Decades on and still no software to raise productivity

ECONOMICS: 'YOU CAN see the computer age everywhere but in the productivity statistics." So said Nobel Prize-winning US economist, Robert Solow, in 1987 – a full quarter of a century ago.

If computers appeared to be everywhere in 1987, their ubiquity today must amaze the ageing Solow. Their miniaturisation, massively increased power and hugely reduced cost have changed the way we live and work, probably more than anything else over the intervening period.

The laureate’s comments all those years ago reflected the curious absence at that point of a productivity dividend from computers, which had been promised decades earlier at the dawn of the information age. That promise seemed as assured as the making available of iron tools to Stone Age peoples.

Where that happened, the bands and tribes exposed to the miracle of metallurgy quickly realised just how miraculous it was.

Machetes, axes, ploughshares, pots and pans changed lives and became prized possessions.

It is easy to see why. Productivity in societies based on hunting and basic agriculture soared when metal tools became available. They allowed almost all the basic tasks of daily life to be done more quickly, efficiently and easily: prey killed, carcasses butchered, forest cleared, land tilled, shelters built and food cooked. The work a person could get done in a day increased dramatically when iron replaced stone.

In the modern age, the availability of huge processing power with the revolution in information technology was expected to have as big an effect.

Access to information and ideas, hugely efficient systems to communicate them and tools that allow almost limitless amounts of data to be accessed and analysed in a fraction of the time it took in the past. Together these advances must make us much more productive.

Or, looking at it the other way round, if the future seemed bright at the dawn of the computer age, it would be bleak now if all the IT we use constantly and almost instinctively were to disappear.

For most people, it is hard to conceive of doing one’s job with no IT tools and without being hugely less productive.

But that is not what the productivity figures suggest. As the chart shows, rather than the IT revolution triggering an acceleration in productivity growth, as measured by output per hour worked, the opposite has happened.

Across the 34-member Organisation for Economic Co-operation and Development, which includes all the world’s most technologically advanced economies, the deceleration has been quite spectacular.

In the 1980s, when Solow first wondered about the absence of an IT dividend, workers’ productivity was growing by 3.5 per cent annually.

By the first decade of this century before the Great Recession, that growth rate had halved. Post-crisis, it has slowed further. In the euro area, productivity growth has almost come to a halt.

As the chart also shows, Irish workers’ productivity growth has outpaced that of their counterparts elsewhere, even if the same broad pattern of deceleration has taken place over the past three decades.

In a new report published today – Ireland’s Productivity Performance 1980-2011 – by the State’s in-house think tank, Forfás, and its offshoot, the National Competitiveness Council, detail is presented on the multiple components of productivity.

Using a broad evidence base, the report isolates the IT component of the stock of capital, which includes hardware, software and communications equipment (non-IT capital includes traditional plant, machinery, trucks, buildings and the like).

It finds that the stock of IT capital in Ireland grew at 15 per cent per annum in the two decades to 2011 (considerably faster than the rich-world average of 12 per cent).

Non-IT investment grew at just a third of that rate over the same period.

Despite the huge compounded disparity, the report finds that growth in non-IT capital was a much bigger driver of GDP growth over the past two decades.

If Solow was puzzled by the counterintuitive non-impact of computers on productivity in the 1980s, the octogenarian must be spending his autumn years in a state of some befuddlement – just like everyone else.