by Andrew White | April 23, 2018 | Comments Off on Economic Growth – The Promise of Information and Technology
In last week’s Economist there was an article that quite simply drew me in. The Free Exchange article was titled, “Root and Branch-Economists understand little about the causes of growth“. The article is the first of a series in the profession’s shortcomings. The article notes up front what economists agree on:
“They know that sustained growth in GDP per person only started in the 18th century. They know that countries can become rich only by growing steadily over long periods. They know that in some fundamental way growth is about using new technology to be come more productive and to uncover new ideas. Behind that, almost everything is contested.”
It turns out that for me this is one of the most important articles I have read in a long time, and it’s only a page long.
There are three lines of thinking the paper looks at. The first starts in 1956 with work that looked at capital accumulation as a driver of growth. This idea was extended with work that looked at knowledge and how it was developed and diffused across an economy. These ideas have not proven to be reliable everywhere.
The second line of thinking focused less on theory and more on empirical research. This looked at country-level and even firm-level data. This led to the idea of growth accounting and the various component parts of capital and labor investment that led to productivity improvements. This work resulted in what is called total factor productivity (TFP). This turns out not to be something real, but more a residual. It’s what is left in a model that cannot be explained by clear investments and it is this that, apparently, drives productivity. Unfortunately it is TFP that gives rise to that marvelous comment by Moses Abramovitz, an Economist, who thought that his was more a ‘measure of our ignorance”.
The third line of thinking looks more at history and studies public policy and institutional constricts that occurred in paces where growth was observed. This work encompasses things patent law, property rights, completion rules and more. This is rich with examples but short on actual data.
The result is three strands and no consistency or unifying framework. The economics of growth remain a gap in our thinking. Yet working at Gartner I have a sneaky suspicion that we play a key role in looking at and explaining how ideas, knowledge and innovation, related to information and technology, develop, evolve and diffuse across an economy.
Which technologies are the right ones to invest in, and when? What skills are needed to exploit that technology? What business change is needed to get the value from its investment? How long will it take for that value to realized at the firm-level and then measured at the macro-level?
Gartner’s acquisition of CEB puts this analysis at the top of the business agenda since it will be this understanding that will power smarter CEOs and other business and IT leaders, and inform public sector policy, when growth is sought. It’s a great time to be working at Gartner!
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