Productivity gains: anyone for a further 10 trillion dollars?
In Short
By Tarek Issaoui, Head of Macroeconomic Research at Sycomore Asset Management
To quote Heraclites, if “no man ever steps in the same river twice”,the economy does occasionally face the same opposing currents. Productivity gains are a recurring issue, if not an enigma, in the field of economic sciences: why do we go through long periods of apathy, despite evident technological progress?Are we stuck in a phase of “secular stagnation” with no obvious end in sight?
For years, automation and algorithmizing have been growing at a fast pace, but with no visible effects on the “total factor productivity” (the term used by economists to describe the value produced from identical labour units and capital stock). Economist Robert Solow famously said in 1987 that “the computer age was everywhere except for the productivity statistics”. Echoing this observation, this same question is now being raised almost forty years later. Replace “computer” with “artificial intelligence” and you will even come up with a catchy headline for an article.
The reference to Robert Solow, who died recently, is worthy of a little aside. The economist and Nobel prize winner was well placed to develop the paradox: Solow built his academic career on the foundation of a theory of growth partly driven by technological progress, which acts as productivity lever that helps to elude the law of decreasing yields inherent to all capitalist systems – i.e. the erosion of marginal profits that comes with the mobilisation of production factors that are less effective than the very first that were used.
