Blog post

The Digital Economy is Making us Worse Off. Apparently.

By Andrew White | September 15, 2017 | 0 Comments

ProductivityInnovationDigital EconomyDigital Business

I was caught in a three way mind-meld this morning.  I was just writing an email to a work colleague about a book I just came across.  More than a book, it’s a representation of an idea about “productive knowledge” and how diversity and ease of assembly and recombination drives (or describes?) complex economies.  As such economies with more productive knowledge tend to be larger and faster growing (or have more potential to grow) than others. The book is The Atlas of Economic Complexity and I will be taking my copy to Gartner’s IT Symposium in a few weeks.  Drop by and we can talk about the fascinating conclusions.

As I was compiling the email I browsed a few websites related to a search in Google on the book.  I happened to come across an HBR article related to my favorite topic – productivity or the lack thereof.  The article I bumped into is titled, “The Paradox of Workplace Productivity“.  The premise is that you and I are now more productive, and so shouldn’t the firms we work for be more productive?  If so, why does this not show up in the data?  As you may know from my blogs US (and many other mostly developed economies) productivity has been slowing for a number of years now – and in some cases actually declining.  We don’t know why but this is but are we as individuals more productive?  The issue is in the wording – not the theory.

The actual article states, “Technology has enabled massive personal productivity gains — computers, spreadsheets, email, and other advances have made it possible for a knowledge worker to seemingly produce more in a day then was previously possible in a year. ”  This sentence demonstrates the poor construct upon the article is based.  There are two points here: Yes, technology has enabled massive personal productivity gains.  And yes, we can produce more per year than before.  But let’s look at these sentences in the cold light of day.

  • We ARE more productive as a result of technology but not in the last 10 years – roughly.  What I mean to say is this: Email has not changed much in 20 years; it made a big impact on how we communicated 20 or 30 years ago, but the time it takes and most of the steps we follow to read and send emails have not changed in 20 years.  So productivity has NOT increased (in this simple example).
  • We can PRODUCE more for sure with technologies, using the email example.  But production and productivity are not the same.  We can produce more output of emails if we just “do more emails”.  This is achieved by your employer encouraging you to use a smart phone and do email at the dinner table, email when watching TV, email even when in the bath (though not advised).  That is increased production, but not increased productivity.

I have explored this point in blogs before but it seems the distinction is lost on many journalists and this then creates confusion.  But the more interesting part of the article introduces a more up to date issue.  As the price of more and more digital services tend to zero, or are even offered free from the start, how will this impact how we measure GDP (production) and productivity?  If costs goes down, and output remains the same or increases, productivity should improve and GDP may also grow too.  But this is a gross over simplification.  What is it that grandma used to say?  “There is no such thing as a free lunch”?  Even if a services if free and your productivity increases, it does not necessarily mean the overall economy’s productivity has increases.  Our models ought to take into account all parts of the value chain – even the firm now offering the free (presumably at a loss) service.

Anyway, the three-way storm was completed as, after sending the email, I spotted another email in my inbox.  The headline ran, “The digital economy is making us poorer – but that can’t be right“.  This article explores the exact same issue I reached and noted in the previous paragraph.  The article calls out all the right points, even defining productivity and production (aka GDP) correctly.  The article then focuses in on WhatsApp and how it, as a free tool, is messing up the way in which we report productivity and GDP.

This is not a silly point.  In fact Gartner has written about this issue recently – see Maverick Research: Don’t Let GDP Slow You Down — Look Beyond It to Grow Faster.  In this piece my colleagues Moutusi Sau and Rajesh Kandaswamy explore the impact of “free” on how we report and measure economic growth and that the growth “free” services will result in changes in what is reported and so lead to possible bad or inefficient decisions.  This is very possible but I don’t think the problem is that bad at all.  The challenge lays in the scope and boundary of the analysis chosen, as noted above.

We need to look beyond the user of the free services and look at all the related and dependent services and assets and costs employed in delivering the free service.  We need to look at how the use of the free services is consumed in some other cost our output.  Thus, as with GDP, we need to look at an economy level.  Accordingly “free” does not change the basic conversation at all.  We have had “free” services for years, and competitors offering loss leaders too. This is not a new phenomenon.   Free services will drive productivity improvements for some activity. But someone had to pay the cost of providing the free services.  What is new here in the digital economy is that the scale of these new, dynamic economics are significantly larger and they will change faster.  .

So I come full circle and think: productive knowledge is key to drive growth; and innovation with technology can help the underlying production and service development, as well as how productive knowledge is generated, maintained, and diffused across an economy.  The problem is, we are not very well organized to promote this.  Now that is something we should talk about over dinner at Symposium!

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