Today's productivity slowdown: a historical perspective
Summary:
On 20 January 2020, Nicholas Crafts, Emeritus Professor at the University of Warwick and former Director of the Centre for Competitive Advantage in the Global Economy in the UK, gave a lecture at the Rafael del Pino Foundation entitled "Today's productivity slowdown: a historical perspective". Professor Crafts began by referring to the new productivity paradox, which is that productivity growth has slowed very sharply at the same time as technology appears to be advancing very rapidly. At the moment, for example, there is great excitement, and also great fear, about artificial intelligence, robotics and so on. We can also see the fourth industrial revolution everywhere, except in productivity statistics. Given this, what lessons can we draw from economic history? Since the mid-20th century, the rate of productivity growth has slowed down in both the United States and the European Union to very low rates today, in the order of 1.2% per year in the US and 0.6% in the EU. Looking ahead, the European Commission estimates that the rate of productivity growth will increase to 1.1% per year for the EU. The US Congressional Budget Office also estimates an increase in the productivity rate for the US. The question, therefore, is whether Europe will be able to keep pace with the US. Part of what is happening in Europe is its response to the technological developments that have taken place in the US. More than 90% of Europeans' technological progress is essentially imported. The question for the future is whether productivity in the US will continue to slow down or whether, on the contrary, its growth rate will pick up, and whether Europe will be able to follow in the US footsteps, particularly in major technological improvements. According to Robert Gordon's estimates, the change in labour productivity will be well below 11GDP3T per annum. Job creation is one of the great challenges of today. For techno-optimists, the technological revolution will transform productivity behaviour and its growth rate could exceed 2% per annum. Econometricians, on the other hand, are rather pessimistic and say that productivity is only slowing down and that this trend will continue. There is, however, one indicator that can help predict productivity developments. This is the volume of books published on new technologies, which has proven to be a fairly reliable index for predicting productivity developments. An increase in the number of volumes published on new technologies is preceded by an increase in productivity growth rates. As the number of books on new technologies being published has been increasing since 1995, this development leads to estimates that the annual productivity growth rate in the United States will rebound to 2.21 TDP3T, while the increase in Europe will be lower. However, all this said, it should also be borne in mind that the digital revolution has made it more difficult to measure GDP and, therefore, we may be underestimating economic growth. Moreover, the impact of technological developments on productivity is occurring with a significant time lag. Moreover, past trends are a poor estimator of future productivity trends. Just look at the fact that productivity growth accelerated in the 1990s, thanks to the introduction of new information and communication technologies, when the trend was towards a slowdown. Likewise, when the great technological changes of the past, such as steam, electricity or the internal combustion engine, appeared, it took some time for their effect to be reflected in productivity growth. This delay can be quite significant. However, some experts believe that productivity growth will be low because the technological breakthroughs have already occurred in the past and because it is difficult to find new great ideas, especially as more and more investment in R&D is needed to achieve a significant technological breakthrough. In addition, the productivity of the R&D sector has fallen, and fallen a lot. It also affects the loss of dynamism in the business sector, thus weakening the creation of new companies, the development and introduction of new technologies and new production processes, etc. If this were true, then we would have to find an answer to the question of the origin of this loss of dynamism. Another problem is that to measure GDP we need the GDP deflator, which measures changes in prices, which is how we value GDP, and does not include improvements in product quality or adjust prices for changes in quality. Thus, there may be gains from the digital revolution that are not being accounted for, but which are welfare-improving. The implications of technological changes for productivity are modest at first. The arithmetic of growth and time are the elements that allow their full potential to unfold. Gains from robotics and artificial intelligence, for example, do not happen overnight, but take time because new technologies need to be adopted, people need to learn how to use them, people need to be trained to do so, and so on. These new technologies have an impact on employment because they change the nature and composition of employment and lead to the disappearance of a number of jobs, while new types of jobs emerge. This may lead to a dualisation of the labour market, which will particularly affect lower-skilled and lower-paid workers, who may see their jobs disappear. The question, therefore, is how these workers will be prepared, in terms of labour policies, to be able to produce something different. As to whether major inventions affect productivity, it should be borne in mind that their growth is due more to many and varied real cost cuts than to the impact of the penetration of new technologies. Productivity growth, moreover, is not so much due to technological breakthroughs as to their diffusion in the economy and society. Productivity decline also has to do with reduced competition. As a result, there are fewer new firms and fewer discoveries and innovations. This has a lot to do with inefficient competition policy. At the same time, regulation has increased, and this also reduces entrepreneurial dynamism because regulation makes it increasingly difficult for new firms to challenge incumbents.
The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of their authors.
The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.
