment, we’re living through the tail end of the boom that a previous generation brought about – and perhaps the gestation period for the next leap forward. •

Leonid Bershidsky is a Bloomberg View columnist.

No posts to display