The Productivity Mirage

The promise of new technology is a glorious renaissance of productivity. But the new technology has arrived, and the majority of firms still can’t get off the ground. That much-lauded growth starts to seem like an impossible illusion.

Sure, part of the problem is that public sentiment has swung further against large-scale immigration in recent years, and immigration is traditionally one of the biggest drivers of growth. (New people, new productivity.) 

But technology also drives growth, and in the past 40 years, the world has doubled the percentage of GDP spent on Research and Development. So with all this new technology, why has productivity growth still slowed to a crawl in the past decade or two? Did we just invest in really stupid technologies?

No, the technology works. And we know this because the leading tech and innovation firms had tremendous growth in the past few decades. The top 5% of firms raised their productivity more than 4 times over that of the remaining 95%. There’s a productivity gap and it’s widening. 

The technological productivity growth is there, but only the top firms can afford to invest in the new technology, infrastructure, and knowledgeable workers to use it. And the top 1% of firms are adopting a “winner-takes-all” attitude by buying up as many new patents as the remaining 99% of firms combined, to increase their competitive advantage.

So what’s the solution?

Productivity growth needs to be accessible to the larger marketplace. This means large-scale investing in skilled tech workers, as this will substantially bring down the cost of technology adoption. A “pay-as-you-go” tech rental model for smaller companies would also help make tech adoption possible for companies who can’t afford to invest upfront. And an open and transparent marketplace for patents might help everyone understand their true and fair value (rather than letting a few firms snap everything up).

Technology was supposed to level the playing field for productivity, but sometimes it seems more like a mirage. Perhaps innovation can only solve so much when we still have to deal with people and their motivations, and the biggest key to growth is just human psychology.