Productivity Paradox

Sub Topic
You can see the computer age everywhere but in the productivity statistics.” Nobel laureate Robert Solow

Explanation For Why It Happens

  • It takes times
  • Our measurements don’t take into account digital well
You need to wait. Many point out that it takes a long time—decades—to wring productivity gains out of new “big rocks.” That’s because everything else downstream of the big rocks must also change. Steam power had a stubborn productivity paradox problem. It was a costly, inefficient new technology that required roughly 60 years of refinement and capital investment to displace low-cost water-powered manufacturing and canal-based transit.9 Electricity also endured its own well-documented productivity paradox when it was first introduced into manufacturing. But manufacturing adapted, and that paradox was gone in a couple of decades.10 Most researchers set the birth of the digital age in the 1960s, when mainframes entered the workplace. By the time of Solow’s 1987 quote, mainframes had given way to the ubiquitous world of personal computers. Today we have mobile phones, cloud computing, and artificial intelligence. In other words, we’re closing in on six decades for this “lag” to catch up. Really? We’ve already had technology adoption lessons from two big-rock productivity revolutions. Didn’t we learn anything? How complicated can it be? You’re measuring it wrong. This explanation contends that we simply don’t know how to measure the benefits of today’s new technologies. Those in Silicon Valley argue that many of the technological benefits are free and thus aren’t captured via conventional measures. Yet another prominent economist, Alan Blinder, uses simple reverse engineering of the “implied value” of this new technology to prove the financial futility of this explanation. As he stated in the Wall Street Journal in 2015, “To account for a 1.6 percentage-point decline in the productivity growth rate for 10 years, all those new apps, social media and free services would now have to be worth almost $2.5 trillion more per year than in 2005. That’s not believable.”11 You’re mismanaging. Conventional wisdom would seem to render this explanation impossible. After all, markets are efficient, right? That means that someone would surely figure out how to make businesses more efficient via IT and reap the benefits thereof. Heck, just look at Amazon: it’s doing it for retail. Google did it for advertising. These are good, fact-based examples. But consider some other, far more persistent and troubling facts, based on The Lab’s own research and database: (1) Current, well-proven technology can easily automate roughly half of current knowledge work activities. (2) Knowledge workers spend roughly a third of their day performing avoidable tasks. (3) Three-quarters of these can be eliminated with no technology. All that’s needed is the application of the “forgotten” fundamental fundamental enabling principles of the Industrial Revolution: standardization, specialization, and division of labor.