We are often told that we are in the midst of a technological revolution.

That the world of finance and work continues to transform and evolve thanks to computers, the internet, faster communications and data processing, robotics and now artificial intelligence.

It turns out there’s a small problem with all of this: none of this seems to be reflected in the economic data.

There is very little evidence that all of this technology actually makes us work better and faster.

In the United Kingdom, between 1974 and 2008, productivity – the amount of output produced by one worker – grew at an annual rate of 2.3%. But between 2008 and 2020, productivity rates have fallen by almost 0.5% per year.

And in the first three months of this year, UK productivity fell 0.6% from a year ago.

The picture is similar in most Western countries. In the United States, productivity growth between 1995 and 2005 was 3.1%, but fell to 1.4% between 2005 and 2019.

It seems that we are still experiencing a period of great technological innovation and development, but at the same time, productivity is slowing down. How can this apparent paradox be explained?

It could be that instead of using technology to increase productivity, we actually use it to avoid work.

That includes activities like sending messages to friends on WhatsApp, watching videos on YouTube, arguing furiously on Twitter, or simply browsing the internet subconsciously.

There could also, of course, be another, much larger factor.

Productivity is something economists pay close attention to. And while this is a complex issue, given the negative effects of the 2008 financial crisis and today’s high inflation, there seem to be two main explanations for why technology is not increasing productivity.

The first is that we don’t measure the impact of technology very well. The second is that economic revolutions tend to be slow-burning affairs. So technological change is happening, but it may be decades before we see its full benefits.

“No one doesn’t use digital technology, but it’s hard to see what’s going on, because there’s nothing to show in the statistics. We’re just not collecting data in a way that helps us understand what’s going on,” said Diane Coyle, Professor of Public Policy at the University of Cambridge, an expert on productivity measurement.

For example, a company that used to invest in computing servers and its own IT department might now outsource both services to an offshore cloud-based provider.

The outsourcing company receives the best software, with constant updates, in a reliable and inexpensive manner.

But in terms of how we measure economic size, this efficiency measure makes companies look smaller, not bigger. And you no longer see it investing in its technology infrastructure, which in the past would have been measured as a share of its economic growth.

Coyle offers an example from the 19th century industrial revolution that illustrates how productivity can be neglected in statistical records.

“I have an excellent annual statistics book on Great Britain from 1885, there are 120 pages, almost all of them on agriculture, and there are 12 pages on mines, railroads and cotton mills,” says the expert.

It happened at the height of the industrial revolution, the so-called “dark and devil factory” period, however, 90% of the data collected came from the old and less important sectors of the economy, and only 10% of that. corresponds to what we now consider one of the most important changes in world history.

“The way we look at the economy is through the lens of how things were in the past, not how they are today,” explained Professor Coyle.

Another reason is that today’s technological revolutions are happening more slowly than we expect.

Nick Crafts is Emeritus Professor of Economic History at the University of Sussex Business School, UK. He shows that the wave of economic behavior change that we tend to believe happened almost overnight really took decades, and it can happen now.

“James Watt’s steam engine was patented in 1769,” he says. “But the first major commercial railroad, the Liverpool to Manchester line, was opened in 1830, and the foundations of the railroad network were laid in 1850. That was 80 years after the patent.”

The same pattern can be observed with the use of electricity. The time from the first public use of the light bulb in 1879 to the electrification of the whole country and the replacement of steam power was at least 40 years.

We can go through the same intervals today, as the world was between the peak of steam power and the full development of electricity.

The countries and companies that make the best and fastest use of new technologies will win the productivity race. This, as was the case with steam and electricity, seems to be determined not only by the technology itself, but also by how it is used, adapted, and exploited; in other words, how skilled you are.

Professor Coyle watched it happen. “There’s a lot of evidence now that regardless of the company, there’s an increasing gap between those who can use technology and those who can’t.”

“It seems that if you have really skilled people, you have lots of data, and you know how to use sophisticated software, and you can change processes so that people can use the information, your productivity will skyrocket.”

“However, in the same sector of the economy there are other companies that cannot do that.”

Technology seems not to be the problem, and in some cases not the solution either. High productivity will come only to those who learn to use it better.

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jonny flower
financial journalist