Robert J. Gordon is a
most interesting thinker in contemporary economics. In The Rise and
Fall of American Growth: The U.S. Standard of Living Since the Civil War
(2016), but already in his 2013 TED Talk, The
Death of Innovation, the End of Growth, the globally renowned
macroeconomist argues that, despite all the chatter about “disruptive”
innovation, new
ideas with powerful effect on productivity are just not forthcoming – not
since considerable time. Gordon sees innovation limited by four principal
factors: demographics, education, debt, and inequality.
A major poll
conducted by Inc. Magazine among VCs in late 2015 asked what startups are
most likely to take off in 2016. Given that Silicon Valley is likely the most
innovative spot on this planet, the results are shockingly disappointing: the
presumptive champion most likely to succeed through innovation turned out to be
Vulcun,
an online betting platform allowing users to gamble real or fictitious money on
the outcome of online video games. Another top-ten contestant was Juicero
– it sells an internet-based juicer capable of delivering “disruptively fresh
juice.”
If one considers
the great discoveries of the industrial revolution, say, the steam engine, the
combustion engine, electricity, or assembly line production, it is fairly clear
how and why they affected productivity. Alas, while the digital age has changed
our daily lives, it is less clear if – and how – it has affected productivity
and created greater prosperity. Following the 2008 financial crisis, stagnation
has set in globally and has endured to date: the Euro
zone and Japan
grow at a rate barely reaching, much less exceeding one percent of GDP;
even the U.S.
situation appears dire if one discounts the effect of cheap oil and low
costs of capital. But already before the Great
Recession, increase of productivity barely hovered above zero.
There are many suspect
causes: taxation, bureaucracy, public debt, public austerity, cost of
regulation; the list goes on. But regardless of these factors, all industrialized
countries find themselves pretty much in the same situation. They face a lack
of innovation that results in growth: IT companies barely create any jobs. The
world’s three most highly valued corporations (Google, Apple, Microsoft)
collectively employ 250,000 around the world, while an industrial engineering
conglomerate such as Siemens
employs 350,000 while Walmart is home to 2,100,000
jobs. Nothing indicates that 3D printing, drones, robotics or self-driving cars
will create growth similar to the automobile, electricity, or aviation.
Arguably, GDP is a
deficient measurement for innovation benefits. IT changes lives and processes
qualitatively but it does not measurably contribute to productivity. I have
written before
and elsewhere
about the inadequacies of contemporary accounting standards, but this
phenomenon fits straight into those arguments. Since redistribution of
prosperity by growth seems to have reached its limits at least in the OECD,
European socialists argue that personal time should be the new resource to be redistributed:
if people are not afforded wage increases, they could be rewarded by having to
work fewer hours. But it may take a generation or more to change work ethic and
mentality currently fixated on measuring performance by one’s ability to put in
long and hard hours. It is a safe assumption that the pursuit of material
wealth has released an immense quantity of human energy. It will not be
possible to abandon this priority without offering compelling replacements. It
is not clear whether the most appropriate substitute may be reduction of global
poverty, strengthening of social coherence or ending global threats to the
environment, and society will need extended discourse to redefine itself and
the individual’s place in it. While this vision will not materialize without
lots of innovation, the character of it will likely pivot away from offering
top rankings to betting platforms and online juicers.
Personally, I will
sharply dispute the assumption that productivity is flat-lining or on the
decline. Innovation as we have known it in recent decades has fundamentally changed
almost all processes. A networked, Big
Data - based society may very well require a fundamental overhaul of its
valuation and accounting standards, but there is no denying that productivity,
in the sense of greater efficiency as measured by cost, time, and quality is on
the rise. It is difficult to measure the creation of intellectual property
through R&D but it has never been at a higher level than today. Another
undeniable fact is population growth despite statistically increasing averages
of living standards. While it is true that R&D
expenditures are rising, their product in terms of GDP does not. But this
may well require qualitatively different valuation of innovative products and
their utility for every task encountered in life. Productivity-based increases
of prosperity in the last centuries largely fell into the comparably brief
period from 1870-1940, the time of great inventions. But if a
19th century woman spent two days of her week doing laundry, the
invention of washer and dryer and electric iron changed GDP-measured
productivity not because of the quality or significance of those innovations
but because women entered the workforce in large numbers, suddenly placing a
monetary value on their time. Much the same was true of improved hygiene, with
no directly attributable contribution to GDP. Gordon is likely right that
productivity increases between 1920 and 1970 raised prosperity more than in
1,000 years prior. However, and to a not insignificant degree, this also had a
lot to do with recognizing, valuing and compensating services that previous
generations took for granted or considered a mere add-on. While entertainment
and communication have limited influence on industrial production processes,
and while it is true that digital devices amount only to a limited percentage
of household spending, the picture is a lot more differentiated than that: practicability
of many tasks that play a significant role in directly GDP-relevant production
is inconceivable without digital technology – from recycling to fintech, from
robotics to mass transportation and logistics. Concededly, some innovation may
not be much of a job creator, or even indeed the opposite, a low-end job
killer. But value creation is an altogether different matter more closely
related to valuation and accounting standards than the references we inherited
from the industrial age.
