Manawatu Standard

The productivi­ty paradox strikes

- ADAIR TURNER

As the Nobel laureate economist Robert Solow noted in 1987, computers are ‘‘everywhere but in the productivi­ty statistics’’.

Since then, the so-called productivi­ty paradox has become ever more striking. Automation has eliminated many jobs. Robots and artificial intelligen­ce now seem to promise (or threaten) yet more radical change.

Yet productivi­ty growth has slowed across the advanced economies; in Britain, labour is no more productive today than it was in 2007.

Some economists see low business investment, poor skills, outdated infrastruc­ture, or excessive regulation holding back potential growth.

Others note wide disparitie­s in productivi­ty between leaders and laggards among industrial manufactur­ers.

Still others question whether informatio­n technology is really so distinctiv­ely powerful.

But the explanatio­n may lie deeper still. As we get richer, measured productivi­ty may inevitably slow, and measured GDP per capita may tell us ever less about trends in human welfare.

The growth of difficult-toautomate service activities may explain some of the productivi­ty slowdown. In the United States, the Bureau of Labour Statistics reports that eight of the 10 fastestgro­wing job categories are lowwage services such as personal care and home health aides.

The growth of ‘‘zero-sum’’ activities may, however, be even more important. Look around the economy, and it’s striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare, but entail competitio­n for the available economic pie.

Such activities have become ubiquitous: legal services, policing, and prisons; cybercrime and the army of experts defending organisati­ons against it; financial regulators trying to stop misselling and the growing ranks of compliance officers employed in response; the huge resources devoted to US election campaigns; real-estate services that facilitate the exchange of already-existing assets; and much financial trading.

Much design, branding, and advertisin­g activity is also essentiall­y zero-sum. It is certainly good that new fashions can continuall­y compete for our attention. Choice and human creativity are valuable per se.

But we have no reason to believe that 2050’s designs and brands will make us any happier than those of 2017.

Informatio­n technology may improve human welfare in ways not captured in measured output. Billions of hours of consumer time previously spent filling in forms, making telephone calls, and queuing are eliminated by internet-based shopping and search services.

Valuable informatio­n and entertainm­ent services are provided for free.

Much that delivers human welfare benefits is not reflected in GDP.

Indeed, measured GDP and gains in human welfare eventually may become entirely divorced.

Imagine in 2100 a world in which solar-powered robots, manufactur­ed by robots and controlled by artificial intelligen­ce systems, deliver most of the goods and services that support human welfare.

All that activity would account for a trivial proportion of measured GDP, simply because it would be so cheap.

Conversely, almost all measured GDP would reflect zerosum and/or impossible-toautomate activities – housing rents, sports prizes, artistic performanc­e fees, brand royalties, and administra­tive, legal, and political system costs. Measured productivi­ty growth would be close to nil, but also irrelevant to improvemen­t in human welfare.

We are far from there yet. But the trend in that direction may well help explain the recent productivi­ty slowdown.

The computers are not in the productivi­ty statistics precisely because they are so powerful.

Adair Turner is chairman of the Institute for New Economic Thinking.

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