InsightaaS: The Economist is one of the world’s most respected sources of insight into business and social issues, and often achieves the rare feat of connecting both perspectives into a single analysis.At ATN, we have featured pieces from the Economist on several occasions, including one piece – “Unplugged and unproductive” – that looked at how digitization is not broadly used in China, and the need to use ICT to boost productivity.
In today’s feature, it appears that the magazine has backed away from its belief in the transformative power of IT. “Technology isn’t working” looks at a paradox: productivity gains from technology are not what would be expected, while at the same time, but this isn’t translating into more demand for labour – in fact, wages for nearly all workers are declining in real terms, while those ‘at the top’ benefit, capturing an increasing share of all income: 48% in the US, as compared to about 43% at the beginning of the decade.
There is still a hope (espoused by Andrew McAfee, another Across the Net favourite) that the productivity impact of IT is real, and simply taking a long-ish time to appear in statistics. This may be so, but it is cold comfort to many workers in industrialized nations. As the article concludes, “Most rich economies have made a poor job of finding lucrative jobs for workers displaced by technology, and the resulting glut of cheap, underemployed labour has given firms little incentive to make productivity-boosting investments. Until governments solve that problem, the productivity effects of this technological revolution will remain disappointing. The impact on workers, by contrast, is already blindingly clear.”
IF THERE IS a technological revolution in progress, rich economies could be forgiven for wishing it would go away. Workers in America, Europe and Japan have been through a difficult few decades. In the 1970s the blistering growth after the second world war vanished in both Europe and America. In the early 1990s Japan joined the slump, entering a prolonged period of economic stagnation. Brief spells of faster growth in intervening years quickly petered out. The rich world is still trying to shake off the effects of the 2008 financial crisis. And now the digital economy, far from pushing up wages across the board in response to higher productivity, is keeping them flat for the mass of workers while extravagantly rewarding the most talented ones.
Between 1991 and 2012 the average annual increase in real wages in Britain was 1.5% and in America 1%, according to the Organisation for Economic Co-operation and Development, a club of mostly rich countries. That was less than the rate of economic growth over the period and far less than in earlier decades. Other countries fared even worse. Real wage growth in Germany from 1992 to 2012 was just 0.6%; Italy and Japan saw hardly any increase at all. And, critically, those averages conceal plenty of variation. Real pay for most workers remained flat or even fell, whereas for the highest earners it soared.
It seems difficult to square this unhappy experience with the extraordinary technological progress during that period, but the same thing has happened before…