Friday, July 28

Why Technology isn't improving productivity


Productivity is the economic measure to determine the overall performance of an economy in terms of the efficiency of labour and capital. In the past a key driver of productivity has been technological improvement. But Economists of more recent times continue to be surprised by the declines in productivity as indicated in the national accounts of developed countries. Whilst the individual identification of productivity in a digital world may be far more difficult to quantify statistically, nevertheless overall gains would still be evident in the aggregated numbers of output evident in national accounts.

What I aim to do with this brief paper is to seek to identify and discuss a number of issues which I believe are relevant. The bottom line however is that no one can say for sure what the exact reasons are and any study will be faced with a mountain of conflicting evidences in today’s complex developed world.

At the very outset the fact that a lack of productivity elicits so little coverage in discussion is in itself an indication of the current malaise because the subject to some degree has gone out of fashion. You might say in some respects we are spoilt for choice and drift into arrangements just as fashion dictates what to wear rather than what’s practical or necessary for our existence. The question then is how important is it that technology in a digital world yield overall improvements in productivity?      

What is oft overlooked is the only way we can advance overall living standards and increase real wages is by way of improvements in productivity. If in a digitized world this is no longer viable then we have to start questioning the very wisdom of the pathway that is before us.

In my view possible key drivers which derail the benefits of technology can be summarised as ever increasing amount of re- work, a marked drift away from quality, a far too rapid take up of new technology and technology overload which cancels out its individual benefits. What I propose to do is to discuss why I think these factors contribute to the current malaise.

Past Improvements in Productivity and growing complexity

However, as a preliminary first step I will outline in the form of a brief history how in the past technological investments have enhanced productivity. The fact is, of course very worthwhile gains are continuing to be made in every sphere notwithstanding they don’t add up to noticeable improvement in the national accounts of advanced economies.  My initial aim in taking this approach is to ascertain if any initial clues may emerge as to why these gains have now stalled.

In the past great strides were made possible by the use of technologies within machinery which automated processes and reduced labour. Translating such productivity gains into statistics was not difficult and the aggregated gains showed up readily in the output totals and by industry in national accounts. After all it was easy to see if you were producing more widgets with fewer people after investing in labour saving technologies. 

But over time manufacturing in developed economies shrunk as globalization took hold and many large manufacturing and distribution outlets were re-located in developing economies which offered lower costs principally because of lower wages paid.
During the ensuing period developed economies changed dramatically with the void in manufacturing filled by services which now make up over 70% of gross domestic product.

However initially the idea of productivity applying equally to the service industries was not considered feasible since labour performed tasks thought to be too complex and intuitive for machines or robots. But over time technology began to adapt and automation was implemented in earnest.  

What we are now seeing is increasing use of algorithms (An algorithm can be a procedure or a formula for solving a problem, which is predicated on actioning a sequence of specified actions) used to supplant what previously were reasonably advanced or even highly skilled labour tasks. At times entire so called back office functions are being eliminated. That provides large initial gains which is fine providing employees are retained for ongoing oversight. In the absence of that residual investment gains may be overshadowed by the onslaught of emerging bugs and the need for expensive rework.  

An ever increasing amount of re- work in business which is now largely hidden.

It follows on we are now all existing in a far more uncertain and complex time so that many of the applications we rely on are increasingly linked to large scale single off site depositories or service centres. What is also more evident is the so called “business disrupters” whose applications challenge the more expensive traditional base industries and particularly in the financial and business services industries.

Although the popularity of these applications is growing due to a lower cost base and resultant benefit to the consumer it does not necessarily entail any improvement overall in productivity. The same functions may be performed but with less security back –up and hence much lower initial costs can give way to increased outages and subsequent re work. 

When I talk to professionals, the concerns voiced all involve the same theme which boils down to their concerns over a lack of quality standards and that faults identification is being subcontracted out to the consumer. It’s more economical to wait for the customers to discover the faults then to run costly trials and testing before release. Of course there is going to be a price to pay at the user level in terms of increased re work. What might provide a bridge would be more “go to” partners who offers personal services to consumers and business alike to effectively take advantage of new technology, but a barrier is the high cost involved and expertise which must be continually updated. 

Another source for confusion is the standard practice of incentivizing consumers to do more, supposedly from easy to use references on websites and do it yourself technical set ups for new products. This is a phenomenon of our expanding digital world where enterprises increasingly want consumers to do their own on line account maintenance, enquiry or ordering. But what often passes for instructions can be little better than generalised poor or even non-existent steps. Just follow the prompts and unsurprisingly a large amount of re – work is almost always guaranteed.

People don’t include detailed explanations the fact it took those in small business, days to set up a new phone system or get a new product or program to work or to understand all the new features for the latest update they neither need nor requested.

A marked drift away from quality

Have you also noticed for instance the proliferation of programming patches, updates, and correcting errors, omissions or explanations that increasingly dominate communications on our devices?

The evidence of a lack of quality is now evident across a wide spectrum of goods and services and involves a corresponding increase in time to rectify even routine matters. One now as a matter of routine practice has to set aside increasing levels of time to talk to a machine before you finally reach a real person, after very long waiting periods. Eventually one is left with the opportunity to tell the machine whether the human intervention was successful. Are we trying to train the firm’s employees by talking to a machine and leaving feedback to the employee as to how successful they are at problem solving?    

Information Overload and a lack of clarity in communications 

We are all aware of the need for clear communications in business as it is critical to attend to the needs of customers and stakeholders if one is to have success. But clarity can all too easily be hijacked by the disjointed nature of electronic communication, so that often picking up a phone and speaking in person can be the best option.

Equally having to contend with too much technology can be counterproductive.
Take for instance a modem day employee with a laptop in use, a large monitor behind that and a smartphone and office phone alongside ringing impatiently has the potential to waste all of that high powered technology to the extent productivity suffers. Studies have repeatedly indicated neither sex are suited to multi-tasking which is a sure fire way to reduce productivity.

Trying to stay focused on current work while checking text messages, responding to the buzz of incoming emails and attending to intermittent phone calls is not conducive to high levels of productivity.  

So as multitasking becomes the norm for the younger generations who seem to be able to skilfully adapt to all of the new technology devices with relative ease (while still walking around) we might ask the question how did they get anything done? The answer is they manage because they have grown up in that era and learned to adapt – but don’t expect it to show up in any efficiencies or in productivity gains!

There needs to be more research as to the reasons productivity has stalled but I trust the points I have raised provide food for thought as to some possible drivers.

I do think we need to think more about how to make technology our servant rather than our master.



susan said...

Productivity, as it has been historically used, is a flawed and misleading concept. By this usage it is just a surrogate for cheap energy inputs. Give a worker a big machine and suddenly his “productivity” goes way up. Who are we kidding? The worker is no different than he ever was. Also not useful are the value laden connotations of cleverness and smarts that accompany high productivity, and dull-wittedness and backwardness that accompany low productivity. It all comes down to who has access to cheap energy.

Now that the cheap energy sources are disappearing, predictably the productivity gains are disappearing in tandem. The basic problem with the world is that a growing number of people live beneath minimal levels of subsistence, and even more do not have any prospect of a satisfying stable life. The response that raising gdp will be a tide that lifts all ships doesn’t work when so many boats have holes in their hulls. I personally wouldn’t care very much about mean or medium household income if I knew everyone had at least a decent shot at a reasonable life.

I wonder if any economist has tried to model an “ideal” economy based on human welfare for various population sizes. It seems to me the next phase in human development will have to do just that, rationally figure out, and design, social organizing structures to maximize human and environmental welfare. Networked groups of people following the principles of sustainability could offer a way forward out of our current morass. Time, energy, and money must be allocated toward envisioning this new future - a more proactive approach instead of reactive would create a saner and more stable world.

At least I think that's part of what you're saying, Lindsay. Thanks for another very interesting post.
All the best

Lindsay Byrnes said...

Hi Susan,
Thanks for your thoughtful input and always good to get alternative views.
In economics overall labour productivity has been always measured by dividing GDP (Gross Domestic Product) by the total number in employment. Although this is a only a crude measure it does provide a basis to determine overall efficiency or productivity. On the surface if total GDP increases at a faster rate than the total of employment one then has a broad measure of a rise in productivity. Of course the reasons for GDP to rise or fall compared to employment are many and varied in the complexity of a modern economy. It is not just a matter of technological enhancements or investment in new machinery or just lower energy you suggest. Other factors could include such things as having an adequate levels of earnings to stimulate investment and maintaining capital in good order such as supporting infrastructure, better job security, improved education, better training, enhanced working conditions, a healthier working environment for communities, enhancements arising from imports and exports and so the list goes on and on. Economists try to dig down and look at the individual factors that influence productivity by segregating outputs versus inputs in the various categories where data is available. Broadly speaking you would separate out labor productivity from investment in machinery or capital as far as is possible and not mix them up as I think you may be suggesting.
What I have attempted to do is to shed light on the reason why “technological advances" are yet to show up materially in any overall favorable trend in a nations national accounts.
The fault (if one accepts the idea economic models are at fault) is certainly not with the economists and I suggest neither is it in their models, which I think do provide a very worthwhile analysis of a nation’s economic overall wellbeing. But people don’t behave in the way the economist’s rational model suggests and inevitably seek out ways to distort sound economic concepts and for reasons of self-preservation at the expense of others. Politicians use bits and pieces plucked from economic textbooks to attempt to make a case when there is none.

Economists have never suggested lower oil or energy prices are the main factors in productivity gains in the past nor were they included as tangible factors in its calculation. They certainly has some major impact in the seventies but that influence has waned over the past several decades as manufacturing shrinks as ever smaller chunk of GDP compared to the expanding services sector. There is always the danger of arriving at firm conclusions based on misinformation in this complex subject where more research is needed.
Best wishes

Rachael Byrnes said...

Great post and raises some important points about whether or not technology is serving us in terms of productivity outputs. I think as technology has become more complex, the methods involved in evaluating its effectiveness also need to be more complex and like you say many have ignored this important requirement. There are probably many instances where it makes more sense to approach a project or task in a more simple, or traditional way, like picking up the phone and calling someone rather than sending several emails that are open to misinterpretation and subsequent re work. I also think the way we evaluate productivity could possibly we wider/ more varied. There are the national outputs you mention, but also maybe we just like using technology for the thrill of it, not because it creates any measurable outputs but just because we all feel enriched by it somehow, more connected, occupied, interested, less bored. This might translate in a type of productivity that's hard to measure, like for example the evolution of more interesting/ engaging companies. they may not have additional outputs or better profits but they may just be "better" in ways we can't capture as well in the numbers. There is of course also a dark side to using technology for technology's sake whereby people like you said become servants to technology rather than being it's master. It is a complex issue and part of how we are evolving as a species to god knows where!!! Food for thought.

Rachael Byrnes said...

Another thought that came to me, is that there might be a productivity lag due to the complexity of new technologies. In other words, we may experience the gains of new innovations several decades after the innovation has been implemented as we become better at working the the practical application. It feels like we are always playing catch up to the pace of change but maybe it won't always be like that. Maybe we will transcend some sort of technological enlightenment and we able to harness it a bit better.

Lindsay Byrnes said...

Hi Rachael,
Well said – the point is there always has been an ongoing fragility to our existence and technology has the capacity to make it even more so. We certainly do need more dynamic ways in evaluating its effectiveness, not only in terms of whether or not it is delivering productivity gains but also if it is indeed enriching our lives. I suspect, like most things it is a mixed bag. But a lot more could be done and presently I see too many first hand examples where society is becoming its master and not its servant.
It's true just about all IT professionals, I know of no exception, bemoan to me they never have sufficient time to catch up.
Mastery is critical as a first step for society to undergo any sort of technological enlightenment. Otherwise we see too much evidence of the tail wagging the dog.
Best wishes

Gary said...

It's been a while and what a fine essay to re-join your blog musings! I have to read it once again and think things through, but am not certain that improved productivity is even the goal. I think the goal (overall) is for all humans to have their basic needs well met and for human rights to be respected. Is improved productivity of use if it doesn't do that? I need to think more! But am happy to learn from you...

Lindsay Byrnes said...

Hi Gary,
I think productivity is one of the principle "enablers" of that goal. Human rights cannot be achieved in the absence of the means to efficiently share in the earth and respect its limited resources.
Best wishes

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