Why Technology isn't improving productivity

Introduction

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!

Conclusion

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.