Shock! Horror! Computers boost productivity

The productivity paradox, that nagging economic anomaly that suggested the billions of dollars spent on computers over the past few decades had been wasted, has been declared solved.

The productivity paradox, that nagging economic anomaly that suggested the billions of dollars spent on computers over the past few decades had been wasted, has been declared solved.

The Economist magazine reaches that conclusion in its September 13 issue, based on fresh productivity data from the US and a new research paper by an American academic. There’s also support for the claim in a recent OECD report, ICT and Economic Growth.

Well, that’s a relief. Suddenly, the CIO’s business case for spending on new IT projects becomes simpler. No longer will you need to negotiate the first roadblock erected by any boss familiar with Robert Solow’s famous paradox. Solow, a Nobel laureat in economics, guaranteed his place in history in 1987 when he noted that “you can see the computer age everywhere but in the productivity statistics”. According to another learned writer on the subject, Erik Brynjolfsson, of MIT’s Sloan School of Management, “The lack of good quantitative measures for the output and value created by IT has made the MIS manager's job of justifying investments particularly difficult”. Indeed. Brynjolfsson wrote that 10 years ago.

Today, Robert Gordon, of Northwestern University, presents a different picture, picked up on by The Economist. Gordon, the magazine notes, was an outspoken new economy sceptic, who in 1999 wrote that the economic effects of computers and the internet didn’t compare with those of electricity or the car. But in a new paper, Gordon reaches a different conclusion, based on US productivity data from the past three years.

He questioned why productivity growth accelerated after 2000 when the US ICT investment boom was collapsing. It grew faster after 2000 – 3.4% a year – than during the latter half of the 90s (2.5% a year), when ICT investment and stockmarkets were strong. Part of the answer, he writes, recalls the way the car eventually had an impact on the world. It wasn’t until a motoring infrastructure was built that cars changed everything. Similarly, in the late 90s, when PCs met the communications infrastructure – in the form of the the internet – productivity gains attributable to ICT started showing through.

The OECD report also lays the productivity paradox to rest, making the same point as Gordon. “The diffusion of new technologies is often slow” and “changing organisational arrangements” can take a long time, it notes. New Zealand is one of a handful of countries – including the US – where the rate of ICT diffusion has been comparatively high. But according to the OECD report, our productivity has been increasing at slower rate than the US, although the gap is narrowing.

Its conclusion: “ICT has emerged over the past decade as a key technology with the potential to transform economic and social activity.”

But we knew that. It’s as well that the paradox has been quietly ignored for all these years.

Doesburg is Computerworld’s editor. Send letters for publication to Computerworld Letters.

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