NEW YORK (Project Syndicate) — Since the global financial crisis erupted in 2008, productivity growth in the advanced economies — the U.S., Europe, and Japan — has been very slow both in absolute terms and relative to previous decades.
But this is at odds with the view, prevailing in Silicon Valley and other global technology hubs, that we are entering a new golden era of innovation, which will radically increase productivity growth and improve the way we live and work. So why haven’t those gains appeared, and what might happen if they don’t?
Breakthrough innovations are evident in at least six areas:
1. ET (energy technologies, including new forms of fossil fuels such as shale gas and oil and alternative-energy sources such as solar and wind, storage technologies, clean tech, and smart electric grids).
2. BT (biotechnologies, including genetic therapy, stem-cell research, and the use of big data to reduce health-care costs radically and allow individuals to live much longer and healthier lives).
4. MT (manufacturing technologies, such as robotics, automation, 3D printing, and personalized manufacturing).
5. FT (financial technologies that promise to revolutionize everything from payment systems to lending, insurance services and asset allocation).
At the macro level, the puzzle is why these innovations, many of which are already in play in our economies, have not yet led to a measured increase in productivity growth. There are several potential explanations for what economists call the “productivity puzzle.”
First, some technological pessimists — such as Northwestern University’s Robert Gordon — argue that the economic impact of recent innovations pales in comparison to that of the great innovations of the First and Second Industrial Revolutions (the steam engine, electricity, piped water and sanitation, antimicrobial drugs, and so on). But, as economic historian Joel Mokyr (also at Northwestern) has argued, it is hard to be a technological pessimist, given the breadth of innovations that are occurring and that are likely to occur in the next few decades.
A second explanation is that we are overlooking actual output — and thus productivity growth — because the new information-intensive goods and services are hard to measure, and their costs may be falling faster than standard methods allow us to gauge.